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A reader of this column (let’s call him Joe) recently called. Joe was in a state of shock. He owns a closely held family business (Success Co.) had just returned from an estate planning meeting with his professionals: attorney and CPA. Both agreed that this family would wind up with only about $300,000 out of the $1.1 million he had in a rollover IRA. About $800,000 (73 percent) would be lost to the IRS. Worse yet, neither advisor had a suggestion as to how this huge tax loss might be avoided.

If you have $200,000 or more in a profit-sharing plan (or IRA, 401(k) or other qualified plan), this article is must reading. Learn what Joe did. You probably will want to use the same (or a variation ) tax strategy Joe used.

First, a bit more about Joe. He winters in Florida, but is not a Florida resident. He is 63 years old, in the highest income tax bracket (40 percent) and estate tax bracket (55 percent, using 2011 rates). He has three kids, one in the business, ants to slow down and never intends, health permitting, to retire. Joe hates to pay taxes. He would like to get the full $1.1 million (or whatever amount it may grow to) in the IRA to his children and grandchildren. One more fact: Joe’s wife Mary is also 63 years old.

Joe has a sense of humor. He asked me, “When is a dollar not a dollar?” I didn’t know the answer. So he told me, “When it’s in an IRA.”

There are a number of strategies that are available to help the Joes of the world, but let’s explore the one we use the most. Interestingly enough, this strategy — called the “Retirement Plan Rescue” (RPR) — can help almost any business owner in high income and estate tax brackets.

Here’s what Joe did. He rolled the funds ($400,000) in his Success Co.’s 401(k) plan into his IRA. The IRA now had a total of $1.5 million.

A little side note: Joe knows that every dollar in the IRA (the result would be the same in the 401(k) plan) will be double taxed. About $.27 of every dollar to his family; an outrageous $.73 to the IRS and his state of residence. If Joe and Mary got hit by the same bus, the tax collectors would get $1,095,000 of that $1.5 million.

Following is a two-step strategy that Joe and Mary implemented.

Step 1: They purchased a $4 million second-to-die insurance policy. (Actually owned by an irrevocable life insurance trust, which will keep the $4 million tax-free for estate tax purposed). Now, their family is guaranteed $4 million. If you are curious, the plan (IRA) would have to grow to $14.8 million to net the family the same $4 million. Yes, the double tax bite would be an unbelievable $8.8 million. The policy’s premiums ($61,160 per year) are paid by Joe, after withdrawing the funds ($101,933) from the IRA and paying the tax ($40,773) on the withdrawal. The next question is, “How are we assured there will be enough funds in the IRA to pay the premiums each year?” We are now ready for Step 2.

Step 2: A portion of the $1.5 million IRA funds ($800,000) was invested in Life Settlements. A public company that sells on the NASDAQ sponsors a program for little-guy life settlement investors. (Typically life settlements only belong to large-institutional-deep-pocket investors. For example, companies like AIG and Warren Buffett’s Berkshire Hathaway, which recently started a wholly owned subsidiary with $400 million in funding to buy life settlements). For the 16 years the NASDAQ company has been in business, the average return on life settlements have been 15.83 percent. Because the life settlements are not subject to market risk, rising or falling interest rates or other external forces, it is the new darling of conservative investors.

The balance ($700,000) of the IRA funds continued to be invested as before, getting an average rate of return of 7.25 percent.

Quite simply, for Joe and Mary, the RPR does two things: (1) Saves a portion of the IRA as a retirement fund during their lives and (2) gets the entire $4 million insurance proceeds — tax free — to their heirs (instead of losing 73 percent of the IRA funds to the IRS) when they go to the big business in the sky. Neat!

The RPR is the brainchild of some lawyers in my national tax network. Want to learn more about how a RPR (there are many variations) turns a potential 73 percent tax loss into tax-free dollars? Or you may want to just learn more about life settlements. (The minimum life settlement investment is $50,000 and you must be a qualified investor. You can invest your own funds, qualified plan funds or any other funds you control: Like a trust or funds in your business).

If you want more information about an RPR (must be specially designed to fit your situation) or you just want more details about life settlements, here’s what you do: Fax (847-674-5299) your name, age, address and phone numbers (home, business, cell). Also your souse’s age, if married. Include the total amount in all of your qualified plans (IRA/401(k)/etc.). If you want to invest in life settlements, the amount you might invest.

And one final point: Take the time to learn more about RPR and life settlements then you’ll know how to turn a potential tax disaster into a tax-free victory.

Irv Blackman is a certified public accountant who lives part-time on Marco Island and specializes in estate planning, business succession and asset protection. E-mail him at wealthy@blackmankallick.com or call 417-9732. His Web site is http://www.taxsecretsofthewealthy.com.