As we start saving and investing it is important to recognize that not all the
money we save and invest will wind up being ours unless we take
precautions to make it that way. What I’m referring to is the inevitability of
income taxes. There are strategies you can employ and engage to greatly
reduce or eliminate federal taxes from devouring up to 37% of your savings
and investment.
 

Some of these techniques are widely used such as the capital ROTH IRA.
The Roth IRA is different from a regular IRA because with a Roth IRA you
invest with after tax dollars. you will not receive the reduction in income you
would receive with a standard IRA 401k or other qualified plan. the big
advantage of the ROTH is that you pay the taxes up front with your initial
investment while that amount of money is small. Then your money grows
tax free and is distributed tax-free. so, you might put $200,000 Into your
Roth over your lifetime. you might earn another $200,000 on the income
within your Roth.  now you can withdraw the entire $400,000 tax free. You
no doubt can see the benefits of withdrawing tax-free a much larger sum
than just getting a reduction of what you must pay in taxes temporarily with
a traditional IRA. for many people this is a six-figure difference.

The Roth Is a great tool but has its limits.  In 2024, the Roth IRA contribution
limit is $7,000, or $8,000 if you’re 50-plus. The Roth IRA income limits are
less than $161,000 for single tax filers and less than $240,000 for those
married filing jointly. There is a backdoor way to convert a Regular IRA to a
ROTH but it can be tricky and is a very individualized situation

Another big disadvantage of the ROTH is that your money is tied up and
you do not have access and control of that money until it has been in the
account for at least 5 years, and you are over 59 ½ years old.

 A lesser-known method of building money tax-free is using what I like to
call a private reserve strategy. This has also been called a life insurance
retirement plan or LIRP.

Many people are weary of this plan because it is in a life insurance
package. Some of the so-called “financial experts” have said it is not the
best plan. I would strongly challenge them to compare apples to apples and see if they find anything else that will provide the many benefits of a
properly structured cash value life insurance policy.

These policies are specially structured to take advantage of cash
accumulation within the policy and the many other benefits that it offers, the
least of which is not the death benefit.

One of the biggest advantage of this policy is that it self-funds if you die
the day after you start it. The Death Benefit is paid to complete the funding
of your retirement plan, so you have provided for the loved ones you leave
behind. If you start an IRA, 401k, or any qualified plan and die the next day
those that you leave behind won’t have any money to help them through
life.
  

There are numerous other advantages to this type of plan.

1. You are not limited to how much you can contribute as long as the
   insurance company approves the policy based upon your income. It is
   usually a substantial amount that few of my clients over the years
   have been restricted by. 

2. You have access to a large percentage, usually 80 to 85% of your
Capital that accumulates within this plan at any time you want it.  This
is done through a loan where your insurance policies cash value will
collateralize a loan from the insurance company.

3. This collateralization enables and empowers you to continue to grow
your principal amount with uninterrupted compound interest. This
seems almost too good to be true when I tell it to people. let me give
you an example of how it works.

Say you have had your policy for 5 years and accumulated $50,000
in cash value. Something happens unexpectedly and you need
$20,000. Over the years some of the examples have included less
than pleasant things like auto repairs, blown air conditioners, roof
replacement, it goes on and on. It doesn’t matter what the loan is for.
The money is there for you without jumping through the hoops at your
local bank and filling out a bunch of forms and having some
committee or loan officer decide if you are worthy of the loan. 

You can go ahead and borrow the entire $20,000 from your insurance
policy at favorable terms, usually substantially less than market rates.
Current market rates vary but most insurance policies offer rates
around 5%.

But guess what? Your $50,000 cash account continues to grow with
uninterrupted compound interest. You are using the same money to
do two jobs. You can pay back the loan on your terms or not pay it
back until you die and your death benefit will take care of it.
Collateralization can also be used for all major capital purchases that
aren’t surprises like auto purchases, paying for kids college,
weddings and vacations.

You would think these advantages alone would tip you towards
saying “WOW! How do I get one of those? But as they say “wait there
is more.”

4. Not only does your money grow tax free, but it can also grow risk-
free and get substantially better rates of return than any savings
account you can find. In some cases, the returns can even approach
returns available through equity investing.

So now your money is growing tax free and risk free with a
competitive rate, guaranteed no loss provision, and you have access
to your capital. You maintain ownership and control unlike putting
your money in a 401k or the previously mentioned ROTH.

There is one additional advantage that could be huge that I would like
to share with you.

As our government spends more and more money and spirals into
deeper despair passing the 34 trillion dollars in debt, we need to be
aware that future taxes will likely be higher than present taxes. I
would suggest to you that if you used the tax-free loan withdrawals
from your IRA or your life insurance retirement plan you will be way
ahead of those who chose to take the money up front in a tax
deduction for contributing to their qualified plan.

The government will need to get the money somewhere and it will
likely raise taxes meaning that people will pay more in the future than
they are right now for taxes. The government calls the 401K and
other qualified plans tax deferral. I call it tax postponement. As a rule
in life, when you postpone something bad it only gets worse. This is a
case where it could get much worse. Your tax rates could skyrocket.

If you would like to see how each one of these plans will add tens or
hundreds of thousands to your retirement income, please call us for
your free 30 minute Discovery call. We can discuss your situation and
show you possible outcomes that might work best for you.