Three Important Questions:
1. When you retire would you like to have your income and investment be taxable or tax free?
2. Is all of your money going into accounts that will be taxed in the future?
3. Are taxes going to go up in the future?
Most people are saving into tax qualified plans such as IRAs, 401k, 403b, Deferred Comp, SEP, etc. When you have a tax qualified plan you get a small tax deduction up front so you can pay a large tax later when you take income.
Your entire qualified plan including your contribution and gain is 100% taxable. Depending on your tax bracket when you retire you will be sending 20-40% of your income to the Internal Revenue Service and your State Government.
Next to market crashes, taxes are the biggest destroyer of your wealth. Remember Tax Deferred means Tax-Delayed. Based on current tax rates if you want income of:
$50,000 per year, send $10,000 – $15,000 to the IRS
$100,000 per year, send $25,000 – $35,000 to the IRS
$200,000 per year, send $60,000 – $80,000 to the IRS
Watch this short video and learn how you can earn Tax Free Interest and Tax Free Income at retirement.
If you have a high net worth and have a large amount of money in qualified plans, future taxes could crush your retirement savings. If your IRA grows to $1,000,000 or more how much will go to the IRS? It wasn’t to long ago the top tax bracket was Seventy Percent!
If you have a small business watch this video to learn how to convert tax deductible corporate dollars into tax free retirement income.
How to put your money in Tax FREE accounts and create tax free income…
There are three common places to accumulate tax free income:
1. Tax Free Municipal Bonds
Municipal bonds have averaged just over 3% for the last decade and don’t provide the necessary return to outpace inflation or provide the diversification we need for retirement.
2. ROTH IRAs
Great for saving $4000-$5000 per year as long as you don’t make over $110,000 per year filing single or $160,000 combined household. After 2010 you can do a Roth Conversion regardless of income. But if you make too much money you still cannot contribute to a ROTH. Of course, a ROTH also has government strings attached and you can’t access gains until after 59.5 unless you qualify under the rules the government sets.
3. Life Insurance
Properly structured, life insurance creates a virtually unlimited ROTH type account that is available to any income range and can be funded with any amount. The funds grow tax-free and are withdrawn tax free as well. Distribution is not reported as income and is invisible to the IRS. Life insurance is also where banks put their vital reserves. Here is an example:
A 40 year old is maxing out a 401k with $1800 per month. By some miracle the 401k has not lost money and has grown to $1,800,000 at age 67. 100% of this amount is taxable. Based on current tax rates of 35% the tax liability is $630,000. Most people will not pay all the tax at once, they will pay it as they go while taking income. But two things are certain: Death and Taxes. And the tax liability is only going to continue to increase as the account value grows and tax rates rise.
A 40 year old funds $1800 per month into a life insurance policy. The funds easily grow at the same rate as the 401k but are actually guaranteed against market losses. Value at age 67: $1,800,000. Your tax-liability is ZERO.
Watch a short 5 minute video here.
For over 200 years Life Insurance has been the cornerstone of financial planning for the wealthy and FORTUNE 500 companies. With the trillions of dollars in market losses, people are turning back to this proven strategy. Even the financial media, which is largely influenced by the advertising dollars of big Wall Street brokerages, can’t ignore the proven track record. CNBC begrudgingly covered this recently.
CNBC talks about fixed rates in the 4-4.5% range. Rates have actually increased to over 5%. They also did not mention the unlimited upside with stock market index choices available in each policy.
