Do You Want an Advantage?

For years our clients have been putting away money in their qualified plans as a tool for saving for retirement. The upfront tax deduction and the tax-free accumulation are the main reasons for doing this. Personally, I have a SEP IRA and I max fund it – meaning I put in as much as the government will allow me. There-in lies the rub. These government plans have restrictions and limitations that on further examination may offset some of the benefits of the plans.

I am not advocating that we stop putting money into our qualified plans. But, I am saying that it is time to revisit the idea of using life insurance as a supplement to our retirement plans, especially if you are already “maxed out” on your current qualified plan.  A good plan design (low death benefit and high cash accumulation) can provide a significant advantage over traditional qualified plans – here are some that you should consider:

Reasons why FIUL’s are an advantage over “Tax Deferred Qualified Plans”

1. Limited funding: Your 401k, SEP IRA, SIMPLE, Traditional IRA, Roth IRA and other qualified plans all contain IRS guidelines on how much money can be funded for your retirement. There are no limitations on the amount that may be contributed annually to an FIUL.

2. Participation Requirements: Just another obstacle company’s face in providing retirement accounts which can be reduced and or avoided.

3. Unknown Future Tax Rates: If taxes are going to be higher in 20-30 years, why would you want to pay a higher tax rate on a larger balance in your 401k (tax deferred) or other qualified retirement account?

4. No Death Benefit: This is the most overlooked benefit. Would your heirs rather have the small balance in your tax deferred account (then pay taxes on it) or receive a huge death benefit tax-free?! Obvious answer, yet so often overlooked!

5. Social Security Taxation: Upon withdrawal of your tax deferred investment money to supplement your Social Security income, you could trigger a tax liability. Also, once the IRS guidelines for your “Required Minimum Distributions” (RMD’s) kick in, avoiding taxation on your Social Security income will be difficult.

6. Wall Between You and Your Money: If you decide to access your money, you may experience a penalty and steep income taxes. Qualified plan withdrawals prior to age 59 1/2 are subject to a 10 percent penalty in addition to being taxed as ordinary income for the year the withdrawal is take. Policy owners may access their money from an FIUL without IRS penalty regardless of age.

7. 100% Market Risk: If you’ve lost 50% of your retirement account in the past several years, it will take a 100% return just to bring your account back to even! Using the investment rule of 72, if you make 8% each year (avg. of the S&P for the past 30 years), it would take you 9 years to get back to even. FIUL account values grow tax-deferred like a qualified plan (IRA and 401(k)); Simply put, this means that your account value benefits from triple compounding: You earn interest on your principal, you earn interest on your interest and you earn interest on the money you would otherwise have paid in taxes on the interest

8. Negative Returns: This is part of #7 above, but is so significant that it needs to be highlighted. A 25% loss requires 33% gain to break even; A 50% loss requires a 100% gain to break even; A 70% loss requires a 233% gain to break even! Can you see how devastating negative returns are which quickly damage your ability to save and threaten the loss of your principal? These examples define Warren Buffet’s rules of investing: Rule #1: “Never Lose Money!” and Rule #2: “Never forget rule #1!” Imagine if you were getting close to retirement age, say 65ish, and one of the above scenarios happened to your retirement account. For example, your 401k lost 50% (like so many have in the past several years) and you now have to pay another 30% in taxes on the funds that you do withdrawal. How many years do you think you could retire for? You will probably never see retirement. Don’t give Uncle Sam and Wall   St. any more control over your future!

9. No “Open Enrollment” Requirements: You should never be limited on when you start putting money away for retirement.

Indexed Universal Life Insurance (FIUL) is structured as a Tax Free insurance policy that puts the owner in control of their cash accumulation. It’s perfect for individuals and business owners and has more “living benefits” than the actual death benefit that is included with the policy. The absolute beauty of these policies is their not classified as “Qualified Plans” by the IRS. An FIUL is a permanent cash-value life insurance product that is designed to outperform Whole Life, Universal Life and Variable Life without the catastrophic downside risk to the cash value of the policy.

If you want an advantage…give us a call and take a look at our FIUL  options!

About Jeffrey Berson

40 years in and around the industry has made Insurance a part of my DNA. I have had the pleasure of working with and for some of the greatest minds in our industry. My "Bersonal" View is an attempt to capture some of the best ideas, the best concepts and the best practices in a way that can lead to success for others. It will certainly be my point of view, so please...don't take it "Bersonal".
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