The governments budget is out to get your money. Three reasons why you should look to tax free alternatives for building your retirement account. (and the IRS can’t do anything about it)
According to the US Debt clock, the U.S.A. is about $ 18.2 TRILLION dollars in debt and going up faster than I can write this, and your personal debt as a tax payer is only $154,090. Can your budget afford to pay this now?
So, who is really out of money? The government is and they have to pay it back eventually. At this rate, the interest payment alone is about $238 BILLION dollars. Where is this going to come from?! I’ll tell you, from your retirement accounts. The president’s budget plan is to increase revenue by taxing your hard earned dollars to pay off this ridiculous amount of debt.
So let’s look at three ways you can save for retirement and not have to give some (or most) of it to the IRS. Stay with me to the end and I will give you a bonus.
Jeffery Levine wrote an article about the president’s budget plans and how they could impact your retirement savings. I am going to highlight just a few of his points and give the reason for my alternatives.
One of the problems with the current plans is that you have limits on them:
- limits of what age you can be to contribute or withdraw
- limits of how much income you can earn
- limits of how much you can contribute
Wouldn’t you like to be able to decide how much to contribute? and when? Why limit the amount you can save for YOUR retirement? Why be FORCED to take out money that you don’t want just because you reached a certain age? Or get penalized if you take it out too soon?
With a Indexed Universal Life insurance policy, you can manage YOUR retirement the way YOU want too. You want to start building your retirement now? Great! Add a little or add a lot? Yes! you can because the premiums are flexible. Need some cash? Yes! Take it out with no penalties. (some restrictions may apply)
A second challenge with the new budget proposal is about your beneficiaries. The budget is wanting to limit the time frame that YOUR beneficiaries can take money out of your account when you pass away. Wouldn’t it be nice if your beneficiary could keep the money in the policy until they needed it or passed away themselves? Yes! With a certain type of insurance policy, both you and your spouse could be covered and both would have access to YOUR retirement account.
All of this sounds good, but what does this have to do with taxes? Great question.
The third reason is probably the most important:
A life insurance policy is paid with after tax income (like a Roth), it grows tax deferred and when you get ready to take money out, it comes out tax free. So why not just put all of your money in a Roth? Remember the limits? What about the risk of loss? Do you have the time to make up the loss? What if you die early?
An insurance policy has guaranteed growth and also the option to gain more. If you choose an Indexed Universal Life policy, you could make as much as 14%, although the average is between 5% and 8% and when the stock market ‘corrects itself’ (read CRASHES), you could only get 0%. This is of course, better than a negative 40%, wouldn’t you say?
Now, remember I said if you hang in there with me, there would be a bonus? Here it is:
A life insurance policy has an immediate death benefit that no other IRA or 401(k) has, So let’s say you bought a $1,000,000 life insurance policy, made your first payment and then passed away unexpectedly. Your beneficiaries would receive the million dollar benefit tax free. Try that with an IRA or 401(k). With either of those, the most your beneficiaries would get would be the grand total of your contributions and may have to pay tax on it.
That’s what I call peace of mind.
Protect your family, grow YOUR retirement nest egg tax deferred, and when you get ready to retire, you can have an supplemental income that you don’t have to pay taxes on.
Of course, there are specifics to each life insurance policy and you should speak with a licensed agent about how this would benefit you. Also, I am not a tax professional and you should speak to yours about any and all tax advice or questions you have.
If you want to find out how a life insurance policy may benefit you and help you build your retirement income, please contact me for a no cost, no obligation discussion to see if this would be a good fit for you.
Special thanks to Jeffery Levine for the article on MarketWatch and continuing to educate us on the tax situation.
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