What if there was a way to optimize your financial assets, and at the same time minimize taxes?
My name is Ron Sneller, and for almost 10 years, I’ve been helping people do exactly this – to accumulate money tax-free; and then access their money tax-free.
And at the end of their day, when they pass away, they leave behind a huge nest egg, totally income tax-free to their spouse, heirs, or charity.
What we’re talking about here is protecting yourself from 2 Key Retirement Killers: the danger of increasing TAXES & market VOLATILITY.
How Do We Do This?
We utilize a vehicle that helps to diversify, and create the foundation for a tax-free retirement:
A Heavily Funded, Tax Advantaged, Cash Value Life Insurance Contract.
These retirement insurance contracts are one of my favorite vehicles because they offer so many benefits:
Guaranteed growth – tax-free.
Guaranteed access to our cash – tax-free.
Guaranteed retirement income – tax-free.
Guaranteed legacy to our family – tax-free.
That’s a lot of guarantees! And all tax-free!
This 1 contract can be a solution to solve a variety of financial problems and accomplish many different financial goals!
Tax Diversification
So, the key to a Tax-Free Retirement involves not only diversifying your risk as most people think but also diversifying your savings vehicles so you pay LESS TAX and KEEP MORE of what you accumulated.
Click the image to open in a new tab for further information.
Be strategic about how much you put into:
- Taxable Accounts (Brokerage Accounts, Mutual Funds) vs.
- Tax-Deferred Accounts (IRA & 401k) vs.
- Tax-Free Accounts (Roth, Life Insurance).
There’s a couple of wonderful books out there about this topic that I highly recommend: The Power of Zero by David McKnight, and SMART Retirement by Matt Zagula.
Either of these books teach you the optimal balance – how much to accumulate in each of these taxable “buckets” of money, in order to reduce your retirement income taxes as much as possible.
The 3 Types Of Income Tax
Since the 1986 tax reform, there are 3 types of income subject to tax:
- Earned Income (i.e., Salaries, Wages)
- Passive Income (i.e., Rents, Leases)
- Portfolio Income (Interest, Dividends)
The reason that a heavily funded, a cash-rich insurance contract is one of my favorite vehicles is because the asset is liquid, accessible, safe, and earns a guaranteed return – thus giving you much more control over your money…
Yet – it’s not classified as earned, passive, or portfolio income.
And because the income generated from these retirement insurance contracts doesn’t fall under any of these 3 categories – the cash flow has no place to go on a tax return.
Let me repeat – distributions taken from a properly structured life insurance contract are not filed on an income tax return!
Imagine if you could generate an income stream of $50,000, $60,000, even $100,000 in retirement and didn’t have to file those distributions on an income tax return?
That begs the question from many of my clients:
WHY is it income tax-free?
Because it takes the pressure off the government to take care of people who didn’t save enough money, or people who die prematurely. The tax advantages are an incentive for people to save & protect.
For that reason, it is a sacred, tax-free account within the Internal Revenue Code… and it has been for 107 years.
Structuring Your Program Properly
The 3 key provisions within the tax code that have allowed the wealthy and financially savvy to take advantage of all of these benefits for 107 years are as follows:
- Section 72(e) allows you to accumulate money tax-free inside of the contract
- Section 7702 says that you can access the money tax-free (if you do it correctly)
- Section 101(a) allows the death benefit to transfer to your heirs’ income tax-free
Do you want to accumulate a lot of money using this strategy? Or just a little? Because not all insurance policies are created equal. The key to making this work is the way the policy is structured.
Instead of trying to get the most amount of death benefit for the least amount of premium, you do the opposite. You structure the policy to get the least amount of death benefit and put in the most amount of premium that IRS will allow.
Why do we do this? Because we want to take advantage of the living benefits, the cash value growth, and the tax benefits!
So, we want to minimize the cost of the insurance, and thus maximize the growth potential of our equity.
You must do this correctly, in order to keep the policy classified as life insurance, or the IRS will classify this policy more like an investment* – and you LOSE many of these wonderful tax advantages!
*The contract becomes a Modified Endowment Contract, or MEC, and is taxed accordingly.
(And so, I highly recommend working with a trained professional when you implement this strategy).
Conclusion
Most people have been conditioned to chase rates of return and to build a large net worth… however, true wealth isn’t just about chasing rates of return!
It’s about targeting the most after-tax, spendable income.
So true wealth is about the entire picture, so you must consider all of the following:
- The Distribution Rates / Safe Withdrawal Rates
- How Those Distributions Are Treated By the Tax Code
- How Those Distributions Affect Your Other Government Retirement Benefits (Social Security and Medicare)
Most people save the majority of their money for retirement in their tax-deferred 401k.
The 401k is a great accumulation tool, but it’s a terrible distribution tool.
(Think: How much of your 401k is actually yours, vs. how much of it belongs to the IRS because you haven’t paid taxes on it yet).
People are amazed when I show them how a cash value life insurance contract can knock the socks off a 401k for retirement income… even though their 401k has more money in it.
Click the image above for a brief educational video. I show you how a cash value life insurance policy can produce up to 35% MORE after-tax income than your 401K… Even though your 401K had a higher rate of return!
If you have questions on this topic or would like assistance, email me at ronald.sneller@snellerfinancial.com
Ron Sneller is a fee-based financial consultant. A veteran of the financial services business for 10 years, he’s helped clients with their mortgages, insurance, investments, and retirement planning during that time.
Through education, empowerment, and action, Ron helps his clients take back control of their financial life to give them more clarity, focus, and security.
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