Infinite Banking concept

[DHK]

But that's okay. I'm done on this thread.

Everyone here seems to have ALL the answers... so I won't reply any further.

I've already given away far more than I had intended... and I can tell who has bothered to do the math and who hasn't.

 

[Allen Trent]

There's a reason why we've got at least 4 CPAs with our group.

Agree, if I was a CPA or doing this with my policies, I would be aggressive & take the deduction. But that doesnt mean the IRS code permits it. No different than a client with large VUL losses taking an itemized deduction for its losses. Not permitted by the IRS, but doesnt mean I can take the deduction & if I dont get audited in the timeframe I was able to get away. Same for all the businesses that knowingly or inadvertantly take a tax deduction for life insurance as if it is WC, BAP or CPP premiums. Most get away with it & it is a non issue, but those that get audited generally have to pay the piper back & penalties.

 

[DHK]

A capital loss is not the same as an itemized business deduction deducting the interest for the intent of earning a profit.

 

[Allen Trent]

So, I posted earlier about the CBNC article of the largest life insurance policy sale?

A billionaire is putting in $1.2 million a month into these policies (they're 10-pays).

That's 14.4 million per year for 10 years.

After 10 years, he'll put in $144 million and it'll only grow to $150 million.

However, he'll be able to borrow out $10 million per year.

Now, run the calculations.

He'd have to have an equivalent IRS regulated plan balance of about $550 million to equate it to how the tax code would let him spend $150 million in life insurance.

It equates to a 21.58% annual rate of return based on retirement income spending.

That's the capital equivalent value of life insurance. He can spend against $150 million as though it was $550 million.

Now, that is pretty awesome if he can get $10M per year from $150M. I would assume he is pretty old or the # of years he can pull that out is somewhat short. I thought an earlier link you provided or article on the case said the annual premium was in the low single digit millions.

A guy like that however, would be paying lower capital gains rates, not ordinary income tax rates. He also would not be paying 1.5% annually in investment costs. Lastly, he would be at the table of investing in private placement investments that would have much greater guaranteed return in bond or commercial mortgage & RE holdings.

Still a great play for him & other like him. That is the exact perfect type of client to most benefit from the strategy. High income, high net worth, sophisticated & a taxpayer

 

[Allen Trent]

A capital loss is not the same as an itemized business deduction deducting the interest for the intent of earning a profit.

Agree, but I thought you were talking about individually owned life policies, not business owned or the loan taken out for a business. I now see what you were getting at. Essentially like an individual buying stocks with a margin account & deducting the margin interest from the investment income generated. I am sure if this was a problem there would be tax court cases showing it was disallowed. I had been making the wrong assumption that if no 1099 for interest was generated by a required entity like a bank, investment company, private lender than it wouldnt flow, but I can see where an accrued loan could be considered to be deducted.

Definitely a strategy that would be beneficial currently for all those normally very profitable businesses currently struggling to take loans from their existing cash values, deduct the interest & invest those funds into their businesses to right the ship

 

[Allen Trent]

You didn't read my post, nor do you seem to understand the tax code.

You can deduct interest from ANY source, if the purpose was to generate a profit.

IRC 264(a)(4) seems pretty clear from 1996 that says the only deduction is if the policy is on a key person & it is limited to $50,000 loan. So, if a loan is charging 6%, that is $3k loan interest that might be deductible assuming I have investment income generated from the subsequent investment of $3k or more. It would seem if this is true, giving the impression a loan used for investments is tax deductible would be partially misleading. If your loan gets up to $100k or $120m like the Silcon Exec, deducting $3,000 of interest if my loan is growing at $700k a year would seem like nothing. Again, it doesnt take away from all the other valid reasons to utilize a plan, but it would appear there is a need to be cautious in a sales presentation about the deductibility if IRC 264(a)(4) applies

 

[marindependent]

Guys it's really simple. Take ANY balanced fund and run a historical report for the last 20,30 or 40 years (I know past performance is not guaranteed) and compare it to a life insurance policy. Start in any year during the 70's or 80's and life insurance will not even come close ever!! So all the talk about 14.5% and all the other jargon is useless because you are more than likely to have 3 or 4 times more cash in the a real investment and not trying to make life insurance do something it is not designed to do. I can tell you this from experience I bought my first large life policy from Pru in 1988 and one from NYL in 1993 and they are not even close to my Roth IRA even though I have not contributed to the Roth in years.

So Right on.

 

[Allen Trent]

I created my own spreadsheet analysis and I've written about it myself. Here's my short article:

https://davidkinderfinancial.wixsit...d-to-equal-the-tax-and-economic-contract-bene

I've already posted podcasts with Bryan Bloom, CPA - the author of the books in question. But I'm not going to show my analysis. There are certain things that I have that I consider 'proprietary'.

I've posted the book links on Amazon for $10 for each of the kindle versions.

And I've posted the link to register for the next free webinar on May 12th.

I'm not proving it to anyone here after *I* had to pay the price to learn it. And you want me to just give it away? Nope.

One HUGE lesson I learned from Simon Sinek is that the objective of selling is NOT to sell to people who need what I have to sell. It's to sell to people who believe what I believe.



If you want to understand and believe it... put a little skin in the game as I already have: listen to a Bryan Bloom interview, buy his books, and/or join the webinar on May 15th.

But if you don't believe that taxes are a big deal in retirement... you won't believe it anyway.

DHK, I generally agree with 99.9% of the information you provide & you are always a gracious provider of help to others.

However, I think your spreadsheet, or at least the information you have provided at your above link has quite a few math mistakes in it, & thus, will be a bit misleading.

1 Federal income taxes. Based on your example of $60k SS & $140k from an IRA/qualified fund, the person will have a taxable income of only $166k after standard deduction & 85% SS being counted as taxable. this would mean their entire federal tax bill would be $28,000, not the $51,000 you show between $36,000 federal & $14,000 tax on the Social Security.

2. State income taxes. I am sure that is true in California & accurate, but I believe 14 states have no income tax on retirement distributions to seniors.

3. Medicare premium increase due to income. This couple in your example wouldn't owe any additional Medicare premiums as you can have $174, 000 of joint taxable income & not pay any surcharge. They would only owe the standard $144 per month each

4. the investment expenses seem a bit high for today. That size account would likely be at max 1.25% if they are paying an advisor 1%. if direct in mutual funds or with a Fidelity, etc could be as low as .25- .75%

Again, not trying to be a jerk & I still believe in this supplemental strategy, but the spreadsheet should be updated in my opinion.

 

[pfg1]

DHK, I generally agree with 99.9% of the information you provide & you are always a gracious provider of help to others.

However, I think your spreadsheet, or at least the information you have provided at your above link has quite a few math mistakes in it, & thus, will be a bit misleading.

1 Federal income taxes. Based on your example of $60k SS & $140k from an IRA/qualified fund, the person will have a taxable income of only $166k after standard deduction & 85% SS being counted as taxable. this would mean their entire federal tax bill would be $28,000, not the $51,000 you show between $36,000 federal & $14,000 tax on the Social Security.

2. State income taxes. I am sure that is true in California & accurate, but I believe 14 states have no income tax on retirement distributions to seniors.

3. Medicare premium increase due to income. This couple in your example wouldn't owe any additional Medicare premiums as you can have $174, 000 of joint taxable income & not pay any surcharge. They would only owe the standard $144 per month each

4. the investment expenses seem a bit high for today. That size account would likely be at max 1.25% if they are paying an advisor 1%. if direct in mutual funds or with a Fidelity, etc could be as low as .25- .75%

Again, not trying to be a jerk & I still believe in this supplemental strategy, but the spreadsheet should be updated in my opinion.

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Allen, great post. This is part of the issue - not questioning the numbers thrown out in the sales pitch. Just because 4 CPA's blindly follow doesn't mean its 100% correct.

I like their concepts and they have alot of great info, although I believe people should utilize both... investments & ins. They believe more in the latter, and work to convince everyone to move their investments - IRA/401k, etc (in big annual premiums) into life insurance. I believe there are plenty of folks that can benefit from this type of planning, however as you pointed out, the numbers have to work. A I believe they need to have some money in investments, not liquidate all they have. This type of planning should be in addition to investments, not in place of...imho. Supplemental, as you said.

The spin is move your money into a 10pay plan (high commission product) and Ohio National will deliver an income stream for "x" amount of years (tax free) that will equal or surpass what they might have gotten if they from their investment accounts. (assuming their numbers were correct)
This type of planning can definitely be of value if they are super heavy on qual plan $. But ON's numbers have gone down quite a bit in the last 5-6yrs, and if their ratings and divs keep going down so will the cash value and income amounts. (which aren't close to the highest income payouts in the industry right now -- many companies will deliver as much or more income stream, some substantially more - for the same premium payment).

 

[Allen Trent]

Allen, great post. This is part of the issue - not questioning the numbers thrown out in the sales pitch. Just because 4 CPA's blindly follow doesn't mean its 100% correct.

I like their concepts and they have alot of great info, although I believe people should utilize both... investments & ins. They believe more in the latter, and work to convince everyone to move their investments - IRA/401k, etc (in big annual premiums) into life insurance. I believe there are plenty of folks that can benefit from this type of planning, however as you pointed out, the numbers have to work. A I believe they need to have some money in investments, not liquidate all they have. This type of planning should be in addition to investments, not in place of...imho. Supplemental, as you said.

The spin is move your money into a 10pay plan (high commission product) and Ohio National will deliver an income stream for "x" amount of years (tax free) that will equal or surpass what they might have gotten if they from their investment accounts. (assuming their numbers were correct)
This type of planning can definitely be of value if they are super heavy on qual plan $. But ON's numbers have gone down quite a bit in the last 5-6yrs, and if their ratings and divs keep going down so will the cash value and income amounts. (which aren't close to the highest income payouts in the industry right now -- many companies will deliver as much or more income stream, some substantially more - for the same premium payment).

1000% agree. we cant nonchalantly give the assurance that our dividend or index par rate projected currently is somehow a sure thing, but the current tax rates will explode. albeit, I think the tax rates will.

Ironically, I just realized the clients in the example earlier would even owe less taxes than I corrected because I didn't give them the added standard deduction for being over 65, thus they would only owe a total of $27k in federal taxes instead of the $51k stated in the original links example given. I see so many people also calculate tax based on entire income at the current marginal rate. But a person like this really is paying 13.5% federal average rate on their 200k or 17% on the $163k taxable income

can you imagine how much the spreadsheet would change with $24k less federal tax, potentially 12k less state tax in some states, 5k less Medicare surcharge & considering the assumption was 100k in investment expenses (2% on 5M). that could be 79k-91k less tax/cost in the assumptions on the qualified side...………..per year.