Infinite Banking concept

[Allen Trent]

Look, I've done my own calculations on a middle income family scenario and on a capital equivalent basis, one would need to earn 14.5% per year on their investments to equal what life insurance can do on a tax-exempt basis. Yes, taxes, market volatility, and investment management fees erode that much wealth. And the higher the income and tax brackets, the more this performs on a capital equivalent basis in plain vanilla whole life insurance.

Now, don't misunderstand me. Life insurance does NOT earn 14.5% per year. But per the tax code, the outcome of tax-exempt cash flow, that asset can spend like it did earn 14.5% in an IRS regulated retirement plan.

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Like in Jerry McGuire, you had me at 14.5%.

Can I ask, what federal & state tax bracket are you putting these middle income earners in for this comparison? Also, are you assuming the life CV grew to the same amount as the qualified plan or are you using real average returns for the qualified plan to account for the likelihood it would have a lot more money in it.

What if the 401k was a Roth?

Life isnt the only tool to address trying to improve tax efficiency. You have Roth 401k, Roth, muni bonds, after tax EFT, etc.

Most couples I see making 60k in retirement if 35k is SS & 25k from retirement pay almost zero taxes. Their 25k is wiped away by std ded & only 3800 of their SS would be taxable. Total fed tax bill of 300-500. Those are tax facts for that segment of consumers. And considering around 65-70% of seniors fall In that category currently, it is true for most. Not sure what the future holds, but taxes will go up, but likely for workers & high income, not this segment

 

[Lloyds of Lubbock]

You make a good point about stopping the plan.
But those same points would probably alter your investments also.
That is why most investors never realize the market average rate of return
James Carville said: " The two best times to plant an oak tree are:
Ten years ago and today".
I think the same holds true for whole life.
I don't believe in a one size fits all policy.

 

[DHK]

Like in Jerry McGuire, you had me at 14.5%.

Can I ask, what federal & state tax bracket are you putting these middle income earners in for this comparison? Also, are you assuming the life CV grew to the same amount as the qualified plan or are you using real average returns for the qualified plan to account for the likelihood it would have a lot more money in it.

I used a combined 25% for Federal and State.

What if the 401k was a Roth?

Life isnt the only tool to address trying to improve tax efficiency. You have Roth 401k, Roth, muni bonds, after tax EFT, etc.

And there are reverse mortgages, commercial mortgages, etc.

Here's the difference: you have to WITHDRAW the money in a Roth to spend it.

The IRS is very clear that you cannot borrow against a Roth.

Let's also not forget that the match in a Roth 401(k) is not tax-free.

Most couples I see making 60k in retirement if 35k is SS & 25k from retirement pay almost zero taxes. Their 25k is wiped away by std ded & only 3800 of their SS would be taxable. Total fed tax bill of 300-500. Those are tax facts for that segment of consumers. And considering around 65-70% of seniors fall In that category currently, it is true for most. Not sure what the future holds, but taxes will go up, but likely for workers & high income, not this segment

I believe our country is in trouble. It got in worse trouble starting with Reagan because he artificially lowered taxes - which did a huge boon for the economy, but it has continued on. Wall Street has grown as has the national debt.

Here's the Federal Income Tax Brackets from 1981.
Federal Income Tax Brackets for Tax Year 1980 (Filed April 1981)

I chose 1981 because that was the year that the income limits on Social Security being included in your income were last affected.

If you had $45,000 of income back then... you were in a 49% top tax bracket MFJ. Yes, we know that it all needs to be blended out because it's a progressive tax, not a flat tax.

Could we be seeing these kinds of brackets again? Run your client's current taxable status through a similar calculation. Maybe triple the dollars in the brackets to be a bit more realistic for today's inflationary dollars. Don't tell me they won't be affected. (Although with Trump having doubled the standard deduction, it certainly helps things.)



Our job as insurance agents is to bring certainty. And we can do that through life insurance better than anything else out there.

And as Ed Slott says: "The tax exemption for life insurance is the single biggest benefit in the tax code."

 

[marindependent]

Assessing any financial situation purely on how much money you pay in tax does not necessarily lead to the best financial decision, nor does assessing the situation based purely on the total sum of dollars.

For the record there is nothing that makes Qualified Accounts always "fully taxable". The money could be in a Roth vehicle and would hence be potentially tax free.

In addition - exactly what tax bracket would someone be in that is making $30,000 a year? Its not a high rate.

Third,- most tax and income scenarios have a bit of a slight of hand involved. (The scenarios are never as simple as people think.) The money in the Qualified Account, potentially would have been added with money that had never paid income tax (if it is not a Roth account) in the first place, while the money in a Life Insurance policy would have already paid income tax.

Finally the money that is with the qualified account would no require an allotment of annual premium while the Life Insurance policy might very well still have an annual premium due.

 

[DHK]

If you can show me something that can do a minimum of 14.5% rate of return or equivalent for retirement income purposes... I'd gladly look at it.

The facts are there, but I'm not asking anyone to "convert" or believe as I believe. Check it out for yourself. I posted the book above "The Capital Equivalent Value of Life Insurance".

We've got at least 4 CPA's in The Breakaway League because of this message.

 

[Allen Trent]

I used a combined 25% for Federal and State.



And there are reverse mortgages, commercial mortgages, etc.

Here's the difference: you have to WITHDRAW the money in a Roth to spend it.

The IRS is very clear that you cannot borrow against a Roth.

Let's also not forget that the match in a Roth 401(k) is not tax-free.



I believe our country is in trouble. It got in worse trouble starting with Reagan because he artificially lowered taxes - which did a huge boon for the economy, but it has continued on. Wall Street has grown as has the national debt.

Here's the Federal Income Tax Brackets from 1981.
Federal Income Tax Brackets for Tax Year 1980 (Filed April 1981)

I chose 1981 because that was the year that the income limits on Social Security being included in your income were last affected.

If you had $45,000 of income back then... you were in a 49% top tax bracket MFJ. Yes, we know that it all needs to be blended out because it's a progressive tax, not a flat tax.

Could we be seeing these kinds of brackets again? Run your client's current taxable status through a similar calculation. Maybe triple the dollars in the brackets to be a bit more realistic for today's inflationary dollars. Don't tell me they won't be affected. (Although with Trump having doubled the standard deduction, it certainly helps things.)



Our job as insurance agents is to bring certainty. And we can do that through life insurance better than anything else out there.

And as Ed Slott says: "The tax exemption for life insurance is the single biggest benefit in the tax code."

Agree with all your points. Only item I point out is that you are giving the impression that the life plan is 100% but that the non life plan is not or even giving it am angle of "worse than now". Insurance products dividends are not guaranteed, so the illustration of projected loans/WDs is not certain & making am assumption of Dividend rates. Also, in the likely tax problems of the future, there is a real possibility of the loss of tax deferred build up of cash value, etc. It has been proposed & horrible deficits & debt will create very crazy ideas for tax revenue.

Very few Americans in retirement are in the 25% tax bracket, let alone every dollar taxes at 25% as our current tax code is progressive. Considering about 70-75% of people over 65 pay 0%, it would be more fair to use a federal tax rate of about 5-15% unless you know they have high income, etc.

 

[Allen Trent]

If you can show me something that can do a minimum of 14.5% rate of return or equivalent for retirement income purposes... I'd gladly look at it.

The facts are there, but I'm not asking anyone to "convert" or believe as I believe. Check it out for yourself. I posted the book above "The Capital Equivalent Value of Life Insurance".

We've got at least 4 CPA's in The Breakaway League because of this message.

Love the book & concept, especially for high income earners & max savers. CPAS on board are a great thing as our products can help I'm so many ways. But those CPAs are not working with average retirees as nearly 2/3 of retirees are not even required to file a tax return any longer. Their retired clients are high income or high asset clients who have large reportable incomes & ideal candidates for our life products

 

[DHK]

The message is really geared towards people who have tax pain. That's the top 10% of the population. The message won't resonate with people who don't feel that pain - so it's not for everyone.

The top 10% of income earning Americans earn $100,000+ a year. So they're not "rich".
The top 5% of income earning Americans earn $140,000+ a year, per the Office of the Chief Actuary of Social Security.

Now, can people who are NOT as well off use these strategies? Sure! If they really want to "legally cheat" the government out of taxes and not even be required to FILE a tax return! It won't be as potent for them, and the case wouldn't be as large, but they can do it. (That's a Van Mueller sale all day long.)


As far as changing the tax status of life insurance - already done. But we've got advocates like NAIFA and AALU to advocate for the life insurance industry. In fact, these plans will still work EVEN IF dividends are further reduced and/or even TAXED!

Why? Look up the General Accounting Office report for January 1990 and see page 27 (PDF page 29). https://www.gao.gov/assets/150/148632.pdf

The rest of the report is a scathing report on why life insurance needs to be taxed, etc. But that page explains why this is a superior way to plan retirement income - and it was written by the US Government!

And that won't change UNTIL all forms of lending are also taxed as income. Imagine being taxed on a credit card, mortgage, auto loan... as 'income'.

Won't happen.

 

[DHK]

Now, what about people who are SAVING money in a qualified plan?

If they're in their earlier years and in the 10% tax bracket and saving money in a qualified plan... I'd have to wonder why? And "the match" is not a good enough reason.

The reason we are told that, is to make compliance people happy.

I ask this: "Have you done the math on that?"

A company match reason alone isn't necessarily a good enough reason - depending on the match - especially if they plan on being more successful in the future than they are today.

Life insurance - and this strategy - is a WANT strategy. People have to have their own desire to want it. Sure, you can always retire with qualified plans, taxing social security, paying investment management fees... or we can do it this other way.

It's up to them.

 

[marindependent]

What are the total yearly management expenses and trading fees that you are using with "your analysis" to come up with 14.5% ?