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Tax-Free InvestingAt Century Financial, we are financial planners working to get you not only to retirement, but through retirement. One of the strategies we believe in to accomplish this is a tax-free retirement called a "private plan". Section 7702 of the Internal Revenue Code allows these plans. Using laws regarding insurance contracts to your advantage allows you to take advantage of such a plan, and your money is guaranteed by legal reserve insurance companies.
Why Tax-Free?Most Americans believe taxes will go up in the future; that trend has already started. Taxes on future income adds additional risk to successfully creating financial security for retirement. Historically, conventional wisdom stated that most retirees find themselves in a lower tax bracket than they were in during their working years and that tax-deferral will save them money. Unfortunately, that hasn't been true for most Americans. Often, without dependent children, mortgage deductions, or business write-offs, retirees tax bills end up being much higher than expected. You can expect to send between $10-$20,000 a year to the IRS even with an income of only $50,000 in retirement. And it wasn't that long ago that the top tax rate was 70%.Traditional tax-qualified plans like IRAs, SEPs, Keoghs, 401(k)/403(b)s and Roth IRAs all have restrictions on how much money you can contribute, when you can take your money out without incurring penalties, or when you have to take your money out to pay taxes. Next to market crashes, taxes are the biggest destroyers of the wealth you will accumulate.
Why do Americans expect taxes to go up?  KEY POINT: Ask yourself, "Would I rather defer my tax obligations to the future (when I might pay MORE tax), or would I rather invest tax-free?"
How does a Tax-Free Plan Work?A tax-free retirement plan has several key features:Tax-free retirement plans work quite simply: they involve purchasing permanent life insurance (specifically, equity indexed universal life) and then paying above the insurance premium as a savings account. This is referred to as "maximum funding" a policy. In the 1980s, the government instituted new laws that set a formula for how much extra premium you can put into one of these policies in order to qualify for accessing that money tax-free in the future. An "equity indexed" product means that your money will grow with stock market-like returns when the market goes up. However, because it is an insurance product, there is a 0% floor, meaning you can not lose money in bad years. While you might expect lesser returns from product with a guarantee against loss of principal, in fact, many clients have received excellent returns in good years. These returns may even exceed the return in a certain stock market index. KEY POINT: Not only do you get to access your money tax-free in the future, but you can earn market-like gains now without ever having to participate in market losses. WARNING: Not all private plans are the same. Some plans do expose you to market risk, including loss of principal, by placing your money directly in the stock market. At Safe Money Arizona, all of our strategies offer guarantees against market loss.
After funding the account for several years, you will have value you can borrow against. This increasing value can also be used to pay your premiums, allowing you to take either a steady, monthly/annual income, or to have available for other uses now. Because you are merely borrowing money, it is not taxed. Upon your death, any remaining monies will be left as a benefit to your heirs. We can sit down with you and "run the numbers" to determine what future income you can create, when, and for how long, with this program. Typically, through proper planning, we can create an income that you will not outlive.
How can I get those kind of returns?Because you are purchasing an insurance contract, you are getting a guarantee against market loss. Your principal is always guaranteed. There are laws regulating the types of investments life insurance companies can make in order to make sure they can pay claims to their policyholders. The insurance companies typically keep much of their money in treasuries, bonds, and other similar products. They can then earn steady returns and use part of that return to purchase a contract that gives them (or you, as their policyholder) market-like returns without actually having to have their money invested in the market. This way, they get a reasonable return and can still offer you returns similar to those of the stock market.
Self-employed savers get extra benefitsIf you're self-employed, own a business, or have an LLC for your business, you should be able to tax-deduct the money you put into your tax-free indexed universal contract. This means that you can use pre-tax dollars to invest, and then access those dollars tax-free in the future. Best of all, you can be selective in who you offer this benefit to; with our strategies, there is no requirement for you to offer any or all of your employees this benefit. It's sort of like getting all of the tax benefits of having a corporate pension plan, without the strict requirements of those plans. Section 162 of the Internal Revenue Code allows a business owner to deduct "bonus compensation" paid to any employee, including an owner, on a discriminatory and selective basis. With this plan, there is no IRS approval required, nor are there administrative fees either. As the owner or executive of your company, you can choose how much to place into the plan each year. You can choose to increase the amount in good years, or decrease it in bad years. Then, you as an individual own the contract.
Why haven't I heard of this?These tax-free strategies are not new. In fact, they're been used by high net worth families for many years. Since the early 1800s, life insurance has been the cornerstone of financial planning for the wealthy and for large companies.Many people are used to the traditional retirement vehicles: IRAs, 401(k)s, 403(b)s, etc. These are the plans most marketed and most offered by employers. Additionally, our tax-free plans generally do not generate recurring commissions, which makes them less lucrative to financial advisors who prefer a residual income paid for by ongoing management fees. There are numerous books devoted to the topic, such as Patrick Kelly's "Tax Free Retirement". Also, Ed Slott, a national tax expert dubbed "America's IRA Expert" by Mutual Funds Magazine, wrote about these strategies in his book �The Retirement Savings Time Bomb... And How To Defuse It" (page 154). Conventionally, there are few options for people who want to earn tax-free returns. These include municipal bonds, which have averaged only 3%, and Roth IRAs, which have restrictions on income and limits on annual contributions. Only life insurance contracts allow you market-linked gains without market risk and the ability to access your money tax-free in the future.
How to learn more or get startedThere are different strategies available, and we can assist you in determining which one is best for you. We will also help you roll existing taxable accounts into a tax-free account, or start from scratch. For more information or a personal review with one of our partners, call Century Financial at (480) 553-6300.
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Copyright 2011, Century Financial Group of Arizona. "Safe Money Arizona" is our trademark. All rights reserved. Content provided on this website is for informational purposes only and should not be used in making financial decisions, which only a qualified advisor should assist you with.
We are wealth managers in Scottsdale, Arizona, with offices in the Phoenix area and Tucson, providing financial services for our clients (also in Tempe, Ahwatukee, Mesa, Chandler, Gilbert, Apache Junction, Maricopa, Queen Creek, Wickenburg, Sun City, Surprise) from fixed indexed annuities to life insurance to retirement solutions from Main Street, not Wall Street. We frequently host informational dinner seminars at restaurants like Ruth's Chris and McCormick and Schmick's for local residents who qualify; call us to learn more. You can hear us on the radio in Phoenix and Tucson on stations like KFYI, KTAR, KNST, KJLL, KVOI, KFNN, KFNX, and others. Call us in the Valley at 480-553-6300 or 480-339-0939, or in Tucson at 520-280-0808 or 520-280-0822.
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