A Favorite TIP For Saving on Taxes

I was thinking about clients and other people I know who are taking their MRDs (Minimum Required Distribution), from their Qualified Retirement Accounts. And I wanted to share this Favorite Tip to SAVE on their Income Taxes that become due when they take their distributions...

But, this Tip doesn't apply only to those taking MRDs! No no! This is a Favorite tip, because ANYONE who has any income that is taxable can benefit from this tip!

So, if you are taking MRDs from your retirement account(s), or know and care about someone who is, check this out, and share it with others! And note how YOU, and anyone else with taxable income can use this tip to save – and actually MAKE money on the taxes you pay!

OK... Here it is...

If you have a Whole Life Insurance policy, chances are that you can do this. If you have a Whole Life policy that I designed for you, almost for sure you can do this... I'll get back to the design point a little later.

Here's the tip – When you receive the taxable income, deposit as much of it into your Whole Life Policy as you can. Putting the extra money into your policy will at the least, increase the Cash Value of your policy. That's that part that earns you Guaranteed, Compounding Interest. Then when the tax on your money comes due – usually in March/April of the following year, take a policy loan to pay the tax.

Why? Because, the Cash Value of your Whole life policy earns a Guaranteed 4% Compounding APR !! And if your policy is with the right company, even when you take a policy loan, all your Cash Value continues to earn that compounding interest!

That means that, your Cash Value is growing while the money is in your policy, and it continues growing even after you take a policy loan to pay the tax on it!

OK, that's the simplest way to put it. Now, let's take a closer look at what happens and the resulting benefit to you.

I'm going to use the example of a distribution from a Qualified plan, but remember, the income could be from any source. For those who aren't sure what a Qualified plan is or what that means, it is any savings or investing account that lets you defer income tax on the money you put into the account until you withdraw it, or “take distributions”.

Let's say the MRD for your account is $10,000 per year. So, you take that $10,000, on which your income tax will be about 25% or $2500. Instead of putting it into a bank account, you put it into your Whole Life policy. I'll get back to that....

Let's say you've had your Whole Life policy for a while and you already have $20,000 in the Cash Value. With my favorite provider, the current Dividend Interest rate is 6.2%, but for 2021 it will be 6%, so we'll use that figure.

Without adding anything to it, your $20,000 Cash Value is going to earn $1200 next year. But now, adding another $10,000 to it, it'll grow by $1800 next year.

To pay the income tax on the $10,000 distribution, you need to take about $2500 from it. But instead of withdrawing, (or “surrendering”) the $2500, you “leverage” your Cash Value and take a policy loan for the $2500.

Again, with my favorite provider, the policy loan will cost you 5% annual simple interest. Interest on the $2500 at 5% is just $125. The Dividend Interest you will earn on that same $2500 is 6%, or $150. You profit $25 on the $2500 loan!

But, that's not the way it works... You'll actually be earning that 6% on the entire $30,000 of Cash Value, or $1800! So, using this strategy, you'll have $31,800 in Cash Value at the end of the year, and your tax on the distribution is paid. Then, that $31,800 will earn another 6% the following year, and you'll have another $1908 in interest added, bringing your Cash Value up to $33,708 !

Now, that's without adding anything else to your policy. But, if you've had your policy for at least four years, and you're still paying premiums on it, most, if not all of your premium payments are going into the Cash Value at the same time. And, of course, that money is earning the 6% compounding Dividend Interest as well !

Of course, many who are self employed, already put money into a bank account regularly to save for their quarterly or annual tax estimates. And, I'm sure that you can see how superior this strategy of using the Cash Value asset of your Whole Life policy as your savings for tax payments is! Obviously, the interest earned in your Whole Life Cash Value is many times that of any bank account. And even after you pay the tax bill, your money continues to earn that high compounding interest!

I mentioned IF you can, and AS MUCH as you can, regarding depositing into your Whole Life policy. That's because, if you have just a straight Whole Life without any “Riders”, you may be limited to adding a maximum of 10% of your annual premium into your policy. Even if that is the case, that would be a good thing to do, because just about all of that extra will go to your Cash Value and collect the Dividend Interest.

If you're in reasonably good health, you may be able to add a Paid Up Addition , (PUA), to your policy, and add considerably more than 10% of your annual premium. And that would be a really good thing. Because, again, just about all of the PUA money will go to your Cash Value, and, it will increase the amount of total insurance of your policy.

If you have the “Riders” that I nearly always design policies for my clients with, you will be able to pre-pay at least one of them in order to get that cash into your cash value.

You'll want to stay below the “MEC Limit” when infusing Cash Value into your policy, because if you exceed that, you'll lose the tax free benefit of the cash growth. These are all technical issues that I can help you with. And we're here to help!

I feel better now that I've shared this tip with you! Now... You share it with the people you know!

Contact me by Phone 808-841-7733 Email [email protected]