Published October 26, 2012
Can you really have a tax-free retirement? Simply put, yes you can! It’s all in the vehicle in which you begin your retirement savings. People get so caught up in the daunting decision of which account to use for retirement: 401(k)s, Roth IRAs, SEPs, Simple IRAs, and more. All these accounts can help you save similarly. The distinction lies in the tax codes the government has created for each.
So which one will give you a tax-free retirement? Technically, the Roth IRA is the only retirement savings account that can do that. However, it’s status as a tax-free account means you’re taxed on your contributions NOW, and you’re limited as to how much you can contribute each year.
There are alternatives to reaching your retirement without paying a huge chunk of your savings to the government, though. Many people aren’t aware of the 7701 tax code which states that life insurance benefits to an individual are tax-exempt. This opportunity means there are ways to accumulate retirement funds without the opportunity to lose principal and have your income distributed in a tax-free fashion.
An Index Universal Life (IUL) policy guarantees that you never lose your principal and captures a portion or all of the market gains. You can have a life insurance policy with a flexible premium that will allow you to “overfund,” where the excess money goes into a bucket that earns interest based on an index. Meanwhile, you’re protecting your family in case anything happens to you.
If you utilized the S&P Index and averaged 7.5% on your excess, after-tax monies for the next thirty years, what kind of gain would you have? What makes this plan even more appealing is the promise that if the S&P has a losing year, you won’t. If it has a winning year, you do. Think about the power of compound interest and never having a losing year during your accumulation phase!
Your distribution phase determines whether you have a tax-free retirement. By taking a loan against your cash value after you are no longer contributing, you cannot be taxed. The money you contributed is after tax. When you take distributions, you do so in the form of a loan. When you buy a new car are you taxed on the loan? You may have an excise or luxury tax, but the government cannot tax the loan you took out to get the car. This strategy can be used annually with the right planning.
Visit your financial planner today to set up an IUL policy for your long-term financial strategies. Other benefits of this plan include not waiting until 59½ to take out money, never losing your principal, more leverage for more gains, protection of your family, and more.
G. Wade Hicks is the owner of GW Financial Inc. in Fort Worth, Texas. Wade specializes in helping pre-retirees and retirees plan a tax-free retirement. For a consultation, contact Wade at the 817-887-8043 or HicksEnterprises@aol.com