Thursday, April 28, 2011

Is Your IRS Approved Retirement Plan Tax-Free and Guaranteed From Loss?

Did you know the IRS has approved a private retirement plan that is tax-free and guaranteed from loss?

Chances are you probably aren't aware of section 7702 of the Internal Revenue Code. It's not surprising considering the complexity of the tax code. The non-partisan Tax Foundation reports that the entire tax code with regulations in 2005 was over 9,097,000 words. To put that in perspective, the Bible has 774,746 words and even the most fervent of bible readers will tell you they don’t know every chapter and verse of one of the sacred books ever written. Far be it from the average person to study the tax code in their personal time, much less investment advisors who are compensated to sell Wall Street created products and strategies.

Since this Private Retirement Plan is not offered by Wall Street, you'll find no mention of it in the traditional investment circles and from our mainstream corporate media. Good luck asking your investment advisor for their unbiased expert opinion on anything they don’t receive a commission or fee on. Traditional advisors are paid to sell Wall Street products. Furthermore, you won’t find mention of this IRS approved non-qualified retirement plan in the evening news and morning newspapers. There’s no story to tell when something performs consistently as this IRS approved retirement plan has been designed to do for over 150 years. News media outlets make money from advertisements and commercials and we all know nothing sells like sex and violence which in the money world is simply translated into risk and greed. This Private Retirement Plan is anything but risky and those looking to get rich get quick will be bored to death by the certainty of predictable growth and safety of this IRS approved tax-free retirement plan.

So what is this Private Retirement Plan? It's a time proven money system that has been around for over 150 years and it is offered only by mutually owned life insurance companies through a little understood product called Participating Dividend-Paying Whole Life. Furthermore, this type of policy is only offered by a limited number of advisors/life agents who have gone through advanced training to learn how to turbo-charge the growth of these dividend paying contracts with a special type of rider called a Paid-Up Addition (PUA). Although this particular product has been utilized primarily for death protection for well over a century, its other benefits have only recently been re-discovered thanks to books like Becoming Your Own Banker by R. Nelson Nash and Bank on Yourself by Pamela Yellen. (Full disclosure: the author of this article is a Certified Advisor with Bank on Yourself.)

The very specific type of Whole Life policy discussed in the above mentioned books is a private (meaning not created and controlled by the government) contract honored within the IRS tax code to grow premium dollars contractually guaranteed until the time of death while providing liquid tax-free living benefits. Simply put, it is a tax-favored savings account with a death benefit added for good measure. For this reason, a Whole Life contract is the ultimate savings vehicle because it is a unilateral contract between two liked minded entities (you and the insurance company) endeavoring to accomplish the same thing: preservation of wealth.

How is this possible? It’s accomplished when one side agrees to pay premium dollars and the other side contractually agrees to grow the premium in order to pay out more dollars than what has been paid in at unforeseen time in the future. This is unilateral contract: a one-sided agreement whereby you promise to do something in return for a performance. As long as the owner of the policy pays premium into the policy, the life insurance company is obligated by contract law to uphold its end of the agreement. The two parties create a 100% vested contract without surrender charges or penalties from day one. No other type of permanent insurance policy or traditional 401k plan can duplicate this performance.

By becoming a vested partner in mutually binding life contract, the life insurance industry does what Wall Street can only talk about doing: effectively manage risk. Out of necessity, life insurance companies have to be the best managers of money in the world because they are 100% contractually vested in every premium dollar paid into their company. With each premium dollar, the life insurance company must take extreme diligence to invest those dollars knowing they could at any time be forced to pay out a much larger pool of money upon transfer than what has been paid into the policy. Life insurance companies are regulated to be 100% solvent. They are required to have more capital reserves than liabilities. Compare this to the banking industry which operates on the fractional reserve system allowing it leverage money it creates out of thin air backed by the F.D.I.C. which itself is insolvent. The numbers change frequently, but consider that the F.D.I.C. has approximately $118 billion in assets which is “insuring” the deposits of C.D.’s, Savings, Checking, and Money-Market accounts worth over $4 trillion dollars. That’s not my idea of peace of mind or insurance.

Now I’ve alluded to the fact that the life insurance industry won’t win any writer a Pulitzer Prize and that’s simply because the contracts perform the way they are supposed to: grow your savings without risk of loss in a tax-favorable manner. It is the purest form of risk management. Capital reserves are created to cushion against eventual liabilities to be paid out. It’s much the same on an individual level where you manage your monthly cash flow along with a rainy day reserve fund. The difference being your life insurance company takes the risk of growing that rainy day fund for you and making sure it’s always there liquid and ready for you should you need it for any reason, such as retirement, starting and operating a business, and paying for college just to name a few. The stories of how Walt Disney received the seed money for Disneyland in the 1950’s and J.C. Penney keeping its business going through the Great Depression wouldn’t have been possible if not for Whole Life contracts. We’ve been told for far too long to think of life insurance as anything other than a death benefit and instead sold on the idea we must take on risk to grow our savings. Nothing could be further from the truth. When it comes right down to it, we insure just about everything but our savings which is the lifeblood of our future. Fortunately the times are a-changing!

So who is primarily responsible for selling the dream of a comfortable retirement without putting any of their skin in the game? You guessed it. Wall Street operates on completely different rules and regulations which is one of main problems with your traditional 401k retirement plan and mutual funds in general. They provide no protection from loss because Wall Street has no vested stake in your money. While their goal is to grow the money, there is a fundamental difference when managing other people’s money versus your own. Wall Street is not on the hook for those losses. Not your employer, not your mutual fund manager, not your advisor, and certainly not Uncle Sam. It’s the perfect business model if you get enough people to buy into it! Thanks to the creation of the 401k in the 1970’s and the 2006 Pension Protection Act automatically enrolling new employees into a 401k, the wheel keeps on turning without providing savers another alternative, let alone a better option.

When you compare the risk of future taxes and stock market loss, this IRS approved Private Retirement Plan is a superior choice because unlike all traditional IRS qualified plans, there are no limits on how much an individual can contribute to their plan annually, and there are no strict rules and hefty penalties should you need access to your money for any reason. Traditional qualified plans trigger tax consequences if you need income prior to age 59 1/2. Similar penalties are trigged at age 70.5 if you are not withdrawing enough for the IRS to tax. There are many reasons to choose a risk free 7702 Private Plan and for many it is safety and peace of mind.

Here are the primary benefits of your Whole Life Private Retirement Plan:

  • Income is 100% TAX-FREE.
  • Cash is 100% LIQUID whenever you want access to it & for any reason.
  • Your cash balance blossoms in value upon death and transfers 100% income tax-free.
  • Money in your Private Plan is guaranteed contractually to grow each year.
  • Funding is self-completing with a disability rider should you get sick or injured and unable to return to work.

Are you mentally prepared for the full brunt of taxes when you retire with your traditional retirement plan? If your answer is no and you would like compare your current government qualified plan to a Private Retirement Plan, call or email JLM Wealth Strategies to take control of your financial future today. You have nothing to lose but a future tax bill!

Click here to read answers to FAQ's that other readers have had.

If you have questions or would like to get started, please contact John Montoya at to request a free analysis.

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