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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Monday, April 18, 2011

Seven Money Saving Strategies with a Few Ideas of Improvement from JLM Wealth Strategies

In order to put the remarks below in context, first read the 7 saving strategies offered by State Farm by clicking here.

John Montoya: Good but the advice from State Farm could be better on 3 of the 7 strategies.

Strategy#1: rather than save the tax refund or use it to pay down debt, learn how to save money and pay off debt simultaneously using the same dollar like explained at

Strategy#2: Employer contributions to 401k's basically bribe you into committing your long term savings into a government controlled account with limited liquidity (taxes and penalties if you use it before age 59.5), no protection against stock market loss, and guarantees a future unknown tax bill at an unknown tax bracket in retirement at a time in life when you'll need to stretch every dollar of income vs sharing it with the govt. Also most 401k plans don't offer a full dollar match, but a 50% bribe, er, match.

Strategy#6: State Farm is essentially referring to 529 college savings accounts which like 401k's are not protected from stock market loss, while counting as an asset on financial aid formulas, and will be taxed and penalized if not used for college. So no guarantees and no flexibility. The other points are good though. A good rule of thumb is if the government created a loophole for excessive taxation like a 401k and 529 account, be suspicious. My recommendation: learn how to set up private retirement and college accounts that are not government controlled and qualified.

Thank you to one of my Facebook friends for first posting the State Farm link allowing me to make comments and this blog article possible. Sharing information and tips about money with friends and family can help others increase their knowledge about financial matters. If you find this article and blog insightful, please share it with those you know.

John Montoya

Tuesday, April 12, 2011

F.A.Q.'s For The Infinite Banking Concept/770 Account

The Infinite Banking Concept AKA"770 Account" - F.A.Q.'s

1. Should I start a policy if my income is less than $50,000 a year?

The Infinite Banking Concept/"770 Account" can be utilized for individuals and families of all income ranges. Traditionally, the Infinite Banking Concept (IBC) has been a strategy for the wealthy because there are no rules or restrictions limiting the amount of contributions like with a 401k/IRA.

At the end of the day, this strategy is all about the discipline of saving money. All families certainly stand to benefit from putting their savings where it is safe and can maximize as many benefits as possible both short and long-term.

One of the best long-term benefits of the 770 Account/IBC is the tax-free death benefit which can help improve a families wealth class from one generation to the next. Without this generational transfer, most families are left no better off than their previous generation. The short-term benefits are tax-favored contractual growth and liquidity. Everyone can and should have access to such benefits.

2. How much does it cost to get started?

There is no upfront out-of-pocket fee to work with the 770 Account/IBC Authorized Advisor unless an advisor charges a fee.  JLM Wealth Strategies does not charge a fee for design or implementation and instead is paid a commission by the financial institution the advisor chooses for the strategy.

The commission is based on the annual base premium which for a 770 Account/IBC policy is typically a 50-70% reduction in commission compared to financial professionals who can offer a Whole Life contract without the proper design.  The correct design will allow you to accelerate the cash values from day 1 by reducing the commission of the advisor and re-directing that money back to your account.

It pays to work with an advisor who can not only teach you how Infinite Banking works to protect, grow and transfer wealth, but also who is not concerned about fattening their wallet at your expense.

3. What is the minimum needed to open a 770 Account/IBC contract? What is the maximum?

The minimum is approximately $250 per month.  I have clients who are putting well over $100,000 a year into their contracts.

These answers varies depending on the savings, cash flow, and assets of each person. It can be customized to fit your individual needs and wants.

4. Can the policy be canceled without penalty?

Yes, if you have the correct type of contract.  The only type of cash value life insurance policy that does not carry a surrender charge period is a Whole Life policy. Universal policies typically have a surrender period of 10 years or longer resulting in a surrender penalty if the contract is canceled before the surrender period ends.

5. Isn't Whole Life more expensive than Term and Universal Life?

A 770 Account/IBC policy compared to a traditional Whole Life policy sold to the public has a much lower annual base premium.  This design minimizes the death benefit and, therefore, the cost of insurance inside the contract.  Not only is the death benefit minimized but the premium is guaranteed to never increase for the life of the contract.

(It is worth noting that since the death benefit is minimized, you are able to take dollars that would have otherwise supported a much higher death benefit and instead re-direct that excess money into a Paid Up Additions Rider which supercharges the cash value growth inside the contract.  This design creates the most efficient way to accumulate capital within the contract while also providing you with a lot funding flexibility.)

Term life insurance policies offer only death benefit protection for a set period of time.  There is no cash value to be accessed.  Ultimately, the lowest cost policy over the long run are not term policies. Less than 2% of all term policies pay a death benefit.

All universal contracts contain a term "chassis".  Essentially, you are buying renewable 1 year term insurance coverage for the rest of your life.  The cost increases with age getting exponentially more expensive as you enter your traditional retirement years.  This is increasing cost component is one of the reasons why no type of universal policy is endorsed for the 770 Account/Infinite Banking strategy.

6. What if premium payments cannot be made because of job loss? 

In the event of a job loss, premiums still need to be paid. However, since the monthly required base premium is typically 50-70% less than with a typical Whole Life contract the public buys, cash value is building from day 1.  Instead of the being the slow growth contracts financial entertainers like Dave Ramsey and Suze Orman lambast on a regular basis, a 770 Account/IBC contract has substantial cash values available to offset the inability to pay premiums in the event of a job loss for many years.

In the event of a job loss, the owner of a 770 Account/IBC contract will have 3 options to pay premiums: borrow from the available cash value, surrender death benefit, or utilize the dividend to offset payment.

Whole Life locks in the premium and guarantees that it will not rise for the life of the contract. Each year, the cash value is guaranteed to grow. With use of a Paid Up Addition's rider, the cash values will increase at an exponential rate allowing the contract to have a cash value equal to premium outlay sooner than with a traditionally designed Whole Life policy.

7. Is a health exam required to open a 770 Account/Infinite Banking contract?

Yes. A paramedical exam must be completed for the insurance company to full underwrite your policy.

The exam is usually takes 20 minutes and can be scheduled at the comfort of your home.

8. I have poor health. Do I have to be insured to be the owner of a policy?

You can be the owner of a life insurance policy and not be the insured. For example, a family member like a mother, father, child, grandchild, sister, and brother.

9. Is there an age limit to start a policy?

Yes, it varies on the insurance company. Typically, life insurance stops being offered by the 80th year of life. In rare cases, age 85 is the final year it can be purchased.

10. Can a 770 Account/Infinite Banking contract be owned by a trust?

Yes. We can refer estate planning attorneys who specialize in living trusts and advanced estate planning scenarios.

11. Can the 770 Account/Infinite Banking contract be split between different beneficiaries?

Yes. Also, beneficiaries can be changed in writing by the owner after the policy has been issued.

12.  Can other assets/investments be re-positioned into a 770 Account/Infinite Banking contract? 

Yes.  Careful consideration must be given before the sale of any assets and investments. 770 Account/IBC policies can be designed to incorporate large inflows of premium.

13. When you pay yourself back, are you paying yourself interest?

No.  First, you are not borrowing your own money.  You are borrowing against the cash value you've built up in your 770 Account/Infinite Banking contract.

I would also add that "paying yourself back" or "paying yourself extra interest" are simply euphemisms to help explain the benefit of paying your policy loans back quicker.  Additional "interest" you charge yourself on loan repayments will simply accelerate the pay back of the loan.

Once the loan is re-paid, the entire loan payment can now be directed towards the Paid Up Addition Rider of the contract.  This strategy of "charging yourself more interest" is essentially a forced savings strategy meant to harness and reinforce the habit of saving money by capturing your newly created cash-flow before it can be diverted and lost forever to newly created expenses.  This is referred to by Authorized IBC Practitioners as overcoming Parkinson's Law.

14. What is the difference between a mutual based and stock based life insurance company?

A mutual-based life insurance company is owned by its policyholders. A stock-based life insurance company is owned by shareholders and makes decisions that can benefit shareholders before policyholders.

Only a mutual based life insurance company is recommended for the 770 Account/Infinite Banking Concept.

15. What is the difference between a non-direct recognition vs. direct recognition dividends?

A non-direct recognition dividend is unaffected by an outstanding loan. A direct recognition dividend is can be reduced if a policyholder has an outstanding loan.

The amount of the reduced dividend reduction varies by insurance company and can be different each year.

16. Does your money grow faster with one large policy or multiple policies?

The compounding effect of large numbers favors larger numbers. That being said multiple policies create a pool of money. When all aggregated together this pool of money will compound annually in the same manner as one large policy.

 Start funding your banking system by what you can afford to save comfortably. You can add more policies later health permitting. Should health be an issue, you can look at being the owner of a policy on someone you have an insurable interest in.

17. I am considering a 529 college savings vehicle for my child. Are there any advantages to starting a 770 Account/Infinite Banking contract instead?

Absolutely, yes!

First, giving your child the gift of life insurance locks in their insurability for life. With more children being diagnosed with autism, Children's Diabetes, and other heartbreaking illnesses, you have the ability to lock in a child's policy while healthy giving them more financial options later in life.

Second, the money saved in a 770 Account/Infinite Banking contract is protected from stock market loss. An IBC policy provides contractual guarantees and predictable growth every year. 529 accounts will fluctuate based on the performance of mutual funds offering no such guarantees.

Third, if your child decides to use the money for something other than higher education, the money in a 529 account will be taxed AND penalized. The cash value in a life insurance policy can be used tax-free no matter what the funds are used for. Never underestimate flexibility.

Fourth, unlike a 529 account, a life insurance policy is not considered an asset under the financial aid formula colleges use thereby allowing your student to potentially qualify for more grants or aid offered by universities.

Finally, giving your child the gift of controlling their financial future by the time they are a young adult will be absolutely priceless.  Imagine if you could have had the benefit eliminating banks from your life at an early age?

18. Why di
dn't I start this sooner?

See the most frequently asked question about the 770 Account/IBC. Click here.

African proverb: The best time to plant a tree is 20 years ago. The second best time is today.

To get the process started with your 770 Account/Infinite Banking contract, please contact John Montoya at

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John Montoya Authorized IBC Practioner

Monday, April 11, 2011

The Infinite Banking Concept (IBC)- The Most Frequently Asked Question

What's the most frequently asked question I get? Without hesitation:

Why haven't I heard about this before? It sounds too good to be true. 

There are many reasons.

First, this financial strategy seems to be given a new name every few years.  It is originally known as the Infinite Banking Concept (IBC).  Bank On Yourself is another popular name thanks to Pamela Yellen who's book by the same name hit multiple best-seller lists in 2009.  It's also been called Becoming Your Own Banker, Income For Life, the 770 Account, the Presidential Account, Private Reserve Strategy… you hopefully get the idea.  Many names for the same thing.

The Infinite Banking Concept/Bank On Yourself is a savings strategy (not an investment strategy) that also includes a death benefit.  This means Wall Street investment firms do not underwrite, market, or promote IBC/Bank On Yourself.

Sadly, the life insurance industry does not put much effort into promoting IBC/Bank On Yourself either.

Part of the reason is because IBC/Bank On Yourself policies strictly use only dividend paying Whole Life insurance policies.  There are only approximately 45 mutual life insurance companies left in the United States out of 1500+ that exist today.   Of those 45 or so mutual (owned by policyholders instead of shareholders as with a stock based company), maybe 10 offer a competitive and flexible Whole Life policy suitable to IBC/Bank On Yourself.

If you are wondering what the difference is between mutual and stock insurance companies, here's a brief explanation:

Any profits earned by a mutual insurance company are rebated to policyholders in the form of a dividend.  In contract, a stock insurance company is owned by investors who have purchased company stock.  Any profits generated by a stock insurance company are distributed to the investors without necessarily benefitting the policyholders.  This is why you want a dividend paying Whole Life policy from a mutual insurance company.

The savings component of a dividend paying Whole Life insurance policy is contractually guaranteed to increase in value every year and the life insurance company is on the hook for those increases regardless of economic conditions.  In comparison, Wall Street cannot offer any guarantees because they do not insure your money against losses.  They are paid to manage assets and you as the investor assume the risk of losses. The death benefit component of the IBC strategy can only be offered by life insurance companies.

Since Wall Street does not profit from the vehicle that best fits Becoming Your Own Banker, they have no incentive to sell it. Wall Street is primarily interested in 1) managing assets from which they can earn an annual management fee and 2) selling products that bear no financial risk to the firm when a clients assets fall in value.

As a better alternative to mutual funds and 401k's, it is Wall Street's worst nightmare come true should the public discover they could re-allocate their savings into accounts that are insured from loss, 100% access to their money without penalty, and provide tax-favored growth, distribution, and transfer including a life long death benefit protection. Think about it for a moment. Would you still choose a risky and tax-disadvantaged 401k for you and your family over what I just described?

Another reason why you may not have heard of Becoming Your Own Banker, while traditional banks can offer this specific type of life insurance product, doing so would eliminate the most profitable department of every bank: the lending department. Americans have been conditioned from one generation to the next to outsource their individual banking function to their traditional bank. These banks have no financial incentive to give their customers the ability to develop their own banking system within their larger banking system.

It wouldn't make any business sense for banks to teach and offer Becoming Your Own Banker because giving people the capacity to save and borrow from themselves would eliminate the need for banks as we know them. The only reason for having a traditional banking relationship would be limited to maintaining a checking account.

Ignorance is indeed bliss for bankers. Sadly, this is so true that not even bank employees know how to set up their own banking system. Ironically, the largest purchasers of cash value life insurance policies are banks.

Banks purchase more high cash value life insurance policies than any other institutions in the world! And they do it for a variety of reasons which any savvy individual would recognize are the same reasons they should be purchasing it for themselves: safety of principal, to enjoy tax benefits, strengthen financial stability, and to have contractually guaranteed growth provided by the most financially secured institutions in the world (life insurance companies).

Due to the volume of high cash value policies bought by banks, the policies they purchase are now known as Bank-Own Life Insurance or BOLI. Corporations do the same thing with policies known as Corporate Owned Life Insurance or COLI.

Also, the mainstream media is largely controlled by the same Wall Street financial institutions that pay for lobbyists to influence members of Congress. If you don't believe me, ask yourself how quickly Congress intervened to approve TARP money for troubled Wall Street investment firms and bank in 2008? It happened in days.

Compare this to how quickly these same elected officials were willing to reach an agreement on a fiscal budget to avoid a government shutdown. The budget shutdown didn't get resolved until the final minutes even though Congress had months to reach an agreement.

The point is Wall Street's advertising and lobbyist dollars have a direct influence on what we hear, read, and watch from our various news outlets. Turn on the evening news and before too long, you'll be updated on how the stock market fared. Tune into your favorite AM radio station for the same news.

Open any financial magazine, you'll find strategies created and recommended by Wall Street for the benefit of Wall Street. Sadly, we've been conditioned for far too long by the Wall Street marketing machine and now believe that the only option for saving money is investing with Wall Street.

You have to ask yourself why this is? Who benefits? Are there alternatives? If what you thought to be true wasn't, when would you like to know? Wall Street lost over 35% of your account values twice in the past decade. Do you really have to be convinced that any other strategy would be better?

Hopefully, you get the idea of why people haven't heard of Becoming Your Own Banker. There are many high power influencing forces (Wall Street, Traditional Banks, and the Corporate Media) that don't want you to know.

Now I'll get to the biggest culprit which may surprise you. Believe it or not, life insurance companies are as much to blame as any other entity previously listed. Life insurance companies offer an incredible product called dividend paying Whole Life insurance yet fail to invest the time and energy to properly train licensed agents how these policies are engineered to be the safest and most superior savings vehicle ever created.

The fact that whole life policies have survived over 150 years with little change should be testament enough to even the most skeptical of doubters. What is particularly interesting is that the sale of dividend paying Whole Life policies has seen a substantial increase in the last 10 years thanks to the many scandals and financial collapse of storied firms like Lehman Brothers and Bear Stearns and the demise of others who only survived by being swallowed by their peers (think Merrill Lynch and Morgan Stanley among others).

My hope is that the trend continues. I can't think of one person who would not benefit from having a safe, tax-free, and guaranteed way to grow their money.

As disappointed as I am in the life insurance industry for the lack of leadership in promoting the Infinite Banking Concept, I understand why life insurance companies choose not to invest the necessary time to train a licensed agent how to design and implement this strategy.

First and foremost, the failure rate for newly licensed agent is extremely high. The majority of new agents fail to make it past their first year. Secondly, any agent trained to sell a policy structured to meet the specific criteria of a Becoming Your Own Banker policy must be willing to take at minimum a 50% pay cut in commission. In some cases, the commission paid on a this type of policy is as great as a 70% cut in commission.

Since the life insurance industry, much like Wall Street advisors, is a sales driven industry, stomaching a 50-70% drop in pay for often what is 5 times the amount of work in educating prospective clients is simply too steep a price to pay.

From the perspective of a life insurance company and any business owner, does it make sense to train an employee who's likely to be doing something else in 12 months how to make 50-70% less on each case? It simply does not.

It's my belief that if insurance companies took the initiative to train a sales force on the Infinite Banking Concept, the length of a career agent would increase dramatically and it would also have the dramatic effect of strengthening the financial foundation of Americans who would benefit and prosper from having a rock solid financial foundation the Infinite Banking Concept provides and 401k/IRA/Mutual Funds simply cannot.

John A. Montoya
JLM Wealth Strategies, Inc.