Life Insurance Tax Shelter

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We'll be right back after the break. So life insurance tax shelter today on Finishing Well. That sounds fun.

How about a little tax shelter that is always a good way to start off a show, right, Hans? Well, it is. I'm excited about this one. Oh, me too, me too. And you can't help but just think about what it said, what Jesus said in his Sermon on the Mount in Matthew 6, you know, when he said, Lay up not for yourselves treasures upon earth, where moth and rust corrupt, the IRS can break in and steal. I'm just kidding. But lay up for yourselves treasures in heaven, where the IRS can't touch it, and rut can't destroy it.

You know, that's the Robbie standard version there. But nonetheless, the ideas sound that, oh, my goodness. You know, when I think as we share what we have to share in today's show, the idea of so many of you who have laid up money in IRAs and laid up money in different investments that now are bearing fruit. Can you imagine how God will leverage all that for the kingdom?

But it was laid up a little bit at a time. And so, you know, almost every day we have an opportunity to sow into the kingdom of God stuff that we know is going to get Jesus more glory and more honor. And so as you think about all we're talking about today and the fruit of how these things grow and can you imagine because I love Hans is always talking about these buckets of money. And so think of this bucket of treasure that you've got in heaven and that you just keep putting this little piece of treasure and most of that honestly is in your life, in your relationships and the way that people see you so in love with Jesus that they want a piece of that. And so therein you're laying up that treasure that you treasure most of all, which is your relationship with Jesus. But I love the way this works out just financially, Hans.

And so let's get going. Yeah. So what we're talking about today is life insurance as a tax shelter. And I don't talk about this piece of it too much because the real reason for life insurance and the purpose that it serves is to provide money for the widows and orphans, for the people who meet an early demise and their family is able to go on living and living perhaps well or at an acceptable level or better than a poverty level because somebody has the smarts to buy life insurance and the money comes. And it is a tax shelter because it comes tax free to beneficiaries. And a lot of beneficiaries, they don't realize the benefit of that. But when somebody, you know, they have a million dollar term policy or a half a million dollar term policy and they die. I mean, and they leave their spouse and children a million dollars and that million dollars comes tax free, F-R-E-E free. I mean, there's no tax. So, you know, you really think about that. That's a whole lot different than a million dollars sitting in a 401k or in an IRA or money that before you take a dime out of it, you've got to pay taxes. But, you know, day in and day out, that's not the problem that I'm solving for people anymore.

I mean, the people that are coming to me now are 55, 60, 65, 70, sometimes a little older than 70. And they have the rest of their life and the rest of their spouse's life to think about and they need to create an income and they've got to work up with Social Security coming in and picking the dates for that and the amount that they get and they've got to pay taxes. Most people, the problem that they need solved is they've got a lump of money that's in an IRA or it's in a 401k. They haven't paid taxes on it yet and now they've got to figure out a way to live off of that for the rest of their life and they don't know how long that's going to be. And so that's the problem that we solve for people and pretty much every show that we do is a little piece of solving that. So today we're talking about part of the solution for some of these people. Okay, and this one might be for you and it's not talking about life insurance in the terms of like if having $200,000 life insurance policy, that's how much my beneficiaries are going to get when I die.

I mean that is how the thing's set up but we're working this from a whole different angle. What we're going to do is we're going to set up a savings account that you get to decide how much you want to save every year for 10 years. Okay, and then I'll help you do that but it's got to be after tax money. So if you've got a lump of money in an IRA and it's just sitting there and maybe you're not drawing anything out of it now because you're in your 50s or more likely your 60s and you're just trying to get by without pulling anything out of there because you know you have to start at 72. And so what this is is we might consider taking some of that money out now, paying the taxes and then just little bits every year or whatever amount and then whatever's left after we pay the taxes, we're going to put into this life insurance tax shelter or life insurance savings account.

And you say well why do you need life insurance to do that? I mean couldn't you just put the money in an investment? Couldn't you put it into an annuity? Couldn't you put it in the bank? And the answer is yes, you could do that. But you're going to then have to pay taxes as it earns money. Okay, and you're also going to be tempted to go spend it. I mean the nice thing about life insurance is it's a long term proposition. So let's take a break for just a minute here and maybe you can react to what I've said at this point where I'm not given a monologue here.

No, that's okay. I love the way you usually start out this discussion where you know people have this IRA or they have a 401k, now you know what's the goal of you know because different people have different things that they want to do with that money. You know they want to travel or you know they want to leave it to their kids or you know they want to give it to a certain ministry that they've been working with. And you know all those lead to great ideas when it comes to you know taking the money from one bucket which is this bucket over here that's still the IRS is going to get their hand in. But versus this bucket over here as we begin to transfer this money out pay as little tax as possible right. And over here there's different benefits with this life insurance policy than there would be an annuity for somebody say who wanted to give all the money to either to a beneficiary of their kids or a ministry right.

So you know you know and I would sure love it if somebody would say hey the Jesus labor love I would love to give a bunch of money to single moms and widows are trying to fix their cars. Well a life insurance policy would be a great way to do that wouldn't it? Well yeah I mean it's wonderful and the life insurance I mean most people in their 60s or their 50s you know early 70s they're still not ready to give their money away or commit it yet in large amounts. If I really pin them down you know a lot of people say yeah this money's for my kids I'm there I'm just going to take the minimum when I have to and I'm figuring out how to live off my social security and my other savings and I don't want to pay taxes. So this IRA is really forgiven to the kids and it's kind of like well why don't you give it to them now?

Well I don't want to do that I might need it you know okay now we're talking so you're not ready to give it away yet. And then if you did give it to them now the IRA they'd have to pay a bunch of taxes so you don't want to do that. And so this life insurance tax shelter is a way it's just really a life insurance policy that starts with the amount you want to save.

So let's just I had a guy write into me about this video he just got it this morning he already wrote in how much is the premium and I said well the premium can be whatever you want it to be. So I just gave him an example I said let's say you have $300,000 in an IRA and you don't really need it and you don't want to pull anything out and pay taxes now but you'd like to convert it to an after-tax account or you'd like to make a tax shelter out of it. Well we could simply pull out $10,000 a year for 10 years out of there so your $300,000 IRA would become a $200,000 IRA over 10 years plus it would grow a little bit hopefully unless what's going on in the markets these days. So anyhow we pull out $10,000 a year we pay 25% tax I'm just trying to make this simple so we net $7,500 and that's the premium for the life insurance policy $7,500 a year for 10 years. So over 10 years we're going to get $75,000 put into this policy and then you say well how much is the policy how much death benefit is there?

Well I just guessed at $200,000 let's just say that it's a $200,000 death benefit and you say well how can you just guess at that? Well that's the minimum amount of insurance that you have to buy to justify this $75,000 savings account that you paid in over 10 years. So the IRS has rules they're real complicated so we're selling a life insurance policy as part of this thing to make it all have tax benefits to our savings accounts that's what it really boils down to. And so you go through a lot of gyrations and there's a way that we've taken a piece of your IRA and we've got it in something now where you're not going to have to pay taxes if you get it the money.

And it sounds a lot like a Roth IRA and it has characteristics like a Roth IRA the difference being that there's some added features with this. One of which is if you met an early death your beneficiaries are going to get $200,000 so if you only made three payments or two payments and then you died they're going to get $200,000. I mean that's one benefit. The other benefit is you get down the road and then you say well I need some of this money. Then you can take it out and if you structure it properly you pay no taxes on accessing the money and then it'll simply if you never pay it back or you never put it back in it'll just be taken out of the ultimate death benefit. So it's like a savings account that you can go make withdrawals and then you can put them back or not put them back. It's a wonderful thing and you know on the video I show where I set these things up.

The younger you are the better this is. Most people the problem they have is when they were younger they didn't have any money to put into it. And they needed to take whatever little they could and buy term insurance so that their families would get a large payment if they died and I'm all for that. Right and this would be a good place to take a break and so remind you all that you know this show is brought to you by Cardinal Guide. That's where you can find out how to email Hans. Contact him at cardinalguide.com where there's a seven worries tab and today's worry would be life insurance.

And there you're gonna find show notes which will include a link to the video that's on this subject with a board that'll show you all sorts of information and show notes. We give you great detail about these policies. It's all there at cardinalguide.com as well as Hans' book The Complete Cardinal Guide to Planning Foreign Living and Retirement.

So we'll be right back with life insurance tax shelter. Hans and I would love to take our show on the road to your church, Sunday school, Christian or civic room. Here's a chance for you to advance the kingdom through financial resources by leveraging Hans' expertise in qualified charitable contributions.

Veterans aid and attendance, IRAs, Social Security, Medicare and long-term care. Just go to cardinalguide.com and contact Hans to schedule a live recording of Finishing Well at your church, Sunday school, Christian or civic group. Contact Hans at cardinalguide.com.

That's cardinalguide.com. Welcome back to Finishing Well and today's show is a life insurance tax shelter and no doubt that, you know, from my standpoint, you know, one of the neatest things about this is nobody's got more experience with this particular investment vehicle than you, Hans, right? Because this is one that you've really, really has helped you in your life.

Well, it absolutely has. I showed that on the video that's on YouTube and, you know, hopefully people don't think that I'm bragging because I've got a substantial amount of money in one of these policies for me and then I have one of the same amount for my wife and both of my sons. And they have substantial cash value in them that I started in my late 30s, early 40s, all through my 40s and I found myself earning a lot of money back then. My income doubled and then doubled again and then, you know, kept increasing from there and I knew it wasn't going to last forever. I didn't want to start blowing the money.

I didn't want to become addicted to these high income. I donated the appropriate amounts but I had the good sense to stuff it away and, you know, and save it. And I stuck a good bit of it into these life insurance policies and accumulated a very substantial amount and then they grew very well so that now I've got a pretty good sized sum of money in four different policies. And when I opened this business, I left that big high paying job to start my own business and really around, it wasn't all a money thing. I really wanted to operate in the business the way I wanted to operate and according to my values and I wanted to go about the business, I really wanted to eliminate some things that I had allowed myself to participate in. I don't want to say that those guys were doing because I was one of those guys but, you know, I started a business based upon my own values and the direction that I wanted to go and God certainly helped me with all of that. And I borrowed at these big balances that I had inside of these life insurance policies.

That was 12 years ago. I got just about all of it paid back. So I took the money out, no taxes, no interest. I mean, just well, I kind of paid interest but it's complicated to get into.

It basically cost me nothing to borrow my own money. And then I paid it back and now it's there and it's just securing my retirement. It's like a savings account that's totally accessible and it actually has a very large life insurance benefit on it that is just kind of like an extra benefit of the savings account. And it's going to go to my wife if I have to meet an early demise here. And it also enables me to sell the business to my partners in here for not a huge amount of money just because my wife's going to be very well taken care of with the life insurance. So it's just God keeps blessing us through this money and ultimately what I think is going to happen to it is my wife and I aren't going to really probably touch that money in retirement and we're just going to pass away and it's going to go to our kids.

And they're going to keep right on tax free I might add and then our kids are going to be able to fulfill all they want to do with their lives and now my grandson. So it's a wonderful way to transfer wealth to the next generation. And it's also a wonderful way to have a tax preferred savings account for yourself.

Right and I love what Tom had pointed out in the video that it even has some benefits over a Roth IRA which a Roth IRA if you took the money transferred it from the regular IRA it would come over there and it would be tax free to your beneficiaries as well. But you can't once you take money out of a Roth IRA it doesn't continue to do that so you know it's kind of cool to think if you got this Roth IRA and it's doing really well in growth you know if you took the money out it's not going to grow. But the life insurance policy you know I love the idea of the way you set that up really for you personally was that you didn't want to be subjected to the market or that it could lose the money so that life insurance has that huge benefit if you aren't going to lose it.

Right but it still grows not at a huge rate but it grows and that adds up over time. I mean it's added up for me quite substantially and then if you want to access it you don't have to pay taxes on that growth you just borrow it. And then if you never pay it back if I had never paid back the money I borrowed for the business I would just get deducted out of the death benefit when I died so you don't have to pay it back but being able to pay it back is a privilege because I have paid it back and I can go take it out again. I mean let's just say that five years from now I want to buy a place at the beach or something I don't know or I've got something running I want to do and perhaps I could always go get a mortgage if that's what I wanted to do but I could pull money out of one of these policies or two of them and just go pay cash for the place. And then just gradually pay it back. I mean it gives you a huge amount of flexibility to pull money in, put it back, take it out, keep it out permanently and then the whole thing gets squared up tax free when you die with the death benefit.

So I can't speak highly enough about this. I'm not talking about the downsides too much today so everything's not perfect. I mean you do pay for that life insurance benefit every month. I mean so like in my policies to have two million dollars of life insurance on me now a 64 year old man that has a charge against that account every month but the interest that I earn every month far outweighs the life insurance charge and it's kind of like one deducts against the other. And I guess that's about the only downside to the savings account is I got to pay for the life insurance that I have but it's minor. Yeah and the other benefit you had talked about you know from my perspective is as that thing grows with the interest that's being built into it to actually the life insurance benefit if the idea if the plan was wow I want to give this money to the church or I want to give this money to my kids the life insurance benefit actually grows because the IRS requires it to grow right?

Oh absolutely. Then there's another benefit for the inheritance. You don't have to give them the money all at once. I mean I'm not going to do this to my kids but I could and I've helped other people set it up where instead of sending them two million bucks all at once or both Rhonda and I were gone about the same time four million bucks. You could send them ten thousand a month for however many years or whatever till the money runs. I mean you can you can set up a structured settlement with life insurance it's better than a trust.

There's all kinds of things you could do. You know you want to give money to the church we may use the life insurance but we may use just a regular traditional IRA. For the portion you're going to give to the church I'm probably going to leave that in the IRA and then donate it to the church after I'm 70 and a half in bits and pieces. Or even a big chunk of the pre-tax dollars because the church doesn't pay taxes.

So there's all kinds of ways to set. Life insurance is fine to leave. Yeah that's right I hadn't thought about that. Yeah or a 501c3 right? Any charity that's like the Jesus labor love again just saying that you know hey I hadn't thought about that but that's exactly right you know there is one place for that IRA money to go right. For sure and so the whole idea is you know I'm talking about this like it's for everybody and this isn't necessarily for everybody but for the right people it's wonderful and it's a piece of what we do. We don't ever have clients that come in and we say stick all your money in life insurance it's wonderful.

I mean we're going to sit down we're going to look at the problem, look at their needs for income, look at their desire to leave things to the next generation, look at their desire and gifting to the church and to God. Look at their needs for each other, look at the survivor, look at all the things and we're going to look at their tax situation now in the future and we're just going to set up all these programs, multiple programs to make all this stuff work well together. Right even long-term care being you know one of the critical ones that you can do with a hybrid type like this. Oh yeah these life insurance we haven't even talked about that. You can use the death benefit to pay for long-term care while you're alive. I mean it's just and you can use this thing as a long-term care insurance policy if it's set up properly. Right and even the ones you have when I was sitting there thinking about it you know as you were talking about Hans that you know with the cash value there if you know you got in a bad situation right now I mean clearly your family could use that in all sorts of ways to take care of you because there you've got tax-free money it's available. Yeah it's wonderful. So we'd like I very much enjoy setting this up for people and you know some of the numbers I'm talking about scare you you know they're just I mean we're talking large numbers but you can do this stuff in small numbers and you know small numbers may be big to you if they're big to you they're big to us.

I get my most joy out of helping people that are very much in need you know and they their problems seem worse to them just because they've got a smallish amount and being able to help those people is just what God's called me to do. Well as always we've run out of time before we ran out of show we want to remind you that of course all this information is at CardinalGuide.com. CardinalGuide.com there you can email Hans easily find his contact information and there you're going to see those famous seven worry tabs which today is life insurance which will have show notes all sorts of charts as well as links to the video that goes with today's show and information directly on these on these insurance policies and of course always Hans's book The Complete Cardinal Guide to Planning for and Living in Retirement so thank you Hans for another great show.

Thank you and God bless you. Finishing Well is a general discussion and education of the issues facing retirees. CardinalGuide.com, Cardinal Advisors and Hans Schleil CFP sell insurance.

This show does not offer investment products or investment advice. We hope you enjoyed Finishing Well brought to you by CardinalGuide.com. Visit CardinalGuide.com for free downloads of this show or previous shows on topics such as Social Security, Medicare, IRAs, long term care, life insurance, investments and taxes as well as Hans best selling book The Complete Cardinal Guide to Planning for and Living in Retirement and the workbook. Once again for dozens of free resources, past shows or to get Hans book go to CardinalGuide.com. If you have a question, comment or suggestion for future shows click on the Finishing Well radio show on the website and send us a word. Once again that's CardinalGuide.com. CardinalGuide.com. This is the Truth Network.