Share This Episode
Planning Matters Radio Peter Richon Logo

Have You Heard of the "Rich Person's Roth?

Planning Matters Radio / Peter Richon
The Truth Network Radio
February 17, 2024 10:00 am

Have You Heard of the "Rich Person's Roth?

Planning Matters Radio / Peter Richon

On-Demand Podcasts NEW!

This broadcaster has 152 podcast archives available on-demand.

Broadcaster's Links

Keep up-to-date with this broadcaster on social media and their website.

February 17, 2024 10:00 am

Roth IRAs are one of the best ways to minimize taxes. However, many people earn too much to qualify for a Roth IRA (single filers who make more than $161K and married couples who make more than $240k). In this video, Peter with Richon Planning and Erin Kennedy talk through an alternative for those high earners known as the "Rich Person's Roth." However, it's not a retirement account, it's a cash value life insurance policy, which also offers tax free growth and tax free withdrawals.

Cash value life insurance can be a great strategy for certain investors. However, it's certainly not for everyone. It depends on your unique financial goals and how the policy is structured.

If you'd like to speak with Peter to learn whether cash value life insurance makes sense for you, please call (919) 300-5886 or visit to set up a complimentary appointment.

#lifeinsurance #cashvaluelifeinsurance #WealthManagment #roth #RothAccount #TaxFree


Peter, good to see you.

Welcome back everyone. We have a great topic today. Have you heard of the Rich Persons Roth? Roth IRAs are one of the best ways to minimize taxes. However, many people earn too much to qualify for a Roth IRA for single filers. It's 161.

If you're married, it's 240. So today we're talking through an alternative for those high earners. Again, it's known as the Rich Persons Roth, but it is not a retirement account. It's a cash value life insurance policy, which also offers tax-free growth and tax-free withdrawals like Roth.

So Peter, let's start at the top. How does the Rich Persons Roth work? Well, I think it probably is overutilized in situations where it doesn't work because life insurance can be a large compensation.

There is some incentive for it to be mis-sold at times where it's not completely appropriate. Now every tool I think has times where it is appropriate, but in this case, you know, there's only a very few select cases where I think that the Rich Man's Roth using the cash value life insurance is the most appropriate option. So the concept though is that you could dump money into a life insurance policy and you've got the death benefit there, and then you've got the cash value that's building up and you can borrow against that. Well, loans are always tax-free. I mean, think of this whole concept as purchasing a house, like it's real estate, right? You've got the value of the home.

That's kind of like the death benefit. You've got the equity that you've built up after paying mortgage payments. That's kind of like the cash value. And then you've got the mortgage. That's any loans that you've taken out of it. Plus you've got your monthly mortgage payment. Well, when you get a mortgage on a house, how much of those mortgage payments for the first 10 to 15 years actually go toward building your equity? Not much because the mortgage company wants to make their money off of the financing as quick as possible because people don't tend to keep their homes for 30 years.

So they front and load. They amaturize the interest into the first 10 to 15 years. You're paying much higher interest than you are building equity. And likewise, these insurance companies know that they're on the hook for this death benefit and they want to make sure that they've covered their expense of the potential of you dying earlier than expected. So they front and load the cost of insurance into the first 10 to 15 years of the policy. So you really don't start to see that cash value build for a long time. And remember that cash value is kind of like the equity that you have in your home.

You don't see that build for a long point in time. But if I wanted to, I could always borrow against the equity and loans are always tax free. So when I die, if I've got a million dollar house and a $600,000 mortgage, does my family get a million dollars? No, they don't. They've got to deduct the principle that's owed on the mortgage, the balance of the mortgage from the equity in the home, from the value.

That's what they net. And just like that, if I've got loans, these tax free withdrawals and loans from the cash value, well, that would be deducted from the leverage of the collateral, which is the death benefit of the policy. So you really got to dig in here because oftentimes these, I hate to think it's out of ignorance or negligence. I just think that they are often misplaced where they are not completely appropriate. Again, there are times that they are appropriate, but I want people to clearly understand what they're getting into here.

And more often than not, I think it's appropriate for a very, very select few. It is probably, probably properly qualified as a rich man's Roth because really that's the only people that need to consider this in my mind for that reason, for the reason of savings. So high income owners, though, could also utilize a Roth conversion.

Yes. Why not use that strategy or do you use that strategy first? Absolutely, I would use that strategy first. If state tax issues are not the true concern, if we're looking at just the best use and leverage of our money, why not pay to do those Roth conversions and move money from your left pocket tax deferred over to your right pocket where it's tax free. In a traditional tax deferred account, if you want to grow your money, if your goal is growth, the IRS is right there with you.

Their goal is growth as well because they get to harvest more tax dollars in the future. There's a cost to it, but you can go ahead and pay them now to convert those dollars over into the Roth side and then have a hundred percent of all of the growth be yours tax free to keep. And that's the regular person's Roth and all regular people, I think, need to be looking at that because taxes will be going up into the future. That's what more people need to focus on because within that strategy, there's not the built in internal cost of insurance that you've got to pay. There's just the taxation. And on the other side, to buy life insurance, you've got to pay tax on the dollars that you're using for premium payments anyway.

So I think that that is the first and foremost consideration. And then once we've exhausted that, then we may look at the cash value of life insurance and the rich man's Roth. So you mentioned it's for rich men, rich men and women who should consider cash value life insurance. Anybody beyond those really high income earners? Well, I mean, if you are earning a high income and you are eliminated from making Roth contributions but still have the ability to save more, it could be a consideration.

And here's why. If you meet that criteria more than likely down the road, you're going to be faced with estate tax issues when your wealth passes to your beneficiaries. And that's where life insurance really shines because life insurance is specifically intended. It is the tool to pass generational wealth and it passes that generational wealth tax free. So you can take taxable dollars today and turn them into a leveraged amount in the future to help to address the estate tax issues. And by the way, both estate and income tax, because if you've got money in those tax deferred accounts, you haven't even paid the income tax on that yet. So if you've got a $500,000 million, $5 million IRA or 401k, like you're going to have to pay the income tax on that first when it passes and then be subject to estate tax levels, which could come down, will come down into the future.

They've already talked about bringing those levels down substantially. So more people then really realize it probably are going to run into estate tax issues. And life insurance is a great tool to address that and, and to turn dimes to dollars basically of, of tax-free legacy value and also long-term care. Long-term care is a big concern. It's the 800 pound gorilla and the million dollar question of, of a confident retirement life insurance can now also double and multi-purpose as long-term care cost protection.

It's not as comprehensive as the traditional long-term care that once existed, but that really doesn't exist that much anymore. And, and life insurance is the alternative. If you are specifically setting this up for the potential of covering long-term care costs and oh, by the way, it just so happens that it's not use it or lose it and can double as a tax-free legacy and death benefit, plus has this component of the cash value in it. Like, I think that that use is a, maybe a win-win situation and, and a place where this would be an appropriate strategy. So speaking of pros, somebody who's going to sell me cash value life insurance would say in certain cases, it's possible to use the cash value of these policies to create a guaranteed stream of income possibly for the rest of your life.

That sounds pretty attractive. Yeah, but it's, it's actually opposite of the purpose of life insurance, right? And the same companies offer other tools that that guaranteed stream of income is the highest purpose of, and they offer both by the way. And so they can, they can basically hedge their bets, but life insurance is a bet. And it's, the bet is I think I may die before you company think I'm going to die. So I'm going to pay you small payments for my whole life. And when I win that bet, somebody gets a large lump sum. Well, you, you can use that cash value for an income, but again, that's not the primary purpose. Annuities on the other hand are the opposite side of the bet.

You're betting with the same company. Hey, I think I'm going to live longer than you think I'm going to live. So I'll give you a lump sum today, and then you're going to contractually be guaranteed to pay me a lifetime stream of income, no matter how long I may live.

That's the tool that does that job. Both, both can do the job for the others. Annuities can pass on wealth and life insurance can create an income, but they both do their specific individual job much, much better than they do the other one's job. And, and these companies remain financially stable because they do offer both sides of that life expectancy bet there. And, and, and they play the odds on both sides and, and invest over lifetimes rather than on the, the, the profits of a single company in a particular period of time.

Well, and these companies remain solvent and profitable because I can't remember the number, Peter, you might know it. I feel like it's 86% of people default on paying their life insurance policies and then forfeit a lot of what they've already paid in. Well, and, and then the, the, the term insurance policy, which I think is where the real value of insurance is.

They don't issue it to people who are likely to die during that term. Most people live through the term and then it expires, or they don't want to pay the increase in cost, which is fine because term insurance is exceedingly cheap. It is inexpensive and there's an old adage, buy term and invest the rest. So if I go out and I want to get permanent life insurance policy, the company is going to quote me a high price, but if I want term insurance, it's probably, it is going to be a significantly cheaper price. If I invest that difference over the term, then I build up money to hopefully by the end of that term, be relatively self-insured, which I'm, I'm then not forced to pay the cost of insurance on there thereafter and can borrow against or leverage for the purpose of, of an income. It's the problem there though, Aaron is everybody likes the cheap price of term and they always forget to invest the rest. That's a good point. No, it's a decent strategy that I think is appropriate for the very, very specific right situation and unfortunately a lot of people have, have, have gone into this line of thinking and, and strategy without truly in my mind being that specific right situation and it can be pretty costly.

Right. Got to crunch the numbers and have a conversation with a fiduciary who's going to be acting in your best interest. Peter, you are a fiduciary financial advisor.

If somebody has questions about this, how can they reach you? I am, but I also would like to note Aaron that insurance in the minds of regulators with the securities exchange commission and department of labor buying and selling insurance or annuities, that is actually a transaction that falls outside of that scope of fiduciary responsibility because there is a potential in my mind, there is nothing that I can defend as being in somebody's best interest than putting good protection in place for the worst case scenario of what happens if XYZ, what happens to your family if you pass away. So there is nothing in my mind that is more appropriate than an appropriate amount of life insurance, but it is something that every consumer should understand is outside of the scope. When somebody's saying I'm a fiduciary, I'm a fiduciary by this insurance or by this annuity, that is an inherent potential conflict of interest and not a fiduciary relationship. So first and foremost, understand that now I am an investment advisor representative series 65. I have that fiduciary responsibility when managing clients, assets, and accounts in the market because our interests are aligned there.

There's no inherent potential conflict of interest, but that is an important distinction and something that should be disclosed to anybody who's making these considerations. And if you would like to have that conversation, talk it through, talk through a policy or a contract that you're already in or you're being told would be something that's good that you're considering, give me a call. I'd be happy to talk it through with you.

I've got access to them. It's just we talk through it. We make sure we're informed and educated. We weigh the pros and cons to see if it is something that's truly in your best interest.

And I'm happy to have those conversations to make sure it is. 919-300-5886 is the number to call. 919-300-5886. You can email me peter at It looks like It is my last name, Peter Rashaun.

You can also go online to our website, is again what it looks like. All right, Peter, thank you. Super important conversation today, Erin. Thank you.

Hey everyone, Peter Rashaun here. Hope you enjoy the content. As always, make sure that you like, subscribe, share the videos with others that may find this information helpful. And as always, you're welcome to be in touch or to submit questions or comments. You can comment below the video anything that you'd like to see or hear shared on our YouTube channel and in future videos. If you've got a topic that you've been thinking about or is of concern for you financially, be sure to let us know. We'd love to help you by discussing it on the channel. So appreciate the continued views and the likes and the subscribes, the shares, the comments, always helpful. We look forward to getting you the information that you need.

This has been Planning Matters Radio. The content of this radio show is provided for informational purposes only and is not a solicitation or recommendation of any investment strategy. You are encouraged to seek investment tax or legal advice from an independent professional advisor. Any investments and or investment strategies mentioned involve risk, including the possible loss principle. Advisory services offered through Brookstone Capital Management, a registered investment advisor. Reduciary duty extends solely to investment advisory advice and does not extend to other activities such as insurance or broker dealer services. Advisory clients are charged a quarterly fee for assets under management while insurance products pay a commission which may result in a conflict of interest regarding compensation.
Whisper: medium.en / 2024-02-17 12:28:41 / 2024-02-17 12:35:03 / 6

Get The Truth Mobile App and Listen to your Favorite Station Anytime