Carlton Financial Group - Insurance, IRAs, College Planning and more

“Nothing is so well calculated to produce a death-like torpor in the country as an extended system of taxation and a great national debt,” observed William Cobbett on 1804. 

Sadly, history repeats itself today.  Our national debt is too high and will have to be repaid by either raising taxes, cutting benefits, or printing money. Current retirement plans are failing and not suitable for most individuals, and while market returns have proven themselves worthy in some past instances, they are dramatically lower for the majority of the American public. Now what?

THE SOLUTION

As planners, we often ask our clients to take out various types of insurance to protect against the possibility of a loss. We insure our cars and homes against hail, floods, accidents, and other unforeseeable disasters. We transfer the liability of a potential loss from ourselves to an insurance company by making routine payments. We take out liability and umbrella coverage to protect against the possibility of a law suite due to an unforeseen accident that may occur on our property. Some of this is required by law; however, most people have neglected to insure the most critical part of their lives: their retirement.

The life insurance industry has made tremendous strides to meet the needs of consumers, and the plans that are available today offer more benefits than any other retirement vehicle. The benefits of these uniquely designed policies significantly outweigh the traditional plans (such as 401(k)s) where most people have lost as much or more than 50% in the past 12 months. These substantial new plans are called equity indexed universal life (EIUL) which have the ability to provide consumers with the upside potential of the market with no downside risk. They allow consumers to lock in gains (generally up to 13.5%) while minimizing potential losses due to a guaranteed interest rate of 2% (for most products). The people that lost 50% last year would actually be up 2% (or 52% ahead of where they are now) had they chosen an EIUL.

The brilliance of these plans lies in their simplicity. Your money is not linked to the stock market.  Instead it is tied to an index such as the S&P 500 or Dow Jones then credited a rate of return within a specific pre-determined period.  This actually reflects a true 8% rate of return as your money grows tax free and is distributed income tax free.  To compare, if you were to profit 8% in a mutual fund, after paying taxes and fees, you may be looking at a 5-6% rate of return.

Example 1: A 45 year old male in a 28% tax bracket would like to withdraw $100,000 from his 401(k). First, he would pay a 10% penalty or $10,000 for early withdrawal. The remaining $90,000 is subject to his federal income tax rate of 28% ($25,200) with a final balance of $64,800.

Example 2: Now, using the previous criteria, let’s look at the results if he were to pull the money from his equity indexed universal life plan. There is not a penalty for withdrawing money from the account nor are any federal income taxes due. You leave with the full $100,000 completely income tax free.

The main difference between these two examples is the tax treatment of the plans. Any qualified account such as a 401(k) where you are making contributions and allowed a tax deduction for the current tax year would follow Example 1. In Example 2, you pay taxes on the total amount you contribute to the plan; however, everything accumulates tax free and is distributed income tax free. Why would anyone want to defer paying taxes today on small periodic contributions compared to the taxes you would pay on the total accumulated amount at retirement when you will be in a higher tax bracket?

If you were selling Picasso paintings, would you rather pay taxes on the paint he used or the finished work? Would a farmer rather pay taxes on the seeds or the harvest? Would James Cameron rather pay taxes on having the Avatar script prepared or final ticket sales? Get the idea?  Why continue to defer taxes and assume a larger tax liability?!

In addition to the tax benefits and flexibility of an equity indexed universal life plan, the policy includes a death benefit that self-completes in the event that income is lost in case the owner passes away before reaping the living benefits. In traditional IRAs and 401(k) plans, the beneficiary only receives the amount in the plan at that moment, minus any fees and taxes. With a properly structured EIUL plan, it can accomplish several goals you will have over the course of your lifetime.

Learn how to take advantage of full comprehensive planning at a truly affordable cost and address the following areas of your financial well-being.

• Tax Free Savings
• Tax Free Retirement Income
• Disability Protection
• Emergency Funds
• Mortgage Protection
• Income Replacement
• Life Insurance Benefit

If you are interested in seeing how this plan would work for you, please contact us and request a client questionnaire by sending an email to kyle@carltonfinancialgroup.com. 

To your financial prosperity,

The Carlton Financial Group