“Single Biggest Benefit in the Tax Code”

[transcript of Ed Slott tax advisor speech]

Let’s switch gears to another way to eliminate huge taxes: life insurance. Just so you know I say it on every program, I do not sell life insurance, I do not sell stocks, bonds, funds, annuities. I am a tax advisor and an educator. And as a tax advisor I am advising you to take advantage of the single biggest benefit in the tax code, and that is the tax exemption for life insurance.

You’ve heard me talk about the incredible leverage of the tax free benefit in life insurance, mainly for your heirs, and that payoff is big. You turn relatively small amounts of taxable money into a tax free windfall for your family. They’ll end up with millions more than you ever had. All tax free. It’s truly the best tax leverage available under the tax code. But it’s actually better than you think. Especially if you’re thinking, “what’s in it for me?” Anyone thinking that? In these volatile, uncertain times, you need to focus on investments that give you control, options, flexibility, and certainty. And you want to remove both stock market risk and tax risk, and you want a guarantee, and you want it all tax free. That’s a tall order. But you can get all of that with certain kinds of permanent life insurance.

Most people think of life insurance as something that pays off after you’re dead. That’s true! But what if I told you that you could have tax free access to your life insurance during your lifetime so you could use it for yourself? You can begin moving large amounts of money from taxable accounts into a tax free permanent life insurance policy. The money grows tax free inside the policy. It’s harder than ever today to make money on your investments, so the last thing you want to do is share any of your hard earned gains with the government. You don’t have to if those gains are earned within a life insurance policy. If your money’s going to grow it may as well grow tax free right? You need to realize that life insurance is an investment, but it’s better than your typical investment accounts because its tax free.

Oh and one more thing, life insurance comes with something else that you can never get from the stock market: a guarantee. But how much can you invest? Well that’s up to you and the tax rules. Believe it or not, this is an area where you may want to invest the maximum you can into the policy. If you’re approaching retirement or already retired and looking to shelter more of your taxable money into a tax free vehicle, this might be the place for you. But the mistake that most people make at this stage of life is trying to pay the least for the policy. So you might be thinking, “How can paying less be a mistake? Everyone wants a good deal.”

Because this is an investment, not an expense. If you were saving money in a bank account, would you want to put in the most or the least? Of course you want to put in the most because this is your savings! You should look at permanent life insurance the same way, except that the investment is tax free. So why would you keep money growing in a taxable account when it could be transferred to a tax free investment? If you have taxable IRA funds, you can, in effect, convert your IRA to life insurance. Paying tax now at low rates are in distributions from your IRA and then using that money to fund your life insurance investment. That accomplishes two things, you reduce your future tax exposure in your IRA by taking distributions now, and you build up a tax free source of retirement funds should you need them. If it turns out that you don’t need to tap into your life insurance for your retirement income then the life insurance benefit builds for your family, also income tax free and for most people it’ll be estate tax free too depending on the estate tax exemption level. This is truly the best leverage available and it’s all under your control.

Once again, I do not sell life insurance, but as a tax advisor, I got to tell you, that the tax exemption for life insurance is the single biggest in the tax code. Make it apart of your retirement savings plan and your estate plan, but remember this area of your life is a little tricky. You must do it the right way to receive all of the benefits I’m telling you about. Now is the time to create a plan to rescue your retirement and move your money from accounts that are forever taxed to accounts that are never taxed. It’s the taxes.

Below is a link to a short 5 minute YouTube video where Ed Slott, CPA and nationally renowned tax and retirement advisor talks about the benefits of a maximum funded IUL.  It’s definitely worth 5 minutes to watch this.