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A Savings Vehicle That Makes All the Difference

Missed Fortune – Retirement Savings Alternatives

Posted on | April 15, 2010

At what pace do you want your money to grow? Would you prefer it to crawl, walk, jog, or sprint toward your retirement goal?

American taxpayers have these basic options for the pace of savings:

Crawling

  • Certificates of Deposit
  • Money Market Accounts

Walking

  • Non-Qualified Annuities

Jogging

  • Typical IRAs & 401(k)s

Running

  • Roth IRAs & 401(k)s

Sprinting

  • Maximum-Funded, Tax-Advantaged Life Insurance Contracts

How those savings are taxed makes a huge difference in the pace, and thus in the amount you wind up with for your golden years.

Whenever you work to earn money, it is subject to income taxation. When you put your money to work, you can structure a savings plan that is taxable, tax-deferred, or tax-free.

A Utah couple filing a joint tax-return, with a taxable income this year in excess of about $68,000 ($34,000 for single filers), will be in a 32 percent combined federal and state tax bracket.

If they put after-tax money in traditional savings and investments, they are using 68-cent dollars.

If they put money into qualified retirement accounts, the IRS allows them to use pre-tax dollars, or they get to deduct the contributions from their gross income. Thus, they are using 100-cent dollars.

When they save money in non-qualified CDs and Money Markets, they are using 68-cent dollars and the interest they earn is usually very low and it is tax-as-earned.

If this couple invests in non-qualified annuities, they are using 68-cent dollars to fund their account.

Their account may be tax-deferred, but when they withdraw their money it will be taxed LIFO (last-in, first-out) meaning all the interest they earned is the first money being withdrawn according to IRS rules, so it is 100% taxable unless they dip into their principal.

If this same couple invests money in traditional IRAs and 401(k)s, they are using 100-cent dollars to fund their account, but when they begin to withdraw their money during retirement, it is 100% taxable.

Therefore, they will be jogging toward retirement with the wind at their back at the beginning of the race only.

If they invest money into Roth IRAs and 401(k)s, they are using 68-cent dollars to fund their account, but when they begin to withdraw money during retirement, it is 100% tax-free.

Therefore, they will be jogging with the wind at their back (100-cent dollars) at the end of the race.

I feel the best solution to the retirement saving dilemma is a strategy that guarantees safety of principal while providing competitive rates of return. It provides liquidity and flexibility.

I choose to put my serious cash in maximum-funded, safe, tax-advantaged (MFTA) indexed insurance contracts because they are the only savings vehicles that, when properly structured and funded, allow an investor to:

  1. Accumulate money safely, tax-free
  2. Withdraw the money later tax-free
  3. Transfer money income-tax free at death

This is allowed under Sections 72e, 7702 and 101 of the Internal Revenue Code as I teach in my books. Many indexed contracts have averaged 8% the last 3 years.

Ready to start sprinting towards retirement? Meet with a Missed Fortune advisor today.

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*Life insurance policies are not investments and, accordingly, should not be purchased as an investment

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