- Your financial assets should be liquid,
safe, earning predictable rates of return, tax free.
In this educational episode,
I'm going to answer the question that I've been asked,
I'm Doug Andrew,
"If I have $200,000, Doug,
"in IRAs and 401Ks,
"and I realize I'm not gonna be in a lower tax bracket.
"And I have another 200,000
"that's gonna come in the next couple of years
"from a sale of a rental property
"because I'm sick and tired of being a landlord,
"taking out the trash and fixing toilets
"and evicting tenants.
"And I have another 100,000 that's just sitting in the bank
"'cause I don't know what to do with it,
"I don't think the market's gonna do very well.
"And I have $1,000 or so a month that I wanna sock away.
"What would you recommend?"
I'm gonna show you without question
what I would do with those assets
to increase the liquidity,
safety, ready return and tax benefits
far above what most financial advisors would recommend.
(upbeat music)
- So I'm Doug Andrew.
I've been a financial strategist
and retirement planning specialist
for north of 48 and a half years,
helping people optimize assets,
minimize taxes, empower their authentic wealth.
Many times when people would come to me,
and they still email me and ask me questions,
like the one I just posed,
"Doug, how do I optimize my assets?
"What do I do with this money?
"I'm sick and tired of the volatility in the stock market.
"I'm sick and tired of being a landlord,
"fixing toilets and evicting tenants.
"I wanna get rid of this rental home,
"it's an albatross around my neck.
"I have $100,000 sitting in this bank and credit union,
"it's earmarked for future goals,
"I don't have anything in the short term I need it for.
"I have an extra 1,000 or 2,000 a month.
"What should I do with this money
"to enhance the liquidity, safety,
"ready return and tax benefits?"
'Cause maybe they've watched
some educational episodes on this very channel
and they know the key elements of a prudent investment
are number one, liquidity,
two safety, three, rate of return,
and fourth is tax benefits.
And their advisor has not put their money
in things that prioritize it in that order.
That's not uncommon.
So let me show you an example of what I would recommend
for somebody who had those kinds of assets here.
Many times I ask audiences when I speak across the country,
what are some uses for baking soda?
And usually the women will answer first and say,
well you can soak in the tub,
or take the odor out of the refrigerator,
take the pop out of a pot of beans or what have you.
And usually the men will say,
"Well, I clean my battery terminals with it."
And then somebody goes, "Oh, it's good for baking."
Yeah, the obvious use.
Well, that's why I've always focused on life insurance
and the obvious use is life.
I use life insurance for life, for living benefits,
most advisors have their blinders on
and only use it for death.
No, yeah,
if Hutton was the brain child in 1980
that said this is an incredible instrument for life,
to be able to accumulate your money tax free
and then be able to turn on tax free income,
or access money for any reason,
if you're a business owner, totally tax free.
And then when you finally do die,
anything you leave behind blossoms,
increases in value on transfers income tax free.
Nothing else does that in the Internal Revenue Code.
And that was the emergence
of max funded indexed universal life.
Universal life started in 1980,
1997, indexing was introduced.
So I've often told people,
hey, when you look at life insurance,
don't focus on what it is,
focus on what it does, it's pretty incredible.
So let me show you,
What E.F. Hutton realized, clear back in 1980,
there were three sections of the Internal Revenue Code
that now have been around
a sacred tax free cash cow for 108 years,
section 72(e), 7702 and 101(a).
72(e) says any money
that grows inside of a life insurance policy,
by virtue of interest, dividends or whatever,
will be totally tax free
because they want you to accumulate money
and have life insurance,
so that if you happen to die,
or if you happen to live a long time,
you'll take pressure off of the government
trying to provide for you.
It actually saves the government money
if they let you accumulate money tax free.
They've done studies
and found that if they taxed life insurance,
it would cost them more than it would make them.
Section 7702 says,
if you want to use the money in a life insurance policy
for living benefits, for tax free income,
or your business or whatever,
7702 says how you must access that money to not trigger tax.
And then at the end of the day, when you die,
anything you leave behind,
if I died right now, I'm 70,
if I died in an accident tomorrow,
every million would blossom to about $2 million
and transfer tax free to my wife, my kids, my grandkids,
the church or charity,
whoever I leave it too as a beneficiary
under section 101(a) of the code.
Nothing else in the Internal Revenue Code
does what I just said.
Now, in 1980, there was this massive exodus of money
leaving the banks and the brokerage firms into these,
'cause these were safer,
they paid higher interest, they were tax free.
And so the IRS went to Congress
and said we gotta change the definition of tax free,
under these sections of the code.
In a nutshell,
in 1982, under the Tax Equity Fiscal Responsibility Act,
they dictated the minimum amount of life insurance
that had to be attached in order for it to stay tax free
under these sections of the code.
If you didn't have at least a minimum amount of insurance
in the insurance policy,
based upon the person's age, gender and health,
it went over to the taxable section
of the Internal Revenue Code
and it was deemed an investment.
So they didn't know quite what they were doing,
so two years later
they redefined it under the Deficit Reduction Act.
This spells the acronym's TEFRA and DEFRA,
but TEFRA and DEFRA gave parity, meaning equality,
where it didn't matter
if you were a 22 year old athletic marathon running female,
or if you were a 60 year old,
or a 78 year old friend of our family
who came to us back then.
He had three blocked arteries, adult onset diabetes,
a prostate cancer episodes, six sisters predeceased him
and three brothers predeceased him.
And he was able to earn 11% and net 10%,
just like the 20 year old on his universal life policy,
because the amount of insurance required for him,
even though he was rated table D,
we were able to squeeze down the insurance amount
to where the cost of insurance
only drained out one percentage point of his rate of return.
He earned 11 and netted 10, just like a 20 year old.
And so there's a lot of insurance agents
that don't know how to do that.
Now, TAMRA came out,
the Technical and Miscellaneous Revenue Act of 1988,
when the banks and brokerage firms couldn't compete
and they lobbied Congress not to eliminate these,
'cause this is where they put their tier one assets
for liquidity and safety.
I mean, banks take your money and take 30 to 40% of it
and put it into these types of instruments.
They pay you 1% and they earn 5% or higher.
They're making five times, or 500%.
TAMRA simply was designed to slow the flow.
So TEFRA and DEFRA
have to do with the minimum amount of insurance,
TAMRA has to do with how fast can you put the money in
if you wanna have tax free income,
tax free access under section 7702.
For years I've compared this, metaphorically, to a bucket.
So let's say a bucket is an insurance policy
and you're designing this insurance contract
to accommodate the amount of money
you want to be grandfathered to be able to put in there.
If you put in more than that,
they're gonna have to refund it to you,
but if you comply with TEFRA, DEFRA and TAMRA,
all of the interest that you're earning on this policy
will be totally tax free
and you'll be able to turn on tax free income.
So TAMRA says,
well, you can only fill it up, if it's universal life,
over about five payments if you're over age 50,
if you're under age 50,
you could do it in about four payments.
So I've been a specialist for this for years,
cause I want the spigot on this bucket,
the cost of the insurance,
which the IRS says has to be be there,
or it won't be tax free,
it'll move over to the investment section of the code.
I want it to be as small as possible, as soon as possible,
but it's really not a cost.
If I earn an 11 and netting 10,
that one percentage point
is money that would otherwise go out the window
in unnecessary tax.
If I earned an IRA...
If I actually owned an IRA or 401K and was earning 15%,
I would only be netting 10 after tax and nine after fees.
I only have to earn 11 to net 10 in one of these.
So it's actually watering a nice money tree
'cause it's gonna blossom at the end of the day when I die.
So I've often compared this to buying a five story building,
or building an apartment complex.
If the IRS said,
hey, if you only rent out the first floor the first year
and then the first day of the second year,
you rent out the next floor,
and then the third floor and then the fourth floor,
and then in four years and one day,
you can rent out the rest of the building,
all of your rental income on that rental property
will be tax free forever after,
I would do that
because the tax free cash flow
is what I want at the end of the day.
So this is what you do,
I mentioned at the beginning I had a person say,
"Doug, what would you recommend I do?
"I'm 57, I wanna retire at age 67," is what he told me.
He said, "I wanna redirect for 10 years
"between a thousand to $2,000 a month,
"instead of putting it into my 401K,
"I'm not gonna be in the lower bracket.
"I studied and I don't want a 401K.
"And I wanna reposition 100,000
"that's sitting in a banker credit union,
"earning less than 1%, no brainer."
But he had another 200,000
that he was gonna get from the sales proceeds
from this rental home he wanted to get rid of.
So we accommodated that in the second and third year,
and in year four and five,
he's gonna be over age 59 and a half.
And so we can start doing a strategic rollout,
getting money out of his IRAs and 401Ks,
pay the tax and take the net after tax and put it into this.
And when he ultimately dies at the end of the day,
he's gonna get reimbursed any of the tax that he does pay,
but he is gonna be way better off tax free on the back end.
So what I did is I added that up, that's 500,000.
And then if I wanna accommodate,
let's say 1,000 a month for 10 years, that's another 120.
So I have to create a bucket, or an IUL policy,
that will accommodate 620,000.
And if he wants to sock away 1,000 a month forever after,
I have to go another year, so that would be 632.
That dictates, under TEFRA and DEFRA,
a death benefit of 1.3 million, approximately.
So when I'm designing the bucket,
if all he had were those lump sums, 500,000,
if he were 60, I would need about 1,25 million.
He's 57, so I said it'd be about 1.3 million.
But as he fills up that bucket, like I've talked about,
with 100, 112, 124,000 a year,
in five years he's gonna have most of his money
in the bucket and it's just going to zing.
That 500,000, for example, after five years,
earning actual effective rates of return
that I've experienced, 9.62 has been my average since 1980.
You divide 9.6 into the rule of 72,
your money doubles every seven and a half years.
So after the first five years,
he's jumped through the TEFRA, DEFRA and TAMRA hoops,
that 500,000 is in there and it has some interest,
it would be worth probably 560, 570,
maybe 620 by then, depending upon the rates of return,
that's going to double to 1,2 million
in seven and a half years.
Well, because that cash
qualifies as part of the death benefit,
the amount of insurance
the insurance company's charging him for
is now next to nothing,
because his cash value, by 12 and a half years, 15 years,
is equal to or greater than the original death benefit.
The insurance company's only gonna charge you
for the net amount at risk.
Because if you die, they just pay out what it is.
Now, if this grows to 2 million,
TEFRA and DEFRA says
the insurance company must pay out
about 5% higher than that,
but the insurance company's only charging you
when you have $2 million of cash in the bucket,
they're only charging you for 100,000 of insurance,
5% above that.
The interest on $2 million of cash value
at that point in time,
is so much greater than the spigot,
or the cost of 100,000,
that this turns into a cash cow.
If he earned 11 in the 20th year,
he would net 10.9 in that given year.
But retroactive back to day one,
if you earn 11, you're probably gonna net about 10.
It's incredible.
So if you wanna learn more about how you can do this
and how your assets could be optimized,
I want to gift you a copy of this book.
And I'm going to tell you
how you can have an illustration created,
based upon your particular set of circumstances.
So this is the LASER Fund book, it's 300 pages.
You can claim your free copy
by going to laserfund.com, or click on the link below.
You contribute a nominal amount
towards the shipping and handling,
I'll cover the rest of that cost
and I will pay for the book.
I'll fire out a hard copy to you,
it's 300 pages of charts, graphs and explanations.
And you flip it over,
and then there's 62 actual client stories
on this right brain side.
But this is about you and your brighter future,
there's options there to listen and learn if you want,
watch and learn
and you can also join us for educational webinars,
but if you just wanna talk
to a specialist right off the bat,
you can can go in and schedule yourself an appointment,
where they have openings
that are on that website right here.
So this is about you and your brighter future,
but claim your free copy of this book sooner than later
because I wanna help you optimize assets and minimize taxes.
I don't want you kicking yourself
for missing out on an incredible opportunity.
(upbeat music)