Why does the IRS or congress allow iul to be tax-free? By the end of this video episode, you
will understand the three sections of the internal revenue code that have protected money from taxes
for more than 108 years if you comply with three tax citations TEFRA, DEFRA, and TAMRA.
So, I'm Doug Andrew, I've been a financial strategist and retirement planning specialist
now for more than 48 years. One of my favorite financial vehicles bar none that I would recommend
that 40 -60% of your resources at retirement are in for liquidity safety and predictable rates of
return that are tax-free. So that hopefully, 40 to 60 percent of your retirement income
doesn't even show up on the front page of your 1040 tax return. Did you hear that? Yes, this is
legal okay and I'll explain why it is and why it's been sort of a tax-free sacred tax-free cash cow
in the internal revenue code for 108 years. So, what is one of my favorite instruments? A max
funded indexed universal life insurance policy. Because in the internal revenue code under three
sections it's the only vehicle that I'm aware of that allows you to accumulate your money tax-free.
That's under section 72(e) and then you can access your money tax-free. You don't have to wait till
you're age 59 and a half to avoid penalties or anything like that. That's under section 7702
and then at the end of the day when you finally pass away anything left in the IUL policy will
blossom increase in value and transfer income tax free to your spouse, your kids, your grandkids, your
heirs at church to charity whoever you want. I know of nothing else in the internal revenue code that
does that. So, I've been studying this and helping people as a tax strategist for more than 48 years
and actually, this is what really was the brainchild of EF Hutton clear back in 1980.
Now, I started in 1974 and so in 1980 Hutton realized golly you know people are putting their
money in the market in mutual funds and our brokers are making money you know turning over
that portfolio as often as possible and yet they realized that if you were to earn even 12%
in the market which most people are not by the way. It's like when I was a kid playing red light green light.
Maybe you might take 20 steps forward and then you take steps back and they said, "Well,
what if you average 12 positive steps, 12% return?", that'd be pretty phenomenal. Well, you're not really
netting 12. Because if you take 12 steps forward if you earn 12 percent you have to take usually
four steps back in taxes and or fees you're only netting eight and so let's say you had
a million dollars accumulated at retirement and it's in the market and if you were earning 12%
that's 120 000 that you theoretically could pull out of your million-dollar nest egg, right?
But you're not netting 120 you're netting 80,000 and then usually they charge you another
1% an asset management fee so you're netting seven. The point is if you earn 12
you're only netting seven after taxes and fees. EF Hutton back in 1980 said, what are we thinking?
The one of the safest financial industries is the multi-trillion dollar insurance industry.
They're the backbone of America and the backbone of the world and so they said
golly in the internal revenue code these have been sort of protected with tax advantages.
Because when people take ownership for their own future. If they make sure that if they die that
they won't be leave behind widows and orphans that are reliant dependent on the government. Then the
government says, "Oh, in the internal revenue code let's make money inside of a life insurance policy
grow tax-free", why do we want to hurt people who are trying to take pressure off of the government?
Under section 7702, what if they need some money if they get laid off or get disabled? Let them
access the money tax-free because otherwise, we're going to be shelling out welfare benefits
or unemployment benefits or whatever in higher amounts and so let's just why should ourselves
in the foot by taxing people who are trying to be responsible accountable and so that's section 7702
and then when they ultimately do die if I pass away and I leave behind money to my wife, my
children, my grandkids. I'm taking pressure off of the government having to provide for them
by me doing that. So, this has always actually saved the government money by allowing people to have
tax advantage accumulation access and transferability. Does that make sense?
In fact any time that the uh the IRS or congress general accountability office the house ways and
senate and finance committees have ever studied this, should we start taxing these? Because they
get greedy sometimes. They've always said leave these alone. Leave these sections of the code alone
because they were smart enough to calculate. It would actually cost them more in the long
run than it would make them in the short run and by the way government doesn't always
make smart decisions but they basically deemed insurance contracts a sacred tax-free cash cow
that can accumulate money tax free and so a lot of times people just use life insurance for death
benefit. So, why does congress and the IRS allow this? Well, because you're taking responsibility
and accountability. If you live too long. If you die soon. If you get disabled. You're taking
care of your affairs and your family instead of making your family be reliant on the government.
So, that's why the government allows this and that's under these three sections of the code, okay.
Now, the other three tax citations TEFRA, DEFRA, & TAMRA, I explain in other episodes
and by the way, as you are getting educated. If you can think of somebody who ought to
hear this be sure and share or post a comment. We love to hear your comments. But if you're
preparing to meet with an IUL specialist you ought to understand, why it's tax-free?
How it accumulates tax-free? How you can access it the smart way tax-free and why it blossoms and
transfers uh tax-free under these three sections? But you have to adhere to the TEFRA and DEFRA tax
citations these are acronyms so that you take the least amount of insurance but the required amount
of insurance that the IRS says you have to have in order to accommodate the amount of money you want
to put into the policy and TAMRA basically says how fast you can put it in. Because some of the
other financial institutions, banks, credit unions, brokerage firms, they get jealous. They don't want
to kill these because this is where they put some of their money to invest. But they wanted
to slow the flow clear back in 1988. So, that's the TAMRA and so when we talk about TEFRA and
DEFRA that requires the minimum death benefit. TAMRA it talks about how fast you can fund it
and when we use the metaphor of a bucket this is the IUL policy and you structure it. So that
you can accommodate the amount of money you want to put into that, $500 a month. I'd love some of a
100,000, 250, 500,000. Maybe you want to sock away 8,000 a month. You can put in lump sums
or monthly deposits. But the IRS will make sure you adhere to TEFRA, DEFRA, TAMRA and a good
IUL advisor will make sure you do that so that you do not bugger up the tax-free accumulation and the
ability to access the money tax-free at the end of the day or you don't have to wait till retirement
to access money. I've had people put in 200,000 and 4 days later pull out 120,000.
It's like a working capital account for their business. So, when you look at the advantages what
you're structuring it so that this spigot on the bucket which is the cost of the insurance gets
smaller as you get older. Wait a minute, have you ever seen an insurance policy that actually gets
cheaper as you get older? Well, then, you haven't seen one structured correctly or funded properly
that's why it's crucial for you to meet with an advisor who understands what they're doing.
So, basically, the amount of insurance required is contingent upon your age, your gender,
and your health, but don't rule yourself out. Even if you have health issues. I had a gentleman that
was 78 years old and he had three blocked arteries, adult-onset diabetes, a prostate cancer episode,
six sisters predecessor and three brothers and we were able to get him approved for an IUL policy.
Now, if you don't get approved you can use a surrogate and I explained that on other episodes.
But you're designing this policy based upon your age let's say you're 60. But it doesn't matter
if you're 35. If you're 35 years old and you want to be able to put in a hundred thousand bucks
let's say over the next 5, 10, 20, years. You can put in monthly or what have you.
This amount here dictates the amount of insurance and so if it was a 60-year-old to be 250,000 about
two and a half times that. Now, you could buy way more life insurance than this for that much money,
That's not the objective. You want to take the least amount of insurance which TEFRA,
DEFRA, TAMRA, says this is the least amount for a 60-year-old is approximately
two and a half times this amount. It's an exact number based upon exactly how old you are.
But see, as you do this then your goal is to get the money in as fast as the IRS allows. The fastest
they would do it about twenty percent a year, maybe about twenty thousand a year. But when
you do this now every a bit of money that you access out of here can be totally income tax-free.
It's the most incredible instrument I have ever seen as a financial strategist
in the entire nearly five decades I've been helping people optimize assets and minimize tax.
So, section 7702 has been sort of protected since June 21st of 1988. That's the TAMRA and
it wasn't until about December 28th of the year 2020 that congress finally even loosened up and
you can actually fill up the bucket a little bit faster. You can get away with a little bit less
insurance because more and more people are using this for living benefits. So, that your hundred
thousand doubles to 200 and then to 400 then to 800,000 or like many clients we've had started
out with 500,000 and it doubled to a million and then to 2 million and then 4 million and 8 million.
Yep, in 30 years, that's the beauty behind the max funded insurance contract. So, congress, this is not
a secret sometimes people say, "Oh, as soon as the IRS finds this out they'll close that loophole",
no, the IRS is the one that actually dictates how to do it correctly and it takes pressure off
of the government. So, what I would recommend as you understand these tax citations and meet with an IUL
professional that you study why this is my favorite vehicle and you can claim a free copy
if you do not have one yet of this book the laser fund. It's over 300 pages of charts graphs and
explanations and 62 actual client stories. So, go to laserfund.com you contribute a nominal amount
towards the shipping and handling and I'll cover the rest of that cost. If you have not claimed your
free copy yet. But here is to your brighter future when you talk to an IUL professional.