Hello again. In this episode, we are going to address the question "What investments
are tax-free?" Now, this is one of my favorite topics. You're going to learn
that there are certain elements of tax-free that sometimes people get
confused about where they might get a tax deferred IRA or 401k. That's not
totally tax free. So, you're going to get a vision of your brighter future how you
can accumulate access and transfer your money income tax-free which will knock
the socks off of a tax deferred IRA or 401K. So, I'm going to show you the
difference especially on the back end when you go to access your money, the
impact of taxes if you only put money in a tax deferred vehicle like an IRA or
401K. And why a tax-free investment is far better.
So, let's take a simple example of a dollar doubling every period for 20
periods. If you just do the simple math, a dollar doubles to tend to 4 to 8 to 16
to 32 and after 20 doublings, it's worth a million forty eight
thousand dollars. Some people go, "Really?" Well, yeah. This is
one of the reasons why people get discouraged waiting for their money to
grow because it's so slow at the beginning. But if it doubles, doubles and
doubles, the last doubling accomplishes everything that the previous 19 did all
together. So, when you're down here at 500,000 and it doubles one more time, it
doubles 500 to a million. And a lot of people they don't understand that power
of compound interest. The problem is if we put money in a tax as earned
investment, we're paying taxes as we go, if the worst way, Americans say. But the
most common way. They put money in banks and credit unions and normal mutual
funds. And let's say in a 25% tax bracket because a lot of Americans especially
married couples making more than 60 or 70 thousand a year. You are paying as
much as 25% and federal tax or there abouts plus 41 out of 50 states
has a state income tax. So, let's just say 25% a dollar doubles to 2
dollars and you pay tax of 25% that's 25 cents. You only have a buck 75 that
doubles to 350 you pay tax on that. Do you know you'll only have 72,000
instead of a million? You'll only have 7.2% of what you could have had.
What about a 33% tax bracket? Many Americans pay a third of their income in
tax between federal and state. In a 33% bracket, you would only end up
with 27,000. 2.7% of what you could have had if it was tax-free. Now,
some people thought themselves on the chest and they go, "Oh! I have a tax
deferred 401K." Well, yeah. You do tax deferred and
you have a million. But wait a minute, when you play 18 holes of golf, we're
only talking about the front 9 here. What about the back 9? What about when
you retire and you go to withdraw the money? Now, this is subject to tax. In
actuality, Uncle Sam is your partner. That million isn't all your money. Only about
two-thirds of it is your money. And a 33% percent bracket only about
650 to 700 thousand of that is your money. If you pull out 75 thousand ,let's
say you're earning 7.5%. 75,000 on a
million, you pay tax of a third or 25,000, you're only netting 50.
But what if you need 75,00 net to buy gas and groceries or prescriptions
or golf green fees? You have to pull out in a 33% bracket 50%
more. For example, let's say you needed 100,000. You pull out 100,
you only netting 66. You have to pull out 50% more than
100,000. 150 pay tax of a third of 150
which is 50,000 to net a 100. And this thing will drain dry in 11
years. I prefer totally tax-free. And so, I'm
going to teach you in this video how the power of the tax-free investments and
what you can use. Because on the back 9, when you go to withdraw the money,
you take out 100,000. The tax deserved account that only had
72,000 it's gone in one year. People outlive their money. But even
IRAs or 401Ks, do you have to pull out 150,000 to net
100,000. You're out of money in 11 years.
Now, most people --baby boomers one of you will make it to age 95 or so. The
fastest-growing segment of American society today have those people reaching
over the age of 100. So, if you're out of money, let's say you're retired at 65 and
you've depleted your nest egg, by age 76, what if you're living another 20 years?
If you have a tax-free investment, that million allows you to withdraw
100,000. And you net 100,000. Now, where is this? Well, my favorite
tax-free vehicle is called the laser fund. And I have other episodes that talk
about it. But the power is this: Tax-free means that if I withdraw 100, I'd
net 100. I still have a million dollars when somebody with an IRA, 401k
is now out of money. They're relying on charity welfare their children for
support. And so, if me or my wife lives another 20 years to age 96, that's
another 20 years of 100,000 of income. That's two million dollars. And
I still have my million. So, that's a 3 million dollar better retirement
nest egg than the same amount of money in a tax deferred IRA or 401K. Would you
rather have an extra 3 million or outlive your money? That is the
difference in having a tax-free strategy. So, let's talk about how to do that. So,
how do we harness the value of tax-free accumulation access to your money? And
when you pass away, it transfers tax-free. And I prefer that it blossoms in value,
increases in value. And so unfortunately, the growth and tax of a deductible plan
like an IRA or 401K where people sometimes think, "Well, yeah. Nice tax
advantage." No, I'm talking about tax-free. Not just tax deferred. See the problem
with tax deferral... Okay, deferred taxes just mean increased taxes. Another
synonym for defer is procrastinate. When does procrastination ever turn out
good for you? It hasn't for me. So, deferred taxes to me just means
increased taxes. We we want to put off paying tax until we retire because we
were maybe duped into thinking that, "Oh! You're going to be in a lower bracket when
you retire." And that has not being true. Because people when they retire, they
sort of killed their deductions along the way. They were
on the highway so to speak trying to achieve financial independence down the
road with one foot on the gas pedal. And the other foot on the brake pedal. And
they didn't know they were doing it. In other words, they're sucking away money
in a tax-deferred IRA or 401K. And they have the other foot on the brake. They're
paying off their house killing that deduction. They're not contributing money
into IRA or 401Ks in retirement. So, they don't have that deduction. The
kids are now gone. Or if they're not gone, you can't deduct them anymore.
Okay? And Congress keeps raising taxes. So, the fact of the matter is why do we want
to postpone taxes on future perceived unknown advantage and then withdraw our
money when we're convinced taxes are going to be higher? Whenever I ask
audiences, "How many of you think future taxes are going to be lower?" Nobody
raises their hands. "How many think they're going to be the same?" A few. When
I say, "How many think they're going to be higher?" Everybody's hand goes up because
of irresponsible government spending and the printing of money. That's just what
happens. So, I would prefer to sock away money and have it grow tax-free and be
able to access that money tax-free. And at the end of the day, when I pass away,
it transfers tax-free. There is only one vehicle in the Internal Revenue Code
that does that. So, what is that vehicle? Please understand that sometimes when
people get busy in life and they just participate in the company's 401K. And I
talk about it. "So, I heard you say that you don't own an IRA or 401K." "No,
never have never will." I've never owned a Roth and never will.
Because what I prefer to do is to put my money into a vehicle that will allow me
to accumulate my money tax-free. Not just tax deferred. I mean it's tax deferred if
I bugger it up if I do something stupid. But it's tax-free and then when I take
it out it's tax-free. And when I pass away it increases in value and transfers
tax-free. What I call my family bank. So, many people look at their IRAs or
401Ks like is this some through a subway hoagie sandwich
picked it here on the left. But then they go to retire and it looks like this
after Uncle Sam was helped himself to a big portion of that's very unappetizing.
So, is postponing tax a good idea? No. That's really procrastinating. When we
look at it, people would come to me with their yet to be taxed IRAs and 401Ks. And
I would go, "Hmm, were you planning your retirement or Uncle Sam's? Because now,
you're going to be a pain through the nose from retirement all day until you
pass away." And be like, "Oh! I don't want to pay the taxes. Or other there duped into taking
RMDs --required minimum distributions." Which is poor advice. In fact, the worst
advice I've ever heard. And I have other episode to talk about why you should not
didn't get duped into taking just they RMD. But the point is this: There are
certain sections of the Internal Revenue Code that are sort of sacred cows. And
they've been around since before the code. More than 100 years. And this
is where E.F Hutton who's the brainchild behind my favorite vehicle that I call
the laser fund. Because laser stands for liquidity safety and ready returned.
Liquid Assets Safely Earning Returns. Actually spells that acronym. But see the
laser fund is a max funded tax advantaged insurance contract. And I've
averaged 8, 9, 10 percent rates of return for 45 years in my laser
funds. But they're totally tax-free. Because of three sections of the
Internal Revenue Code 72(E), 7702 and 101(A) of the Internal Revenue
Code, you can accumulate money tax-free
interest dividends and so it grows tax-free. When I go to access money for
living benefits under Section 7702, it's tax-free. If you do it the smart
way. And when you ultimately die, because none of us are getting out of
here alive. I mean not that this this room or
whatever. And not on whatever room you're watching this in. Out of his life. And so,
we usually leave behind something that would have sustained us that we live
longer. 101(A), it says whatever's left
blossoms and value and transfers tax-free. Municipal bonds don't blossom
and value. There are only a few places where you can accumulate money tax-free
and access it. But there's only one that allows you to accumulate access and then
when you transfer it, it increases in value and transfers tax-free. And that's
the maximum funded insurance contracts that I teach in many of my episodes. And
write about in my books. There are 3 tax citations that were passed back in
the 1980s called Tefra, Defra, Tamra. So, I want you to watch other episodes as
I zero in on section 72(E). Another episode on 7702. Another one on 101(A). And
also, I will explain Tefra and Defra. And how that tax citation. Tefra
was passed in 1982 and Defra in 1984. Can be used for your benefit. And I
assure you once you watch these various episodes, you will know more than most
CPAs tax attorneys and financial advisers about how to accumulate access
and transfer your money income tax free. And you'll have a huge advantage in
retirement so that you don't outlive your money. So, this is a lot to digest.
And this is why I have a series of episodes that talk about these various
tax citations and how you can accumulate access and transfer your money tax-free.
Choose the right investment vehicles. And that's why I've written several books.
This is book number 11, The Laser Fund. So, I would recommend you click at this link
down here and I can send you a free copy of the laser fund which is over 300
pages of information about 200 pages has charts graphs as deep as you want to go.
If you're a right brain person, you learn more by stories. You flip the book
over this way, you read it this direction. About 100 pages comprising 12
chapters with 62 actual stories of clients who have used the laser fund not
just for retirement but for all kinds of financial goals with real estate
management, business management, college funding for their kids. And this will
knock the socks off of a 529 plan. And it's tax-free and has many benefits that
many of these other vehicles do not have. So, I invite you to do that and immerse
yourself in a lot of learning and insights into opportunities that you
probably didn't know existed.