- Have a lump sum of money
or will be getting a lump sum?
Keep it liquid, safe,
and earning tax free returns
using an IUL insurance policy.
In this episode,
I'm going to address why a Max-Funded IUL
can be the perfect repository
for a lump sum transfer of capital.
What's capital?
Money.
Get ready.
You're going to gain insights into opportunities
that maybe you didn't know existed before.
(bright music)
So I'm Doug Andrew,
and I've been a financial strategist
and retirement planning specialist now
for north of 48 years:
helping people to optimize their assets,
minimize taxes,
empower their authentic wealth.
And so I love to address questions that people have
as I have taught audiences now
for more than 48 years across America,
and a lot of times people are wondering,
"Okay, I have a lump sum of money,
or I'm going to be getting a lump sum of money
coming from some source."
Let's say it's a settlement from a car accident,
or it might be an impending inheritance,
or it could be a death benefit
because someone where you were named the beneficiary
passed away,
and you are going to get a lump sum of capital.
By the way, if it's coming from life insurance proceeds,
it's tax free
and I always tell widows or widowers,
"Hey, you're getting this amount of money,
a death benefit from life insurance:
several hundred thousand
or a million dollars,
it's income tax free.
My first suggestion would be to keep it tax free.
Don't go put it in some investment
and start generating tax implications.
Keep it tax free."
And they go, "Well, how do I do that?"
By putting it right back into where it came from,
insurance on the next oldest, healthiest family member
or you, okay?
So you're gonna gain insights as I continue to go here,
but sometimes people are having an impending an inheritance.
They know that they are named
as a beneficiary in an estate,
or a trust,
or life insurance,
and that person is going downhill health wise
and they have a terminal illness.
And so they come oft times,
and they say, "Doug, I'm going to be getting
a half a million,
or a million, or $10 million here
in the next year or two.
I wanna make sure that I'm prepared
on what to do with that."
Yes, I would recommend you keep it tax free
because if it's coming from life insurance,
it is income tax free.
Now, if we're talking about a settlement,
a lot of times, you will not have to pay tax
on proceeds from a settlement
from a car accident,
or a lawsuit,
or what have you.
You may simply getting a lump sum
'cause you've sold a business,
or you sold a rental property
that you were sick and tired of being the landlord:
fixing toilets,
taking out the trash,
and evicting tenants.
And so, a lot of times,
we will have a lump sum of money
and we wonder, "Okay, what should I do with this money?"
Make sure that you keep it liquid and safe
if you owe tax on that
or will be owing income tax on it
on the tax year that that happened in
as you file the tax returns the next year
by April 15th, okay?
Once you understand that,
you can then begin to structure
a way to be able to accommodate a lump sum.
Now, if you've watched very many of my educational videos,
my favorite financial instrument by far
to accumulate money tax free,
and then be able to allow you to access that money
totally income tax free,
and then later on
when you finally pass away,
anything left in there blossoms,
increases in value and transfers tax free,
is a Max-Funded insurance contract
and I prefer indexed universal life
because I have been able to average
an excess of 9% rates of return.
For the last 40 years,
it was the brainchild of EF Hutton.
Clear back in 1980,
and universal life came out.
And then, in 1997,
indexed universal life came out.
And so I would like to have lump sums
of money growing tax free,
not just tax deferred.
You can't put lump sums in an IRA or 401(k)
unless it's a rollover, okay?
And so people say, "Really?
This sounds too good to be true."
Now, if you put money into a Max-Funded,
that means you're taking the least amount of insurance
that the IRS will let you get away with
under three tax citations:
TEFRA and DEFRA
dictate the minimum amount of insurance
based upon your age,
and your gender,
and your health
because the objective is to have tax free accumulation
for living benefits far more than the death benefit.
So you wanna have the least amount of insurance
that the IRS will let you get away with,
so to speak,
and be able to put in the most money
that the IRS allows as fast as they allow.
Now, that's TEFRA and DEFRA.
Now, in 1988, they also passed a law,
the Technical and Miscellaneous Revenue Act,
which is the acronym TAMRA.
So TAMRA basically says,
"Okay, if you have a lump sum of money
and you want to put it into an insurance contract
to be able to have it be liquid and safe
and earning tax free rates of return
so that when you access the money,
while you're alive,
if you wanna access the money tax free,
you cannot put in all the money in one fell swoop
ever since June 21st of 1988.
You have to jump through the TAMRA hoop
in addition to the TEFRA and DEFRA hoops.
You have to have a certain amount of insurance,
and you can only put in so much."
So let's just use an example of a lump sum of $500,000.
It could be a lump sum of 50,000.
It could be 5 million.
Let's say it's 500,000.
If you wanted to comply with TAMRA
so that you could access money income tax free
because if you put in $500,000
and it earns the rate of return
that many of these have like 9.6%,
the rule of 72 tells us that 9.6 divided into 72:
our money will double about every seven and a half years.
So that 500,000 would double to a million
in seven and a half years.
A million would double to 2 million
in another seven and a half years,
by the 15th year.
And that 2 million would double to 4 million
by the 22nd and a half year.
And then, that 4 million would double to 8 million
by the end of 30 years
because it doubles every seven and a half years.
That's pretty incredible.
Well, you cannot put in that 500,000 in one fell swoop.
If you want to be able to access that money at any point
without triggering income tax on the game,
you have to spread it out.
And so, generally speaking,
for older people over age 50,
you have to spread it out over about five installments:
five years.
So, using 500,000 as an example,
you basically could put in about a 100,000.
Now, a specialist will help you understand exactly
how much to the dollar.
We're just gonna use an approximate amount about 20% a year.
So a 100,000 the first year,
a 100,000 the second,
and next third,
and so you're up to 300,000 by the third year,
it's actually the first day of the third year,
and then 400,000,
then 500,000.
So it takes five years in order to comply with TAMRA.
Now, it's grandfathered forever after to be tax free
when you start accessing income
or when it's doubled to a million or 2 million,
and so forth,
whenever you take that out,
it's totally income tax free
if you complied with TAMRA.
Now, you don't have to do that.
You could put in the lump sum.
A lot of people aren't aware of this,
but you could still throw in
the full 500,000 in one fell swoop
into a Max-Funded Indexed Universal Life policy,
but you violated TAMRA.
As long as you took the minimum death benefit
under TEFRA and DEFRA,
you're squeezing down the policy,
but you're putting in the lump sum,
which makes it grow right off the bat
because you've got a 100% of your money
growing from day one.
What is the disadvantage?
It becomes what is called a Modified Endowment Contract
which spells the acronym MEC, okay?
You can perfect a MEC at the end
of the first policy anniversary after you overfunded
in excess of TAMRA
by asking for a refund
if you wanna preserve the right
to access money totally income tax free,
including the game.
But maybe that's not what you're worried about.
Maybe you have this lump sum,
and you may not even think you need the money
in your lifetime
and so what does it matter
that you access it without triggering tax
during your lifetime?
Maybe you're more concerned about what it leaves behind?
Because you could take that lump sum
and put it in 500,000,
and the minimum death benefit
for a 60-year-old might be a million, 1,200,000.
And so, you put in 500,000,
and if you happen to die,
it leaves behind a million, 1,200,000,
250,000.
That's totally income tax free still!
It's still tax free when you die!
And as it grows,
the death benefit will stay ahead of it.
But if you happen to need money,
you can still access the money,
but now it's going to be taxable.
And maybe that's not a big deal.
Maybe you're not in that high of a tax bracket,
and what would be the difference of putting it
into any type of investment
that's gonna be taxable sooner or later?
It's actually better than most
because you're able to use indexing
to participate when the market goes up
and not lose when the market goes down:
all the advantages of an IUL policy.
And when you die,
it blossoms and transfers income tax free.
Most investments won't do that.
So the only downside would be,
well, it could have been tax free
when you took money out,
but you didn't care about that.
So you might just go ahead
and let it be a MEC,
a Modified Endowment Contract.
It still accumulates tax deferred.
You don't have to pay taxes it grows
only if you access money while you're alive.
And at the end of the day,
when you die, anything left in there
increases, blossoms,
and transfers income tax free.
So it's tax free as it accumulates.
It's tax free when you die.
But if you start accessing money out of a MEC,
you now have to pay tax.
That may not be the end of the world
'cause that's how most other investments are.
Does that make sense?
The point of this episode is to help you understand
that you can bypass the banks,
the credit unions.
You can have greater liquidity, safety,
predictable rates of return,
and it can be tax deferred,
maybe not totally tax free
if you have a lump sum of capital.
If you want to comply with TAMRA
and you have a lump sum,
a professional will help you determine
how you can fund it in compliance with TAMRA
so that if you started out with 500,000 in a lump sum,
you would only put in maybe a 100,000 a year
for the five years
and then it's tax free thereafter,
and they could help you understand
where you could maybe park that money
or what have you
while you're waiting to comply with TAMRA.
The point is that a Max-Funded IUL policy
can be the perfect repository
for a lump sum transfer of capital,
no matter where it's coming from.
And if you wanna read some stories about this,
I want you to claim your free copy
of my most recent bestselling book.
It's called "The Laser Fund."
It's actually two books in one.
This side is about 200 pages,
14 chapters with all the charts and graphs
and explanations of how to diversify
and create the foundation for a tax free retirement.
If you learn more by stories and examples,
you flip it over and read this one,
which is about a hundred pages, 12 chapters,
and it has like 62 chicken soup
for the financial soul stories
of how "The Laser Fund" can be used
for all kinds of goals,
including lump sums.
There's one chapter that just totally focuses
on stories of people who had lump sums.
Now, if you wanna use your whole brain,
read both,
but here's how you can claim your free copy.
Go to laserfund.com,
laserfund.com, or click on the link below,
and you contribute a nominal amount
towards the shipping and handling.
I cover the rest of that.
I fire out a book.
I'll pay for the book,
and then there's options there
if you want to listen and learn,
watch and learn.
There's even ways to be able to join us
for online educational webinars
or even live events
if we happen to be in your area.
The point is this
this is about you
and your brighter future.
(bright music)