Zero net cost loans. In this episode, I'm going to address IUL fixed loans. How do they work?
You're going to be blown away when I teach you how powerful this is because many
financial advisors do not understand this concept.
So, my name is Doug Andrew and I've been a retirement planning specialist, a financial
strategist for more than 45 years. And I've helped many many thousands of people optimize their
financial assets and minimize taxes and empower what I call their authentic wealth. As people
prepare for retirement whether they have 5 years, 10 years, 30 years, 40 years; one of my favorite
vehicles to help them accumulate their money tax-free, not just tax-deferred, and be able
to access the money tax-free during retirement and not outlive their money. And when they ultimately
do pass away, it blossoms in value, increases in value, and transfers tax-free is what I call the
Laser Fund. And at the end of this episode, I'm going to gift you a free copy of my most recent
300-page, bestselling book called The LASER Fund: How to diversify and create the foundation for a
tax-free retirement. But when people begin to read and study about an IUL... IUL stands for indexed
universal life. And this turns into a tax-free cash cow when you maximum fund it. Basically,
this was the brainchild of EF Hutton back in 1980. And they were not an insurance company.
They realized in the internal revenue code under three sections section 72e, 7702, and 101a,
the permanent life insurance policies were the only instruments that allowed you to accumulate
your money tax-free, be able to take out money tax-free, and when you die it blossomed and
transfer tax-free under those three sections of the code. But way back in the 1960s and '70s,
my heavens! The only insurances were whole life and term. And whole life generally would only
maybe credit 3.5, 4 percent of the best. Well EF Hutton changed all that because they said,
"What are we thinking? Instead of using life insurance for death,
let's use it for a living benefit. Let's turn it into tax-free accumulation and tax-free income.
Let's take the least amount of insurance the IRS will let us get away with. And let's put in the
most money the most premium, the IRS allows as fast as they allow". And it turns into a tax-free
cash cow. Basically, you can put in $500 a month, take the least amount of insurance.
And $500 a month will grow at an average return of about 9.6%. It's what I've averaged for the
last 4 and a half decades. It will grow to a million dollars tax-free. Or I've had many
clients who just throw in a half a million bucks and it doubles to a million about every
7 and a half years. Do the math. A half a million goes to a million and 7 and a half. In 15 years,
a million dollars to 2 million. Another 7 and a half years, it doubles to 4 million, to 8 million.
I have people who started out with 500,000 in max-funded index universal life insurance.
That half a million is now worth 8 million dollars generating 10% or about 800,000 a year.
They don't even need that much. They're living on 300,000 a year of tax-free income.
Why is it tax-free? I'll share with you why it is. Now, in the book I'm going to gift you at the end
of this episode, you'll learn that there's 3 ways to access money out of a max-funded
universal life insurance contract --the sad way, the dumb way, and the smart way. Now,
the sad way is one heck of a return but I wouldn't recommend that one. That's by dying. That's for
death benefit. And that's always been tax-free. And you put in 500 bucks and you die the next day
in an accident, they're going to pay you a million bucks, okay? That's one heck of a return but I
wouldn't recommend that option. But sometimes people do die prematurely. But that's tax-free
because the government says, "You're helping out the government by not having the government have
to take care of widows and orphans. So, we're not going to tax those. Those are tax-free." But see,
people begin to use it for living benefits. So, the money that grows inside of an insurance
contract is totally income-tax-free because you're taking pressure off of the government to
take care of you in retirement. Because a lot of people will outlive their money and so they have
to rely on government welfare whatever and social security is not going to cut it. So, they say let
the money grow tax-free. And if you want to use it for retirement income for living benefits, it'll
be tax-free. Those are under sections 7702 and 72e. It grows tax-free, you take it out tax-free.
The dumb way to take out money is to pull out the money in the form of a withdrawal, okay?
Because you will recover your basis. It's tax FIFO. first in, first out. If I put in 500,000
and it grows to a million and then it's earning 10%, I can pull out 100 grand a year. The first
500,000 I pull out the first 5 years, I pull out 100 grand a year that's tax-free because the first
money I put in is the first money out. There's very few financial instruments in the internal
revenue code that are taxed FIFO. But that means after you've recovered your basis, your 500,000,
that's dumb to call it a withdrawal. Because now you trigger tax. You have to pay tax.
Now, the IRS said, "No, that's not smart." The smart way is to change the nomenclature.
Just change how you're terming the withdrawal. Don't call it a withdrawal. Call it a loan.
They're the ones who tell you to call it loan. Why? Because loan proceeds are smart because
they're not taxed. When you go borrow money from a bank for a house or anything a car,
you don't have to pay tax on what you borrow. Loan proceeds are not taxable. So, the IRS says,
"Oh, just change the nomenclature to a loan." You're not withdrawing your money. Now, you're
borrowing money. Now, the first thing people say is "Borrow? Why would you borrow your own
money?" Aah, quit looking. Look at what it does? Are you ready? Ever since 1986 tax reform, there
are 3 types of income that americans pay income tax on. Earned income --that's wages and salaries.
Passive income --rents or leases. Portfolio income, that would be interest or dividends.
If you have income in retirement that is not one of those 3 types of income, there is nowhere on
a tax return to put. It it's not a tax loophole. Ihe IRS knows you're receiving that money but it's
tax-free. It's that cut and dried. Loan proceeds are not earned passive or portfolio income.
They're tax-free. They always have been. So, how does this work? Why would you borrow
your own money? To have tax-free income for the rest of your life. Let's do the math.
Now, if this is intriguing you and you can think of somebody that ought to watch this episode,
be sure and share. Click like. Post a comment. But subscribe to this channel because I post an
in-depth answer to a financial question almost on a daily basis. And this is not about me. This is
about you and those that you care about. So, let me explain this. I've already established that
the IRS says, "If you will call it a loan, it's tax-free." Okay? So, let's just say you have a
million dollars accumulated and take this snapshot in time. And it's earning 10% because I've been
earning an average of 9.6, 10, 10.07 for a year. So, it's simple math. If I have a million dollars
in my insurance policy and it's earning 10%, I can withdraw 100,000 but after I've recovered my
basis, now, I have to pay tax on that 100,000. I might only net 70,000 after tax. That's dumb.
If I borrow 100,000, there's not a financial institution I'm aware of --a bank or credit union,
that if you have a million dollars sitting in there, they'll loan you 100,000. The equivalent
of the interest that you would be earning. The sad thing is banks and credit unions don't pay 10%.
But insurance companies with indexed universal life do. So, let's say you have a million dollars
of cash value in your insurance policy and it's earning 10% because that is what I've earned on
the average for many many 25-year period that I looked at for the last 40 years, okay? Now,
that's 100,000. If I pull out 100,000 and withdraw it after I've recovered my basis, I just triggered
tax every year on 100,000. I may only net 70,000 to buy gas and groceries. Why do that? So, I go to
the institution I say, "Can I borrow 100,000 which is the equivalent of the interest you're crediting
me this year?" Sure. The interest that I'm earning is the collateral to borrow 100,000. So,
on the ledger, here's my million and I'm borrowing 100,000 and they're crediting me interest on my
million, right? Okay. Now, the collateral is there because I'm borrowing (changing the nomenclature)
instead of withdrawing the money. And now the 100,000 is tax-free because it's a loan proceed.
All the insurance companies required to do is keep a loan balance. So, on the loan balance,
I pull out 100,000 a year. So, it's 100, 2 hundred, 3 hundred, 4 hundred thousand.
But my cash value is growing by a hundred thousand, 2 hundred thousand, 3 hundred thousand.
Pretty soon let's say, 10 years down the road I've pulled out a million but my cash value
is now worth 2 million. 2 million of cash value minus the million of loans is the same net million
I would have had had I pulled it out the dumb way and paid tax every year for 10 years. That would
have been 300,000 of unnecessary tax. Now, the insurance company has to charge a nominal interest
rate. So, that varies with insurance companies. But it's usually around 2, 2 and a quarter,
3 percent. Let's say 2 and a quarter. So, the insurance company, if you borrow 100,000,
they have to charge you 2 and a quarter percent. So, that'd be 2,250 bucks, right? So,
they charge you 2,250 bucks. But over here on the 100,000 of collateral that collateralized
that 100,000-dollar loan, they will credit you the exact same rate or within a quarter of a percent.
Most of the time they credit you 2 and a quarter here. So, they're crediting you $2,250,
they're charging you $2,250. It's a zero net wash. That compounds through the years. This is growing
compounded at 2 and a quarter. This is being charged at 2 and a quarter. At the end of the day,
this loan is not doing payable during your lifetime. When you die, it's washed away because
this is growing. And this minus this liability is the same amount of money you would have had had
you pulled it out the dumb way and paid tax the rest of your life. Sounds simple. Because it is.
That's called a zero cost or zero wash loan because the IRS says just change
the nomenclature. What you call it? It's a loan. Okay, it's a loan. It's tax-free.
This is not a loophole. That's called a zero cost or a fixed loan. Some companies, they could charge
a higher rate and maybe they cap it out at 7 or 8. But usually, the spread, if they even
have a spread in the first 5 years or so, they might charge 2 and a quarter and credit you 2.
It's a quarter of a percent. Would you borrow money at a quarter of a percent interest?
I would all day long. This is the magic behind what are called fixed loans. But I want you to
watch the episode that talks about variable loans. Because you're going to be blown away.
Where you can pay a lower rate and keep earning a much higher rate on all of your cash value.
That's what I do. That's what smart people do. If you have heard enough and you want to learn more,
I'd like to gift you a free copy of my most recent best-selling book it's called The LASER Fund. It's
actually 2 books in 1. This one is 200 pages 14 chapters with all the charts and graphs. And it
shows you these loans with charts. Now, if you're not into numbers and you want to see how it works
in real life and you learn more by your right brain, you flip the book over and read this one.
This is 12 chapters, 100 pages with actually 62 client stories. And you will see how it
works in real life. If you want to use your whole brain, read both. It's 300 pages of information
that are game changers for people so they don't outlive their money. So,
go to laserfund.com. Click below. LASERfund.com. Contribute a nominal amount towards the shipping
and handling I'll cover the rest of that. And I'll fire out a free copy of this book for you.
And you can begin to become enlightened on how you can manage your money better
and not outlive your money and have tax-free income for as long as you live.