- What the United States' General Accounting Office
known as the GAO concluded
when it considered taxing cash value build up
in life insurance.
By the end of this educational video episode
you will understand that taxing life insurance
would cost the government far more than it would make them.
You'll understand why next.
(bright music)
So I'm Doug Andrew.
I've been doing this.
What's this?
Helping people optimize assets, minimize tax,
empower their authentic wealth for how long?
North of 48 years.
And I've loved helping people do this.
And if you have watched very many educational episodes
on this very channel or read any of my 12 books
that I've written thus far,
you'll understand that one of my favorite financial vehicles
that allows people to accumulate their money,
totally tax free,
and then be able to access that money tax free
anytime in life, you don't have to wait
till you're 59 and a half or whatever, totally tax free.
And then when you ultimately die, it transfers tax free
to your heirs
is a maximum-funded indexed
universal life insurance contract.
But hold it, it must be structured correctly
and funded properly, which unfortunately
I would say over 99% of IUL policies owned by Americans
do not pass this test.
It is the LASER test.
If it is structured quickly and funded properly
it can be deemed what I call a LASER fund.
LASER is an acronym that stands
for liquid asset safely earning returns,
hence the title of a book I wanna gift you
at the end of this episode is called "The LASER Fund".
It's a 300 page book that's been flying off
of our warehouse shelves.
I wanna gift you a copy of that 300 page book
at the end of this episode.
So stay with me.
And if you have not subscribed to this channel
please do so it's free and click the little bill.
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Okay.
So this is what the General Accountability Office
or Accounting Office of the United States
actually determined.
The last time they actually went very, very deep
into a study for months and months was back in 1990.
And you may be saying, well, golly, that's a long time ago.
Well, since then they've done it off and on
but they actually printed a report and I've always held
onto this report 'cause I remember why they did this
and the conclusions they came to.
So let me give you a summary
of what they concluded after going
through this extensive report, 'cause it involved
the House Ways and Means Committee,
the Senate Finance Committee.
Why were they doing this?
Well in 1990 they were trying
to pass a bunch of spending bills.
How unusual Congress spending more money?
Yeah.
When they spend way more than they bring in,
they have two choices.
They either have to raise taxes or find tax revenue
or they print more money, which causes inflation.
And we've seen that as of the recording of this episode
turn into almost runaway inflation, okay?
And so when they get hard up for tax revenue,
they usually look for places that they can tax
that have been sort of tax-sheltered in their minds
because they are off time shortsighted.
And so they don't understand certain things.
They just have heard that money inside of life insurance
is tax free and they go, well that's not fair.
Money in IRAs and 401ks is only tax deferred.
You're gonna have to pay tax on it
or investments that are tax deferred.
And then you access the money
out of an annuity or something.
People have to pay tax.
So it's not fair that life insurance is tax free
and that's all the further they think.
And so they order a multimillion
or a billion dollars study to be performed
over the next six months to a year.
The last time they did that really in-depth was in 1990
and this is the summary of their report.
And if you were to go through and look at their conclusions,
you would roll your eyes as you look at their report
and what they issued to Congress and the recommendations.
'Cause they came very, very close to messing up
one of the most incredible tax free vehicles in America
where people are just trying to be responsible accountable
and take ownership of their future and not have to rely
on the government for welfare, retirement and so forth.
Or if they die due to an illness or whatever,
they don't want their widows and orphans to be drains
on society and having welfare from the government.
This is why life insurance has been tax free
for over a century.
In one form or another, the current three sections
of the Internal Revenue Code, or Section 72(e)
that says money inside of a life insurance policy.
When you put money in will grow tax free.
Section 7702 says if you want to access money
for living benefits or retirement income,
while you're still alive,
it tells you how you can access money tax free
and not have to pay tax on it.
So you won't outlive your money.
And if you do it right, it'll knock the socks off
of an IRA or 401(k), which you have to pay tax on.
And then at the end of the day, when you finally pass away,
the money blossoms increases in value and transfers out
into a tax free life insurance death benefit
which is totally tax free
under section 101(a) of the Internal Revenue Code.
There's only one vehicle in the internal revenue code
that does what I just said.
Accumulates your money tax free allows you
to access the money tax free, including all the gain.
And when you ultimately die
it blossoms and transfers tax free.
Nothing else does that.
So when they go to look for tax revenue,
many times they'll say
maybe we should tax this little plum over here.
There's trillions sitting over here in life insurance.
Now this is what they did in 1990.
And they went through
and had all kinds of different objectives as they studied
should we do this?
So, you know, what is inside buildup
was the first part of the report.
Well, that's cash value.
That's money that's growing
inside of a life insurance policy.
So they went in and they attempted to define
what is this cash value build up?
And then they talked about
why it has had favorable tax treatment
and why that encourages people to save and so forth.
And they try to give two different views and they say, well,
it does encourage people to save because it's tax free.
Otherwise, they may not save.
And they're taking ownership for their future.
So that's a positive.
But then the chapter four in this report
is the inside buildup debate.
Well, what's the debate?
Well, that's not fair.
How come it's tax free?
We need to,
we could tax that and get billions of dollars of tax revenue
to fund the Green New Deal.
Or we could do this or we could do that.
And they think it's unfair.
And so they have this debate,
let's start taxing this because that's unfair
for people to get tax free accumulation.
Really? why?
And so it becomes this debate
and then they go through and they have all these tables
and calculations and then they end up with a conclusion.
So I'm gonna give you a summary of what came out in 1990
'cause frankly I was nervous back then.
Yeah, I started in 1974 and this was a big deal.
'Cause in the 1980s, in 1982
under the Tax Equity and Fiscal Responsibility Act
which is called TEFRA and in 1984
under the Deficit Reduction Act, it talked
about the minimum amount of insurance you had to put
on one of these policies in order for it
to still be tax free under Section 72(e) and 7702.
And then in 1988, June 21st,
the Technical and Miscellaneous Revenue Act,
that's the acronym TAMRA, said, well,
they'll only be tax free
when you need to access money tax free
If you fund it over five years or so.
And so they had all these hoops you had to jump through
but people still did it as ridiculous as it was
because it was far better than an IRA or 401(k)
and people wanted to take ownership.
They didn't wanna rely
on the government to provide for themselves
If they ran out of money, which they would run out of
if they had their money in traditional IRAs or 401(k)s
in the market because the stock market says
you only take 4% a year in a payout.
On a million dollars, that's only 40,000.
You pay tax of 25%, 10,000,
you only net 30,000 on a million.
These can generate like 90,000 a year tax free income
which is three times as much money.
So you won't outlive your money
with inflation and everything else.
And so they said, you know,
that's why they've been tax free, but you know what?
Let's make things fair.
Let's level the playing field
and make these inferior like IRAs of 401(k)s.
They don't say it that way.
But this is where they begin to say
maybe we should tax these 'cause we need the money.
Now in this report after analyzing all of it, they said,
well, if we don't tax the inside build up the cash value,
we definitely ought to tax when people access money
while they're alive.
And they do it by using these tax free loans.
Now you take it out the smart way
by borrowing the equivalent of your interest.
Because when you do that
the loan is not doing payable during your lifetime.
But loan proceeds are not deemed
earned passive portfolio income.
When you borrow money for a car or for a house
you don't have to pay tax on that.
So when you borrow money out of your life insurance policy,
what's collateralizing that loan?
The cash you left in there that you could have withdrawn.
If you have $1 million in there earning 10%,
you could withdraw 100,000 but after you recover your bases,
that would be dumb 'cause you have to start paying tax.
The IRS actually said, you know what?
If you call it a loan, it's tax free.
So you borrow the equivalent of your interest
but the insurance company keeps crediting you interest
on that collateral and you can borrow it
out at 2% and they credit you 2% on that.
And that's called a zero wash loan, but it's tax free
or they can charge you maybe 4%
and they'll keep crediting you 8, 9, 10,
maybe some years, 25%.
That's the way most savvy people take out money
outta their insurance policies.
And so we've had many clients
who have borrowed $1 million at 4%, that's 40,000
and they earned 25% that year, 250,000.
250 minus 40, they netted 210,000 tax free on their money
while they were actually using it
for their business or something.
It doesn't have to be just for retirement.
When they did the report, they said, well,
if we're gonna tax these,
we definitely outta tax those loans.
Well they're in a pickle.
Why?
Because what's the difference between borrowing
out of a life insurance policy
and borrowing for a car or for a house.
Are you going to charge tax when you borrow money
for a house or a car?
Now they have to change the definition of what a loan is
which is a whole can of worms.
And so they thought about, yeah,
we'll change the definition of these kind of loans
versus these kind of loans.
And the final conclusion in this report, you'll be shocked.
They actually said, yes,
we could bring in this many trillion dollars
if we taxed loans and if we taxed the inside buildup
year by year we could also bring in
this many trillion dollars of tax revenue.
This could fund all of these spending bills.
However, our conservative constituents on the committee
pointed out that that's myopic.
It's only shortsighted because if we bring in 10 trillion
in the short run, it's gonna cost us 15,
20 trillion in the long run 'cause now you took money
away from people that were trying to not outlive their money
or that you're taking away money
that was gonna provide for widows and orphans
and now they're gonna rely on the government.
And so you wanna trade off 10 million today
and then shell out 20 or 30 million down the road?
No.
And so they were smart enough in 1990 to say,
leave these alone.
Don't rock the boat.
I can't guarantee that
because they keep wanting to entertain taxing these.
But so far so good.
But there's two other conclusions that I could read
between the lines.
A lot of Congress people own these.
They didn't wanna shoot themselves in the foot.
So they said, leave these alone
'cause this is where we put our money.
The third reason they said, if we ever do tax these,
let's grandfather, everybody who already
has these established under previous tax law
because under the ex post facto provision
of the constitution, we're not supposed to pass new tax law
that adversely affects people that establish something
under previous tax law.
Now, they get away with all kinds of stuff
but they were smart enough to say
if we change the rules and we start taxing these,
let's just do it on new insurance policies.
From the moment the legislation passes forward,
let's leave everybody who owned these before tax-favored.
So that's called grandfathering.
And that's why I tell people, you know what?
If I were you, I would set these up sooner than later
just in case Congress gets stupid,
they get greedy and they only get myopic,
you want to be grandfathered to be able to put money in
and have it be tax free the rest of your life.
So that is the beauty behind this.
And I would recommend that you learn about
how to structure a max funded insurance contract.
The best way is to claim your free copy
of my most recent bestselling book that I mentioned,
"The LASER Fund."
It's actually two books in one.
This side is 200 pages, 14 chapters,
all kinds of charts and graphs and explanations,
if you're a left brain learner.
If you're a right brain learner,
you flip the book over and read this one.
This is about 100 pages, 12 chapters
with 62 actual client stories
of how a property structured maximum-funded IUL policy
that would be deemed a LASER fund can be used
for all kinds of goals, not just retirement,
but working capital for business, real estate management,
emergency funds, college funding for your kids
and grandkids, estate planning
on and on and on, okay?
Read both is my recommendation.
Here's how you can claim your free copy.
You go to laserfund.com, L-A-S-E-R, laserfund.com.
Click on the link below.
You contribute a nominal amount
towards the shipping and handling.
Come on, put some skin in the game.
I will pay for the book.
I will fire out a hard copy to you
and there's options in there.
If you like to listen and learn, watch and learn,
there's even a masterclass in there you can invest in
if you really wanna learn.
But we also have educational webinars.
Check out those and register.
And you can even talk to an IUL specialist
at absolutely no obligation, no cost
to see how these strategies may apply
in your particular set of circumstances.
But this is about you.
It's not about me.
This is about your brighter future
and the sooner you learn it and implement these strategies,
the better off you will be.
(bright music)