- This couple doubled their retirement income.
By the end of this educational video episode,
you will understand how two school teachers saved $250,000
in tax on their 401(k)s and 403(b)s.
Get ready, you're gonna be blown away.
(upbeat ambient music)
So I'm Doug Andrew
and I've been helping people optimize assets
and minimize taxes now for nearly five decades.
And in the process, I've helped 1000s of people
as a tax strategist alleviate and avoid or redirect
otherwise payable income tax.
Now I'm a red blooded American,
I think we should all pay our fair share of tax,
and I actually show people how they can help the government,
this great country of America better
by getting the taxes over and done with sooner than later
and converting their retirement income to tax free,
which actually takes pressure off of the government
worrying about how to provide for retirees
that outlived their money and so forth.
When off times they're following the herd,
putting money into traditional IRAs or 401(k)s
thinking that's the best way to save,
and then these people outlive their money
and they're not in a lower tax bracket
and taxes, inflation and market volatility
cause many Americans
to be dependent on the government sooner than later.
Okay.
And so I want to tell you the story
of this couple that came to me years ago
'cause it applies still to this day,
but this couple,
I can still see them as they came into my office,
as the wife was crocheting
and the husband was very interested
in looking at the strategies that I had taught at a seminar.
And they came in to see what they could do better
because they had saved a total of $250,000,
which used to be a lot of money,
but this was several years ago,
and so in their 401(k)s and in their 403Bs
and I think they had one TSA attack, children annuity
which is very common for school teachers
and both of them had taught school,
and they had a defined benefit pension each.
Now, if you're not aware of what that is,
a defined benefit pension,
those are few and far between these days,
but generally if you work for an entity,
like a large corporation or government,
a school teacher or a police officer or a firefighter,
you will have a defined benefit pension,
meaning you get a specific benefit
based upon the years of service
that you taught school, let's say.
And so for this couple, their state allowed them to get 2%
in retirement for every year of service they taught school
and they had both taught school for 30 years.
So 2% times 30 years
is a total of 60% of their last best paychecks.
And so during the last five years they taught school,
they average their paycheck and they got 60% of that.
So let's just keep this simple, back then,
let's say they were earning the last few years
an average of 5,000 a month, which is pretty close back then
to what they had been earning.
And so they realized that 60% of that
was 3000 a month or 36,000 a year.
And so they realized that they would get 3000 a month each
for their defined benefit pension
with a little cost of living increase.
And of course, many school teachers go,
golly, I'm only gonna get 60%
because they only give me 2% times 30 years of service,
I don't think I could get by on 60% of what I was earning.
And so they're trying to be responsible and accountable,
and so they socked away money in the state sponsored 401(k)
and in 403(b)s, these are qualified plans
where you set aside pretax dollars,
the money accumulates tax deferred.
And then you think
you're gonna be in a lower tax bracket when you retire
and you think that's the best way to go.
And this is the trap many people get into.
Well, this is why I developed
a very sophisticated software years ago,
and I still use it today
to show these people who are savers,
why they got themselves into a tax trap
and how to free themselves from this trap,
but don't continue to stay trapped following the herd.
And this is what their advisor was telling them to do,
they came to me and they were age 59 and a half.
So after age 59 and a half,
you can access money out of a qualified plan, like a 401(k)
or an IRA or 403Bs without having to incur a 10% penalty.
Okay.
Now a lot of people say,
well, I don't need the money out of these IRAs or 401(k)s.
So why should I start taking it out at age 59 and a half
if I don't need the money?
'Cause they think if I don't need the money,
why should I pull it out?
I'm not gonna spend it.
So they're sort of talked into leaving it there.
And it wasn't
until they came to my educational seminar and I said,
no, you wanna do a strategic rollout, not a rollover.
A rollover is going from the frying pan of the fire,
that's taking these 401(k)s and 403(b)s
and rolling it over to IRAs and continuing to defer
until you have to start taking money out
based upon your life expectancy.
That is now age 72, back then it was age 70 and a half.
And so their, their advisor said,
oh, if you don't need the money,
continue to defer, defer, defer.
Why do you wanna trigger tax?
And so the scenario was this,
they had 250,000 between the two of them,
and their advisor was acting like they could earn 7.2%.
Now if you understand rule of 72, you divide 7.2% into 72
and your money will double in 10 years.
So the advisor says your quarter of a million
and these tax deferred IRAs 401(k)s, 403(b)s
will double to 500,000 by the time you're 70 and a half
and then you can take out required minimum distributions
and save yourself tax.
And I go, well, wait a minute,
this advisor's not really saving you tax in the long run,
maybe in the short run, but not in the long run.
Let me show you why.
And so I showed them that if they waited
and doubled it to 500,000
and then took out RMDs, required minimum distributions,
they could let's say if they were earning 7.2%,
they could pull out what's 36,000 a year,
but they would be in a 33% tax bracket if they were lucky,
probably higher between federal and state tax.
So if they pulled out 36,000 a year,
they would only net 24,000 to buy gas and groceries,
prescriptions and golf green fees.
Okay.
And so I said, let me show you something better,
I said, we oughta get the money out
and the taxes over and done with sooner than later,
"Do you think taxes in the future will likely be higher?"
They said, "Absolutely."
I said, "Then why do you want to continue to postpone,
delay the inevitable?"
I'm showing you that even if taxes didn't go up,
you're gonna pay 12,000 in tax
every year for the rest of your lives,
and it's gonna get worse and worse and worse.
They go, "Well, you're suggesting we take it out now,
even though we don't need the money?"
"I'm saying we're going to do a rollout."
So I illustrated what I would do if I were in their shoes,
I would pull out 60,000 a year,
which did not put them into a higher tax bracket,
and 60,000 a year because of their tax situation
would trigger a tax of $12,500, I think was at about 20%.
And they were like, "Oh, wait a minute,
we don't wanna pay $12,500 a year
in tax for the next five years.
That's 60,000 in tax that we wouldn't have to pay
if we kept deferring."
But I'm going, "You're not saving tax by putting this off,
you're gonna pay it sooner or later.
It's like the old Fram and Autolite commercial
where an automobile mechanic would hold up an oil filter
and say, you can either pay me now
and I'll change your oil filter,
or you can wait
and pay me later and I'll replace your engine."
And I said, "you know, it's gonna be be cheaper
just to pay now instead of later."
And I said, "In fact, if you do that
I calculated the amount of tax they would pay
by stringing it out over their life expectancy,
because when you take out the required minimum distribution,
that goes up every year after age 72.
And they were shocked, they would pay out
at least a quarter of a million dollars in tax
by stringing it out, by deferring and stringing it out.
They said, we're gonna pay a quarter of a million in tax
by doing it the way our advisor is suggesting.
I said, yeah, you're continuing to defer and delay,
and you're stringing it out,
you're gonna pay a quarter million,
they said that's how much we have in there right now.
And I go, I know.
Let's get it over and done with sooner than later.
Based upon the 7.2% rate of return,
that 250,000 would be growing to about 300,000
at least over the five years,
but we would get the money out
and taxes over and done with at a tax bill of 60,000
instead of waiting and compounding it to 250,000.
Now I showed them putting in the net
after tax into a portfolio of laser funds.
What's a laser fund?
A max funded indexed universal life insurance contract
that accumulates your money tax free,
allows you to access your money tax free.
And then when you die, it blossomed and transfers tax free.
There's nothing else
in the internal revenue code that does that,
and I'm gonna gift you a book at the end of this episode
that explains this.
So that's what they did.
I felt like Sam-I-Am in "Green Eggs and Ham",
(chuckles) you know, you will like this,
you will see, oh no, we don't wanna have these taxes.
Well, after five years they, were saying,
"Thank you.
Thank you Sam-I-Am, we like these green eggs and ham",
meaning we like this tax free income.
What was the result?
We were able to get 300,000 out of their IRAs or 401(k)s,
actually with no tax consequence,
not just the 60,000 and I'll explain how.
But they had that money that then grew after tax to 500,000.
And that 500,000 in their IUL policies
generated 50,000 a year of tax free income.
Now 50,000, and in actuality
their money by the time they started accessing,
it was worth 600,000, and just at a 8% payout,
it was generating 50,000 tax free.
How much more is 50,000 than a net of 24,000
out of their IRAs or 401(k)s
had they postponed and deferred?
Yeah, it's twice.
We doubled their net spendable income,
but we saved them a quarter of a million dollars in tax
by getting it out and over and done with,
we reduced it down to 60,000 with a no brainer illustration.
And then I put on my tax strategy hat
and I said, "You own some rental properties,
some rental homes,
you've been paying them off with the rental income
and killing your tax deductions.
Why don't you refinance those at 6% interest tax deductible,
and that cost of four, and you're earning eight over here,
which is twice as much as you're paying
and you can resurrect tax deductions
on those rental properties?"
Long story short, we were able to resurrect tax deductions
that offset the taxes and they were able to get the money
out of those IRAs of 401(k)s,
and not only save them a quarter of a million in tax,
but we eliminated the 60,000 of tax
by offsetting it with new deductions.
We got their money out tax free by using two strategies.
Folks, we have done this 1000s of times for people.
Maybe you are one of these people that we can help.
If you wanna learn by studying stories like this
and understand what a strategic rollout is
and even better yet, what a laser fund is,
I want to gift you a copy of this 300 page book.
It retails for 20 bucks.
I will gift you this book.
You simply contribute a nominal amount
towards the shipping and handling by going to laserfund.com,
click on the link below you contribute a nominal amount
towards the shipping and handling,
put some skin in the game.
I will pay for the book, I'll fire out a hard copy to you.
There's options there to listen and learn,
watch and to learn,
but check out some of the online educational webinars we do.
And you can even chat with an IUL specialist
to see how this may benefit you
like it did these two school teachers
and how we can save you
maybe a quarter of a million (upbeat ambient music)
or more in unnecessary tax.