Tax reduction strategies used by the wealthy. In this episode,
I'm going to address the question, "What is the best way to reduce taxes?" It's probably
not what you think so get ready. I'm going to enlighten you on what wealthy people do
and also what members of congress do to avoid paying unnecessary tax.
So, my name's Doug Andrew and I've been a tax strategist helping people re-direct otherwise
payable taxes to causes they support for more than 4 and a half decades. I've helped many people
prepare for a comfortable retirement where they do not outlive their money by making sure that 40 to
60% of their retirement income is tax-free, that is not in traditional vehicles like IRA's and
401k's. So, I'm going to start out and share with you 3 sections of the internal revenue code
that have been in the code for over a century in one form or another. It's like a sacred tax-free
cash cow and I'll explain why is it tax-free and who utilizes this instrument allowed in
the internal revenue code to be able to grow their money tax-free and later on be able to access the
money for retirement income or any other purpose without having to pay tax on the gain. Are you
ready? For over a century in the internal revenue code, currently the sections are 101(A), 72(E) and 7702,
now I've helped teach CPA's and tax attorneys these 3 sections of the code for years, unfortunately
they do not need to understand these thoroughly to get their LLM degree, that's a master's in taxation.
And so, they call this advanced continuing education. But don't fret, I'm going to simplify it.
In section 72(E) of the code, this allows people to be able to grow or accumulate their money tax-free
in a life insurance contract. Now, before you say, "What? A life insurance policy? I've never seen a
life insurance policy that earns very much money." You haven't seen one designed to do what I'm going
to show you here because this was actually the brainchild of E.F. Hutton who was not an insurance
company back in 1980, they were a brokerage firm and they realized in these 3 sections of the
code, there's only one financial instrument that allows you to accumulate your money tax-free under
72(E), but under 7702, you can access your money, you can take money out and it stays tax-free.
People say, "You mean like a Roth?" sorta, but it has a lot more benefits than a Roth has.
So, 72(E) allows you to earn interest dividends grow your money tax-free. I've actually doubled
my money about every 7 to 10 years by using max funded indexed universal life insurance,
and so all the growth is tax-free under this section of the code. 7702 means I don't have
to wait till I retire. Anytime I can access money tax-free. If I'm a business owner, I could put 300
thousand dollars into this insurance contract and if I needed 250,000 out 30 days later I access it,
there's no penalties, it's totally tax-free. It's extremely flexible, that's provided under 7702.
You do not incur the penalties from the IRS or trigger tax when you access money like you would
if you tapped into an IRA or 401k before the age of 59 and a half. You have to borrow and pay it
back or else you have to pay tax. Now, that brings us to 101(A). Now, I've said this on other episodes,
none of us are getting out of here alive. I mean, out of this life, okay?
And so we're gonna pass away someday. Whenever we pass away, money inside of the insurance contract
will transfer tax-free but it blossoms. What I mean by that, it increases in value. If my objective by
owning an insurance policy is to use it for living benefits primarily instead of the death benefit,
then what you're doing is you're structuring an insurance policy with the least amount of death
benefit the IRS will let you get away with and you're putting in the most money the IRS allows
as fast as they allow. These are provided over here that I'm going to explain next.
This turns it into a tax-free cash cow and I can set aside money in this instrument rather than an
IRA or 401k and accumulate my money tax-free. I've had business owners who put in 500,000
dollars and $500,000 doubles to a million in 7 to 10 years. It doubles
to 2 million in another7 to 10 years and then to 4 million then to 8 million.
We have many clients who have 8 million dollars now, 30 years later and they started
out with 500,000. They didn't add any money to it, it just grew tax-free. But when they finally die,
okay, every million that I would have in my insurance policies, if I died tomorrow and maybe I
will, I don't know I'm 69 right now, would blossom to about 2 and a half million and transfer
tax-free because the cash in there becomes part of the death benefit and it transfers income tax-free.
Now, nothing else in the internal revenue code does that and E.F. Hutton said, "Golly, why don't we use
this for living benefits instead of trying to get x amount of insurance for the lease premium to pay
off in case we die, let's flip it and let's use it for living benefits. Let's take the least amount of
insurance." So, at age 60, let's say, if you wanted to set aside, you know, $500,000, you could do that
and the least amount of insurance is a million 250,000. You could buy way more
life insurance than, you know a million, 250,000 with $500,000.
I mean, when E.F. Hutton came out with this idea, the IRS said, "Wait a minute. What are you doing?"
and they actually took them to court and they weren't doing anything wrong. E.F hadn't won but
the IRS is like, "Well, who pays 500,000 bucks for a million dollars of life insurance?" and Hutton said,
"Well, our clients do because they're using it for living benefits. They're self-insuring. They put in
500,000 to a million dollar policy and then that amount at risk is only 500,000." And so as the money
grows, pretty soon you're self-insured. It's the best way to buy term and invest the difference
because you're self-insured. Your cash will usually exceed the death benefit maybe as soon as 12 to 15
years into the policy because you're trying to put in the most money as fast as they allow. Long story
short, let me tell you what happened. Now, before I share these tax citations on the right, if this
is intriguing you, make sure you share this video. A lot of people don't know what they don't know
because you can't be aware of something you're not aware of. Click like, post a comment, but subscribe
and click the little bell there which will notify you every time I post a new video, which I do
almost on a daily basis answering a financial question. And stay with me to the end because
I want to gift you my most recent best-selling book, "The Laser Fund." Don't pay retail of 20 bucks,
I want to gift you a copy, okay? So, what happened is back from 1980 to 1982, after the IRS, I went
to court and E.F Hutton won and the IRS approached congress and said, "We got to change the definition
of tax-free under the sections of the code because we think you're violating this and so
if you move out from this tax-free umbrella in these 3 sections of the code, it'll move over
to a taxable section called investments." So, this is not an investment. We don't want to call it an
investment. Investments are taxed sooner or later and they're usually subject to market volatility.
I don't want either one of those so, I don't want it to be deemed an investment. What is it? It's an
insurance contract that is tax-free and so in 1982 under the tax equity fiscal responsibility
act, expels the acronym TEFRA, the IRS said you have to have a commensurate amount of insurance
attached to the account in order to qualify as tax-free insurance under these 3 sections
of the code even though the primary purpose is for living tax-free accumulation and income, okay?
Now, you may be surprised here but they didn't quite know what they were doing. I'm talking about
congress, even though congressional people actually own these. And so, in 1984 under the deficit
reduction act, that's DEFRA, they redefined it again. This is called the TEFRA DEFRA corridor and it
simply dictates the minimum amount of insurance that has to come along for the ride so to speak
so that your money will accumulate tax-free and you can access it tax-free for living benefits
under these sections of the code. You don't move over to the investment section of the code that's
eventually taxable, okay? And so, that's TEFRA and DEFRA. The neat thing about TEFRA and DEFRA is it
gave parity, meaning it didn't matter if you were a 22 year old athletic marathon running female
or a 60 year old or an 80 year old friend of our family who had 3 blocked arteries
adult onset diabetes and a prostate cancer episode. He had 6 sisters predecessor and 3 brothers.
He was able to get an insurance policy and earn 11% of the time and net 10 cash on cash
just like a 60 year old, just like a 22 year old because the amount of insurance required
under TEFRA and DEFRA goes down the older you are and the more unhealthy you
are. And if you're totally uninsurable, it's the owner of the insurance policy that gets all the
tax-free accumulation and tax-free income. So, if you're not insurable, you can own one of these on
your spouse, your kids, your grandkids. These are called surrogate insurers, that's TEFRA and DEFRA.
There was this massive exodus of money leaving the banks, the brokerage firms, the credit unions
from 1984 to 1988 and so they couldn't compete. These were safer, they paid higher interest, they
were tax-free, they blossomed when you die and so they wanted to slow the flow. They didn't
want to kill these because this is where banks will put some of your money, did you know that?
Banks for the last decade or two pay us a measly 1%. Every million we deposit into a bank
and they pay us 1% interest, that's 10,000 a year they pay out in interest,
they turn around and put 30 to 40 percent of their tier one assets for liquidity and safety
in insurance companies. Sometimes it's called BOLI, bank owned life insurance, BOLI. Corporations
do this, it's called COLI, corporate owned life insurance. They earn 5% tax free without
even linking to an index. How much more is 5 than 1? 500%. They're making 50 grand, they
only paid us 10 grand. They're making 5 times what they're paying you and they're increasing
the safety on the average by 6 notches higher. Most banks might be rated triple B on the average,
most of these insurance companies where I put my money in rated double, A triple A, okay? So, they're
increasing the safety and the rate of return. Are you getting it? You can bypass the middleman.
They wanted to slow the flow June 21st 1988. They said, "You can't put in all your money all at once."
They didn't want to kill it because this is where they put their money. This is where a
lot of congress men and women put their money. So, what do they know that maybe you didn't know?
So, in review, before I show you how this all comes together. TEFRA and DEFRA talk about how
much insurance has to be attached to the account in order for it to be qualified to be tax-free
and not move over to the investment section of the internal revenue code, the subject to tax.
When the technical and miscellaneous revenue act was passed in 1988, it related to section
7702, how fast can you put in the money? And so, I often compare this to like a bucket,
so a maximum funded indexed universal life is the best way I know of to reduce taxes. I've
helped many, many thousands of people dramatically reduce their taxes. We took a couple in California
from the highest tax bracket to a 0% tax bracket in 5 years.
We had another couple in California, a husband and wife physician.
We moved 120,000 of their 200,000 of retirement income totally offered their 1040 tax return
by putting it into a portfolio of these buckets. The bucket is the universal life insurance policy.
You design the bucket to accommodate the amount of money you want to put in. If you want to put in
500 a month, 10,000, 500,000, you design it to hold 500,000.
All of the interest you're earning is tax-free under section 72(E) of the code.
Now, the amount of insurance is not free. It's the spigot here on the bottom and this is actually
watering a nice little money tree here that at the end of the day is going to blossom when you
pass away because if I put in 500,000 and I die the next day, it's going to pay out a million 250.
But that 500,000 is going to double to a million and now the net amount at risk, that spigot is only
draining out the cost of the remaining 250,000 at risk because I'm self-insuring. Half a million goes
to a million, a million doubles to 2 million, the original death benefit might be a million 250.
I now, okay, am self-insured. The spigot on the bucket is minuscule. I'm earning rates of return
of 11 and netting 10, 10 and a half percent. TEFRA and DEFRA dictated the minimum amount
of insurance. If I'm 60, that might be a million 250. I put in 500,000, I don't have to put it in
all at once, but it's going to grow. Under TAMRA, I might only be able to put in 100 or 125,000 a year
in 4 years or 5 years and now it turns into this tax-free cash cow.
This is where savvy wealthy people put their money for long-term goals. This
is where many congressmen and women put their money. You can do this too.
You want to learn how? So, if this is intriguing you and you want to learn how, I want to gift you this
book. I'm big into education. This isn't about me, this is about you and your brighter future.
If you want to learn how to get 40 to 60 of your retirement income off of your 1040 tax
return, the IRS will know you're receiving the money but they'll know it's tax-free
because it's been that sacred tax-free cash cow in the internal revenue code for over a century.
It's what I call the laser fund. Laser means liquid assets safely earning returns. This 300-page book
is full of charts, graphs and explanations. You flip it over and it also has 62 actual stories
of how this is used not only for retirement, but college funding, working capital for business,
emergency funds, real estate management. You don't have to wait till retirement access money. You can
take out money in your 30's if you want. So, this has way more flexibility. Simply go to laserfund.com,
contribute a nominal amount towards the shipping and handling, I'll cover the rest of that cost.
I'll pay for the book and fire you out a copy. There's options there if you want to listen and
learn, watch and learn but here is to your brighter future on how to dramatically reduce your taxes.