Properly structured and max-funded IUL knocks the socks off a 401K.
In this episode, I am going to address the question "Is IUL
better than a 401K?" Yes. But it has to be structured properly. So,
put on your seat belt. I'm going to explain what you need to do
and it will outperform a 401K, the average in this country
by as much as double or quadruple the net spendable retirement income if you
do what i'm going to teach you.
So, what do I know? My name is Doug Andrew and I've been doing this for
north of 46 years. I've actually been helping people
optimize their financial assets and minimize taxes
for 4 ½ decades. And I do that by showing them how to put their
hard-earned money for long-term goals. Goals longer than 5 years which
typically would be retirement or real estate management or or working
capital for their business or college funding for their kids when they go to
college. Any long-term goal by using my favorite
vehicle which i call the Laser Fund. Laser
means liquid asset safely earning returns. But it's what I
call a max-funded, tax-advantaged insurance contract.
And it will knock the socks off of a 401K.
But let's first of all talk about what a 401K
has. What are the features. Why do people in my opinion get
duped into putting tons of money into 401Ks.
And why now many of the pundits and many of the original
champions of 401Ks in a recent Wall Street Journal article said they lament
the day they ever came up with that idea of a 401K. But it's become a popular
thing and it was only meant to be for a select a few situations. But it all
of a sudden took over. And frankly people are going to outlive
their money because of what most 401Ks cannot
do. So, let's first talk about the features of a 401K.
When people put money into the company sponsored 401K plan,
a lot of times they just follow the herd. While everybody's doing it,
you work here, you meet here with our hr person.
You want to belong to the 401K, the company will match uh 50 cents on the
dollar if you put in 4% And they'll
match another 2% or whatever. And some people say, "Oh, sounds good to me."
I'm using pre-tax money. So, the lure is to put in pre-tax dollars because
you get a tax break on the contributions you're putting in there.
And that will grow to a bigger sum of money. Oh, you will have to pay tax
when you retire. But you'll likely be in a lower bracket then.
Now, that's the whole premise of a 401K. Or an IRA for that matter or a 403B or
a 457. Any of these qualified plans. The traditional ones,
you get a tax break on the contribution phase.
The seed money you're putting into there. It accumulates tax deferred,
not tax free. Tax-deferred. And then when you go to access your money,
it's now time to pay uncle Sam, your partner. And in
41 out of 50 states, you also have to pay the state income tax on whatever you
take out of that 401K. So, most people think, "Well, I'll be in a
lower bracket." Well that has not been true for more
than 25 years. In fact, it took the financial services
industry until just a couple of years ago to finally admit
that was not the best advice. Most people are not in lower
tax brackets. Because they've been killing their deductions along the way
paying off their house. The kids are gone, you can't deduct them
anymore. You're not contributing money to 401Ks to retirement, if you're a business
owner you don't have those deductions and congress keeps raising taxes. So, most
people agree that taxes will likely be higher.
So, why do we want to continue to postpone, delay, procrastinate paying tax
in a 401K to some big nest egg, some perceived unknown advantage and then
withdraw our money down the road when frankly
we're going to be in as high or higher bracket as we've ever been in
even with less income. Because we killed the deductions
along the way that we were enjoying while we were earning
the money. People would go, "Hmm, I've never thought of it that way." Now,
savvy CPAs and tax attorneys that I train, they go, "Oh, yeah." And the worst
place to leave money when you die is in a 401K or an IRA. And yet what do most
people tell you to do? Oh, if you don't need the money leave it
there until you're 72. And then take out RMDs, required minimum
distributions. That's the worst advice I've ever heard.
So, I've helped many people get the money out
in as little as 5 years and the tax is over and done with it today's lower
rates. But the key is to reposition the money
into something that's going to be tax-free
from now on. And so, when people ask a question like, "Well,
is IUL better than a 401K?" Well the short answer is if
you can put money into a 401K or you can put it into an IUL,
if you're not being matched in particular, I would take the IUL
any day because i will likely earn a higher rate of return if it's properly
structured. It's totally tax free. It's better than a
roth 401K because it has four benefits that Roth
do not have. Roth only have 2. IUL has 6 benefits. So, why would I
want to put money into a 401K when I can have a far greater benefits
even if it's a Roth 401K. But really it's sometimes confusing
because people say, "Well, my employer will match me
50 cents on the dollar." Well, your employers being nice. They're
covering maybe your future tax liability. Every dollar you contribute to the 401K,
if they match 50 cents on the dollar, now you got a dollar fifty. If you pull
$1.50, you owe a third of the $1.50,
50 cents in tax. So, your employer was sort of covering
your future tax liability if taxes stay at 33%.
The general accountability office says that taxes will likely go to 50, 60 or 70
percent. So, maybe even a 50% match
is not that great of a benefit at the end of the day. That's for you to decide.
The problem is most people that would come to me,
if they put in 4%, the company might match
2. But they went in and put in 8% or 10%.
I said, "What are you putting in more than you're being matched on?"
"Well, I didn't know where else to put it." No.
You should never put in more than you're being matched. You
definitely ought to put that money into an indexed universal life insurance
contract. Now, what's better about an IUL and what
makes it far better than the 401K? So, the first
big benefit of IUL is it's non-qualified. See, a 401K is a qualified plan. Qualified
with who? The IRS. You have all these hoops you
have to jump through. These strings that are attached, you can
only put in a certain dollar amount per year
or a certain percent of your income. You can't touch the money before age 59 ½
or else there's a 10% penalty on top of the tax. By the
time you're 72, you have to start withdrawing money or there's a 50%
penalty on top of the tax. Because they want you to get the money out in tax
because this has been their savings bond. They've
been planning on getting tax revenue when you're ready to cash in and start
taking money out of that thing. So, that's what I mean by strings
attached. And IUL doesn't have those. I can put in to an IUL, if i design it to
accommodate 100,000 a year. I can. 200? 300 thousand,
we have people who design their IUL to accommodate a million bucks a
year. So, it doesn't matter if you're putting
in a thousand dollars a month or you're putting in a million dollars a
year. You can do that in an IUL. You can't do that in a 401K. Now,
when you put the money in, you don't have to put that much
in. In fact, if you could put in 300,000 and you don't,
you only put in 10,000 or 30,000, you have a bunch of room you didn't use.
270,000 of room. I can make that up in the second third,
fourth, fifth year anytime down the road I can put in huge amounts of money. If I
inherited money or sold my business or whatever,
I can make up for all the years. I could have put in 300 and I didn't.
You can't do that with a 401K. Once you don't use the room
for a contribution in the given year, you lose it forever.
And so, I like the flexibility of an IUL. I can put in large amounts during banner,
years, I don't have to put in anything I can coast. But if i did put in
300,000 and I needed 30 days later to
take out 250,000 for an emergency or to a seize a real estate opportunity
or whatever, I can do that. I can pull out money out
of my IUL for any reason. I don't have to prove. I don't
have to prove that i have a hardship or something. I have flexibility to access
the money. I don't pay penalties to do that.
And so, I can put money in, take it out. But by using
indexing. See, indexing allows me that when the market does well, I get
to benefit when the market goes up because my return
is linked to an index. It's not invested in the market.
It's not invested in the standard and poor's 500 or the Dow Jones.
Now, the insurance company has to keep my money safe.
So, if the economy crashes, I don't lose. If i have a million bucks in there,
I will keep my million dot bucks even if the market drops 40%.
But if the market gains 10, 20, 30, 40 percent,
I can earn whatever the economy is doing maybe up to a cap
of 16 or 25 percent. But if the economy loses, I don't lose.
Because my money is not at risk in the market. It's in the insurance company.
It's earning the general account portfolio rate even if that's only 4
or 5 percent. I'm earning 50,000 a year of interest.
But if I tell the insurance company "You can take that interest,
and buy upside options to pay me 10, 15, 16, 25 when the market goes up,
fine, I'm willing to relinquish that if I guess wrong and the market goes down." But
I don't lose my million. And so, that's called indexing. It allows
you to earn money when the market goes up and not lose a
dime due to market volatility when the market crashes.
This is what allows me to earn average rates of return between 7 to 10
percent. I've actually averaged 11 netting
10. All the cost of the insurance and everything usually
only drains out about 1 percentage point. So, if i earn 11, I net
10. You would be hard-pressed to show me a
401K earning 11 and netting you 10%. If they earned 11
after tax, you would be lucky to only have maybe uh 7, 6 or 7 s percent.
If you earn 12 percent in a 33 bracket, you'd only net
8. Plus they have to subtract another one percent usually for asset management
fees in a 401Ks. So, if you're in 12, you're only
netting 7. I only have to earn 8 to net 7
in an IUL. But I can earn 11 and net 10. So, that's
why the IUL I think is far superior. It has greater
flexibility. It earns more predictable rates of
return that are tax-free. And when inflation happens, inflation
helps me. It doesn't hinder me because i link my returns to the things that are
inflating. So, an IUL i think is far superior to a
401K. Now, people naturally ask, "Well, what about
a Roth?" So, that's a legitimate question. A Roth
is a step in the right direction. But again,
Roths are qualified plans. They have strings attached. You can only put in a
certain dollar amount or certain percent of your income.
You can roll money over to a Roth with a one-time lump sum or whatever.
But you have all those strings attached. Roths only have 2 benefits.
You fund it with after tax dollars. It accumulates tax-free.
You can access it tax-free. Max funded IUL,
indexed universal life which I call the Laser Fund has those 2 benefits.
They've had those benefits for over 100 years in the internal revenue
code. But I have 4 additional benefits. I've
already mentioned them. You didn't know what I was talking about, maybe. I can
throw in huge lump sums. You can't do that with a Roth. I can
put in smaller amounts and make up for room that i didn't use. You can't do that
with a Roth. I can put in money and 30 days later,
pull it out. You can't do that with a Roth. You have to wait
5 years until you're 59 ½. 401Ks,
don't allow you to use indexing. You could have a 401K using
index funds. That's not the same thing. You could lose 30 or 40 percent in an
index mutual fund. I'm talking about index strategies.
Indexing is a strategy. But there's not a Roth around that will
blossom in value when you die. If i die right now at age 68 in an
accident, every million dollars in my index universal life insurance contracts
would blossom to about 2.5 million dollars and transfer income tax
free. So, why would I want a Roth when I can
have the 2 benefits of a Roth and 4 additional
advantages that Roths will never have. So, that's why I feel that IUL
knocks the socks off of any 401K. It blows them out of the water.
Other than that i don't have any strong feelings on that subject.
But if you want to be convinced, you ought to read my latest book.
So, my most recent best-selling book is titled The Laser Fund.
Laser means liquid assets safely earning returns. It spells that acronym.
It's 300 pages. It retails for $20. I'll gift it to you
free. To claim your free copy. Simply go to laserfund.com.
L-A-S-E-R, fund, ".com". You simply pay $5.95 shipping and handling.
I'll pay for the book. You pay for the shipping. There's also
options there if you like to listen and learn or watch and learn with video.
But this will begin your enlightenment on why
IUL will knock the socks off of a 401K in almost any situation
you could show.