Welcome back. In this episode, we are going to answer the question "What is the
rich man's Roth?" This is interesting because this term --"Rich man's Roth" is
usually used by savvy CPAs and tax attorneys. Many of which I've trained. So,
as we continue, I'm going to help you understand the 3 benefits that the
rich man's Roth has that a regular Roth does not have and the obstacles that
people have where 91% of Americans are duped into putting their
money into tax deferred IRAs and 401Ks and why that's a mistake, in my opinion. I
want to give you a transformation so you can harness these and you'll think, "Why
would anybody on a traditional Roth when I can have 3 additional benefits
that Roth's will never have?"
I'm Doug Andrew and I learned through the school of hard knocks many valuable
lessons. And so, when I teach advanced continuing education to financial
advisors, CPAs and tax attorneys, the savvy ones will often say, "Oh, that is a
rich man's Roth." And I snicker because you don't have to be rich to own a rich
man's Roth. Well, why do they call it that? It's because the rich can't own or
participate in a Roth. So, what are the 2 benefits of a Roth and how did they get
started? Back in 1997 under the Taxpayer Relief Act, Congress was hard up for
money. And they realized that there were trillions of dollars in yet to be taxed
IRAs and 401ks. See, a traditional IRA or 401k where 91%
of Americans put their money is the best savings bond the government ever came up
with for themselves. In other words, the government allows you to put in pre-tax
dollars or get a tax deduction in an IRA and accumulate your money on a
tax-favored basis. But when you retire, you agree now to pay tax on what you
sell it your investments for. You liquidate them. I've often used the
analogy of the farmer and the seed because a traditional IRA or 401k
you are actually buying your seed in the springtime of life. And you don't have to
pay tax on that. And you plant it, you nourish it you cultivate it and finally
in the fall of life, when you harvest it, now you agree to pay tax and you thought,
"Now, being a lower bracket there." That has not been true for 25 years. And so what
happened in 1997 is a Congress was harder for tax revenue and they didn't
want to wait until people retired to start cashing in on their portion. And so,
a senator by the name of Harry Roth, he says, "I've
got an idea and we'll name it after me." And so, hence the Roth IRA first came out
and later the Roth 401k. He realized that Americans were getting smarter. They're
not in lower tax brackets when they retire. It would be far better to simply
pay the tax on the seed money going in. And then accumulated tax-free and during
the harvest, take it out tax-free. Now, in actuality, mathematically there is no
difference between a traditional IRA or 401k or a Roth if tax rates stay the
same. Most people thought tax rates would be lower, they're not. So, if you think
taxes are going to be higher... It's interesting whenever I speak to
audiences, I'll say, "So, how many of you think that future tax rates will likely
be lower?" Nothing but crickets. "Well, how many think they're going to be the same?"
One or two raise their hand. "Well, how many think that ultimately, they're going
to be higher because of irresponsible government spending the printing of
money and so forth?" Then everybody raises their hands. I'm going, "So, why do you want
to continue to defer paying tax and then accumulate your nest egg into this
perceived unknown advantage and then you'll have this much money and you pull
it out. And pay as much more in tax than you've ever had to pay in your life?" They
go, "What's better?" Now Roth is a step in the right direction. It's better but it's
not the best. What are the 2 benefits of a Roth? See, he said if we get people
to convert their traditional IRA & 401k, that will be a cash cow for us as the
government. It will trigger tax. Now, I'm not saying that might not be a smart
idea for some people. But when you convert money from a traditional IRA or
401k into a Roth, you pay the tax. And they wanted that tax revenue. And from
that point forward, it grows tax-free. So, a Roth allows you to take after-tax
money but it grows tax-free. And then when you go to retire you take it out
tax-free. So, inflation, market volatility or whatever, if you do it the right way
taxes going up. Will not affect you at the harvest part
your life and you will not outlive your money. But folks, those are only 2
benefits of a Roth. A rich man's Roth has 3 additional benefits on top of
those 2 that Roth will never have. What are they? See, Roths have strings
attached. What are those strings? Well, you can only
put in a certain dollar amount or a certain percent of your income. If you
put money in, You can't access your money for 4 years or tell your 59 and a
half or whatever. See, those are strings attached to a Roth. If you make too much
money, you can't even own a Roth. That's why rich people can't participate in a
Roth unless they're rolling over a big lump sum. The rich man's Roth has the
benefits of accumulating your money tax-free and you can access it tax-free.
But I have a lot of people who might have a banner year in their business or
whatever. They have would fall. They want to put in a hundred thousand or two
hundred or three hundred thousand dollars in one fell swoop in a single
year. You can't do that with the Roth. You can in the rich man's Roth. What I call
the laser fund. If you put in 100 or 200 thousand, I had one lady
she put in 200,000. She's not going to test this for 20 years. She got in
a horrible accident in California. She called and said, "Oh, My heavens.
My laser fund... I need 160,000 as quickly as possible." If that were a Roth, she
could not access that money." I said, "How much do you need? 160?" It took 36 hours to
get that money to her. You can't do that in the Roth. You can access your money
without triggering taxes or penalties or anything like that. It's much more liquid.
But this is what a Roth will never be able to do. In my rich man's Roth, what I
call the laser fund, it will blossom when I pass away. In other words, every million
that I have in my rich man's Roth, if I were to
die in an accident tomorrow, that million would blossom in value to 2 and a half
million right now. Totally tax-free to my spouse, my children, my family, bank. Which
I explained in other episodes. A church, the charity or whatever. Why would you
leave behind this when you could leave behind this if it doesn't cost you
anything? Because in my various education materials, I show you how you can do that
at no net cost to you. It's being paid for with otherwise payable tax most
Americans pay on IRAs and 401Ks. So, the point is when you can utilize a strategy,
that has the 2 benefits of a Roth, your money a gross tax-free, you can access it
tax-free. But you can throw in huge lump sums. You can withdraw that, you can
access it. You have all that flexibility. And when you finally pass away... Because
none of us are getting out of here alive. I don't mean out of this room you're in
right now. I mean out of this life. We're all going to die. It will blossom in value
and transfer income tax free. So, why would you settle for 2 benefits that a
normal Roth has when you can have 3 additional benefits that are just like
over the top. So, let me share a story and give you the takeaways on what I want
you to remember. So, we had a couple come to us. They were actually both physicians.
And they had saved and saved and saved and tax deferred accounts and IRAs and
401Ks. They were just busy doing what they did best as physicians. They
ended up with four point 4.6 million dollar in yet to be taxed IRAs and
401Ks in the market. So, what we did is we began to convert over a 5-year
period with what we call a strategic rollout into a portfolio of 4 rich
men's Roths, okay? Now, for her, it was rich woman's Roth. But as they did thism
what happened is we were able to not save them the 2.4 million that they were
going to pay in tax if they simply followed the herd because their advisor
said, "Oh, you know, just pay the tax." In fact, I remember their CPA when I said,
"I want to save them about 1.2 million of unnecessary tax." I wish I could say all
2.4 million they're going to pay and the economy goes, "Oh, they can afford to pay
that." I'm like, "You cannot believe how many people where their advisor says,
they can afford to pay that much in tax." But when I asked the people they go,
"I would rather pay just 1.2 million in tax not 2.4 million." And so, this couple
said, "let's do it." Long story short, they are now just in their fifth year of
funding there for laser funds. The rich men's Roth and we saved them 1.2 million
of unnecessary tax. Do you know what we did with that money? They have it set
aside to be able to do college funding and matching plans for their
grandchildren. They are able to take cruises. Do all kinds of things with that
money that would otherwise have gone down the drain and unnecessary tax.
Because they seize the opportunity to employ the rich man's Roth. And at the
end of the day when they pass away, do you know it will blossom into over 8
million dollars tax-free? There's not a Roth around that will do that. Let alone
a traditional IRA or 401K. So, what are the 3 takeaways? First of all, a rich
man's Roth has 3 benefits that a traditional Roth does not have. Instead
of just growing your money tax-free and allow you to take it out tax-free,
there's no limits to how much you can put in in lump sums. It has flexibility.
You can access money without triggering IRS penalties. But when you finally pass
away, it blossoms. It actually reimburses you many fold for the taxes you paid
while you got it out of your traditional account and into the rich man's Roth.
So, what is the rich man's Roth? it is actually technically in the
revenue code under 3 sections. Section 72-E, 7702 and 101-A. A
maximum funded insurance contract utilizing indexed universal life
insurance contract. But you're structuring it to be a living benefit
more than just a death benefit. It's what I affectionately call the laser fund.
Because it passes the liquidity safety and rate to return test with flying
colors. And hence, I've written 11 books. This is my most recent bestseller. I
would love for you to get a free copy. And so, you can click on the link below
and be able to go in and get a copy of this as paint nominal shipping and
handling fee. And it has 200 pages, 14 chapters, charts, graphs explaining why
this is called the rich man's Roth. If you learn more by stories, you're not a
numbers person. You flip this cook over and it has 100 pages, 12 chapters with a
62 Chicken Soup for the financial soul stories. And you will read about those to
physicians at about 61 other people who have employed the laser fund for a
better future than a traditional IRA or 401k or a Roth.