There's never been a better time to convert to tax-free strategies.
In this episode, I'm going to address the question. How to maximize the new 7702
tax law changes? Now, if you don't know what that is.
Get ready. Because I don't want you to miss out.
So, my name's Doug Andrew and I've been helping people optimize their financial assets
and minimize taxes now for more than 48 years. One of my favorite vehicles that I recommend
that people accumulate and take tax-free retirement income from is what I call the
laser fund and I would recommend that 40-60% of your income in retirement not even show up on your
1040 tax return because it's tax-free.
And so. I wrote a book, it's book number 11 called the laser fund
and I'm going to gift you a copy of that. I'll pay for the book. You contribute a nominal
amount towards the shipping and handling and I'll show you how to claim your free copy at the end
of this episode. But get ready, because I want to show you that in over 40 years. We have never had
a better time than right now due to new tax law changes with section 7702 to be able to accumulate
access and transfer your money totally income tax-free. So, let me explain what I'm talking
about here when people say what is the laser fund. Well, the laser fund is a max funded
indexed universal life insurance contract that is structured to be able to be used primarily
as a living benefit for retirement income that's tax-free rather than just a death benefit. Now,
this was actually the brainchild of EF Hutton. They were not an insurance company back in 1980.
They were a brokerage firm and they realized that even if people earned 12% average rates of return
which most people don't in the stock market. But that's what they were trying to do.
I had over 3,000 clients in 13 western states that I was responsible for and we were trying to
average 12% with their mutual fund portfolios. If we could average 12% that meant a million-dollar
nest egg at retirement could generate $120,000 a year of income.
But EF Hutton realized if they pull out 120,000 they're only going to net about 80,000 after
paying tax. Because most people pay about a third in taxes between federal and state tax during
retirement. So, you pull out 120,000, you pay 40,000 in tax, you only net 80. Well, many asset
managers charge at least one percent in asset management fees. That's another 10,000.
So, people are only netting 70,000 to buy
gas, groceries, prescriptions, and golf green fees.
All EF Hutton said was, "Wait a minute. Some of the best money managers in the world are the
multi-trillion dollar insurance industry. Those companies that manage and they do it
conservatively and so, why don't we just tell a lot of people who want to be
conservative and safe during retirement to be able to have predictable income,
to transfer their money into the insurance companies." But instead of trying to get a bunch of
life insurance for the least premium which you do when you're trying to buy insurance
to protect you in case you die, you do the opposite.
You take the least amount of insurance the IRS will let you get away with and you put in the most
money or premium the irs allows and it turns into a tax-free cash cow. Why? This is what
EF Hutton realized. Ever since 1913 in the internal revenue code insurance and I'm talking
about life insurance, in particular, is the only vehicle that I'm aware of that allows you
to accumulate your money tax-free. All the interest dividends and everything you earn
under section 72(e) is tax-free. Under section 7702 you can access money out
of that insurance contract totally tax-free.
You don't have to pay tax when you take out money even on the gains and when you ultimately die
and it blossoms to a death benefit that is also income tax-free. So,
nothing else does that in the internal revenue code. You can accumulate your money tax-free.
You can access your money tax-free. When you die it blossoms and transfers income tax-free.
But what they did is they said, "Let's take the least amount of insurance
that the IRS will let us get away with and put in the most money", so we had people back in
1980. Because I looked at this and said, "Wow, this is incredible", and so, I had clients putting
in 100,000, 500,000 or more. Let's say you put in 500,000. Now, you can put in 500 a month,
you don't need a whole bunch of money. But they could put in 500,000 and back in 1980
these insurance companies were earning eleven and three quarters to fifteen and a half percent on
their general account portfolios. So, let's just say 11. The insurance company is earning 11%.
They need one of those percentage points for them and so the net was 10%.
People put in 500,000. They started taking out 10% their growth each year which was 50,000. They pull
out 50 grand a year it's tax-free under section 7702. Sounds pretty great. Many of them are still
doing that. Well, the IRS came in and said, "Oh, we think you're overstepping the bounds.
You might be abusing this." Who pays $500,000 for a dinky amount of life
insurance and Ef and said, "Our clients do." So, they went to court. Now, EF Hutton won,
they weren't doing anything wrong. But the IRS went to congress and they said, "We've
got to change the definition of tax-free under these three sections of the code".' So, in 1982,
under the tax equity fiscal responsibility act it spells the acronym TEFRA. They dictated that
there must be a minimum amount of life insurance death benefit based upon your age and gender
and your health in order for it to not move out of the tax-free section of the code over into taxable
investment section of the account. They didn't know what they were doing and they had to sort
of redefine it two years later under the deficit reduction act DEFRA. Simply put the TEFRA, DEFRA
corridor dictates the minimum amount of insurance based upon the person's age, gender, and health.
But they gave it parity. Meaning, it doesn't matter if you're a 22-year-old athletic
marathon running female or a 60-year old or a 78-year old that I'm thinking of that had
three blocked arteries, adult-onset diabetes, prostate cancer episodes, six sisters'
predecessor, and three brothers. He was able to squeeze down the death benefit for his 500,000
and I'm just using 500,000 as an example. That's not a magic number. But he gets the
same rate of return. He can earn 11 and net 10 because the cost of insurance
is the same for him as the 22-year-old. The 22-year-old has to have more insurance than the
80-year-old. Does that make sense? And so, this is TEFRA & DEFRA. Now, 7702 says, "Hey,
you want to take tax-free income?", and so people could just put money in one fell swoop
until 1988 June 21st to be exact. Under the technical and miscellaneous revenue act.
The brokerage firms and the banks the credit unions couldn't compete. These were safer.
They paid higher interest. They were tax-free and they blossomed when you died. They couldn't
compete but they didn't want to kill these because this is where they put a lot of their money.
Did you know when you put money in a bank or credit union? They'll take 30-40% of their tier 1
assets and put it into these into insurance companies BOLI, bank-owned life insurance.
What they wanted to do is slow the flow. So this is what happened under TAMRA under 7702. They said
if you want to take tax-free income you cannot put in all the money all at once. If you do, it'll be
tax-deferred. But when you go to access money it will be taxable like an IRA or 401k or an annuity.
If you want to have tax-free income you have to comply with TAMRA.
Well, from 1988 until December 28th of 2020
what that meant was. If you had an indexed universal life policy which is my favorite.
This is like a bucket. You want to put in as much money as you would like, you can decide that.
I've been using examples of 500,000. But let's say a male age 60 wanted to put in
a $100,000. You don't have to put that in. That's the most you can put in.
And so. the minimum amount of insurance under TEFRA and DEFRA would be 250,000.
You can buy way more life insurance than that with that much money. That's not the objective.
That's the least amount the IRS requires under TEFRA, DEFRA. But TAMRA said,
"You can't put in all 100,000 all at once or it won't be tax-free
when you take money out of the bucket." So, they said, "Oh, you can only fill up about 20 percent
if you're over age 50.", let's use that. So that would be 20,000. Another 20...
and then finally, the fifth payment can be 20. In actuality, you can fill up
the account as fast as 4 years in one day. Because the first day of the first year
you put in the first 20% or 20,000 in this example and finally, after four years and one day into
the fifth-year you can put in the last 20. What happens now? You're grandfathered. Everything that
grows will not only be tax-free. But anything you take out in income will be tax-free forever after.
That's TAMRA, that's 7702. Well, guess what happened? In the wee
final hours of the year 2020 as part of a big legislative package. They changed
this for the first time since 1988. What it means is this. For the first time, since 1988,
you can put in more money faster under 7702. It means somebody over age 50 instead of going
four years in one day can get their money in three years and one day. It means that
people in their 30s can get their money in two years in one day. When you can get the
money in faster and at a larger amount the fees get cheaper sooner. Because when you fill this up
this counts as part of the originally required death benefit and so the insurance gets cheaper as
you get older. Because pretty soon this money will exceed that. Have you ever seen a life insurance
policy that gets cheaper as you get older? Then you haven't seen one of these done right.
What the new tax law under 7702 allows people to do is put in money faster
more money and that reduces fees and so that if you could earn 11 and net 10. Now,
you can probably do that sooner and maybe by the 15th or 20th year. If you're earning
11 you could be netting 10 and a half. Right now some of mine that I've had for
30 years. If I were to earn 11 this year I would net 10.9. They get cheaper as you get older. So,
here's the message. So, with the new changes that have not happened since 1988 with section 7702.
It has to do with when you access money out of one of these insurance contracts for tax-free income.
For years, many thousands of clients that we've helped implement these
strategies have been able to accumulate a million, five million, ten million.
But every million dollars can generate 60,000, 80,000, 100,000 a year of tax-free income
for as long as they live. Nothing else holds a candle to that that is generally offered
in the financial services industry. Those are usually tax-deferred IRAs and 401ks.
If this is intriguing you, I would recommend you subscribe to this channel. Because I post
an in-depth answer to a financial question almost on a daily basis. It's free. Click on the bell,
post a comment, share this video with somebody who you think ought to hear this message and then
at the end, I will show you how you can claim a copy of my most recent 300-page bestselling
book called the laser fund. How to diversify and create the foundation for a tax-free retirement.
So, let me show you why it's my favorite vehicle for retirement and a lot of other financial goals.
I call a maximum funded indexed universal life a financial swiss army knife. A lot of people use
it for retirement but it's actually the dream solution for many financial goals. Yes, a lot
of people will use it for death benefit and for retirement planning because it knocks the socks
off of IRAs or 401ks that you have to pay tax on sooner or later. But this
will create predictable income using indexing where you participate when
the market goes up but you don't lose when the market goes down.
You need to learn about that. But see, this can also be used for college savings.
This is way better than a 529 plan. You can use it as a working capital account for business. Many
business owners use this. Real estate management. We talk about emergency funds. Why would you put
your money in a bank with a drive-up window and they credit you less than one percent?
When the bank is actually taking a lot of your money and putting it in these. Just bypass the
middleman and you can get the money just as easily with an electronic defense transfer
phone call. You don't need a drive up window down the street. You're giving up a ton of rate
of return that you could be earning. Lump sum capital transfer. If you have a large lump sum
coming in from something a settlement or what have you. We have estate planning.
People use it for pension maximization if they're a school teacher, a police officer,
a firefighter, and also for just general tax reduction. So, again, if this is intriguing you,
I would recommend you claim your free copy and you'll be blown away when you read this book.
It's called the laser fund. It's two books in one. The white covered side is about 200 pages
14 chapters and it has all the charts and graphs and explanations. If you learn more by stories
and metaphors you flip it over to this side and that's the orange covered side and this
is 100 pages 12 chapters with 62 actual client stories and so it's a right-brain, left-brain
type of a book. This will teach you how to diversify and create the foundation for a tax-free
retirement. Just click on the link below or go to laserfund.com. You contribute a nominal amount
towards the shipping and handling. I'll pay for the book and fire it out to you. There's also
options there if you want to listen and learn or watch and learn. Here is to your brighter future.