- Keep your business working capital
liquid, safe, earning tax-free rates of return.
In this educational episode,
I'm going to address where should a business owner
deposit retained earnings or positive cash flow.
Get ready, I'm gonna blow you away
with probably the best repository
you could ever come up with to be able to hold your cash
that you are needing.
Maybe you don't need it,
but in case you do need it, for your business.
(upbeat music)
So, I'm Doug Andrew, I've been a financial strategist
and a retirement planning specialist now
for nearly five decades.
And I've been helping a lot of business owners,
as well as just individuals accumulate money tax-free
for their future,
and then be able to turn on tax-free income
or access money income tax-free for any goal,
but especially a business owner
so that you can operate your business
and access your own money, become your own banker, okay?
And I've been helping people do this now
for nearly five decades,
and a lotta business owners,
they come to our educational seminars
and sometimes they've had a hard time separating
the strategies where they sock away money personally
for their future, their retirement,
and their business, and they don't understand
how they can sort of mesh the two together.
And when I teach them about my favorite financial vehicle
that I recommend for people to use for retirement
that will allow you to have maybe 40%, 60%,
even some people prefer to have 100% of their income
during retirement,
not even show up on the front page of their 1040 tax return.
They're adverse to taxes, they do not wanna pay anymore tax.
And so, they get the taxes over and done with
sooner than later.
But I would recommend that 40 to 60%
of your income during your retirement
come out of what I call the tax-free bucket.
Now, there's only a few financial vehicles
that allow you to accumulate money tax-free
and then be able to access that money tax-free.
One might be a Roth IRA or 401(k).
Another might be municipal bonds.
Municipal bonds used to be popular now,
there's a lotta municipalities that are in trouble.
They're filing bankruptcy and they're low yielding
so they're not near as attractive as they used to be.
But some people go, "Well, I'm thinking about a Roth."
And I'm going, "Well, that's okay.
A Roth is a step in the right direction
from a traditional IRA or 401(k)."
Why?
Because if you think that taxes
in the future will be higher,
I can prove to you mathematically
that a Roth IRA or 401(k) will last longer,
generate maybe 50% more income
than a traditional IRA or 401(k)
with the same amount of money, the same rate of return
if tax rates continue to go up at the current rate.
And so, unfortunately, most Americans don't realize this,
and so, 91% of Americans, I think are still duped
into putting money into traditional IRAs and 401(k)s.
And this is why I have episodes on this channel
about how you can get the money out of those
doing a strategic rollout.
Well, sometimes people say,
"Well, I'm smart. I'm going to use a Roth."
Well, a Roth is better than a traditional IRA or 401(k)
in my opinion, but it still has too many strings attached.
So I've never owned an IRA or 401(k)
nor a Roth IRA or 401(k) and I never will
because Roths have only two advantages or two benefits.
You fund Roths with after-tax dollars,
but you access your money tax-free
and you accumulate money tax-free.
And so, there are strings attached
where you can only put in a certain dollar amount
or a certain percent of your income.
Well, some business owners have way more money to sock away
in some ban or years than a Roth will allow,
and so, there's too many strings attached with a Roth.
And if you could put in a larger sum of money,
if you don't, you can't make up for it in the next tax year.
I don't like those strings attached,
so I use a LASER fund, which has actually been grandfathered
in the Internal Revenue Code now for over 108 years
as of the recording of this episode in the year 2022.
And so, why would I mess around with a Roth
when I have the two benefits of a Roth
and actually four additional benefits Roths will never have?
I could design a LASER fund, which is the max funded
indexed universal life insurance contract,
but it has to be structured correctly and funded properly
to accommodate the money that you wanna sock away
for your future or your business working capital
which is this is all about.
So, if I have a LASER fund or a portfolio of them,
I can earmark them for long-term goals like retirement,
but in the meantime,
I can use it as a put and take account for my business.
You can't do that with an IRA or 401(k) or a Roth,
because if you touch the money within five years
or before you're age 59 and a half,
there's gonna be a 10% penalty
and all those kinds of strings attached.
But see, I can access money out of a LASER fund.
I could put in 300,000 bucks
and next month, I could pull out 200,000.
There's no penalty from the IRS.
There's no penalty from the insurance company
if I need the money.
So this is where a lot of savvy business owners
who set up a portfolio
of indexed universal life insurance contracts
and they structure them correctly and fund them properly,
and so, they pass what I call the LASER test.
LASER is an acronym that I use that stands for
liquid asset safely earning returns.
So you want to have a working capital account
in your business that's liquid,
where you can access money when you need it
for an emergency or a business opportunity or whatever,
maybe you're gonna buy out a competitor or whatever.
And so, you want a liquid account and you can access money
with an electronic funds transfer or a phone call.
You want it safe so that when the market
or the economy goes down,
you don't lose during market downturns.
You may not make much of anything, but you don't lose.
And as Will Rogers once said,
"People get more concerned when the market goes south
of the return of their money
instead of the return on their money."
And so my favorite vehicle
for long-term goals is a LASER fund.
But when business owners see this,
they usually go, "Hey, wait a minute, Doug.
Can I use this for the working capital in my business?"
And I'm going, "You got it.
I have done this for years."
And frankly, it has saved me many, many times
when I've had to dip into my LASER funds.
One time I had to do it because of a downturn
and unforeseen circumstances just to meet payroll
but I was able to do it.
I didn't have to go to a bank and beg to borrow money.
Or if I maxed out my line of credit,
I don't have to qualify for a loan
from the insurance company.
The insurance company will always loan me
the equivalent of the cash I have in my IUL policy.
Now, sometimes people say,
"Well, why don't you just withdraw it?"
Well, because savvy business owners,
they understand how money works.
So let's say,
I have a million dollars in my IUL policy or policies.
You can have more than one.
And I'm using that for working capital for business,
and so I'm socking away money in there.
It grows tax-free.
I don't have to pay tax on any of the growth
that it earns every year.
But if I need to access some of that money,
that there's basically two ways you could withdraw it.
So, if I have a million in there and all of a sudden,
I see an opportunity to buy out a competitor
or to buy a new plant or a new location
or expand my business or hire, whatever,
I can go in and just withdraw a million outta my IUL policy,
but now it's not there earning any interest.
Savvy business owners do what?
They they call me up and they go,
"Doug, I need a million dollars outta my IUL policy."
I actually had a business owner client do this in 2017.
He saw an opportunity to buy an apartment complex,
fix it up and then flip it,
and make 2, 3 million bucks in about a year.
And so he says, "You know, email me that form."
It's one page.
He puts his name and his policy number
which is like an account number, okay?
And the insurance company says,
"Oh, do you want to withdraw a million?"
Or the next box that he might check would be,
"Do you want to borrow a million?"
Which box do you think he checks?
Yeah, borrow. Why?
Because he can borrow from the insurance company
the equivalent of the money he has on deposit there.
Well, why would you do that?
Well, they're gonna charge interest,
but that's a good thing.
Why?
Because when he borrowed a million, he has two choices.
He can borrow at what is called zero net cost.
He could borrow a million at 2% interest.
It's tax-free because loan proceeds are not taxed, okay?
The IRS wants the insurance company
to charge a nominal interest rate
so it's not a taxable event.
So, they'll charge him 2% on a million dollar loan,
that's a pretty good rate,
but they'll credit him the same 2%
on the million dollars that's collateralizing
that million dollar loan, the cash that's sitting there.
And so he's credited 2%.
They charge him 2, it's a zero net washed loan.
It doesn't cost him anything to borrow his own money
but that's not what most savvy business owners do.
They use the LASER fund as a working capital account.
And in 2017, this business owner, he said,
"I wanna use the index loan."
And so back then, the index rate was five,
sometimes some of these are like 4%, but he says,
"Well, I'm willing for you to charge me 5%."
They can't charge him any more than that in that contract.
Why would he want to be charged 5% or 50,000
on a million dollar loan
when he could have borrowed it for two?
It's because if he tells them they can charge him five,
they will credit him on his million
whatever the index is performing at.
That year, he got credited 25%, okay?
He made a quarter of a million in interest tax-free
minus the 50,000, he netted 20% or 200,000 cash
tax-free growth on his million
while he was technically using it
in his business working capital, okay?
We have business owners that do this all the time.
So when people say, "Golly, as a business owner, Doug,
where should I keep my retained earnings?"
Unfortunately, some business owners
are so busy running their business,
they have several hundred thousand,
some have several million dollars
accumulating in their checking account.
And you look at their average balance
for the last year, two, five years,
and their average balance is a half a million, a million.
I'm going, how many times have you dipped
below a half a million bucks?
Never.
Well, then if I were you,
I would put that half a million over into a LASER fund
and you'll be earning, you know,
5, 6, 7, 8, 9, 10% or more on that totally tax-free.
And if you need it, you can access it just as easily.
Maybe not with a drive-up window,
but just as easily with an electronic funds transfer
or a phone call,
and you can access that the smart way
and continue to earn interest
while you're using it in your business.
Now, you have it sitting in a checking account at the bank.
They're not paying you anything.
Or if they do pay you something, it's so pathetic,
the rate of inflation is eating it all up by far.
And so, sometimes, you just have to rethink your thinking
as a business owner, come on, take your working capital,
take that positive cash flow,
and instead of letting it just sit there
in some bank or credit union
and earning a measly rate, less than 1%,
increase the liquidity,
the safety by probably six notches higher.
Most banks are maybe rated triple B by S&P.
Most of these insurance companies where I have my money
are rated triple A.
That's about six notches higher in safety.
This is why banks will take 30 to 40%
of their tier one assets
and increase the liquidity and the safety
by five notches higher.
And they earn five times as much.
They earn 5% and they're only paying you 1%.
On every million, they're earning 50 grand
and they only have to pay you 10,000 of that 50 grand.
Just bypass the middleman,
especially with your working capital.
You put it in the insurance company,
increase the liquidity, the safety,
and the rate of return by maybe five times or more.
Is this making sense?
So, a business owner should rethink their thinking,
set up a working capital account.
I would recommend a portfolio of LASER funds.
If you don't have a lot of working capital
just start out with one, you can add more.
And then, this is how you become your own banker.
You access the money when you need it
but you're able to earn a rate of return tax-free
that down the road will allow you to have even more money
for business opportunities, but even a better retirement.
We've helped many business owners accumulate
an extra million, 2 million,
5 million bucks over their lifetime
by using this as their working capital account
instead of keeping the business cash in a bank.
Does that make sense?
Understand how money works and keep it liquid,
safe, earning predictable rates of return,
and I would recommend totally tax-free.
If you wanna learn more about this
and this LASER fund I've been talking about,
I want to gift you a copy
of this most recent bestselling book
that's been flying off of our warehouse shelves.
It retails for 20 bucks on Amazon.
You don't need to pay that, I wanna gift you a copy.
So, here's how you claim your free copy.
Go to laserfund.com, L-A-S-E-R fund.com.
Click on the link below and you contribute a nominal amount
towards the shipping and handling, okay?
Have a little bit of skin in the game
and I will pay for the book.
I'll fire out a hard copy to you,
but there's options there
if you would also like to listen and learn
or watch and learn,
there's also some online educational events.
If you wanna talk to an IUL specialist
to see how you can set up a LASER fund
for your business working capital,
you can set up an appointment and pick their brain,
and they'll be happy to give you some illustrations
on how it works and help you get on your road
to having more liquidity, safety,
and rates of return tax-free
on your working capital in your business,
and watch how much more you will be worth down the road.
(upbeat music)