IRA/401k Plan…Which is better?

Is it fair to compare the two competing plans? If you are looking for sustainable long term dollars then the answer is yes. Here are the differences laid out in bullet point form between putting your money in an IUL (indexed universal life insurance policy) vs an elective IRA/401k plan.

1. IRA and 401K dollars are allowed deduction from your gross income. That means you don’t pay taxes on those dollars….Today! In the future, when you take those dollars out, you will pay the taxes on the entire amount. What will your tax rate be then? No one knows for sure. With an ever increasing national debt standing at over 17.5 trillion dollars and a current deficit of over 600 billion dollars, you could make the argument that tax rates will rise in the future. In fact they did on January 1, 2013 with the top marginal rate was increased to 39.6%.

In the future when that money at minimum will be forced out under the minimum income distribution rules at age 70½, those dollars could impact how much of your social security dollars can get taxed. Currently up to 85% of social security can be brought in to be part of your total income tax liability picture. That could be in import decision factor for those who consider social security to be a key component of their retirement income.

Taxes on IUL dollars are treated like Roth IRA dollars. You pay the tax today and then down the road, you can create a non-taxable income stream. It won’t matter what the tax rate is when you take them out. You simply do not have to contend with that part. Also since it is non-taxable, it can be a key part of your retirement income picture as they will not impact your social security dollars. This is a distinct advantage and it would result in a net increase in income as compared to what your taxable IRA/401k dollars will do to it.

2. IRA/401k dollars are generally invested into a collection of stocks and bonds which in most cases are a form of mutual funds. There are exceptions to this as some individuals do elect to self-direct their IRA dollars into other forms of eligible assets. The stock and bond market has had a turbulent history of losses and gains and have not faired well since the initial crash of 2001. In fact the high in January of the year 2,000 of 1,498.58 for the S&P500. 14 years later the S&P now sits at 1,883 and has shown an anemic 28% increase in value since 2001. When you subtract out the fees and admin expense of both the fund and plans, it is no wonder why most people feel poorer than ever before and unable to retire.

With the prospect of further market declines, the average worker faces a bleak prospect of ever having an ability to create any form of reliable income. When coupled with the questionable advise from some planners and advisors, this only serves as a warning to everyone that you must find a harbor for a portion of your money that not only gives the opportunity of market gain but also a vehicle in which to protect it from future market losses.

IUL dollars on the other hand give the average individual a protective net to keep those dollars from declining during severe market disruption through the process called Annual Resets. This means that the insurance companies holding the money will use the various market indexes simply as a barometer to measure what the interest crediting rate is on the cash value in the policy. There are other reset and crediting strategies available depending upon the companies that offer these plans. There is also an assurance that the policy holder will never have to worry about losing their money in the policies. Their money is secured by the assets and promises of the insurance companies and that those companies are highly regulated by each and every state insurance commissioner guideline and state guarantee associations if applicable.

3. Here’s is an example. We are going to assume that John, a 45 year non-smoker old male, is going to make a decision between putting money into his 401k plan or an IUL with Living Benefits. We are going to assume that he is going to be in the 25% federal income tax bracket during his contribution period and also during his retirement period. I say that because we are also going to assume that his mortgage and other deductions will be gone at the time of retirement. We have no idea also as to whether the federal income tax brackets will have increased at that point either. We will just assume it is a wash at this point.

We are also going to assume that John is going to put $488.67/mo ($5,000 a year) until age 67 and earn a 8.2% rate of return on his contributions into his 401k plan with a total admin and expense fee of 1.5%. This return is based on the 25 year historical look back on the S&P500 index today. To be extra generous, we are also going to assume that John is putting his tax savings of $104.17/mo back into his 401k plan which will help his plan grow even larger. The fact is you can’t even do this anyway and most people spend that tax savings. I am simply making this extra generous for the 401k plan.

He will then retire and start taking out a gross amount of $44,848 starting at age 68. After federal income taxes at the 25% rate, his net income will be $33,636. By age 81, 13 years later, his income is gone. POOF! No more money. And this scenario is also assuming that he had absolutely no major market decline which would have devastated his income at any point. Can we assume that would never happen? Another concern that John has is if for any reason he has to access the money and take it out early, he will suffer a 10% early withdrawal penalty.

Now let’s put those same dollars into the IUL. Remember John has already paid his federal income taxes at the 25% rate today. Very much like a Roth IRA. When John starts taking the same $33,636 of non-taxable dollars, his income will last all the way out to age 100 in the IUL. You heard me right. Age 100. That is $639,084 more dollars in income as compared to John’s IRA. And in addition, John assumed no risk of losing his money and he never had to worry about how it would affect his social security income. It doesn’t matter!

On top of the obvious advantages that the IUL has given John, he also has over $300,000 dollars of life insurance benefit which the 401k will NEVER have and he has access in the early years of his plan to the cash value of the policy without fear of any penalty which allows him to use those dollars for very important situations that may arise. He can’t do that with his IRA/401K.

Lastly, John’s IUL policy also has a provision that allows him to be paid tax free dollars in the event that he should have a serious health crisis such as a heart attack, stroke or cancer or even a chronic illness that could put him in a nursing home. He does not have to die to have those benefits paid out. This is a plan that will pay him while he is alive. There is no such provision or accommodation in is IRA/401k plan.

Obviously this is one scenario. Every person is different and will likely produce different results. But this article was simply produced to provide some bases of comparison between the two competing concepts. For more information, you can respond to the person who provided you this article or you can contact me directly at: valmikesell@gmail.com or 425-896-4366

Employee – Self Employed – Team Builder….Which One?

Apparently ERS liked this so much, they wanted to post it in their video archive for the rest of the country to see. Watch the video and find out why.

One area we specialize in: Alternatives to IRA’s and 401k plans

Our company operates in 3 industries. Real Estate, mortgages and insurance. For the purpose of this video, I am going to focus on an 11 minute synopsis to give you an oversight on a fantastic alternative to IRA’s and 401k plans. It is a beginning step. This is a process of education and helping you make common sense decisions to benefit you and your family.

The Customer Presentation

Hey Team. This is my latest recorded customer FEG presentation. My goal was to get it done in about 20 minutes so I missed it by a few. Takes about 15 seconds for it to start.

The FEG Compensation System

This overview of the FEG compenstion system using the ANICO products will give you an exciting understanding of how lucrative this can be for an agency builder as well as show you how competitive we are.

Enjoy!!!

I sure do.

How To Take A New Person Into The Prelicense Process

This is a short tutorial on how to walk you through and show how to take you new unlicensed person and put them through the instructional course prior to taking the exam. Feel free to share this with your team.

The Head Fake

I was pondering on what the write on this morning but I just didn’t want it to be just on sales or the insurance business and/or finances. I wanted to think outside the box for a moment and focus on life. Life is the accumulation of all the things we did both good and bad and to often living a life of regrets.

Here is a story that I first came across several years ago. It the story of a professor named Randy Pausch. He was an immensely talented professor at Carnegie Melon University and this video is his last recorded lecturer at a packed assembly hall. It was his last lectured because he was riddled with cancer and only had a few months to live.

I just finished watching the 1 hour and 16 minute video of his lecture. I walk away feeling both sad but also satisfied that here is a man, who could have been bitter at the loss of his life at the prime of his life, yet he still exhumed and indomitable spirit of optimism and zest.

His lecture is laced with many parables and stories of life and general and his enthusiasm to excel even unto his death. I could type away and list some of his memorable quotes but it would be better for you to just take a time out in your next day or so and listen to him.

I promise you won’t be wasting your time and you might just pick up a few gems that he threw on the ground for you. I know I see them and glad I did take the time to watch it. I hope all of you will do the same.

And Its Gone

As funny as this is, it still serves as a reminder of what is really going on in the market today. There has been a considerable amount of noise of the surge in the market indexes (that’s very good for us). What is driving the surge no one really knows for sure as the overall health of our nation all the way from durable goods to real estate and unemployment, don’t seem to support it.

There is some speculation the the market is absorbing the printing of money by the Fed. Maybe so. With Europe in convulsions particularly in Spain and Greece, it is not hard to imagine that a single incident can cause the flight of money out of the market yet again and “Poof!”, your money is gone…again.

This is exactly the reason why a sensible approach for a portion of the money should be inside Indexed Universal Life policies with stable and reliable insurance companies that also provide for living benefits. The the upside potential and protection against downside risk along with the superior tax planning strategy makes them nearly unbeatable. If someone can come up with a better way, show me.

At least with our approach to retirement dollars, we won’t wind up being a south park episode.

A Little About Me

A 5 Minute Look

Vals 5 minute Click to view

This is a great 5 minute video produced by Patrick Kelly on what is really going on in the market and should raise concerns in your own mind of whether you are truly doing the right steps in keeping your own retirement money.