Uncle Sam and his gang of merry men, better known as Congress, have been pushing snake oil onto the unsuspecting public in the form of retirement plans. But wait, isn’t a pension plan one of the benefits we look for when looking for an employer? Well, not all pension planning is created equal, and in most cases, pretty disastrous.
Distributions from all qualified plans must begin no later than April 1 of the calendar year following the year in which the participant turns age 70½, or the calendar year in which the employee retires. Special rules apply if the distribution is made to a 5 percent owner of the business. The purpose of the minimum distribution rules for retirement plans is to force the owner or participant of the pension plan to withdraw money from the plans, thus generating an income tax on these monies. On April 16, 2002, the Internal Revenue Service issued final rules on these distributions.
In general, the idea according to the regulations is that the owner or participant of the pension plan begins to withdraw the money from the pension plan as soon as he finishes working or turns 70.5, whichever occurs later. One of the purposes of this is to ensure that these monies are subject to income tax prior to the owner’s death.
Based on the current system the government has created with pension plans, the average retired couple will pay eight to twelve times more in taxes on their IRAs and 401(k)s during their retirement years than they saved during retirement. their years of contribution and accumulation. It is generally understood that you put money into your pension plan and taxes are deferred and this is a great thing. Unfortunately, you may find yourself in a higher tax bracket if your pension accumulation is done correctly.
In addition to a higher tax bracket in retirement, many people find themselves with a free and clean home; they no longer have mortgage interest deductions to offset income tax. Many Americans find that they are now paying back everything they saved in taxes during their accrual and contribution years within the first two years of distributions. So there is an insidious income tax waiting for most people and if they didn’t plan their estates, double taxation in the form of income tax and estate tax.
Many postpone transferring their qualified funds until age 59½ to avoid the 10% tax penalty. Sometimes, by delaying paying taxes, retirees will find themselves in a higher tax bracket after age 59½ because Congress could raise tax rates due to political change. Inevitably, one must pay the piper now or later.
Which is the answer? Investment grade simple life insurance. This type of life insurance is not the same type of life insurance you receive countless letters in the mail about. This is life insurance that focuses on building a triple compound because it is tax deferred. The difference between the deferment experienced by life insurance and pension plans is that, when it comes time to pay, the life insurance is received as a loan. This is a powerful concept because the income will not be taxed; loans are not a form of taxable income. However, as a loan you will have interest on the payments. Most people mistakenly think that they will pay interest on their own money with life insurance. While that’s true in theory, the best insurance companies provide zero-wash loans where the interest is basically forgiven or deducted from the death benefit when a person dies. We are talking about real life insurance, not the typical death insurance that most people have because they use it while they are alive.
The best candidates to create amazing wealth with investment-grade life insurance are those in their thirties and fifties. Once committed and in the right product, it is foreseeable that they will retire rich and without the annoying taxation that surrounds a pension plan. There are even strategies to start a plan to contribute to your investment that only requires repositioning your current finances. To view a presentation on ways to finance your retirement, go to [http://www.abundantmoney.com].
If you’re over fifty, I’m sorry we lost you. If you have kids don’t let another day go by without them starting a plan because 79 million people are on their way to social security charity in the next few years. Even though Social Security will get a 2.7 percent raise next year (2005), Medicare will eat up much of the raise, and when the 79 million eligible Americans sign up, watch below.
James Burns, Esq.
Law Firm of James Burns
18662 MacArthur Blvd., Second Floor
Irvine, CA. 92656
(949) 440-3243