Uncle Sam and his group, better known as Congress, have pushed snake oil to the unsuspecting public in the form of retirement plans. But wait, isn’t a retirement plan one of the advantages we look for when shopping for an employer? Well, not all retirement planning is created equal and in many cases, quite disastrous.
Distribution of all eligible plans must begin no later than April 1 of the calendar year following the year the participant reaches age 70 1/2, or the calendar year in which the employee retires. Special rules apply if the distribution is to 5 percent of business owners. The purpose of the minimum distribution rules for pension plans is to force pension plan owners or participants to withdraw money from the plan, thereby triggering an income tax on the money. On April 16, 2002, the Internal Revenue Service issued final rules regarding this distribution.
In general, the idea under the rules is for the owner or participant of the pension plan to start taking money out of the pension plan when he or she finishes working or is 70.5. One of the goals is to ensure that this money will be subject to income tax before the death of the owner.
Under the current system the government has set up with pension plans, the average retired spouse will pay eight to twelve times more tax on their IRA and 401(k) during their retirement year than they save during their contribution and accumulation year. Generally, it is understood that you put money into your retirement plan and are tax-deferred and this is a great thing. Unfortunately, you may be in a higher tax bracket if your pension accumulation is done right.
In addition to a higher tax bracket upon reaching retirement, many people find themselves having a free and clean home; they no longer have mortgage interest deductions to offset income taxes. Many Americans find that they are now paying back everything they saved in taxes during the year of accumulation and their contributions in the first two years of distribution. Therefore, there is a dangerous income tax waiting for most people and if they don’t plan their estate, double taxation in the form of income and property taxes.
Many delay the transfer of their eligible funds until the age of 59 to avoid a 10% tax penalty. Sometimes by delaying paying taxes, retirees will find themselves in a higher tax bracket after age 59 because Congress can raise tax rates due to political changes. Like it or not, someone has to pay the piper now or later.
What the answer? Simple, investment grade life insurance. This type of life insurance is not the same as what you get from a lot of mail in the mail. This is a life insurance that is focused on building a triple compound because it is tax deferred. The difference between the deferrals experienced by life insurance and retirement plans is that when the time comes for payment, the life insurance is accepted as a loan. This is a powerful concept because the proceeds 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 in theory correct, the best insurance carriers provide zero wash loans where interest is essentially pardoned or taken on the death benefit when a person dies. We are talking about real life insurance, not the regular death insurance that most people have because you use it while you are alive.
The best candidates for creating extraordinary wealth with investment grade life insurance are those between the ages of thirty to fifty. Once committed and in the right products one can expect them to retire rich and without the annoying taxes that surround retirement plans. There are even strategies for starting a contribution plan for your investments that only require repositioning your current finances. To see a presentation on how to finance your retirement, visit [http://www.abundantmoney.com].
If you are over fifty, I’m sorry we missed you. If you have kids, don’t let a day go by without them starting a plan as 79 million people are heading towards social security sharing in the next few years. Even though Social Security gets a 2.7 percent increase next year (2005), Medicare will take up a lot of the upgrade and when 79 million eligible Americans sign up – see below.
James Burns, Esq.
James Burns Law Office
18662 MacArthur Blvd., 2nd Floor
Irvin, CA. 92656
Jambur64@cox.net
(949) 440-3243
