How To Become Your Own Bank
- 1. Kagan Financial presents… How To Become Your Own Bank Thursday, January 26, 2012
- 2. As of January 24, 2012
- 3. Quick Test Where do you think taxes are going? Lower Level Higher
- 4. Where Do You Think Taxes Are Going?
- 5. Two Largest Errodes of Wealth Taxes Fees
- 6. Math Test If you have $10,000 in the market and in year 1 you lose 50% and in year 2 you gain 50% do you have the same amount you started with?
- 7. Math Test Year 1 $10,000 - $5,000 = $5,000 Year 2 $5,000 + $2,500 = $7,500 Wealth Accumulation is not about what you earn, but instead about what you do not lose. -Warren Buffet
- 8. 2 Rules of Investing 1) Don’t lose money 2) See Rule #1
- 9. The Smart Money Order 1.) “Free” Money 2.) Tax-Free Money 3.) Tax-Deferred Money 4.) Taxable Money
- 10. Free Money -Free money consists of the money that is matched with contributions to your retirement accounts -Inheritance -Most people take advantage of this
- 11. Tax-Free Money Roth IRA Municipal Bonds Cash Value Life Insurance Most people either don’t qualify because of income, or aren’t educated on these vehicles Any money contributed to Tax-Qualified Plans over the match skips over this and goes directly to tax deferred
- 12. Tax-Deferred These are unmatched funds in 401k, 403b, IRAs, etc. These can be good vehicles for retirement but have restrictions. Locked up until 59 ½ , RMDs, no safety, no liquidity, investment options limited. Most people skip over tax-free money and jump to this.
- 13. Tax Now Almost everything else falls in this category.
- 14. Scared yet? Let me put the rest of the nails in the coffin…
- 15. Actual vs. Average Return of the S&P 500 $10,000 Contribution every year for 10 years Tied to the S&P 500 Taxes and Fees not considered Year Annual Yield Average Yield Actual Yield Account Value 1995 34.11% 34.11% 34.11% $13,411 1996 20.26% 27.19% 25.08% $28,154 1997 31.01% 28.46% 27.80% $49,985 1998 26.69% 28.02% 27.40% $75,995 1999 10.51% 26.32% 25.07% $102,773 2000 -10.14% 20.24% 15.20% $101,338 2001 -13.04% 15.49% 8.12% $96,819 2002 -23.37% 10.63% 0.51% $81,856 2003 26.38% 12.38% 5.05% $116,088 2004 8.90% 12.04% 5.71% $137,423 2005 3% 11.21% 5.29% $151,846 2006 13.62% 11.42% 6.41% $183,889 2007 3.50% 10.81% 6.04% $200,675 2008 -38.50% 7.29% -1.04% $129,565 2009 19.67% 8.11% 1.33% $167,018 Totals 8.11% 1.33% $167,018
- 16. Age Beginning Account Value Cash Flow Rate Taxes Amount of Tax Management Fee Ending 30 $0 $7,200 7% 35% ($176) ($79) $504 $7,449 31 $7,449 $7,200 7% 35% ($359) ($160) $1,025 $15,155 32 $15,155 $7,200 7% 35% ($548) ($245) $1,565 $23,127 33 $23,127 $7,200 7% 35% ($743) ($332) $2,123 $31,375 34 $31,375 $7,200 7% 35% ($945) ($422) $2,700 $39,908 35 $39,908 $7,200 7% 35% ($1,154) ($516) $3,298 $48,736 36 $48,736 $7,200 7% 35% ($1,370) ($612) $3,916 $57,869 37 $57,869 $7,200 7% 35% ($1,594) ($712) $4,555 $67,318 38 $67,318 $7,200 7% 35% ($1,826) ($816) $5,216 $77,093 39 $77,093 $7,200 7% 35% ($2,065) ($923) $5,900 $87,205 40 $87,205 $7,200 7% 35% ($2,313) ($1,033) $6,608 $97,667 41 $97,667 $7,200 7% 35% ($2,569) ($1,148) $7,341 $108,491 42 $108,491 $7,200 7% 35% ($2,834) ($1,266) $8,098 $119,689 43 $119,689 $7,200 7% 35% ($3,109) ($1,389) $8,882 $131,273 44 $131,273 $7,200 7% 35% ($3,393) ($1,516) $9,693 $143,258 45 $143,258 $7,200 7% 35% ($3,686) ($1,647) $10,532 $155,658 Sum Of Contribution Sum of Taxes Sum of Fees $115,200 $26,685 $12,815 % of Contribution % of Contribution $24.9 $11.12
- 17. Qualified Plan Example $4,000 contribution for 30 years Tax bracket of 33% Annual taxes deferred $1,320 30 years of tax savings $39,600
- 18. Qualified Plan Example $4,000 Growing at 10% Grows to $723,744 10% Annual withdraw $72,000 33% Tax Bracket is $23,760 Net Income $48,240
- 19. Rest of the Story Taxes paid from 65 to 85 equals $475,200 Taxes saved during contribution equals $39,600 How is this tax efficient?
- 20. Qualified Non-Qualified EIUL Contribution Tax Deferred Taxed Taxed Accumulation Tax Deferred Taxed Tax Free Withdraws Taxed Taxed Tax Free
- 21. Taxable Money vs. Tax-Free Money Taxable (when received) Tax-Free (when received) Stocks Tax Qualified Plans Mutual Funds Wages Real Estate Municipal Bonds Roth IRA Life Insurance Capital Gains Income
- 22. Tax-Qualified Strategy vs. Tax-Free Strategy Tax-Qualified Strategy Tax-Free Strategy Gains Tax- Deferred Contribution NO TAX PAID After-Tax Contribution TAXES PAID
- 23. Would You Rather Pay Taxes? Tax-Deferred Tax-Free Strategy On This? Or This? ZERO Tax Contributions Previously Taxed 100% Taxed As Income
- 24. Power of Annual Reset
- 25. How Is It Possible? Internal Revenue Code 101 and 7702 allow you to earn interest on savings and withdraw income on your savings WITHOUT TAXES These provisions are given exclusively to Life Insurance
- 26. Banking on Yourself Strategy Purchase the car out of your Private Equity Banking Contract Pay your Private Equity Banking Contract back the $600/month that you would have paid a traditional bank
- 27. Banking on Yourself Strategy At the end of 5 years your have refunded your Private Equity Banking Contract $30,000 of Principal $6,000 of Interest you would have paid the Bank And you own the car Meanwhile your funds in the contract are still growing
- 28. New Car Purchase $30,000 Traditional Bank Loan @ 5% for 5 years -$600/month Cost of Car after 5 years = $36,000 You now own an asset that is constantly depreciating
- 29. In Conclusion… The solution is… The solution is properly setting up an EQUITY INDEXED LIFE INSURANCE POLICY through a properly trained advisor.