Uncle Sam and his band of merry men, better known as Congress, have been pushing snake oil on 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, quite 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 holder or participant of the pension plan to withdraw money from the plans, thus generating an income tax on this money. 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 holder or participant of the pension plan begins to withdraw money from the pension plan as soon as they finish working or reach 70.5 years of age, whichever occurs later. One of the purposes of this is to ensure that these monies are subject to income tax before the owner’s death.
Based on the current system the government has created with pension plans, the average retiree couple will pay eight to twelve times more in taxes in their IRAs and 401(k)s during their retirement years than they saved during their years of contribution and accumulation. It is generally understood that you put money into your pension plan and it is tax 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 upon 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 everything they saved in taxes during their years of accumulation and contributions within the first two years of distributions. So there is an insidious income tax waiting for most people and if they did not plan their estates, double taxation in the form of both income and wealth tax.
Many postpone the transfer of their qualifying 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 might increase tax rates due to a 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 as the one you receive countless letters about in the mail. This is life insurance that focuses on building a triple compound because it is tax deferred. The difference between the deferral experienced by life insurance and pension plans is that when the time comes for payment, the life insurance is received as a loan. This is a powerful concept because 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 are going to pay interest on their own money with life insurance. While that is true in theory, the best insurance companies provide zero-wash loans where interest is basically forgiven or deducted from the death benefit when a person passes away. 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 for building 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 increase next year (2005), Medicare will eat up much of the increase and when the 79 million Americans who qualify sign up, look below.
James Burns, Esq.
James Burns Law Firm
18662 MacArthur Blvd., second floor
Irvine, CA. 92656
(949) 440-3243
