According to Missed Fortune founder Douglas Andrew, life insurance–specifically indexed universal life–can be used in retirement as a tax-free vehicle to generate income tax free under certain sections of the tax code. It can be very safe, protected, and with real low cost over the life of the policy, says the founder of Missed Fortune.
First of all, says Missed Fortune, it is important to understand that in the early 1980s insurance companies created policies where cash value could be accumulated safely, earning a good rate of return. Under Section 72(e) of the tax code, cash value inside of life insurance grows tax deferred. Under Section 7702, individuals can access those gains tax free via tax-free policy loans–zero cost loans [Andrew speaks about this in another Missed Fortune YouTube video]. And under Section 101(a) the death benefit transfers tax-free. Back then, says Andrew, people were buying a $50,000 policy to put in a half million dollars. They were getting tax advantages by having a small policy, according to Missed Fortune ’s Andrew.
The TEFRA and DEFRA tax codes of 1982 and 1984, explains Missed Fortune, were passed by the government to guarantee that if an individual wanted to put in a half million dollars, depending upon age and gender, he or she had to buy a certain amount of insurance. Doug Andrew of Missed Fortune puts it this way, “So if you are 60, you have to buy around $1.25M of life insurance to put in a half million dollars. There has to be a need and want for the death benefit, by the way, and then all this cash is going to be growing tax deferred and you can access it tax free in retirement for tax free income.”
According to Missed Fortune, if a 30-year-old individual opens up a policy, the death benefit would have to be approximately $6 million to put in half a million dollars. The cost of the insurance is close to the same for the 30 year old as it is for a 60 year old, says Missed Fortune, however the 60 year old receives $1.25 million of life insurance and the 30 year old receives $6 million.
Continues Missed Fortune, “The TAMRA law of 1988 was passed after banks and other institutions lobbied Congress. TAMRA stands for Technical And Miscellaneous Revenue Act of 1988 and says that you cannot put all the money into insurance policies at once. If you want all these tax advantages, meaning the tax deferred growth—to get it out tax free under Section 7702–you have to comply with TAMRA which means you have to stretch it out over five years.” Missed Fortune founder Andrew suggests that banks and other financial institutions were trying to slow down the amount of money that was being transferred from their accounts into life insurance policies.
The quickest that an individual can fund an insurance contract, explains Missed Fortune, is approximately four years if he or she is under 40. When a person is in their fifties it takes about five years, and above that age it may take six years. In specific situations, Missed Fortune recommends that a client fill up a policy over ten years with an increasing death benefit. Each person’s situation is different.
Missed Fortune cautions that this process is very complicated and that it is essential to work one-on-one with an experienced professional to ensure that the proper instrument is put into place. It’s crucial to be in compliance with the tax codes, says Missed Fortune founder Doug Andrew.
Concludes Missed Fortune, “This is a brief example of how insurance can be used in retirement planning as a tax free alternative—to be able to generate income tax free and be able to have a very safe place to earn about 7-8%.”
For more information, contact Missed Fortune at 888-987-5665 or visit Missed Fortune online at missedfortune.com.