I just read an article from Smart Money titled “Tax Me Now or Tax Me Later”. The article discusses the merits of shifting money from the traditional IRA to a Roth IRA. It suggests that the Roth IRA will preserve your retirement savings and make those savings go further by taking advantage of an opportunity that before 2010, was not available for individuals making more than $100,000. Although the article was written last year, it is still rather appropriate.
The article suggests that the best place to preserve your money for retirement is in a Roth IRA. The author’s argument is that taxes in the future will be much higher than they are today! And, by converting from the traditional IRA to the Roth will allow you to pay taxes based on today’s tax structure, rather than the tax rate 30 years from now. Well, I agree! But my ability to agree ends with the argument of taxes being higher in 2040! If you only have few thousand dollars to invest and you make less than $120,000 as an individual, then maybe the Roth is the place for you. But for those looking to invest significant savings on an annual basis, you are out of luck! The limit on contributions is $6,000 for individuals over 50 and $5,000 for individuals under 50.
It is true that the Roth is an “after tax” investment, but the money is not liquid and is not easily accessed, except for a few reasons such as a deposit for first time home buyers or for education (ask your tax advisor for specific details), until you are 59 ½. Well if it is for Retirement you say, why do I need it before then? I can think of a multitude of reasons. But let me ask this question: If you could borrow the money in your retirement account, pay it back and receive guaranteed growth on your investment, even during the time that the money was being used, would that interest you? The bad news is that the Roth will not allow you to do that, but the good news… it is possible with a very safe, guaranteed preservation of principal and guaranteed tax free growth investment vehicle. And, like the Roth, you can draw tax free supplemental retirement income, but unlike the Roth, you can begin to draw the supplement income at any age vs. 59 ½ with the Roth!
Participating or Dividend paying whole life insurance, set up for maximum accumulation of the cash value is the vehicle I use to build a privatized banking program for my clients. Allow me to introduce you to two brothers, Joe with a privatized bank and Pete, who has a relationship with the local banker in town.
Both brothers are going to purchase a car and intend to borrow $25,000 for the purchase. Both brothers buy the same car for the same dollar amount, the same loan term and the same interest rate. Both brothers will pay $587.00 a month for 48 months and in the end, will have made payments in the amount of $28,176.00. But here is where the similarities end. Pete has a four year old asset, and hopefully, a good payment history so that he can continue a borrowing relationship with his local bank.
Joe on the other hand, has every penny he spent for the car plus the interest he would have otherwise paid to a lender! That money was paid back to his cash value over the four year payment plan. Joe has the depreciated asset as well, but if he sells the car and buys another he could see a net positive gain of upwards of $39,000.00. Which brother made the wiser choice? This is a very basic explanation of how privatized banking works. If Joe buys another car and still another car, do you see how he is growing his retirement?
If you would like to know more about privatized banking, join us for a FREE Seminar on Tuesday evenings. The article suggests that the tax rates in future years will be much higher than they are today. If you believe that to be true, you owe it to yourself to learn more about how the banking industry really works! Register for the seminar!
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