To generate a tax-free income stream from cash value life insurance a few major caveats need to be in place. First any cash value policy needs to be designed as a non-modified endowment contract compliant with the TAMRA regulations or Cash Value Accumulation Test. Secondly, the policy must remain in force for the life of the policy insured. There are four cash value life insurance policies. Each policy has a different crediting method and needs to be qualified for the policy owner for product suitability. So every prospective purchaser needs to undergo a risk tolerance test to discover which policy fits his or her profile and financial goals. Participating Whole Life is an interest rate crediting method. Each year the board of directors declares a dividend, a return of unused premium. Guarantees are published in the illustration proposals. These types of polices are for conservative investors with long time horizons. Universal Life is an interest rate crediting method which has been consistently low for a decade.  As a result it has fallen out of favor among financial professionals for its low crediting rate. These type of polices are for conservative investors with long time horizons. Indexed Universal Life is an   Read more…

Financial products have expense loads, declared and undeclared. In this the information age with a little Sherlock Holmes savvy and access to the Internet you should be able to uncover what the manufacturer should disclose. But, for the most part, it’s not disclosed. Mutual funds and ETFs (Electronically Traded Funds) have their expense ratio disclosed in their prospectus, but other fund related costs are embedded in other documents and not generally disseminated to the fund owner.  The average expense ratio for small to large cap funds is around 1.30%, foreign stock funds around 1.50%, and bond funds near .90%.  The average Registered Investment Advisor, charges an annual fee around 1.03%. Based on public information disclosed in the prospectus and the RIA ADV form, most investors think they’re paying under 2.5% all in. But in reality there’s an average of an additional 1.33% listed in the statement of additional information which is available to anyone online, but not delivered as part of the fund cost. These transactional costs are not cheap and most fund owners are not aware of them, and shockingly neither are most of the registered representatives and RIAs that sell them. Cash Drag is another additional cost in   Read more…

It’s impossible to appreciate the tax equivalent return of any investment until you know your effective tax bracket. You also need to know how you should file: individual, head of household, married filing jointly or married filing separately.  For some married couples, filing jointly or separately can usually be determined quite quickly on most tax software. The U.S. tax code is a marginal, “progressive” income tax system. As your income increases or “progresses” from one tax bracket to the next you pay a blended tax rate of each tier, after all your tax deductions and exemptions (providing they’re not phased out) as well as any tax credits to reduce taxes owed. Once you know your effective tax bracket you can determine the value of a financial product, especially tax favored financial products. For example, most participants in a 401(k) plan know their contributions are tax deductible. Is your tax deduction, in your effective tax bracket, worth taking? Keep in mind that by taking the deduction you’re giving up its tax-free basis, i.e. your original contributions. Your 401(k) plan will be taxed at ordinary income tax rates and be included in the provisional income test for Social Security benefit taxation. If   Read more…

The vast majority of seniors need every last dime of their money to enjoy their golden years. Medical and long-term care costs are significant over a lifetime, it doesn’t compare to the accumulated taxes paid over a lifetime. We need to manage both our health and wealth. Part of managing your wealth is managing your taxes and it’s a worthwhile endeavor to learn how to do it. It’s possible that many retirees may be able to generate 10-15% more income by just managing their taxes. And there’s no place better to start than Social Security income. Social Security attracts taxable income like a magnet. With the exception of HSA Accounts, Roth IRAs, Reverse Mortgages and Cash Value Life Insurance, everything falls prey to the provisional income test. Even items you would never consider like municipal bond income or capital gains of non qualified mutual funds or ETFs. Qualified retirement funds are the biggest contributor to Social Security taxation of all income sources. Keep in mind that a qualified plan has no basis, so it’s all taxable. And although you can delay taking distributions from your qualified plan until age 70½, you’re forced to take required minimum distributions (RMDs), which directly   Read more…

“Sanctuary, sanctuary,” cried Quasimodo, the hunchback of Notre Dame as he ran into the church with the convicted woman Esmeralda to escape the lynch mop who had tried her and found her guilty. Back in the day the sanctity of the church was a safe harbor for those fleeing the law.  Today many of America’s affluent, upper middle class and even seniors in retirement are fleeing taxes. What tax shelters remain can help you keep more of your money. Here are the most popular for retirement. Health Savings Accounts: Contributing to a qualified health savings account is tax deductible, accumulates tax deferred and is distributed tax-free for medical expenses and medical insurance premiums for coverage like disability, health, Medicare and long-term care. The annual contribution limits for 2017 are $3,400 for individuals, $6,750 for married couples and $7,750 for married couples over age 55. There is also a once in a lifetime transfer from an IRA or Roth IRA to an HSA tax free up to $7,750 for married couples over age 55 in a non-contribution year. Roth IRAs: These accumulate tax deferred with tax-free distributions after age 59½. Under the five-year rule you could access part of your Roth   Read more…