Five Reasons to Diversify to the Deferred Income Account
- You will enjoy a zero-tax status on the basis and on the gains (when set up properly)
- You will realize guaranteed gains with no market loss, backed by the world’s longest lasting, most stable and cash-rich industry
- You are freed from federal mandates or penalties on this account (when set up properly)
- The non-taxable distributions are extremely flexible to suit your needs
- This account outperforms all retirement products on the market—especially through recessions
The term Deferred Income was derived to concisely define the properties of this retirement account—juxtaposed to the concept of Deferred Taxes. As we have come to discover in these past two recessions (2001 and 2008), the Deferred-Tax concept is mathematically flawed (when used for retirement purposes).
Deferred Tax Vehicles
Deferred Tax vehicles include the 401K, the traditional IRA (Individual Retirement Account)*, the SEP (Simplified Employee Pension), and those vehicles wherein the government allows you to pull money from your paycheck pre-tax and, thereafter, tax the remaining portion of that paycheck. Therefore, Deferred-Tax accounts are often referred to as Pre-Tax accounts—for us, they are one and the same.
Yes, pre-tax deductions will save you tax today, but it accumulates exponentially later, as you are taxed on the basis and the growth in your retirement. To best describe this process, I like to use a metaphor commonly used in the financial realm: The Seed vs. the Harvest.
*Though the ROTH IRA is non-taxable, it is subject to the same market loss as all other “qualified, pre-tax” programs.
Seed vs. Harvest
As a farmer ready to plant your crop, you are approached by the IRS. They give you two options; 1) you can pay them based on the amount of seeds in your possession; and, after you pay them on that seed, both the seed and the harvests over the ensuing 10-50 years are completely removed from the IRS tax equation, or 2) you don’t have to pay them any tax on your seeds right now, but then after you put forth the effort to plant, water, nourish, weed, care for, and harvest the crop, the IRS agent comes back to tax you on the entire harvest (10-50 years of growth). So the question becomes: Would you rather pay taxes on the seed, or the entire harvest ? The obvious answer is the seed—especially when you factor in the Loss and Rebound Cycles of the deferred-tax accounts.
The securities-based “gurus” like to obscure the equation with the fact that your employer’s matching contributions soften the blow of these deferred taxes, but this is a half truth. Any employer can contribute the same matching funds to post-tax vehicles and still enjoy the same tax-write offs. Bottom Line: When you have a non-taxable financial vehicle free from market loss, there is little (if anything) on the market that can compete with it.
Investment-Grade Insurance
Investment-grade insurance is the only financial vehicle on the planet (that we know of) that has non-taxable properties that are also removed from market loss. Meaning, when the market dives as it did in Black October 1989, on 9/11 in 2001, and in 2008—your account value holds.
More impressive is the overall security and stability of the insurance industry: Whereas banks are only required to have six cents ($0.06) on reserve for every dollar you have on deposit with them, government regulations require insurance companies to have an average of $1.12 for every dollar you have on deposit with them. And, although the FDIC touts a $250,000 protection clause, if more than 1.25% of all banks in the U.S. fail, your FDIC guarantee is reduced to just cents on the dollar, which is why Congress has called for its “revamping”. The insurance industry has a much more robust safety net called the Organization of Life & Health Insurance Guaranty Association, which can be found at NOLHGA.com.
Not all insurance works beneficially for retirement purposes however; and there are several insurance companies and products that will not work. There is a specific procedure in stripping out or gutting an investment-grade insurance policy to ensure that it becomes a tax-free, no-market-loss vehicle that transforms into one of the best investment or retirement products on the planet—the Deferred Income Account.
We will educate you free of charge on these procedures.
Deferred Income Account Results
Let’s say that you set up your Deferred Income Account and you have decided to index your growth based on the performance of the S&P 500. With $100,000 in this account in 1997 and $100,000 in a 401K based on the same index; using the actual numbers, the 401K grew to a total of $106,479 by 2010, while the Deferred Income Account increased to $226,389 during this same period.
The net increase of the 401K was $6,479 in 13 years, or approximately .5% annual increase, while the net increase of the Deferred Income Account was $126,389; or, an approximate 9.7% annual increase.
The 401K is completely taxable, which in the 20% tax bracket reduces the value of the $106,479 down to $85,183. The $226,389 Deferred Income Account has no tax implications*.
*When the policy is set up properly and guidelines are followed
Retirement/Investment Challenge
Our firm is not beholden to any one provider or company of retirement or investment products, and we welcome any and all feedback and proposals for better products as long as those proposals take company and industry stability, longevity, and credibility into consideration. We are extremely open minded and love to perform the due diligence on all serious proposals and/or counterclaims.
More Information
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