Monday’s tax return deadline is quickly approaching, but did you know it’s not too late to save money when you file your return?
The key is to avoid common taxpayer mistakes, such as letting the IRS know how much money you made, what your name is, or where you live. That nugget of wisdom comes from humorist Dave Barry and it always brings a smile to my face at a time of the year that’s not my favorite.
I’m guessing tax time isn’t your favorite time of year either, but it’s a great time to point out a number of ways the Bank On Yourself method can reduce your tax bill that I’ve found many people aren’t aware of.
With the caveat that I’m not a CPA or accountant, nor have I ever played one on TV, here are five ways Bank On Yourself could save you thousands or even hundreds of thousands of dollars in taxes over your lifetime…
Bank On Yourself Tax Advantage #1: Retirement Savings Withdrawals
Many people love saving for retirement in tax-deferred accounts like 401(k)’s, 403(b)’s, IRA’s, Profit Sharing plans and so on. But what direction do you think tax rates will go over the long term?
Most people I talk to – and most experts – agree that tax rates are likely to go up over time. If that happens, and you’ve been successful growing your nest egg, you’re only going to pay higher taxes on a bigger number!
In Chapter 4 of my New York Times best-selling book “Bank On Yourself,” I give a case study example of a family whose two Bank On Yourself plans throw off a retirement income of $70,000 a year – with no taxes due on it – for the reasons I’ll explain in a moment.
If you’re lucky enough to retire in (only) a 33% tax bracket, your 401(k) or other tax-deferred retirement plan would have to throw off about $104,000 a year before taxes – an extra $34,000 every year – to equal what you could net from a Bank On Yourself plan that throws off $70,000 a year.
Are you basing your retirement security on variables you can’t possibly predict or control? Most Americans are. Government-sponsored tax-deferred plans have two key unknowns:
1. What will your retirement account be worth on the day you plan to tap into it? And…
2. What will the tax rates be during your retirement?
Do you know the answers to either of those questions with any degree of certainty?
If you don’t – and most people who save and invest the conventional ways can’t answer these questions – how can you even call it a financial “plan”? It’s a crapshoot – pure and simple.
So, how are you able to access the growth in a Bank On Yourself policy with little or no taxes due on it? (These are specially designed dividend-paying whole life policies with riders added on to them that grow your cash value up to 40 times faster than the policies most advisors know about.)
As a quick refresher, your cash value in a Bank On Yourself-type policy grows in two main ways. First, you receive a guaranteed, pre-set annual cash value increase.
And second, you have the potential to receive dividends. These dividends aren’t guaranteed; however, the companies recommended by the Bank On Yourself Authorized Advisors have paid dividends every single year for more than 100 years running. (That includes during the Great Depression, every recession and every market crash.)
A Bank On Yourself plan is taxed more like a Roth-type plan (but it doesn’t have any of the restrictions of a Roth plan). You pay taxes before you make your contribution (when you know what your tax rate is!), and you can pull your money out tax-free, if you follow certain guidelines.
Under current tax law, dividends you leave in your policy aren’t taxable. Dividends you withdraw aren’t taxed until they exceed your “cost basis” (the premium you paid in), at which point you can switch to borrowing against your cash value with no taxes due on policy loans. That’s how you can get your hands on both your principal and growth in a Bank On Yourself policy without owing taxes.
Note: If you surrender or lapse the policy, you could end up owing taxes on your gains.
What if the tax laws change?
They could change the tax laws, of course, just as they could for all retirement plans, including Roth plans. But the tax benefits of a Bank On Yourself plan are an extra. Even if they disappeared, the Bank On Yourself method stands on its own and you’d still get all the other advantages and guarantees unique to this method.
Which is why the $100,000 cash reward I’m offering to the first person who can show they use a different product or strategy that can match or beat Bank On Yourself remains unclaimed after four years.
How To Add Guarantees And Predictability To Your Financial Plan…
Would you like to find out how big your nest egg could grow – guaranteed – if you added Bank On Yourself to your financial plan? No two plans are alike – yours would be custom-tailored to your unique situation, goals and dreams. To find out what your bottom-line numbers would be, request a FREE, no-obligation Analysis today. (Details about how to sign up are listed at the end of this article).
If you’re wondering where you’ll find the money to fund your plan, keep in mind the Bank On Yourself Authorized Advisors are masters at helping people restructure their finances to free up money to fund a plan.
Bank On Yourself Tax Advantage #2: Reduce The Taxes You’ll Pay On Your Social Security Benefits
Many people aren’t even aware you may have to pay taxes on your Social Security benefits. Currently, if a couple makes over $32,000 (from retirement account withdrawals and other sources), 50% of their Social Security income gets taxed. If a couple retires with an income above $44,000, up to 85% of their Social Security benefits are taxed!
However, the income you take in retirement (or at any other time) from a Bank On Yourself policy is NOT included in the income totals the IRS uses to determine whether – and how much – your Social Security check is taxed.
As an interesting note, one of the biggest complaints we’re hearing today from seniors who’ve managed to accumulate some assets is that they’re being forced to take the Required Minimum Distribution (RMD) from their retirement or pension plan, once they turn age 70-1/2.
Yes, that’s one of the many strings attached to those government-sponsored plans.
The government requires this because they can’t afford to wait any longer to start collecting those taxes they let you defer all those years. But the other effect the RMD has for many retirees is that it causes them to have to pay higher taxes on their Social Security benefits!
Tip: Don’t get suckered into believing you control the money in your 401(k), IRA, or other government sponsored retirement plan. The government controls it and can change the rules any time they want!
Bank On Yourself Tax Advantage #3: Qualify For More College Financial Aid
While this is not technically a tax benefit, it’s similar to the last advantage in that funds that are sitting in the cash value account of a Bank On Yourself whole life policy do not count against you in the calculations for financial aid.
These funds are not reported as assets on the Free Application for Federal Student Aid (FAFSA) form, which means your chances for scholarships and financial aid are higher.
Bank On Yourself Tax Advantage #4: Tax Benefits For Business Owners
Business owners and professionals are increasingly using Bank On Yourself to fire their banker and become their own source of financing for business vehicles, equipment, office buildings and more. When you finance business expenses this way, you can qualify for tax deductions for interest and depreciation. Plus it lets you recapture the interest you’d otherwise pay to banks and other financial institutions.
Bank On Yourself Tax Advantage #5: Leave A Larger Financial Legacy
One of the most valuable (and most under-appreciated) benefits of a Bank On Yourself-type policy is the death benefit. It provides financial security for your loved ones in the event of premature death. Just like the cash value, the death benefit of a properly structured Bank On Yourself policy grows by an exponentially increasing amount.
The death benefit – which is likely to be many times larger than the amount you’ve saved up – passes to your loved ones and/or favorite charities income-tax free, under current tax law. It also bypasses probate. That won’t happen with traditional retirement plans.
There you have it – five tax advantages of the Bank On Yourself method.
The Ultimate Financial Security Blanket
Did you know that the Bank On Yourself wealth-building method has NEVER had a losing year? Used by Walt Disney and J.C. Penney, it has stood the test of time for more than 160 years.
To find out how you can grow your nest egg safely and predictably, even when stocks real estate and other investments tumble… and how much money you could have – GUARANTEED – on the day you plan to retire, request your FREE no-obligation Analysis and Recommendations now.
You’ll also get a referral to a Bank On Yourself Authorized Advisor who can help you find money you didn’t know you had to fund your plan.
Pamela Yellen is a financial security expert and New York Times best-selling author of Bank On Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future. Readers of Thriving Business can get a FREE Report on how to fire your banker and become your own source of financing, while growing your wealth safely and predictably every year. Click here to download your FREE Report!
* Originally published as Issue #190 on April 12, 2013