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Max-funded Life Insurance ?
Old 09-26-2019, 07:01 PM   #1
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Max-funded Life Insurance ?

Still working and have concerns about taxes in retirement, 58 y/o and just opened my first Roth IRA this year. After a seminar I went to earlier this year, I realized I may be in a higher tax bracket in retirement $500K+ all in traditional 401k/IRAs, espec when I have to take RMDs. In my reading since then, I have come across two plans that are selling max-funded life insurance, and loan withdrawal as a way to fund a part of your retirement tax free. I will name them but of course am not endorsing as I that is why I am here asking.
One calls itself Bank on Yourself and the other Laser Fund (financial abundance). They do make it clear these are for long-term planning, as due to the life insurance cost, you will be in the neg for at least the first two years.
Also, they need to be max-funded otherwise the fees and life ins are too high a cost percentage. BOY uses whole life, Laser uses indexed universal life. I don't know the pros/cons of either. Historically the Laser examples have done well but I think one could end up in the negative if a recession hits and lasts several years.
Anyway, looking for insight, opinions - worth getting a quote ? or stay away?
Thank you !
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Old 09-26-2019, 07:10 PM   #2
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Total BS. Don't do it unless you like to give your money away to salesreps. You will pay more in extra fees and reduced performance than you would pay in any possible extra taxes.

If you only have $500K now in qualified plans, then you probably won't be paying any income taxes on withdrawals. If you think you might, then you should probably read up on "Roth conversions" to see what the smart money actually does.
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Old 09-26-2019, 07:42 PM   #3
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Not clear if 500k+ is income or deferred account balance.

I tried to follow a couple of these schemes just to understand how they work. The sales pitches seem to always have an element of “just trust me” or “ this is what the really wealthy do”. BOY is ancient and has many permutations, some of which look pretty slimy. While you’re at it, don’t leave out the RAFT Strategy.
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Old 09-26-2019, 07:46 PM   #4
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Yeah the rmd on half a mil is only 20 grand...
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Old 09-26-2019, 07:50 PM   #5
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Originally Posted by SDWildflower View Post
BOY uses whole life, Laser uses indexed universal life. I don't know the pros/cons of either.
There are no pros here.

Buy term life insurance if someone depends on your income and would suffer financially upon your demise.

Don't buy insurance as an investment. It's not.
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Old 09-26-2019, 08:01 PM   #6
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Originally Posted by joeea View Post
There are no pros here.

Buy term life insurance if someone depends on your income and would suffer financially upon your demise.

Don't buy insurance as an investment. It's not.
+1
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Thanks !
Old 09-26-2019, 08:37 PM   #7
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Thanks !

Thanks for the comments. I will not be putting money in either of these. I haven't figured my retirement costs, the health insurance is such an unknown, and a big one. No income tax in SD. I don't have any expensive plans like travel, I enjoy reading, comm ed classes, volunteering, and live frugally - not making "sacrifices" it's just my lifestyle - don't care for fast food, soda, or fancy coffees. At my age, I have all the clothes I need. I think I could get by on a PT or gig jobs to pay the bills, so I wouldn't have to take much from savings.
Been sitting a desk since first grade and am thinking the freedom from that 8-5 ball & chain is worth the risk of early retirement.
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Old 09-26-2019, 09:24 PM   #8
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Originally Posted by SDWildflower View Post
don't care for fast food, soda, or fancy coffees.
Well fast food is pretty cheap. But those fancy coffees can really add up.

Quote:
At my age, I have all the clothes I need.
Sometimes clothes do wear out. And 20 year old t-shirts have been known to fade a bit.

Quote:
I think I could get by on a PT or gig jobs to pay the bills, so I wouldn't have to take much from savings.
Lots of folks go that route.

Being able to choose a job because you enjoy it and not because you need the income can be a lot of fun.

Good luck. Be careful with the seminars.
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Old 09-27-2019, 05:09 AM   #9
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Originally Posted by joeea View Post
There are no pros here.

Buy term life insurance if someone depends on your income and would suffer financially upon your demise.

Don't buy insurance as an investment. It's not.
Term would not work for what the OP is most likely thinking about. Check out Ed Slot on what I think the OP is referring to.

If one is not careful with this life insurance technique on can have the life insurance convert into a modified endowment contract and loose the tax advantage. And if the policy lapses the owner could be on the hook for a large tax bill (depending upon what the owner did with the policy.

This is sometimes called bank on yourself.

The "wealthy" are said to use these because they have run out of other tax free vehicles. OP... if you want tax free... look at funding roth IRAs. A good tax diversification of funds will serve you better than chasing scemes that you don't understand.

The insurance scheme likely works, but I expect is a bit pricey.

One simple rule... don't do what you don't understand.
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Old 09-27-2019, 07:32 AM   #10
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I took out a VUL about 20 years ago and funded it to the max, putting the leftover premium in a nice mix of mutual funds. Over the years I paid in $120,000 of premium and it now has a cash value of $274,000. At the time I needed the Life Insurance. Its been nice to see it grow and not receive a 1099 at the end of the year.


Now, I don't need the death benefit and can't figure out a good way to get at my $274,000. I don't like the idea of borrowing my own money. Right now the mortality expense is pretty low (age 54). Looking ahead, the mortality expense rises each year exponentially to the point it will eat into the cash value.


I'm thinking of biting the bullet and cashing it in. The gain is ordinary income, so no favorable LTG tax benefit. I may do a 1039 to an immediate annuity and spread the taxable income over several years. I'm going to need some professional help with this and don't know where to turn.


So to sum it up. I have a VUL that has actually gained nicely and provided the life insurance that I needed for 20 years. That said, I wouldn't do it again.


Buy Term and invest the rest with an index fund from Vanguard. Especially with today's favorable LTG tax rates.
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Old 09-27-2019, 08:34 AM   #11
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Originally Posted by bingybear View Post
Term would not work for what the OP is most likely thinking about. Check out Ed Slot on what I think the OP is referring to.

If one is not careful with this life insurance technique on can have the life insurance convert into a modified endowment contract and loose the tax advantage. And if the policy lapses the owner could be on the hook for a large tax bill (depending upon what the owner did with the policy.

This is sometimes called bank on yourself.

The "wealthy" are said to use these because they have run out of other tax free vehicles. OP... if you want tax free... look at funding roth IRAs. A good tax diversification of funds will serve you better than chasing scemes that you don't understand.

The insurance scheme likely works, but I expect is a bit pricey.

One simple rule... don't do what you don't understand.
^ this

As a rule of thumb, the more complicated the contract, the more money the company takes. Even if you understand the terms.
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