Best Retirement Plan I Have Ever SeenApril 1, 2008
Mention retirement to any group and the reaction is almost als the same: Stuff as much as you can into a qualified retirement plan (IRA, 401(k) and profit-sharing plan). That’s good advice.
Why? Well, the money going into the plan is 100-percent tax deductible and your earnings are tax deferred until the day you take money out. Very good! But wait, what happens when you take the money out? Not so good—you are hit with taxable income (plus a 10-percent penalty if you are not older than age 59½). Worse yet, if you die with funds in your plan, your heirs are robbed by a double tax—both income and estate tax. The tax is as high as 73 percent, with your heirs only getting 27 percent.
Think about it—$1 million in your plan is demolished down to $270,000. Bad. Real bad. Apply this sad tax tragedy to your own plan numbers.
What’s better? A Roth IRA! Sorry, you can’t deduct your contributions to a Roth. But what happens when you take those dollars out? A drum roll please…tax-free! Yes, every penny comes out free of the income tax.
Any problems with a Roth? Unfortunately, yes. There are two significant restrictions:
1) If your income exceeds $114,000 and you are single, you cannot make any contribution to a Roth; if married the income number is $166,000.
2) The maximum annual contribution for 2008 is $5000.
Is there really something better than a Roth IRA? Of course there is. The strategy has been around since the 1960s, yet few people know about it. It’s called a Private Retirement Plan (PRP).
Taxwise, a PRP functions exactly like a Roth: no deduction when funds go into the PRP, no tax when the funds—contributions, plus tax-free earnings—come out. Now here’s what makes a PRP superior to any other plan:
1) No restrictions as to how high (or low) your income can be, and
2) No limit on the amount of your annual contribution.
Truly, a PRP is the best tax-advantaged retirement plan I have ever seen.
A PRP is simply a special kind of high cash surrender value life insurance policy. We have been using PRPs to fund retirement for clients, their children and even grandchildren since the early 1950s. Although a PRP is easy to set up, each one must be individually designed. So if you are a reader of this column and would like to see real-life numbers of how a PRP might work for you or other family members, fax (847/674-5299) your name and birthday (same for other family members) along with phone numbers. Write “PRP” at the top of the page.