Here’s the problem, the money we save for retirement in a tax deductible account like a 401(k), 401(b), or IRA, and the money we earn on those accounts, is only tax deferred. Every dollar we deduct now will be taxable later and we will pay those taxes out of our monthly retirement income 20 or 30 years from now, when tax rates could be much higher. For example, if we save $500 a month in a 401(k) or 403(b) for 30 years (a total of $180,000), our money earns 5% each and every year. We can withdraw $2,734 dollars every month for the next 20 years. That’s a total of $656,000. So we get a tax deduction on $180,000, but we pay taxes on $656,000 in a (likely) higher tax bracket.
So how can we earn tax free interest on the money we save and withdraw tax free income when we retire?
It’s simple, by using Internal Revenue Code sections 101 and 7702. These two provisions of the tax code allow us to earn interest on our money without taxation, and withdraw income during retirement, also without taxation. What’s more, these special tax code provisions also come with a contractual guarantee to credit our money with an interest rate based only on the growth of an equity market index like the S&P 500, but without any risk of any equity market losses. This is because our money is not actually invested within the market or index. When this index experiences gains within a period of time specified in the contract, an interest rate based on those gains is credited to your account value. But when the index decreases, or loses value, zero interest is credited to your account value. Those index losses are never deducted. You will never get any of the index losses. Your interest earnings are always preserved, and your money always protected from both market losses and taxation. Here’s the best part, when you decide to convert your savings into retirement income, the tax code allows you to take the money out as annual tax free loans that are automatically paid off when the contract terminates at the end of your life. However, if your life should end before you retire, your family will receive tax free cash equal to double or triple your account value. Likewise, with our contracts, you can receive tax free, lifesaving cash payouts if you are diagnosed with a terminal, chronic, or critical illness like cancer, stroke, or heart disease.
All of these tax benefits and contractual guarantees are only available with Equity Index Life insurance. Equity Index Life Insurance is a uniquely tax efficient financial instrument that can guarantee a lifetime of valuable economic provisions, including tax free retirement income.