Non-Qualified Plans

Non-Qualified Plans

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Hi. Lee Phillips here. I want to talk about retirement plans. Yeah there are a number of them. There are all the ones under ERISA the Employee Retirement Income Security Act they’re the 401Ks, the 403Bs, you know all that sort of stuff. and the SEPs and SAP and–oh no anyway all those then they’re the IRAs IRAs do not fall under ERISA they fall under Section 408 of the IRS Code special type of trust you need trustees, yeah they’re a trust actually all of the ERISA plans also have trusts your 401 K, everything is run through a trust. It, the money is held in trust. the problem with the ERISA plans is if you’re a little employer you have to let all the employees participate in the plan you can’t cheat the employees and just take care of the big guys. The 401 K everything that’s all subject to the discrimination rules is what they call them and the employers, the big guys can’t discriminate against the little guys. IRAs, the problem is you can’t put
too much money in them. you can only get you know your $6000, $5000 –whatever it is this week–away every year. How can you put a large amount of money away into a retirement plan and not have it be subject to all of the other employees? How do you do it? Well we have over here what are called non-qualified plans that means they’re not qualified
under a government program ERISA or IRAs Section 408 these–now don’t barf on me okay– these are life insurance policies and if you get the right life
insurance policy you can make it absolutely mimic a Roth IRA you put in an after tax dollar–you’ve already paid tax on it but it grows without a tax and you can get it back tax-free that’s pretty cool guys now on these non qualified plans there are some restrictions one it has to be a life insurance policy which means you have to have a certain amount of death benefit compared to the amount of money that you invest in the policy it has to be within what the life insurance industry calls “the corridor” the law says if we’re going
to let you have all these benefits for life insurance and by the way why does
life insurance have all this benefit crap? Life insurance is the sweetheart of the IRS code by the way. Why? Because life insurance companies have big lobbies and the congressmen buy life insurance they don’t want it taxed
they want to be able to play this game you can play the game too. So as long as you buy life insurance–death benefit with the investment portion the cash value is what they usually call it then you’re okay you have a life insurance policy if
you don’t get it balanced you have a MEC which is modified endowment contract and you kind of don’t want one of those because they don’t play the game they
don’t get the tax benefit. So there’s a cost of life insurance. And they call it the COI cost of insurance the COI you want to be minimum that means you want the minimum amount of insurance possible and then you want the rest to go into
the investment portion of the policy couple of problems one the life insurance agent does not get paid on anything but the life insurance benefit so it’s to his advantage to sell you as much death benefit as possible anything that goes in the cash value the investment stuff
he doesn’t get anything so one they want to sell you the maximum amount two you need to get a policy that is gonna grow reasonably and they have them attached to the indexes and all sorts of stuff today so you can get a policy which we
will give you some good growth but the major problem is the way you get the money back is you borrow it a nd we’re gonna have to do another video on how to borrow what the problems of borrowing life insurance is and I’ll explain that but you gotta borrow it back all the policies will say we don’t charge you
any interest our practice is when you borrow the money back we don’t charge you any interest I don’t give a damn about “practice” I want to see it in writing that you will not charge me an interest when I get the money back. Look you understand that on your 30-year mortgage you’d kill to get your mortgage down a percentage point and you know that it’s going to save you tens of thousands of dollars over the 30-year life of the mortgage well the insurance people will charge you an interest and it doesn’t matter that their practice
isn’t to charge you an interest they will always charge you an interest unless it is guaranteed in writing because they don’t sell that policy
anymore in 20 years and then they charge the interest. So as long as the policy is available for sale our practice is we’ve never charged the interest well yeah you can’t borrow from it for five or ten
years anyway of course you’ve never charged me an interest on that policy. What are you going to do with me when I actually want to borrow in 15 years and when you borrow the money you start at 65 that could be a 30-year mortgage. You could pay interest for thirty years and it’s only one percent or a half a percent or one and a half percent and your insurance dude he’ll put his arm
around you and he’ll say, “You know, Lee, where else could you borrow money for
one percent?” Well yeah but it’s my money and if it’s even a 1% interest that
they’re gonna charge you the fact of the matter is that’s substantially going to reduce the amount of money that you get to borrow out of the policy and spend in your retirement. So you have to have in writing guaranteed and there are about four policies out there that’ll do it and I’m sick, I’ve read a lot of life insurance policies but you get the guarantee of what we call a zero wash loan and I don’t have time to explain the zero washing, this I’ll do that on the how to borrow life insurance what happens when you borrow life insurance money but you have to have the guarantee of a zero wash loan. So if you have the minimum amount of death benefit and by the way when you get the minimum amount
of death benefit then you have a certain amount that you can put into the investment portion it’s called guideline premium if you’re within–if you’re on guideline premium that means you’ve gotten the minimum amount of death benefit by law they have to print on the proposal what the guideline premium is they aren’t gonna tell you about it and it’s buried in your proposal but you will know if your guideline or how far off the guideline you are by reading the proposal. Minimum amount of death benefit guideline premium zero wash loan except for the amount the cost of insurance that you have to pay that absolutely mimics a Roth IRA you don’t have to have your employees participate in it because it has nothing to do with ERISA discrimination or anything else and you can put as much money as you want into one of these policies and the interesting thing is it grows without an tax because it grows without a tax
that’s a big deal it outruns the cost of insurance very quickly you’re much better off to put it in the life insurance policy than you are to take it down and buy a CD with it. One, you should be able to make more
money in return than you do in the CD and two, it grows without the tax. So the cost of insurance after a while becomes actually insignificant. Now my wife is dying. We did this on her and we’ve put a fair amount of money into her policy thinking we would get it back for retirement. She is going to die shortly and the amount of money that we’ll get from the death benefit is about four
times what we’ve put into it. So sometimes the death benefit isn’t a bad deal. The only problem is you got to die to cash in on it. But use the non qualified plans
if you want to put a lot of money a you don’t want to have to play with
the employees you’re way above what you want to put into an IRA of course, do the 401ks, do the IRAs first but if you still have money mimic the Roth IRA in the non-qualified plan.

4 thoughts on “Non-Qualified Plans”

  1. I'm sorry to hear about your wife!! I'm a broker and I absolutely agree with you about the insurance policies. Their are great plans out here one just have to ensure the broker had integrity!!

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