Invest $20K a year to get $120K+ tax free annually and easily pay for their daughter’s wedding!
Name: Jim and Sally H.
Ages: 40 and 38 respectively
Location: San Francisco, CA
This couple had two main funding objectives. The first, was that they really wanted to help fund a nice wedding for their daughter. The second was to set up a secure retirement for themselves.
When I met Jim and Sally they had $25K set aside for their daughter’s wedding. At the time she was only 12 years old and they assumed she might get married by age 24. Given inflation, they wanted the $25K to grow to $35K by that time, so in 12 year they needed that account to grow by 40%. That would require them to find something with a consistent annual gain of 3.5%. Jim and Sally had also just recently started saving $20K a year for their own retirement.
Better Money Method Approach:
The first thing I did was explain to Jim and Sally how they can build up cash value in an IUL and then borrow from it, tax-free. Based on this strategy, they agreed it would be prudent to invest their daughter’s wedding funds along with the $20K they are saving into an IUL
We set up an IUL which had them investing $25K per year for the first five years. To achieve this level of investment they took the $20K they were planning to put away for retirement each year and added $5K from the wedding fund to it. This gave them the cash value they needed to be able to start borrowing from the IUL.
Starting in the 6th year the plan is for Jim and Sally to invest $20K a year Jim turns 70. This means they will make a total net investment of $670,000 over the next 29 years. In the 12th year of their IUL policy (or later depending on the age their daughter marries!) they will take a loan of $35K to pay for their daughter’s wedding. They will not repay this loan.
When Jim turns 70 the couple will start receiving $120,000 a year tax free. This amount will increase 3% a year to keep up with inflation. This is equivalent to $150,000 from a 401(k) assuming a 20% tax rate.
By doing this, between the years that Jim is at an age of 70 and 85 the couple will enjoy the benefit of $2,600,000 in tax free income. Over the years their original investment totaled $670,000. If Jim lives to 95 their total income will be over $4,000,000 during retirement and it will all be tax free.
Since it’s safe to assume that Jim will pass away before Sally, a statistical reality, I put the IUL in Sally’s name. As a result, Sally will continue to receive the same tax-free income for the rest of her life after Jim dies. As is the case with any IUL, upon Sally’s death, the total value of the IUL at the time, less the monies borrowed, and their associated fees, will be distributed tax-free to her heirs.
There’s a good chance this approach will work for you too and provide you with a source of tax-free income before your retire. Contact me to find out more.