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    Rich People ROTH – For Those With Too Much Income

    RICH PEOPLE'S ROTH IRA

    Do you make too much for a ROTH IRA? The Rich People ROTH may be the answer.  For love or money . . . and maybe even a tax break, Cash Value life insurance may be the key to financial security. Keep reading for more information about the Rich People ROTH. Who can benefit from this tax-saving strategy?  Also, who may just not be right for this financial tool?  If funded and structured properly, there are no limits to the amount of tax-free retirement income a Rich People Roth IRA can generate for you.

    By David Rae Certified Financial Planner™, Accredited Investment Fiduciary™

    The RICH PEOPLE ROTH isn’t just for Rich and Powerful, is it right for you?

    Authors Note: I have also seen this strategy being marketed as a Tax-Free Retirement Account or TFRA via Facebook ads.  This strategy is not right for most Americans, make sure you are working with a Fiduciary Financial Planner (who get’s paid for giving advice, not selling products) when consider the Rich Person Roth as part of your comprehensive finacnial plan.

    Even if your Financial House is in order and you’re on track with your goals, accounts, and investments (kudos to you for all three!), cash value life insurance is something worth considering. In fact, in a previous posting, I briefly alluded to it as the “Rich People ROTH.”

    Many people justifiably have a negative response at the mere mention of “life insurance”, whether that’s because thinking of dying is a major buzz kill or, more likely, because it conjures up visions of skanky salesmen always trying to push some horrible policy or other onto an innocent populace.  But hear me out, I’m not here to sell you anything; as an independent fiduciary Certified Financial Planner™ I’m here to inform you of a great tool you may be inadvertently ignoring, in this case, I’m referring to a RICH PEOPLE ROTH (not just for rich folks BTW)

    In fact, some of the wealthiest people in America choose to park their hard-earned money in an IRS- sanctioned life insurance policy that can allow them to achieve tax-free growth on their investments and tax-free distributions.  I call this cash value on permanent life insurance a “Rich People ROTH” because it’s most useful for those whom a regular ROTH just won’t cut it.  These people include those who make too much money to use a regular ROTH IRA at all. Those playing catch-up (which sadly is probably a majority of pre-retirees) and/or for those who have already maxed out their other retirement accounts and want to save more money tax efficiently.  While it may sound too good to be true, it is actually a real thing. The tax advantages can be huge when used properly.

    “I can tell you that single biggest benefit in the tax code is the income tax exemption for Life Insurance”- Ed Slott via his book The New Retirement Savings Time Bomb

    Advantages to a basic ROTH IRA

    The biggest drawback to a ROTH IRA (which was named after William V. Roth, a senator from Delaware who was one of the original sponsors of the legislation that established the program in 1998) is also one of its biggest benefits.  When you contribute to a ROTH IRA or ROTH 401(K) you don’t get a tax deduction now for your contributions as you may with a Traditional IRA or 401(K) plan.  I’m realistic here, many people just contribute to a retirement account for the short-term tax break.  SAVE MONEY NOW!.

    On the other hand with a ROTH IRA, the money grows tax-free and more importantly comes out tax-free. The farther you are from needing to withdraw funds out of the account, the bigger the tax benefits may be for you. The more time the money has to grow and compound your retirement nest egg, the bigger your potential tax savings when you eventually do use the funds to live in your golden years.

     

    Wealth eligibility snag for ROTH IRA investment- you probably make too much money.

    Unfortunately, if you make too much money you can’t contribute at all to a ROTH IRA. (2019 ROTH IRA income limits are $135,000 for singles and $199,000 for married couples)  Likewise, if your annual income is $100,000 or more, the yearly contribution limits of $6000 (of $7000 for those 50+ years old) will hardly be sufficient to fully fund the type of retirement you’re probably going to want.  Even if you max out your ROTH IRA you would never be able to save enough to retire securely. At least on this account alone.

    People often fall into the trap of “I’m maxing my IRA account, I must be saving enough.” While “wealth” is relative as is the definition of a comfortable life, the more money you can potentially sock away, and obviously the more money you will need to sock away to achieve “the lifestyle you’ve grown accustomed to.”

     

    RICH PEOPLE ROTH Advantages

    • No contribution limits on a Rich Peoples Roth

    Can you imagine if there were no contribution limits to the funds you could put into your retirement accounts? How much more could you save, or would want to contribute?  Life insurance has no contribution limits. You can set the policy up for essentially any size you want and the cash value would be treated essentially like a ROTH. That means your contributions will not only grow tax-free but come out tax-free too. Once the policy is in place there may be some guidelines and limitations but those would be based on its parameters, rather than some arbitrary (small) numbers picked by Congress or the IRS.

    • Potential for substantial tax-free income in retirement

    Once you’ve maxed your other retirement accounts, you may be looking for other ways to save for future goals in a tax-preferred manner.  The cash value on a life insurance policy can potentially be a great tool to use to increase your tax-free income in retirement.  Just as with a ROTH, the cash value grows tax-free and comes out tax-free if handled properly.   Investment options vary by policy. They can include conservative options from a fixed return to equity-indexed, all the way up the risk scale to a fully invested variable universal life.

    • Health in perspective

    I will cover appropriate amounts of death benefit coverage you should have at another time since this post focuses on the cash value benefit of life insurance, which you don’t have to die to use.  But your health can also be an issue for this type of policy and you will most likely have to go through underwriting.  The worse your health, the less advantageous the cash value accumulation may be.  On the other hand, the worse your health the more you may want and need the actual life insurance coverage to protect your family. 

    Cautionary last words on the Rich People’s ROTH 

    These Rich People’s Roth policies aren’t for everyone. Insurance brokers and financial idiots have often improperly sold them because of their potentially large commissions. Because they as “advisors” are not securities-licensed. Or they happen to work for an insurance company.  Hello, conflict of interest anyone?  But please don’t let these bad apples cause you to ignore a potentially valuable tool for getting your financial house in order.   I help people get out of bad life insurance policies more often than I help people set up RICH PEOPLE Roths.  That being said, for the people, I do help set up these accounts, the tax-free income can be huge!

    Make sure you actually work with an independent Certified Financial Planner™ and preferably one who is also a Fiduciary. While I believe all people are created equal, I know for a fact that many so-called “financial advisers” most definitely are not.  You – and your money, and your future – deserve the smart and ethical best choices and strategies. Nobody wants to be sold some policy they don’t need. Or pay extra commissions or taxes than they need to.

    Take care until next time when I share more advice to help you BE FISCALLY FABULOUS! Your money matters.
    Rich People Roth IRA David Rae
    David Rae on the CBS News discussing financial tips like the Rich People Roth

    DAVID RAE, CFP®, AIF® is a Los Angeles independent Financial advisor. Founder of  DRM Wealth Management a fast-growing Registered Investment Advisor. Named by Investopedia as one of the “100 Most Influential Financial Advisors” for 2017 and again in 2018, he has been helping people reach their financial goals for over a decade. Follow him on Twitter @davidraecfp on Facebook or via his website, DavidRaeFP.com.

    If you like the Rich People Roth Life Insurance Los Angeles you may also like:

    3 Best Ways to Cash in on Life Insurance for Retirement

    Connect With David Rae, Financial Planner LA

    David Rae, CFP® AIF®

    President / Founder DRM Wealth Management LLC

    1(323) 905-4380

    david.rae@financialplannerla.com

    "Rich People ROTH – For Those With Too Much Income"

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