Find Money to Pay the Taxes
Finding the Money to Pay the Taxes
It’s self-evident that, if you withdraw money from an IRA, income taxes will be due. This alone is a reason many people will leave money in their IRAs as long as possible, i.e., they don’t like the idea of paying taxes on withdrawals.
The psychology surrounding taxes drives a lot of sales pitches in the life insurance business (some good and some like the IRA-Rescue concept are bad).
If a life insurance agent said to the average consumer that, in order to use the IRA Rescue concept, they would have to remove all or substantially all of the money from the IRA over the next 3-5 years.
What would someone say? They’d think, oh my, I don’t want to do that because then I’d have to pay taxes on all the funds withdrawn.
This instinct is a good instinct. Because taxes are due, there is virtually no mathematical way to make IRA Rescue work.
Scorpions will always act the same no matter what. Certain insurance agents will act the same no matter what; and in the context of IRA Rescue, scorpion insurance agents have come up with a way to deal with paying taxes on IRA distributions.
Pay no taxes on IRA distributions—doesn’t the idea of paying no taxes on IRA distributions sound better than paying them?
How can you avoid paying taxes out of your pocket on IRA distributions? Let me give you the steps:
1) Withdraw money from the IRA.
2) Take all that money and fund a Cash Value Life insurance policy.
3) When your taxes come due on the IRA distribution, borrow those funds from the Cash Value Life insurance company. The loan is from the general account of the insurance company, and the premium paid into your Cash Value Life insurance policy is still growing at market rates of return.
Sounds ok so far, right?
Here’s the problem—the insurance company is going to charge you interest on the borrowed funds from your life insurance policy. Money in your policy will be used to pay the interest. If you have a year when the returns in your policy are greater than the lending rate on the loan, you create a positive arbitrage.
If you have a year when the returns in the policy are less than the interest rate charged, you will have a negative loan arbitrage (this means you will lose money in the policy not because of poor market returns, but because you have a sizable loan that needs to be serviced).
Without boring you too much on this site, let me state emphatically the following:
-If you use real-world assumptions on the investment returns in your Cash Value Life policy and historical lending rates on loans in the Cash Value Life policy, IRA Rescue using Cash Value Life is a guaranteed mathematical loser.
If a scorpion insurance agent, instead of giving you a bogus life insurance illustration showing you how wonderful IRA Rescue could look if all the stars aligned perfectly for you, told you that IRA Rescue is a guaranteed mathematical loser, how many big commission life insurance sales would an insurance agent be able to sell? ZERO.
It is because of this reason that every illustration I’ve ever seen on IRA Rescue uses what I call bogus assumptions (assumptions that could technically happen but are so remote that no agent in their right mind would ever put them forth to a client for review).
First, let me state that, if you don’t understand what’s on this page or this site in general, don’t be alarmed. It’s not the easiest material to grasp. My goal with the site wasn’t to make consumers experts on why IRA Rescue doesn’t work. My goal was to make consumers aware that this scam is out there; and if you get pitched this scam, make sure you avoid it.
You can always contact me at firstname.lastname@example.org or 269-216-9978 if you have questions about the content on this site or anything that an insurance agent or financial planner is pitching you that doesn’t make sense or sounds too good to be true.
The bottom line is that there is no mathematical way to make IRA Rescue work if you pay the taxes when distributing the money from your IRA. It is for this reason that insurance agents tell you to fund and then borrow money from a Cash Value Life insurance policy to pay the taxes. This is a recipe for disaster, and I implore you to stay away from an insurance agent pitching you this “tax-savings” strategy.