Should you do it? What? Well, in this episode, we are going to
address covid-19, 401K,
no penalty withdrawal - How to take advantage? You're going to understand
some things that maybe you didn't consider before.
So, put your seat belt on.
I'm Doug Andrew and i'm here in my radio
studio. I've created a radio show every single
week now for more than 11 years. I've created
a lot of TV shows for education. I've spoken over
85,000 hours in my life to live audiences
and I've been very blessed to author 11 books.
Many times as a financial strategist and a tax minimization specialist,
I've helped people uh get answers to questions. And this YouTube channel
is exactly that. So, subscribers uh to this channel we usually type in
questions and so i answer one every single day.
Lately, because of the corona virus, the covid-19
pandemic, it reminds me that many times when we have
opportunities that come because of external
forces and influences that are out of our control, this
creates opportunities. And I've learned that when there's anxiety,
there's opportunity. So, right now, as I'm recording this,
amid the covid-19 corona virus pandemic, outbreak,
people have had hardships. Because many times employers could not keep
their employees in a restaurant or a small business. Some
could work at home. But many, many people at
record-breaking rates were applying for unemployment.
Or they were scrambling to make ends meet
because they weren't earning income. Many businesses
took out PPP loans, they payroll protection
plan loans in order to meet payroll and so forth because the government
realized it was cheaper to do that for businesses to keep employees going
than to pay out the unemployment benefits. And so, one of the big
benefits of the administration, the government during covid-19 was
forgiving a 10% penalty
if you accessed money out of a tax deferred IRA or 401K.
Because traditionally if you tap into your ira 401K funds or other qualified
plans like 457s and 403Bs and so forth. If you touched those and took out money
before age 59 ½ there was a 10% penalty on top of the tax.
So, if you had to pay tax of 25 or 33, instead of 33, you paid 43. It was like a
10% penalty or 10% tax. Having said
that, I've actually helped many many people
determine when it's wise to pull out money
generally after age 59 ½ when there's no longer a penalty.
But actually I've helped many people pull out money before age 59 and a half
and offset the tax including the penalty. But now is a golden opportunity to
access money if you're under age 59 ½
and not have to pay that extra 10%. Because you're not saving tax
by putting it off. Hello! You're continuing
to delay the inevitable if you postpone and wait
until you retire. So, this is the golden opportunity for you to consider a
strategic rollout, not a rollover. A rollover
is like going from the frying pan into the fire, so to speak.
It's taking money out of a 401K let's say and rolling it
over to an IRA. No, you're just continuing to delay the inevitable.
What I have counseled many many people to do is
no, you want to roll the money out. Get the money out of those iras or 401Ks at
a lower tax rate. And by eliminating the
penalty of 10%, the no penalty withdrawal,
that's like lowering the tax rate by 10%. Frankly, your current tax rate, your
current tax bracket is likely the lowest bracket
you will ever ever be in. Because most Americans believe that future tax rates
will likely be higher. So, why do we want to postpone
paying tax on a tax-deferred IRA or 401k and let
the account continue to grow tax deferred
to some future perceived unknown advantage
and then withdraw our money down the road when we're convinced taxes will
likely be higher in the future. That sounds really stupid when i word it
that way, right? And so you think, "Well when can I access my money? I don't want
to be penalized 10%." Here's your chance. You don't have to pay
a 10% penalty. Now, you may want to get the taxes over
and done with and that's why many people decide to convert to a Roth.
Well, if you do that, if you roll over to a Roth,
you are paying tax. You're getting the taxes over and done with. But now
your money's going to accumulate tax-free from now on.
And later on you can access your money tax-free.
Roth might be smart. But my favorite vehicle
is a max-funded IUL --indexed universal life insurance contract. It's what I
affectionately call the Laser Fund. I've averaged 10% for the
last 25 years. 10.07 to be exact. But the last
45 years, I've averaged 8.2%. That means every million that I
accumulate in my Laser Fund generates 80 to 100 thousand
a year of tax-free income. Every year into perpetuity when I retire.
And I've yet to see an IRA, 401K around that will do that.
Most of the time if your money's in an ira 401K,
especially in the market, you're restricted or told to only take out 4%.
It's called the four percent rule because the average american only
really earns 3.5% with their money in the market because
they're buying and selling at the wrong times.
And so, Dalbar says, "If they're only going to earn
3.5% only let them take out 4%, they will slowly deplete
their retirement nest egg but not before their L/E. That means life expectancy. Well
I would rather have a million dollar nest egg
generating 80 to 100 thousand a year of tax-free income
instead of 40,000 a year of taxable income
out of an ira 401K. And so, people say, "Well, how can I get my money
out. Well you can't roll it over, you want to roll it out
just like if you were to convert to a Roth." You're going to pay the tax.
But if you can do that without a 10% penalty, oh my heavens,
this is golden plus at your current tax rate instead of thinking future tax
rates are going to be lower. This would behoove you to seize this
opportunity in probably over 90% of the cases
that I've looked at since this was offered.
And so, you want to get the money out of those IRAs of 401Ks.
Not pay 10% penalty. But if you have to pay tax pay it at today's lower rates.
I'm going to share with you why the math behind this
because you want to get the taxes over and done with at the lower rates, without
a penalty and the lower values and then reposition
that after tax money into something that's going to be tax
free from now on. And that would be the Laser Fund if it
was my money. And I'll explain why. The biggest
takeaway here is you want to seize the opportunity
to pay 10% less in tax because the penalty
is really just a 10% tax. So, immediately, you're getting rid of that. Now, during
setbacks where the government erases or eliminates the penalty, at
least temporarily, it's usually because your income is less
than so you need the money. So, when would you rather pay tax, when
your income is high or when your income is low. See, you want
to get the taxes over and done with in the years where your income
is lower. But see, your current tax bracket is likely the lowest bracket you
will ever be in because most people agree that future taxes are going to be
higher. Even the general accountability office. The
congressional budget office has estimated for several years that tax
rates will likely have to go from 33%
combined between federal and state up to 50, 60, 70 percent
if certain initiatives that seem to be popular with about
half of Americans. What kind of initiatives? Medicare for all.
That's not free. That's going to cost 90 trillion plus dollars. Or
free college or forgiveness of student loans.
That's going to cost about 90 trillion. Hello.
The IRS only collects about 3.5, 4 trillion dollars a year in tax.
And they want to give out 90 trillion of benefits. Where are they going to get the
money? See, the CBO, congressional budget office says taxes
are going to have to go up to 60 or 70 percent to be able to come up
with even close to the amount of money they're
going to need to have those kind of initiatives paid for.
But even without those, the government through this stimulus of giving these
loans and giving people money, it amounts to about twice as much
as the IRS collects in taxes in an entire year.
So, what does that tell you? The only way they're going to recoup
that money is by stimulating the economy and
taxing people. So, let me give you a simple example. Let's say at the peak of
the market, this would be like february of the year 2020,
your account values were 900,000. And many Americans
I saw that dwindle down to 600,000 in 30 days mid-march of 2020.
The S&P dropped 34%. Now, even though a month after that, it came back up they
still were down 20%. Would you rather pay tax
on 900,000 or pay tax on 600,000?
In a 33% bracket tax on 900,000 is
$300,000. On 600,000 it's only
200,000. Would you rather pay 200,000 in tax or
300,000, okay? But most people, they hunker down.
They get paralyzed and they wait to get back up to the 900,000.
Well, there's really no difference if it goes back up to 900,000
and you pay tax of a third, a 300, you net 600.
If you paid tax on 600,000... That's a third, that's
200,000. You only have a net of 400 (thousand). If
the market rebounds now back up, you'll have
600,000. But if you did it in a tax-free vehicle, not in your
iris or 401Ks, you would have a tax-free 600,000.
What's the difference? Well if taxes go up to 50%,
which it looks like they will. Now, if you left it in the ira 401K and didn't take
the no-penalty withdrawal, you would be back up to 900,000 in maybe
a year, maybe 4 years. Many times after
2003, when the market dropped for 3 years, it took 4 years to come back
to the breakeven point. In 2008, when it dropped 40%, it
took four years till 2012 to come back. Let's say you got back up to 900,000
sometime within 4 years. And now taxes are
at 50%. What's 50% of 900? 450,000.
Your net is only 450. So, would you rather
have 450,000 net to buy gas and groceries with in retirement or would
you rather have 600,000 tax-free because you got taxes over and
done with during a no penalty era at
200,000 and you were able to ride the market back
up again tax-free. And not only that when the market
dives again, which it always does, you're protected from lost next go-around
because it's in indexing with an indexed universal life.
If you don't understand the power behind indexing,
in a nutshell, it's where you are able to participate in the upside of the market
without the risk because your money's not in the market.
So, if the market crashes you don't lose. On this YouTube channel,
many subscribers, I get answers to in-depth
questions and the answers to those in depth on how
indexed universal life works and why it's the superior vehicle in my opinion
to an IRA or 401K. So, the bottom line, oh, I would seize this opportunity
to have the no penalty withdrawal. And to be able to
take advantage of it now and i'm going to show you if you are intrigued with
this, how you can get better educated by getting a free copy
of my most recent book. So, if this intrigues you,
and you would like to learn more, this is my 11th book.
It's called the Laser Fund. 2 books in one. This is the left brain side, this is
the right brain side. This has stories and examples,
62 of them actual client stories. This is the left brain side all of the charts
and graphs and explanations. 300 pages. Now, I will buy the book. Yeah,
it's free to you as a gift. You go to laserfund.com
and pay $5.95 shipping and handling. I'll fire out a copy of the book to you.
You'll also have the option to get the audio version, the digital version,
video classes. If you want to dive deep into
where you can accumulate your money tax free,
and later access your money tax-free. And why the Laser Fund
knocks the socks off of a Roth with 4 additional benefits that Roths
do not have.