Looky There - Obama Proposes New Insurance Tax to Fund Health Care Initiatives

On Monday, May 11, President Obama’s administration outlined eight new tax proposals.

Don’t worry – I’m not going to list them all here. You can read the details and technicalities elsewhere, like the LA Times, Bloomberg News, The Wall Street Journal – or you can just Google it.

Now, please don’t get confused. This is an entirely new proposal from the one issued Monday, May 4 – what is it with Mondays? – which I wrote about two weeks ago. If you haven’t read that post yet, it would be a good idea to read it so you can catch up.

My purpose here is to discuss the newly proposed changes as they relate to individually owned life insurance contracts.

Transfer-for-Value Exemption Removed

Basically, in plain English, the administration’s proposal, IF enacted and implemented, would tax the sales proceeds when policyholders SELL their contracts to investors (as in Life Settlements) for immediate benefits. The way it works right now is that anyone who sells a life insurance policy generally is taxed on the full proceeds they receive, minus the policy’s adjusted basis. The only exceptions are if the buyer is a settlement provider and the insured is chronically or terminally ill, also known as transfer for value.

The new proposal removes the transfer-for-value exception and requires buyers to report a lot more information to the IRS, including the policy’s purchase price, policy number, issuing company, and the buyer‘s and seller‘s taxpayer ID numbers.

So, your Aunt Elaine and Uncle Eddie needn’t worry, as long as they bought their life insurance policy for its intended purpose: to help pay expenses if one of them should die earlier than the other. If you use insurance contracts for cash accumulation and death benefit purposes, your tax advantages are NOT affected – by this proposal. Say, on the other hand, your neighbors, Bill and Brenda, are in the business of obtaining life insurance policies and then turning around to sell them right away. They will feel the effects of this new proposal in a big way.

I must point out that I am getting quite a kick out of these new tax proposals – seriously! Because they keep echoing what we have been teaching and preaching for a while now. Our prophecies seem to be unfolding, and I have to tell you that it feels incredibly pretty good to have so accurately predicted these circumstances!

A Fact You Can Bet Your House On

The federal government pays for things with tax revenue, and given the two alternatives will always tax more, rather than spend less. This has nothing to do with politics; it’s just how government works. You must realize that the purpose of these proposals is to raise tax revenues.

In this particular instance, the goal is to raise $12.8 billion through 2019 to help pay for the President’s health care initiative. Told ya! And pay particular attention to the fact that no one is claiming there is anything illegal about this – the President simply needs to pay for stuff.

Make a Smart Move

Get your money out of a taxable environment and into a tax-free environment while you still can. If that sounds odd to you, you have more than likely been following conventional financial advice. Or your financial advisor has successfully made you believe the LIE – that a Roth IRA is your best bet. Or you have been brainwashed into believing the myth that you’ll be in a lower tax bracket once you retire, so it’s a good idea to use qualified accounts now.

Rather than gambling your financial future, it would behoove you to get a complimentary consultation with a Laser Financial Group strategist so that you can learn how to preserve your wealth and make your retirement income tax-free. Doesn’t that sound much better than the alternative – being at the mercy of the federal government?

There are a ton of Mondays ahead, and who knows what the next one will bring? Join our clients who enjoy time-tested, proven, common-sense, practical, and legal – yes LEGAL – strategies that help them keep more of their money.

Converting to a Roth IRA Right Now is a Very BAD Idea

Financial "experts" are bombarding the American public with advice about how to salvage their depreciating wealth - courtesy of the stock market's freefall. One very popular - but TOXIC - piece of advice is that now is a great time to convert qualified funds (pre-tax dollar accounts) to Roth IRAs.

Just so we are on the same page, this is NOT a discussion about Roth conversions, in general - we'll discuss that at a later date. Rather, I am challenging those financial "pundits" who are specifically advocating that converting to Roth IRA is smart and prudent after experiencing investment losses. Then again, maybe I'm a bit slow? Continue reading and then decide for yourself.

What They Are Claiming

Here is the whole rationale behind the current movement to convert to Roth IRAs: Since your IRAs/401(k)s have suffered significant losses, converting now will save you on taxes. A recent USA Today article claims, "An IRA conversion is a smart move in a bear market..."

But let's examine this thought process. For instance, assume you had $100,000 in a traditional IRA in January 2008. If you had converted it to a Roth at that time, your tax bill would have amounted to $25,000 (assuming a 25 percent marginal tax bracket). You would net $75,000 in this example. Then, going forward, you would be able to keep your money, income tax-free.

Common-Sense View

The investment choices that these same advisors are advocating withered up your savings, leaving you with around $70,000 (assuming a 30 percent drop in the value of your IRA/401(k), given the fact that the major markets tumbled more than 30 percent in 2008). If you were to convert now, based on their BAD advice, you would net only $52,500, after paying 25 percent ($17,500) in taxes.

Yes, the portion that goes to Uncle Sam is less ($17,500 instead of $25,000), but notice that YOUR portion is down from $70,000 to $52,500. Investing 101 and plain old common sense - a supply of which anyone needs a ton when it comes to financial planning - teaches that a larger seed is better than a smaller seed when starting your Roth IRA.

Financial professionals agree that Roth IRAs enable people to amass larger nest eggs, due to income tax-free withdrawals (provided you are past age 59-1/2 and have had the account for at least five years). And I am in total agreement with that assessment.

What I wonder about, though, is the fact that Roth IRAs have been around since 1997. Where have these so-called financial gurus been all that time? Why did they wait for their clients to experience significant losses - LOSSES! - before it became a good idea to convert to the Roth IRA? Now those clients are ending up with less money. Why are more than 95 percent of financial advisors STILL advocating qualified plans instead of income tax-free alternatives?

Income Tax-Free Withdrawal Is Always Better

I have always maintained that in almost every instance, income tax-free withdrawal is better. And we have always taught and helped our clients to "strategically roll out" their qualified funds at the most opportune time, tax-wise - NOT when they have incurred signifcant investment losses. Notice, there's a HUGE difference.

There's a $100,000 income limit, known as MAGI (your tax advisor is familiar with this term, and if he/she is not, find a new one), on the ability to convert to a Roth IRA. This limit is scheduled to end in 2010. But that should not, and has not, been a challenge for any of our clients. Why not? Because we DON'T use Roth IRAs.

No-Strings Roth

Why bother with a Roth that still has strings attached when the accumulation tool I refer to as "Roth on Steroids" is available? Now that I have your attention, GET THIS: There are cash accumulation vehicles under current law that, when structured and distributed properly, allow for income tax-free access without all of the strings attached to Roth IRAs.

Like, for instance, you can convert qualified dollars, regardless of your income. And my personal favorite: should you die too soon, the portion you paid in taxes due to the conversion is replenished (in most cases, several times over) to your beneficiary, income tax-free, giving your beneficiary way more than you paid in, all things being equal.

Of course, each individual's situation is different, which is why I recommend very careful analysis and consideration by competent tax and financial professionals, in all situations.

To find out more and determine what is best for your situation, request a free consultation with one of our strategists today.

White House to Target Tax Loopholes: Are YOU Affected?

The Obama administration announced last Monday that it intends to close supposed tax loopholes currently being utilized by companies and individuals alike.

OK, to prevent you from wondering, yes. This is not a political blog. However, this proposal may have a direct impact on your financial future, if you live and accumulate your retirement wealth in the United States.

Taking Advantage of Tax Loopholes

It is critical for you to understand that a tax loophole is simply an alternative or way out that is perfectly LEGAL. It would have been another story if they were illegal, but notice that no one is claiming otherwise – although I personally believe that most news outlets packaged their reporting about this proposal in a way that indirectly suggests the loopholes are illegal.

Suppose you lived next to a state with no sales tax and you figured you could save, say, $200 on a major purchase by driving 25 minutes across state lines. Would you make the drive? How about if you regularly commute to another state where sales taxes are waaaaay lower? Would you shop there for the exact same items you could buy at home for more? What about online purchases, if they save you money on sales tax? If you answered yes to any of those scenarios, you just used – or proposed using – a tax loophole. And, in case you were wondering, I live in Maryland, Virginia, West Virginia, D.C. and Delaware! Awesome, huh?

However, Laser Financial Group has always maintained, on our website and in all of our printed materials, that people and companies should NEVER plan around tax loopholes. Man, do we feel like geniuses today!

How Will It Affect You?

Regardless of what the political pundits say, I contend that the #1 headache of ANY administration is to figure out how to pay for stuff. And, as I have always taught, the federal government (Democrat, Republican, or whoever) has only one form of revenue: TAXES.

If you’ve heard me speak or read any of my writings on this subject, you know that I’m not a fan of higher taxes. Who is? Wait, Uncle Sam is – shhhh! However, the reality is crystal clear. The only way the federal government will be able to get a handle on our humongous national debt – and pay for new stuff – is to tax more now, and in the years ahead. It MUST happen, and it’s going to happen. The only alternative is to spend less, and you know how completely unlikely that is to happen.

According to a CNN story, “The administration expects the initiative to raise at least $210 billion over the next 10 years.” And, that’s the whole purpose – to raise revenue. Not to fix illegal behavior, because this behavior is NOT illegal.

Is It SMART to Have Your Wealth in a Taxable Environment?

Sadly, the majority of Americans are using tax-deferred retirement accounts – e.g., 401(k)s, IRAs, TSAs, and 403(b)s – because their so-called advisors are completely clueless, brainsick, or simply do not care. Look, none of those advisors can remotely guarantee that you’ll be in a lower tax bracket when you begin drawing income for retirement and Uncle Sam cares about paying his bills, NOT yours.

Why not join the select few who have discovered and are using the absolutely income TAX-FREE alternative? It is perfectly legal, no loopholes (President Obama approves of that), and based on existing tax law. Why is only a tiny percentage of the population using it? It’s because more than 95 percent of financial advisors don’t know what they are talking about when it comes to retirement planning.

Call us today at (301) 949-4449 for your free consultation so that you can work with one of the five percent of financial advisors who can set you up for this income tax-free alternative!

Remember Stewart vs. Cramer? Someone Was Left Out

Whoa! On the March 12, 2009, episode of "The Daily Show," Jon Stewart - for lack of a better word - hammered Jim Cramer of CNBC's "Mad Money." My regular readers can probably guess my reaction. For those of you with short memories (or who somehow missed the brouhaha), this statement sums up Stewart's entire point:

"I understand that you want to make finance
entertaining, but it's not a ... game."

I really, really wish I could emphasize the missing word indicated by the ellipsis in that statement, but this is a family blog.

Watch the clip yourself and you can fill in all the blanks.

The Daily Show With Jon Stewart	M - Th 11p / 10c
Jim Cramer Pt. 2
thedailyshow.com
Daily Show Full Episodes Economic Crisis First 100 Days

Here are my thoughts on the Stewart-Cramer conflict, and the crisis to which they were referring:

1. Aren't we supposed to be living in the land of freedom, where we are all accountable for our own actions? Why in the world should poor Jim Cramer take all the blame? I'm sure if I were on Cramer's show selling a stock, he would insist, "Buy, buy, buy - right now!"
   
   
2. Don't folks know that stocks roller-coaster? And always will? And don't they realize that our self-proclaimed prediction gods - or rather, devils - are worthless, at best?
   
   
3. What about all the other "Cramers"? These so-called "experts" that surround us? The newspaper articles, websites, and blogs that rain down Cramer-like advice by the second? I suppose we could argue that they are exercising their freedom of advice, and the public should likewise exercise their freedom of choice to tune them out.
   
   
4. Have we learned anything at all? Or are we simply awaiting the next catastrophe that will give another pundit or expert the chance to rally us to do something against our own best interest so that Jon Stewart can invite that person on his show and entertain us some more?

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Laser Financial Group provides a common-sense approach to finance without all the hype.
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