An insurance retirement plan can be (as some critics claim) simply a glorified welfare program, offering no benefits during working years and only a meager benefit once out of work. They are typically sold to wealthy, long-net-worth individuals as a pseudo Roth retirement vehicle offering tax-free growth of income over the long term. Critics of this approach charge that the policy does not provide enough flexibility to meet the needs of today's retiree while failing to adequately protect against future shocks to income and expenses.
A more realistic approach to retirement savings is one in which Social Security and other federal programs are fully funded for the length of the worker's working career. Then, a full time, fully taxable individual contributes both tax-deferred and tax-free income to a separate account. The money grows tax deferred with a corresponding benefit amount. Full retirement pay is achieved when the worker stops working. This is the approach adopted by the employee leasing industry and, indeed, many of today's self-employed entrepreneurs. For these companies, a traditional IRA does not provide the viable accounting guidelines for their plans, since there are no tax returns to provide.
One alternative to an employer-sponsored retirement plan and one rarely considered by today's employers are an IRA and a self-directed lrip. In contrast to a pension plan that must be funded with contributions from employees, a lrip is open to everyone, including business owners, with a high enough annual income level. By taking advantage of tax-free withdrawals at anytime, both the employer and the employee can invest tax-free money in an IRA account, growing it tax free, and in most cases increasing their annual retirement incomes. Unlike a pension, which is only partially tax free (so much of the original investment is tax exempt), IRA investments grow tax free with each withdrawal. And unlike a whole life policy, the growth of an IRA is unlimited.
Another option for creating a tax-free retirement plan for self-employed or small business owners is a Roth IRA. This is where your after-tax income is deposited into a special, tax-deferred account that grows tax free, without being taxable until withdrawn. By investing in a Roth IRA, the self-employed can build their nest egg, not taxable, and thus increase their ability to save for retirement.
An IRA does not require any minimum distributions. So you can use your account for anything that increases your retirement income, instead of simply putting your money into a mutual fund and paying tax on all of it at the end of your life. For example, you can start large family trusts, use the funds to buy homes for your kids, and put the rest of your inheritance into a Roth IRA. All of these actions are perfectly fine as long as your tax rate remains low at the end of your life, which will be a permanent benefit if you make Roth IRA contributions.
Another benefit of infinite banking is that they allow you to take advantage of both tax deferred and tax-exempt withdrawals. With the former, you only pay taxes when you take your withdrawals. With the latter, your contributions are never taxed and can be withdrawn without penalty or interest. This makes IRA's a great choice for long term investments and allows you to keep more of your income and assets.
For more information related to the article above, please click here: https://en.wikipedia.org/wiki/General_insurance.
