ABOUT THIS EPISODE
Every April, Americans all over the country start sweating. You no longer have to join them. In this episode, Patrick Donohoe dives into the powerful life insurance tax benefits working for you as part of the Perpetual Wealth Strategy. From policy inception to death benefit, Patrick reviews the tax advantages other investments and accounts can’t match.
KEY TAKEAWAY TIMELINE
- 2:12 – Historical tax stability of permanent life insurance
- 5:55 – The primary tax benefits of insurance
- 8:23 – Tax benefits of dividends and policy withdrawals
- 9:50 – The taxation of a 401(k) vs. a Wealth Maximization Account
- 11:57 – Tax code benefits for small business owners and executives
- 14:00 – Death benefit liquidity and tax advantages
- 15:30 – When life insurance could cause an estate tax
Watch the episode here:
Tax Advantages Of Your Whole Life Policy
Thanks for tuning into this episode. To most Americans, taxes are a consistent source of stress year-after-year. The typical financial planning world has successfully convinced the American public that the best no-brainer tax strategy is to max out your 401(k). If you have kids to put money into 529 plans, if there's money left over to contribute to a Roth IRA, that's pretty much it. It's almost as if you don't do these things, there's something wrong with you. In my experience and through the extensive study I have done on this subject, this tax strategy has not helped Americans and in most cases, has damaged a person's financial future. It's not to say the tax strategy isn’t important. I consider tax strategy as a vital component of a successful wealth strategy, which is why our approach here at Paradigm Life consists of old tax-efficient financial products and strategic partnerships with tax professionals so that you can not only achieve the best short-term results. Don't sacrifice the long-term results, which is in most cases the reason why the 401(k) may not be the best approach. We're going to dive into a few of the powerful tax benefits of the Wealth Maximization Account, which is a dividend-paying whole life policy designed for maximum cash value. For those of you who are clients, your WMA is the foundational piece of your wealth strategy or a primary piece. Having complete knowledge of its tax benefits is important. It's also important to note the long-term tax benefits as well. It can help you navigate not right now, but your future path to financial independence. Let's go ahead and get started.---
The permanent life insurance has been around for a long time. It preexisted the United States and 1913 Income Tax Act, the income tax, which was supposed to be temporary but ended up being permanent. Rates have been increasing ever since. I look at it as this foundational piece of a wealth strategy. It's not just because of the tax benefits, but the tax benefits help. What's interesting is the policies, dividends, interest, it pre-existed the Income Tax Act. Not to say that it hasn't been impacted since because it was. In the 1980s, there was some tax overhaul and life insurance was included. It was a last-minute thing, but it hasn't been impacted since. It's interesting that it has been on the table with many administrations, notably a couple of times with the Obama administration, but it was also part of the 2017 potential tax reform, which we went through over the last couple of years. It was on the table, but if you look at why it wasn't included, it's because number one, it is a huge lobby associated with it. The financial services lobby, the insurance lobby who was able to talk to Congress, representatives and educate them on the nature of insurance and how it replaces loss. Your team can choose what works. Click To Tweet If our car gets hit or demolished and we get a car replacement. We're not paying taxes on it. It replaces something that already exists. As far as cash value is concerned, being this net present value of a future benefit, it makes sense. Them being able to sensibly get into these lawmakers’ offices because of their clout and influence helps educate on the reasons behind why there are many tax benefits with insurance. Not to say that's going to continue to happen, the future is unknown. Looking at the past, there are a couple of things that I would say provides me peace of mind and certainty. It should provide the same thing to you. Number one, it's only been changed once and the changes only affected contracts and policies going forward. It didn't affect the ones that were already in force, which is interesting to note. If things happen in the future, it’s because it's a contract. Essentially, the two parties that went into this contract, you being one of them, me being one of them, the insurance company being the other, they did so with an understanding of the environment of taxes. If tax has changed on existing contracts, there are definitely repercussions when it comes to contract law. Looking forward, I think the peace of mind is that things do change. We already have policies that are part of our financial strategy or wealth strategy that they won't be affected. It’s not a guarantee but you looked up to the past, and it provides a much higher degree of certainty than the other types of financial products that are out there and their taxation. The primary tax benefits struck again into everything. There are lots of different ways to use insurance in estate planning, business strategy and business planning. I want to talk a few of the primary ones that affect everyone. If you have questions about anything that I'm talking about, feel free to reach out to the team. Go to the ParadigmLife.net podcast page. It has contact information. It also has a few supporting documents that are going to help you as well. Reach out to your wealth strategist as well. If you're not a client, go to the website and there are a few places you can request more information or talk to someone. Let's get into the primary one. The tax-free growth of cash value, that's an interesting one to note.


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Tax Advantages of the Wealth Maximization Account
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About Patrick Donohoe
Patrick is the President and CEO and started Paradigm Life in 2007 after learning from his mentor Kim Butler about financial strategies outside of Wall Street. With a background in economics and marketing, Patrick immediately realized the opportunity to teach investors, business owners, professionals and families on a large scale using modern digital media and communication technology. Since 2007 Paradigm Life has worked with thousands of individuals in all 50 states. Patrick has shared the stage with financial experts such as Robert Kiyosaki, Peter Schiff, G Edward Griffin, Tom Hopkins, Blair Singer, and more. Patrick co-created the Cash Flow Wealth Summit (www.cashflowwealthsummit.com) with his friends Tom Wheelwright, CPA of Provision Wealth and Andy Tanner, the author of 401kaos and Stock market cash flow (have links to their websites and books). Patrick hosts The Wealth Standard Radio – a popular financial podcast every Wednesday morning at 9am MST on the Tune In Radio Network. The Wealth Standard Radio has been on the air since 2007. Patrick grew up in West Hartford, Connecticut and moved to Salt Lake City in 2003 to attend the University of Utah and graduated with a BA in Economics. His yearly highlights are a family trip to his parents home in Cape Cod, Massachusetts and to Hermosillo, Sonora Mexico where his wife Synthia’s family resides. He enjoys playing ice hockey and is an avid participant in CrossFit. Patrick currently resides in Salt Lake City, Utah, with his wife Synthia and their three children Hannah, Meghan and Jack.