Private K Retirement Strategy

Changes in Tax Rates

The federal, state and local tax systems in the United States have been marked by significant changes over the years in response to changing circumstances and changes in government. Tax rates are far different than they were 50 or 100 years ago.
 
Some of these changes are traceable to specific historical events, such as a war or the passage of amendments to the constitution.
 
Other changes were more gradual, responding to changes in society, in our economy, and in the roles and responsibilities that government has taken unto itself. Individuals who make the lowest amount of income are placed into the lowest marginal tax bracket, while higher earning individuals are placed into higher marginal tax brackets.
 
However, the marginal tax bracket in which an individual falls does not determine how the entire income is taxed. Instead, income taxes are assessed on a progressive level. Each bracket has a range of income values that are taxed at a particular rate. Below is an overview of the highest marginal tax rate through the years.
marginal tax rates

Increase the Overall Effectiveness of Retirement Plans

Most people over estimate their effective rate, as they are more focused on the ‘highest’ marginal rate. Many people feel that with the current national debt, along with the baby boomer generation heading for retirement, that tax rates will have to increase in the future. Is your plan ready for that?
 
With a traditional 401(k) plan, you are deferring your taxes into the unknown future, rather than taking advantage of the low tax rates of today. If taxes increase in the future, a Private K Plan takes the unknown out of your future tax rate. It’s Tax Free!
 
With a Private K Plan, you have the ability to pay your taxes now, at a lower rate. Allowing you to accumulate for retirement without having to worry about the IRS.
With a Private K Plan, you have the ability to pay your taxes now, at a lower rate. Allowing you
to accumulate for retirement without having to worry about the IRS
retirement planning

Understanding Target Audience

The ideal client is typically saving over what their employer is matching in their 401k. They are also concerned about future taxes and may not qualify for a ROTH IRA. These clients will typically be
concerned with market volatility and be upset with negative returns. In addition, they may not like the restrictive nature of qualified plans (penalties for early access). We will typically use a minimum non-mec death benefit and an increasing death benefit. The client ideally can fund this policy for at least 5 years and won’t need income until 10+ years from now.
 
Warning: once the death benefit has been chosen and the policy established typically the client typically cannot increase their funding unless consideration has been made up front.

 

Demographics: Individuals planning for retirement who are saving more than what their employer is matching in their 401k

  • Max age of 60
  • Budget/Premium: $250+/month
  • $100,000-$500,000 in annual income

Do You Think Taxes Will Be Lower in the Future?

With a Private K Plan, you have the ability to pay your taxes now, at a lower rate. Allowing you to accumulate for retirement without having to worry about the IRS.
Benefits to You and Your Family:
    • Maximize retirement dollars
    • Reduce market volatility
    • Flexibility and portability of plan
    • Pre and post retirement death benefit for your family
    • Access to funds before retirement
Additional Benefits of Plan
    • Customized benefit plan
    • Personal ownership
    • Choice in amount and timing of income
    • Cash values protected in market downturns
    • Potential for significant tax deferred accumulation
    • Income tax-free access to policy cash values
    • Income tax due can be paid using policy loans or withdrawals
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Optimize Your 401(k) Plan

The participant establishes a life insurance policy on his or her own life. The client will then reduce their 401k or qualified plan contribution down to the match only. 
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Establish Your Private K Plan

The reduced 401k contribution will then be used to fund the life insurance policy.
During the accumulation phase of the policy the client has access to the funds as needed. We recommend review the performance yearly.
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Income From 401(k) Plan

During the accumulation phase of the policy the client has access to the funds as needed. We recommend review the performance yearly.

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Retirement & Death Benefits

At retirement, tax-free income is paid to the owner and at death, tax-free death benefit is paid ot the heirs.
By using income from a tax free source, you reduce the negative impact on taxes from your qualified plan. 

How Advisor’s Resource Company Can Help

Planning for the future financial security for your clients requires thought. We work with you to establish more effective ways to fund your clients retirements and minimize tax liability. If this situation sounds familiar, you more than likely have clients that are a perfect match for our Private K program. Let’s work together to determine the best strategies to improve your client’s financial situation.