Kagan Financial presents…

How To Become Your Own Bank

Thursday, January 26, 2012

As of January 24, 2012

Quick TestQuick Test

Where do you think taxes are going?Where do you think taxes are going?LowerLower

LevelLevel

HigherHigher

Where Do You Think Taxes Are Where Do You Think Taxes Are Going?Going?

Two Largest Errodes of Two Largest Errodes of WealthWealth

TaxesTaxes

FeesFees

Math TestMath Test

If you have $10,000 in the market If you have $10,000 in the market and in year 1 you lose 50% and in and in year 1 you lose 50% and in year 2 you gain 50% do you have the year 2 you gain 50% do you have the same amount you started with?same amount you started with?

Math TestMath Test

Year 1Year 1 $10,000 - $5,000 = $5,000$10,000 - $5,000 = $5,000

Year 2Year 2 $5,000 + $2,500 = $7,500$5,000 + $2,500 = $7,500

Wealth Accumulation is not about what you earn, but instead about what you do not lose.

-Warren Buffet

2 Rules of Investing2 Rules of Investing

1) Don’t lose money1) Don’t lose money

2) See Rule #12) See Rule #1

The Smart Money OrderThe Smart Money Order

1.) “Free” Money1.) “Free” Money

2.)2.) Tax-Free MoneyTax-Free Money

3.)3.) Tax-Deferred MoneyTax-Deferred Money

4.) Taxable Money4.) Taxable Money

Free MoneyFree Money

-Free money consists of the money -Free money consists of the money that is matched with contributions to that is matched with contributions to your retirement accountsyour retirement accounts

-Inheritance-Inheritance

-Most people take advantage of this-Most people take advantage of this

Tax-Free MoneyTax-Free Money

Roth IRARoth IRA Municipal BondsMunicipal Bonds Cash Value Life InsuranceCash Value Life Insurance

Most people either don’t qualify because of Most people either don’t qualify because of income, or aren’t educated on these income, or aren’t educated on these vehiclesvehicles

Any money contributed to Tax-Qualified Any money contributed to Tax-Qualified Plans over the match skips over this and Plans over the match skips over this and goes directly to tax deferredgoes directly to tax deferred

Tax-Deferred Tax-Deferred

These are unmatched funds in 401k, These are unmatched funds in 401k, 403b, IRAs, etc.403b, IRAs, etc.

These can be good vehicles for These can be good vehicles for retirement but have restrictions. retirement but have restrictions. Locked up until 59 ½ , RMDs, no safety, Locked up until 59 ½ , RMDs, no safety, no liquidity, investment options limited.no liquidity, investment options limited.

Most people skip over tax-free money Most people skip over tax-free money and jump to this.and jump to this.

Tax NowTax Now

Almost everything else falls in this Almost everything else falls in this category.category.

Scared yet? Scared yet?

Let me put the rest of the nails in the Let me put the rest of the nails in the coffin…coffin…

Actual vs. AverageActual vs. AverageReturn of the S&P 500Return of the S&P 500

$10,000 Contribution every year for 10 years $10,000 Contribution every year for 10 years Tied to the S&P 500Tied to the S&P 500

Taxes and Fees not consideredTaxes and Fees not considered

Year Annual Yield Average Yield Actual Yield Account Value

1995 34.11% 34.11% 34.11% $13,411

1996 20.26% 27.19% 25.08% $28,154

1997 31.01% 28.46% 27.80% $49,985

1998 26.69% 28.02% 27.40% $75,995

1999 10.51% 26.32% 25.07% $102,773

2000 -10.14% 20.24% 15.20% $101,338

2001 -13.04% 15.49% 8.12% $96,819

2002 -23.37% 10.63% 0.51% $81,856

2003 26.38% 12.38% 5.05% $116,088

2004 8.90% 12.04% 5.71% $137,423

2005 3% 11.21% 5.29% $151,846

2006 13.62% 11.42% 6.41% $183,889

2007 3.50% 10.81% 6.04% $200,675

2008 -38.50% 7.29% -1.04% $129,565

2009 19.67% 8.11% 1.33% $167,018

  Totals 8.11% 1.33% $167,018

Age

Beginning Account Value

CashFlow Rate Taxes

Amount of Tax

Management Fee Ending

30 $0 $7,200 7% 35% ($176) ($79) $504 $7,449

31 $7,449 $7,200 7% 35% ($359) ($160) $1,025 $15,155

32 $15,155 $7,200 7% 35% ($548) ($245) $1,565 $23,127

33 $23,127 $7,200 7% 35% ($743) ($332) $2,123 $31,375

34 $31,375 $7,200 7% 35% ($945) ($422) $2,700 $39,908

35 $39,908 $7,200 7% 35% ($1,154) ($516) $3,298 $48,736

36 $48,736 $7,200 7% 35% ($1,370) ($612) $3,916 $57,869

37 $57,869 $7,200 7% 35% ($1,594) ($712) $4,555 $67,318

38 $67,318 $7,200 7% 35% ($1,826) ($816) $5,216 $77,093

39 $77,093 $7,200 7% 35% ($2,065) ($923) $5,900 $87,205

40 $87,205 $7,200 7% 35% ($2,313) ($1,033) $6,608 $97,667

41 $97,667 $7,200 7% 35% ($2,569) ($1,148) $7,341 $108,491

42 $108,491 $7,200 7% 35% ($2,834) ($1,266) $8,098 $119,689

43 $119,689 $7,200 7% 35% ($3,109) ($1,389) $8,882 $131,273

44 $131,273 $7,200 7% 35% ($3,393) ($1,516) $9,693 $143,258

45 $143,258 $7,200 7% 35% ($3,686) ($1,647) $10,532 $155,658

Sum Of Sum Of ContributioContributio

nn

Sum of Sum of TaxesTaxes

Sum of Sum of FeesFees

$115,200$115,200 $26,685$26,685 $12,815$12,815

% of % of ContributioContributio

nn

% of % of ContributioContributio

nn

$24.9$24.9 $11.12$11.12

Qualified Plan ExampleQualified Plan Example

$4,000 contribution for 30 years$4,000 contribution for 30 years Tax bracket of 33%Tax bracket of 33% Annual taxes deferred $1,320Annual taxes deferred $1,320 30 years of tax savings $39,60030 years of tax savings $39,600

Qualified Plan ExampleQualified Plan Example

$4,000 Growing at 10% Grows to $4,000 Growing at 10% Grows to $723,744$723,744

10% Annual withdraw $72,00010% Annual withdraw $72,000

33% Tax Bracket is $23,76033% Tax Bracket is $23,760

Net Income $48,240Net Income $48,240

Rest of the StoryRest of the Story

Taxes paid from 65 to 85 equals Taxes paid from 65 to 85 equals $475,200$475,200

Taxes saved during contribution Taxes saved during contribution equals $39,600equals $39,600

How is this tax efficient?How is this tax efficient?

QualifiedQualified Non-Non-QualifiedQualified

EIULEIUL

ContributionContribution Tax Tax DeferredDeferred

TaxedTaxed TaxedTaxed

AccumulationAccumulation Tax Tax DeferredDeferred

TaxedTaxed Tax FreeTax Free

WithdrawsWithdraws TaxedTaxed TaxedTaxed Tax FreeTax Free

Taxable Money vs. Tax-Free Taxable Money vs. Tax-Free MoneyMoney

TaxableTaxable(when received)(when received)

Tax-FreeTax-Free(when received)(when received)

Stocks TaxQualifiedPlans

MutualFunds Wages

Real Estate

Municipal Bonds

Roth IRA

Life Insurance

Capital Gains Income

Tax-Qualified Strategy vs. Tax-Qualified Strategy vs. Tax-Free StrategyTax-Free Strategy

Tax-Qualified StrategyTax-Qualified Strategy Tax-Free StrategyTax-Free Strategy

Gains

Tax- Deferred Contribution

NO TAX PAID

After-Tax Contribution

TAXES PAID

Would You Rather Pay Taxes?Would You Rather Pay Taxes?

Tax-DeferredTax-Deferred Tax-Free Strategy Tax-Free Strategy

On This? Or This?

ZERO

Tax

Contributions

Previously

Taxed

100%

Taxed

As Income

Power of Annual ResetPower of Annual Reset

How Is It Possible?How Is It Possible?

Internal Revenue Code 101 and 7702 Internal Revenue Code 101 and 7702 allow you to earn interest on savings allow you to earn interest on savings and withdraw income on your and withdraw income on your savings savings WITHOUT TAXESWITHOUT TAXES

These provisions are given These provisions are given exclusively to Life Insuranceexclusively to Life Insurance

Banking on Yourself Banking on Yourself StrategyStrategy

Purchase the car out of your Private Purchase the car out of your Private Equity Banking ContractEquity Banking Contract

Pay your Private Equity Banking Pay your Private Equity Banking Contract back the $600/month that you Contract back the $600/month that you would have paid a traditional bankwould have paid a traditional bank

Banking on Yourself Banking on Yourself StrategyStrategy

At the end of 5 years your have At the end of 5 years your have refunded your Private Equity Banking refunded your Private Equity Banking Contract Contract $30,000 of Principal$30,000 of Principal $6,000 of Interest you would have paid $6,000 of Interest you would have paid

the Bankthe Bank And you own the carAnd you own the car

Meanwhile your funds in the contract are still Meanwhile your funds in the contract are still growinggrowing

New Car PurchaseNew Car Purchase

$30,000 Traditional Bank Loan @ 5% $30,000 Traditional Bank Loan @ 5% for 5 yearsfor 5 years

-$600/month-$600/month

Cost of Car after 5 years = $36,000Cost of Car after 5 years = $36,000

You now own an asset that is You now own an asset that is constantly depreciating constantly depreciating

In Conclusion…In Conclusion…

The solution is…The solution is…

The solution is properly setting up an The solution is properly setting up an EQUITY INDEXED LIFE INSURANCE EQUITY INDEXED LIFE INSURANCE POLICY through a properly trained POLICY through a properly trained advisor.advisor.