Episode 11 of the #EverythingMoney show is one of the most controversial that we’ve ever done. Mainly because it covers a very sensitive topic for the IRS and all CPA’s in America.
And if you were to ask either of them if there is such a thing as a LEGAL Tax Free growth strategy, they will blatantly deny it.
But let’s get into it.
1st… What Is Capital Gains Tax?
Capital Gains Tax is the tax that you pay when your capital experiences gains.
To put it simply, most assets that you purchase will experience gains. And when you gain value on something, Uncle Sam wants his cut on those gains.
Hence the name, Capital Gains Tax.
More often than not, though, Capital Gains Taxes apply to accounts that have cash assets growing in them.
This would be anything along the lines of Certificates of Deposit, Savings Accounts, Mutual Funds, IRA’s, 401K’s, etc.
And if you ask your banker, or your CPA, they’ll most likely tell you that there is no account that will allow you to grow your capital without paying any taxes.
No Tax, Please
There’s a nifty little tax rule that was passed by Congress in the early 90’s.
They passed the rule mainly because they wanted a way to legally avoid paying taxes on their gains. Once they passed it, they stuffed as much of their cash into this strategy as they could. But when it was time to offer this strategy to the public, they put certain limitations on it so that people don’t put ALL of their assets into it.
(Because, if we’re being real, if there was no limitations on how much money you could put in there, then you would probably put all your money in there.)
And no, it’s not a ROTH IRA.
This rule simply states that any cash that is placed under the umbrella of a life insurance policy is not subject to Capital Gains tax as it grows. This isn’t very special because there are several other types of accounts that offer tax deferral.
But what makes Cash Value Life Insurance different is the ability to take a 0% loan against your own money without paying any fees or taxes. By their nature, loans are not taxable – as you would be paying an interest on the money you borrow.
In Cash Value Life Insurance, however, since it’s your own money you can take a Power Option Loan and not pay any interest on it. The Life Insurnace company looks at your account and sees that you have the cash available to offer as collateral against your loan. So, they do something pretty neat…
Instead of them lending your own money to you, they’ll lend you some of theirs. Since they’re lending you their money, they have to charge you an interest rate (typically 2%). But here’s where things get interesting…
Since they need collateral for their loan, they’ll borrow some of your cash value and pay you 2% as your fee for lending it to them.
Since you’re getting paid 2% on the money you lend them, and they’re charging you 2% on the money they lend you, the two loans “wash” each other out and you get a 0% loan.
Read that again if you need to.
This not-so-simpe trick allows you to accumulate hundreds of thousands – if not millions of dollars – and get access to it all, completely tax and penalty free.
If you would like to learn how to leverage the power of Cash Value Life Insurance to grow your own assets tax and penalty free, contact us directly at 866-624-3741 or simply request a Free Financial Consultation with one of our Licensed Financial Consultants.