Non-Qualified Plans - YouTube

Hi. Lee Phillips here.

I want to talk about retirement plans.

Yeah there are a number of them.

There are all the ones under ERISA

the Employee Retirement Income Security Act

they're the 401Ks, the 403Bs, you know all that sort of stuff.

and the SEPs and SAP and--oh no

anyway

all those

then they're the IRAs

IRAs do not fall under ERISA

they fall under Section 408 of the IRS Code

special type of trust

you need trustees, yeah they're a trust

actually all of the ERISA plans

also have trusts

your 401 K, everything is run

through a trust.

It, the money is held in trust.

the problem with the ERISA plans is

if you're a little employer

you have to let all the employees

participate in the plan

you can't cheat the employees

and just take care of the big guys.

The 401 K

everything

that's all subject to the discrimination rules

is what they call them

and the employers, the big guys

can't discriminate against the little guys.

IRAs, the problem is you can't put too much money in them.

you can only get

you know your $6000, $5000 --whatever it is this week--away

every year.

How can you put a large amount of money away

into a retirement plan

and not have it be subject to all of the other employees?

How do you do it?

Well we have over here what are called non-qualified plans

that means they're not qualified under a government program

ERISA or IRAs

Section 408

these--now don't barf on me okay--

these are life insurance policies

and if you get the right life insurance policy

you can make it absolutely mimic a Roth IRA

you put in an after tax dollar--you've already paid tax on it

but it grows without a tax

and you can get it back tax-free

that's pretty cool guys

now on these non qualified plans

there are some restrictions

one it has to be a life insurance policy

which means you have to have a certain amount of death benefit

compared to the amount of money that you invest in the policy

it has to be within what the life insurance industry calls "the corridor"

the law says if we're going to let you have all these benefits for life insurance

and by the way why does life insurance have all this benefit crap?

Life insurance is the sweetheart of the IRS code

by the way. Why?

Because life insurance companies have big lobbies

and the congressmen buy life insurance

they don't want it taxed they want to be able to play this game

you can play the game too.

So as long as you buy life insurance--death benefit

with the investment portion

the cash value is what they usually call it

then you're okay

you have a life insurance policy if you don't get it balanced

you have a MEC

which is modified endowment contract

and you kind of don't want one of those

because they don't play the game they don't get the tax benefit.

So there's a cost of life insurance.

And they call it the COI

cost of insurance

the COI you want to be minimum

that means you want the minimum amount of insurance possible

and then you want the rest to go into the investment portion of the policy

couple of problems

one the life insurance agent does not get paid

on anything but the life insurance benefit

so it's to his advantage to sell you as much death benefit as possible

anything that goes in the cash value the investment stuff he doesn't get anything

so one they want to sell you the maximum amount

two you need to get a policy that is gonna grow reasonably

and they have them attached to the indexes and all sorts of stuff today

so you can get a policy which we will give you some good growth

but the major problem is

the way you get the money back is you borrow it

a nd we're gonna have to do another video

on how to borrow

what the problems of borrowing life insurance is

and I'll explain that

but you gotta borrow it back

all the policies

will say we don't charge you any interest

our practice is

when you borrow the money back

we don't charge you any interest

I don't give a damn

about "practice"

I want to see it in writing

that you will not charge me an interest

when I get the money back.

Look

you understand that on your 30-year mortgage you'd kill

to get your mortgage down a percentage point

and you know that it's going to save you tens of thousands of dollars

over the 30-year life of the mortgage

well the insurance people will charge you an interest and

it doesn't matter that their practice isn't to charge you an interest

they will always charge you an interest

unless it is guaranteed in writing

because they don't sell that policy anymore in 20 years

and then they charge the interest.

So as long as the policy is available for sale

our practice is we've never charged the interest

well yeah

you can't borrow from it for five or ten years anyway

of course you've never charged me an interest

on that policy.

What are you going to do with me

when I actually want to borrow in 15 years

and when you borrow the money

you start at 65

that could be a 30-year mortgage.

You could pay interest for thirty years

and it's only one percent

or a half a percent

or one and a half percent

and your insurance dude he'll put his arm around you and he'll say, "You know, Lee,

where else could you borrow money for one percent?"

Well yeah

but it's my money

and if it's even a 1% interest that they're gonna charge you

the fact of the matter is

that's substantially

going to reduce the amount of money

that you get to borrow out of the policy and spend

in your retirement.

So you have to have in writing

guaranteed

and there are about four policies out there that'll do it

and I'm sick, I've read a lot of life insurance policies

but you get the guarantee of what we call a zero wash loan

and I don't have time to explain

the zero washing, this I'll do that

on the how to borrow life insurance

what happens when you borrow life insurance money

but you have to have the guarantee

of a zero wash loan.

So if you have the minimum amount of death benefit

and by the way when you get the minimum amount of death benefit

then you have a certain amount that you can put into the

investment portion

it's called guideline premium

if you're within--if you're on guideline premium

that means you've gotten the minimum amount of death benefit

by law

they have to print on the proposal

what the guideline premium is

they aren't gonna tell you about it

and it's buried in your proposal

but you will know

if your guideline or how far off the guideline you are

by reading the proposal.

Minimum amount of death benefit

guideline premium

zero wash loan

except for the amount the cost of insurance that you have to pay

that absolutely mimics a Roth IRA

you don't have to have your employees participate in it

because it has nothing to do with ERISA

discrimination

or anything else

and you can put as much money as you want

into one of these policies

and the interesting thing is it grows without an tax

because it grows without a tax that's a big deal

it outruns the cost of insurance very quickly

you're much better off to put it in the life insurance policy

than you are to take it down and buy a CD with it.

One, you should be able to make more money in return than you do in the CD

and two, it grows without the tax.

So the cost of insurance

after a while becomes

actually insignificant.

Now my wife is dying.

We did this on her

and we've put a fair amount of money into her policy

thinking we would get it back for retirement.

She is going to die shortly

and the amount of money that we'll get from the death benefit is about four times

what we've put into it.

So sometimes the death benefit isn't a bad deal.

The only problem is you got to die to cash in on it.

But use the non qualified plans if you want to put a lot of money

a you don't want to have to play with the employees

you're way above what you want to put into an IRA

of course, do the 401ks, do the IRAs first

but if you still have money

mimic the Roth IRA

in the non-qualified plan.