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COVID-19 401(k) No Penalty Withdrawal - How To Take Advantage - YouTube
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Should you do it? What?
Well, in this episode, we are going to
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address
covid-19, 401K,
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no penalty withdrawal - How to take
advantage? You're going to understand
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some things that maybe you didn't
consider before.
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So, put your seat belt on.
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I'm Doug Andrew and i'm here in my radio
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studio.
I've created a radio show every single
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week
now for more than 11 years. I've created
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a lot of
TV shows for education. I've spoken over
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85,000 hours in my life to live audiences
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and I've been very blessed to author 11
books.
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Many times as a financial strategist and
a tax minimization specialist,
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I've helped people uh get answers to
questions. And this YouTube channel
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is exactly that. So, subscribers uh to
this channel we usually type in
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questions and so i answer one every
single day.
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Lately, because of the corona virus, the
covid-19
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pandemic, it reminds me that many times
when we have
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opportunities that come because of
external
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forces and influences that are out of
our control, this
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creates opportunities. And I've learned
that when there's anxiety,
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there's opportunity. So, right now, as I'm
recording this,
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amid the covid-19 corona virus pandemic,
outbreak,
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people have had hardships. Because
many times employers could not keep
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their employees
in a restaurant or a small business. Some
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could work at home.
But many, many people at
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record-breaking rates were applying for
unemployment.
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Or they were scrambling to make ends
meet
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because they weren't earning income. Many
businesses
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took out PPP loans, they payroll
protection
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plan loans in order to meet payroll
and so forth because the government
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realized it was cheaper to do that
for businesses to keep employees going
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than to pay out the unemployment
benefits. And so, one of the big
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benefits of the administration,
the government during covid-19 was
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forgiving
a 10% penalty
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if you accessed money out of a tax
deferred IRA or 401K.
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Because traditionally if you tap into
your ira 401K funds or other qualified
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plans like 457s and 403Bs and so forth.
If you touched those and took out money
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before age 59 陆
there was a 10% penalty on top of the tax.
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So, if you had to pay tax of 25 or 33,
instead of 33, you paid 43. It was like a
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10%
penalty or 10% tax. Having said
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that, I've actually helped many many
people
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determine when it's wise to pull out
money
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generally after age 59 陆 when
there's no longer a penalty.
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But actually I've helped many people
pull out money before age 59 and a half
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and offset the tax including the penalty. But now is a golden opportunity to
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access money if you're under age 59 陆
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and not have to pay that extra 10%. Because you're not saving tax
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by putting it off. Hello! You're
continuing
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to delay the inevitable if you postpone
and wait
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until you retire. So, this is the golden
opportunity for you to consider a
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strategic
rollout, not a rollover. A rollover
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is like going from the frying pan into
the fire, so to speak.
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It's taking money out of a 401K let's
say and rolling it
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over to an IRA. No, you're just continuing
to delay the inevitable.
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What I have counseled many many people
to do is
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no, you want to roll the money out. Get
the money out of those iras or 401Ks at
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a lower
tax rate. And by eliminating the
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penalty of 10%, the no penalty
withdrawal,
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that's like lowering the tax rate by 10%.
Frankly, your current tax rate, your
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current tax
bracket is likely the lowest bracket
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you will ever ever be in. Because most
Americans believe that future tax rates
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will likely be
higher. So, why do we want to postpone
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paying tax
on a tax-deferred IRA or 401k and let
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the account continue to grow tax
deferred
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to some future perceived unknown
advantage
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and then withdraw our money down the
road when we're convinced taxes will
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likely be higher in the future.
That sounds really stupid when i word it
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that way, right? And so you think, "Well
when can I access my money? I don't want
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to be penalized 10%." Here's your chance. You don't have to pay
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a 10% penalty.
Now, you may want to get the taxes over
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and done with and that's why many people
decide to convert to a Roth.
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Well, if you do that, if you roll over to
a Roth,
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you are paying tax. You're getting the
taxes over and done with. But now
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your money's going to accumulate tax-free from now on.
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And later on you can access your money
tax-free.
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Roth might be smart. But my favorite
vehicle
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is a max-funded IUL --indexed universal
life insurance contract. It's what I
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affectionately call the Laser
Fund. I've averaged 10% for the
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last
25 years. 10.07 to be exact. But the last
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45 years, I've averaged
8.2%. That means every million that I
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accumulate
in my Laser Fund generates 80 to 100 thousand
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a year of tax-free income.
Every year into perpetuity when I retire.
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And I've yet to see an IRA, 401K around
that will do that.
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Most of the time if your money's in an
ira 401K,
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especially in the market, you're
restricted or told to only take out 4%.
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It's called the four percent
rule because the average american only
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really earns 3.5%
with their money in the market because
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they're
buying and selling at the wrong times.
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And so, Dalbar says,
"If they're only going to earn
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3.5% only let them take out
4%, they will slowly deplete
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their retirement nest egg but not before
their L/E. That means life expectancy. Well
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I would
rather have a million dollar nest egg
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generating 80 to 100 thousand
a year of tax-free income
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instead of 40,000 a year of
taxable income
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out of an ira 401K. And so, people say,
"Well, how can I get my money
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out. Well you can't roll it over, you want
to roll it out
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just like if you were to convert to a
Roth." You're going to pay the tax.
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But if you can do that without a 10% penalty, oh my heavens,
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this is golden plus at your current tax
rate instead of thinking future tax
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rates are going to be lower.
This would behoove you to seize this
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opportunity
in probably over 90% of the cases
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that I've looked at since this was
offered.
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And so, you want to get the money out of
those IRAs of 401Ks.
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Not pay 10% penalty. But if you have to
pay tax pay it at today's lower rates.
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I'm going to share with you why the math
behind this
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because you want to get the taxes over
and done with at the lower rates, without
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a penalty
and the lower values and then reposition
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that after tax money
into something that's going to be tax
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free from now on.
And that would be the Laser Fund if it
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was my money.
And I'll explain why. The biggest
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takeaway here is you want to seize the
opportunity
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to pay 10% less in tax because
the penalty
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is really just a 10% tax. So, immediately,
you're getting rid of that. Now, during
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setbacks where the government
erases or eliminates the penalty, at
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least temporarily,
it's usually because your income is less
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than so you need the money.
So, when would you rather pay tax, when
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your income is high
or when your income is low. See, you want
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to get the taxes over and done with in
the years where your income
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is lower. But see, your current tax
bracket is likely the lowest bracket you
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will ever be in because most people
agree that future taxes are going to be
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higher. Even the
general accountability office. The
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congressional budget office
has estimated for several years that tax
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rates will likely have to go from 33%
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combined between federal and state up to
50, 60, 70 percent
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if certain initiatives that seem to be
popular with about
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half of Americans. What kind of
initiatives? Medicare for all.
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That's not free. That's going to cost 90
trillion plus dollars. Or
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free college or forgiveness of student
loans.
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That's going to cost about 90 trillion.
Hello.
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The IRS only collects about 3.5, 4 trillion dollars a year in tax.
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And they want to give out 90 trillion of
benefits. Where are they going to get the
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money? See, the CBO,
congressional budget office says taxes
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are going to have to go up to
60 or 70 percent to be able to come up
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with even
close to the amount of money they're
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going to need to have those kind of
initiatives paid for.
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But even without those, the government
through this stimulus of giving these
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loans and giving people money,
it amounts to about twice as much
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as the IRS collects in taxes in an
entire year.
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So, what does that tell you? The only way
they're going to recoup
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that money is by stimulating the economy
and
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taxing people. So, let me give you a
simple example. Let's say at the peak of
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the market, this would be like february
of the year 2020,
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your account values were 900,000. And
many Americans
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I saw that dwindle down to 600,000 in 30
days mid-march of 2020.
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The S&P dropped 34%. Now, even though a
month after that, it came back up they
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still were down 20%. Would you rather pay
tax
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on 900,000 or pay tax on 600,000?
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In a 33% bracket tax on
900,000 is
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$300,000.
On 600,000 it's only
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200,000. Would you rather pay
200,000 in tax or
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300,000,
okay? But most people, they hunker down.
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They get paralyzed and they wait to get
back up to the 900,000.
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Well, there's really no difference if it
goes back up to 900,000
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and you pay tax of a third, a 300, you net 600.
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If you paid tax on 600,000... That's a third, that's
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200,000.
You only have a net of 400 (thousand). If
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the market rebounds now
back up, you'll have
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600,000. But if you
did it in a tax-free vehicle, not in your
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iris or 401Ks,
you would have a tax-free 600,000.
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What's the difference?
Well if taxes go up to 50%,
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which it looks like they will. Now, if you
left it in the ira 401K and didn't take
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the no-penalty withdrawal,
you would be back up to 900,000 in maybe
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a year,
maybe 4 years. Many times after
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2003, when the market dropped for 3
years, it took 4 years to come back
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to the breakeven point.
In 2008, when it dropped 40%, it
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took four years till 2012 to come back.
Let's say you got back up to 900,000
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sometime within 4 years. And now taxes are
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at 50%.
What's 50% of 900? 450,000.
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Your net is only 450. So, would you
rather
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have 450,000 net to buy gas and
groceries with in retirement or would
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you rather have 600,000
tax-free because you got taxes over and
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done with
during a no penalty era at
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200,000 and you were able to
ride the market back
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up again tax-free. And not only that when
the market
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dives again, which it always does, you're
protected from lost next go-around
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because it's in
indexing with an indexed universal life.
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If you don't understand the power behind
indexing,
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in a nutshell, it's where you are able to
participate in the upside of the market
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without the risk because your money's
not in the market.
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So, if the market crashes you don't lose.
On this YouTube channel,
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many subscribers, I get answers to
in-depth
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questions and the answers to those in
depth on how
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indexed universal life works and why
it's the superior vehicle in my opinion
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to an IRA or 401K. So, the bottom line,
oh, I would seize this opportunity
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to have the no penalty withdrawal. And to
be able to
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take advantage of it now and i'm going
to show you if you are intrigued with
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this, how you can get better educated by
getting a free copy
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of my most recent book. So, if this
intrigues you,
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and you would like to learn more, this is
my 11th book.
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It's called the Laser Fund. 2 books in
one. This is the left brain side, this is
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the right brain side. This has stories
and examples,
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62 of them actual client stories. This is
the left brain side all of the charts
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and graphs and explanations.
300 pages. Now, I will buy the book. Yeah,
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it's free
to you as a gift. You go to laserfund.com
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and pay $5.95 shipping and handling.
I'll fire out a copy of the book to you.
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You'll also have the option to get
the audio version, the digital version,
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video classes.
If you want to dive deep into
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where you can accumulate your money tax
free,
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and later access your money tax-free. And
why the Laser Fund
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knocks the socks off of a Roth with 4
additional benefits that Roths
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do not have.
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you
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