We look forward to the Van Mueller newsletter every month. It's chock-full of sound bites, sales tips, and eye-opening statistics. Here are our favorite parts of the April 2018 edition. We're sharing the full introduction, and 2 of the 7 monthly sales ideas. If you like what you read, we encourage you to click here and become a subscriber.
Reprinted with the author's permission.
April, 2018 – 7 Ideas and Views Newsletter by Van Mueller
I want to thank you for your amazing feedback about the last two newsletters. You helped me to understand that I had not done a good enough job clarifying how to use the information I was providing.
The information is so vitally important to our success as agents and financial professionals and even more important to our prospects and clients that I’m going to provide more detail and better explanations about the idea than I did in the last two newsletters.
With everything that is happening to the economy, our entitlements and our new tax laws, especially, this idea must be clearly understood by all of us and easily shared with our prospects and clients. They must take advantage of this spectacular opportunity while they still can. Let’s get started.
The new tax law ELIMINATES the personal exemption, which would have been $4,100 per person this year, for everyone. People over and under age 65 lose this exemption.
Families with children that are dependent and under age 17 will now receive a $2,000 per child exemption up to seven children. As with all tax laws there are exclusions and exemptions to the rules which must be determined before taking the benefit.
Now, let’s start with the important change: The Standard Deduction. I did not provide any information for people under age 65 in the February or March newsletter. That was my mistake. I created confusion as it related to the over age 65 use of the standard deduction and I prevented a realization of how the standard deduction and new tax rates could be beneficial for people under age 65 for financial, income tax and retirement planning.
We will attempt to provide a few more details on how to use that information. Please note, you must understand that the examples given in the February, March and now this month’s newsletter, are based on what I believe would offer all of you with the most opportunities to provide prospects and clients with questions that would inspire action. It is important that these examples are not a “catch all” and you must study and practice so you can apply this information in unlimited ways, not just the examples given here.
It is important that these examples are not a “catch all” and you must study and practice so you can apply this information in unlimited ways, not just the examples given here.
Let’s begin by talking about prospects and clients under age 65. Then we will review the over age 65 information I provided in the last two newsletters.
The standard deduction for a single person under age 65 is now $12,000. A married couple filing jointly now receives a $24,000 standard deduction. That means the first $24,000 of taxable income is not taxable because the standard deduction offsets that amount of taxable income.
For married couples the next $19,050 is taxed at 10 percent. So, if a married couple had $43,050 of taxable income their effective tax rate would be 4.4 percent. That is $1,905 divided by the $43,050 of total income.
Continuing, the next $58,350 of taxable income is now taxed at 12 percent which is $7,002. Last year the rate would have been 15 percent. So, if a married couple has taxable income of $101,400 their effective tax rate under the new law is 8.8 percent. That is $8,907 divided by $101,400.
Let’s stop here before we move on to the 22 and 24 percent tax rate. Many of you ask if clients should start moving money from 401Ks and IRAs before retirement. Many ask me what should be explained about making contributions to 401Ka, IRAs, 403Bs and 457 plans while you are working.
Here are a few examples for you to consider. Let’s say you have a couple with a $70,000 per year taxable income. You could advise them to withdraw $30,000 from their taxable accounts every year. They would remain in the 12 percent tax bracket with an 8.8 percent effective income tax rate. Ask them this question: Would you like to pay a guaranteed effective tax rate on that money of 8.8 percent now or do you want you or your family to pay a much higher rate on that money later when you retire or die?
You then simply reposition the money every year into vehicles that have lower or no future income tax liability depending on health and the client’s inclination.
When they ask if they should contribute to anything but a life insurance cash value policy, a Roth IRA or a Roth 401K, ask them if it is better to get an effective tax deduction of 8.8 percent or less or would it be smarter to pay the taxes now and never pay the income taxes ever again on that money? When they reason it out for themselves, the answer comes easily. That is why it is so important to have a foundational understanding of income taxes. The benefits become even more impressive in the new 22 and 24 percent income tax brackets.
When they ask if they should contribute to anything but a life insurance cash value policy, a Roth IRA or a Roth 401K, ask them if it is better to get an effective tax deduction of 8.8 percent or less or would it be smarter to pay the taxes now and never pay the income taxes ever again on that money?
The next $87,600 for a married couple is taxed at 22 percent, which is $19,272. So, if a married couple has a taxable income of $189,000 their effective tax rate is 14.9 percent. That is $28,179 divided by $189,000.
The next $150,000 of taxable income for a married couple is taxed at 24 percent, which is $36,000. So, if a married couple has a taxable income of $339,000 their effective tax rate is 18.9 percent. That is $64,179 divided by $339,000.
The questions remain the same for high income earners. Do you think taxes will be higher or lower in the future? Do you believe they could be way higher? Do you want to pay them? If you could pay only 18.9 percent guaranteed effective tax rate now and permanently eliminate the income tax liability on that money forever, would you? Again, they will usually reason it out for themselves.
Instead of contributing and getting a tax deduction now when taxes are historically low, wouldn’t it be smarter to pay the taxes now and turn forever taxed money into never taxed money?
Don’t you see what an amazing opportunity this is to help the American people?
For single taxpayers under ager 65 the effective tax rates remain the same on approximately half the income. Our clients are NOT AWARE what a spectacular opportunity this is unless you ask them.
Now, let’s return to last month’s over age 65 married couples and singles. I will add some explanation for each step.
Married Couple Over Age 65
(Assumes $30,000 of Annual Social Security:
This is Slightly Higher Than The Average Social Security)
1.
Social Security: $30,000
Standard Deduction in 2018: $26,600
Total Income: $56,600
How Much is Taxable of the $56,600? $4,800
This happens because $4,800 of this couples’ $30,000 of Social Security becomes taxable. That $4,800 is taxes at 10 percent. So, even if you cause some of the Social Security to become taxable, this is still a dramatically worthwhile endeavor for our prospects and clients.
A married couple could withdraw $26,600 of fully taxable money in addition to their $30,000 of Social Security and only pay taxes on $4,800, which would be $480.
$26,000 = $0
This is the taxable Social Security $4,800 = $480
Total = $480
This couple could withdraw $56,600 of Social Security and fully taxable money every year for 20 years for a total of $1,132,000 and only pay $9,600 in federal income taxes over 20 years. That is less than 1 percent tax.
ASK THEM IF THEY SHOULD DO THIS!
20 years is the average life expectancy for couples over age 65.
Let me give you a smaller example of how to use the benefits of this information to provide tax relief for our prospects and clients.
Let’s say that this retired couple needs $50,000 per year of income to live. I am using that number because Social Security says 73 percent of Americans live on $50,000 per year or less. Let’s also assume our client has $200,000 in an IRA or 401K and that they have two children. With it becoming highly more probable that the government will eliminate the “stretch provisions” in the years ahead on these accounts, the children would have to add this additional income on top of their current earned incomes. This means that money could be taxed at a higher rate between 20 and 40 percent.
Using the above information this couple that lives on $50,000 per year could withdraw an additional $6,600 per year under current tax law and only cause $4,800 of their Social Security to be taxable and at 10 percent that would be $480 per year. Over 20 years they could withdraw $132,000 of fully taxable money and only pay $9,600 in income taxes. That would be around 7.25 percent of guaranteed income tax liability versus 20 to 40 percent future income tax liability when the children inherit the money.
2.
Social Security: $30,000
Standard Deduction in 2018: $26,600
10 percent tax bracket: $19,050
Total Income: $75,650
How Much is Taxable of the $75,650? $65,803
A married couple could withdraw $46,650 of fully taxable money in addition to their $30,000 of Social Security and only pay taxes on $65,803, which would be $4,323.
$26,000 = $0
$19,050 = $1,905
$20,150 = $2,418
Total = $4,323
This couple can withdraw $75,650 of Social Security and fully taxable money every year for 20 years for a total of $1,513,000 and only pay $86,460 ($4,323 x 20 years) in federal income taxes over 20 years. That is 5.7 percent effective tax rate.
This withdrawal has caused $16,753 of the $30,000 Social Security to become taxable. Taxed at 12 percent, that is $2,010. What I am working hard to show you is that even causing our clients to have their Social Security become taxable IS NOT a deterrent to employing this strategy, compared to waiting and paying much higher taxes in the future.
Again, you are providing the opportunity to reallocate money at historically low-income tax rates and providing benefits for themselves and their families that they probably could not have afford otherwise. Ask prospects and clients as often as possible if there is someone at the Internal Revenue Service that they are so madly in love with that they want to leave them a large amount of money. Ask them if they really are okay with the Internal Revenue Service inheriting more money from you that than any of your children. Then ask if they would like to change that outcome.
By withdrawing this additional money from their IRA or 401K you now have around $25,000 that can be reallocated every year to the benefit of your prospect or client. $25,000 per year for 20 years is $500,000 of fully taxable money. If you could eliminate taxes on $500,000 over 20 years by paying $84,460 over 20 years or 17.3 percent per year, would they do it? Of course they would.
Can you even imagine all the spectacular benefits you could provide by repositioning $25,000 per year from forever taxed money to never taxed money?
3.
Social Security: $30,000
Standard Deduction in 2018: $26,600
10 percent tax bracket: $19,050
12 percent tax bracket: $58,350
Total Income: $134,000
How Much is Taxable of the $134,000? $129,500
A married couple could withdraw $104,000 of fully taxable money in addition to their $30,000 of Social Security and only pay taxes on $129,500, which would be $14,517.
This withdrawal will cause $25,000 of the $30,000 Social Security to be income taxable. That is 85 percent of the Social Security benefit. That is the maximum amount of Social Security that can be taxed. 85 percent. For examples 4 and 5 $25,500 of the Social Security will be taxable as well because only 85 percent of Social Security is the maximum percentage that can be taxed.
$26,000 = $0
$19,050 = $1,905
$58,350 = $7,002
$25,500 = $5,610
Total = $14,517
This couple could withdraw $134,000 of Social Security and fully taxable money every year for 20 years for a total of $2,680,000. They would only pay $290,340 ($14,517 x 20 years) in federal income taxes over 20 years. That is 10.83 effective tax rate.
Please think of this in several ways. If this retired couple making $50,000 per year wants to, they can reposition $84,000 per year or $1,680,000 over 20 years at a cost of $14, 517 per year in taxes which over 20 years would be $290,340 or 17.28 percent. Again, ask your prospects and clients if they should pay their taxes now when they are historically low at 17.28 percent or wait until the future when they or their children could pay much higher income tax rates.
A couple with any income less than $134,000 could use any part of this income to be reallocated to different never taxable investments. There is enormous flexibility and enormous opportunity.
Please use the same questions from the previous examples.
4.
Social Security: $30,000
Standard Deduction in 2018: $26,600
10 percent tax bracket: $19,050
12 percent tax bracket: $58,350
22 percent tax bracket: $87,000
Total Income: $221,000
How Much is Taxable of the $221,000? $216,500
Remember, only $25,50 of the $30,000 Social Security is Taxable.
A married couple could withdraw $191,000 of fully taxable money in addition to their $30,000 of Social Security and only pay taxes on $216,500, which would be $34,167.
$26,000 = $0
$19,050 = $1,905
$58,350 = $7,002
$87,000 = $19,140
$25,500 = $6.120
Total = $34,167
This couple can withdraw $221,000 of Social Security and fully taxable money every year for 20 years for a total of $4,420,000. They would only pay $683,340 ($34,167 x 20 years) in federal income taxes over 20 years. That is 15.5 effective tax rate.
In this example they are using all of the money so the effective tax rate is lower. If they keep some of the money to live on, the effective tax rate on the remainder of the money being reallocated goes up a little. Why? Because you are using the whole amount. That information actually applies to all the income tax levels.
Here’s an example: In number 4, if you withdraw $221,000 annually which includes $30,000 of Social Security, your effective tax rate on the whole amount is 15.5 percent. That rate is given in the examples. Let’s say they live on $121,000 and only invest $100,000 or reallocate that amount. If you divide $11,789, which is the tax you would pay if you only took out the $121,000 the effective tax rate is 9.74 percent. To withdraw that additional income only increases the percentage by a small amount.
If people believe tax rates will be higher in the future, EVERYONE should be doing this.
5.
Social Security: $30,000
Standard Deduction in 2018: $26,600
10 percent tax bracket: $19,050
12 percent tax bracket: $58,350
22 percent tax bracket: $87,000
24 percent tax bracket: $150,000
Total Income: $371,000
How Much is Taxable of the $371,000? $366,500
A married couple could withdraw $341,000 of fully taxable money in addition to their $30,000 of Social Security and only pay taxes on $366,500, which would be $72,207.
$26,000 = $0
$19,050 = $1,905
$58,350 = $7,002
$87,000 = $19,140
$150,000 = $36,000
$25,500 = $6.120
Total = $72,207
This couple can withdraw $371,000 of Social Security and fully taxable money every year for 20 years for a total of $7,420,000. They would only pay $1,444,140 ($72,207 x 20 years) in federal income taxes over 20 years. That is 19.5 effective tax rate.
One final thing about the standard deduction. For couples under age 65 the standard deduction is $24,000. Married couples over age 65 get an additional $1,300 for the husband and $1,300 for the wife bringing the total standard deduction for a couple over age 65 to $26,600.
A single person under age 65 receives a $12,000 standard deduction. A person over age 65 filing as a single person gets and additional $1,600 standard deduction bringing their total to $13,600.
Knowing this information will open an enormous number of cases for you. Learn and practice this information. It will literally change your career once you understand its impact.
Here’s a review of 6, 7, 8, 9 and 10
6.
#1 Pay only $9,600 to eliminate taxes on $1,132,000 over 20 years. The effective tax rate is less than one percent.
#2. Pay only $86,460 to eliminate taxes on $1,513,000 over 20 years. The effective tax rate is 5.7 percent.
#3. Pay only $290,340 to eliminate taxes on $2,680,000 over 20 years. The effective tax rate is 10.83 percent.
#4. Pay only $683,340 to eliminate taxes on $4,420,000 over 20 years. The effective tax rate is 15.5 percent.
#5. Pay only $1,444,140 to eliminate taxes on $7,420,000 over 20 years. The effective tax rate is 19.5 percent.
7. The magic of the progressive tax law is that the client can control their income tax liability during a period of historically low tax rates. If they wait until they die the tax liability could easily increase to 30 or 40 or even 50 percent because it is now controlled by the Internal Revenue Service.
8. At each of the above income levels you can reallocate “forever taxed” money into “never taxed” products like annual premium life insurance, modified endowment contracts (MECs) or preferentially taxed products like annuities if the prospects or clients are uninsurable. You can reallocate the money after it has been withdrawn and the taxes have been paid on the withdrawals.
9. This strategy is used to reduce or eliminate taxes on IRA and 401k withdrawals. This can also be used to eliminate deferred gains on existing annuities. It can be used to eliminate capital gains taxes for people in the 0%, 10% and 12% tax brackets. Remember The Rule of 104-12. If a married couple over age 65 make less than $104,000 they are in the 12 percent ordinary income tax bracket.
That puts them in the 0% capital gains tax bracket. This is a great opportunity to access capital gains in stocks, bonds, mutual funds and real estate.
10. Life Insurance and Annuities Also Feature These Benefits:
- No Probate (With named beneficiaries)
- Incontestable and Private
- Control from the grave
- Creditor and predator protection
- Medicaid versatility
For Singles over age 65, the percentages are approximately the same. The amounts are reduced by approximately half. This means you can even do reallocation up to $186,000 with reduced effective tax rates for their prospects and clients.
I am including the Single Over Age 65 numbers again.
Single Over Age 65
(Assumes $15,000 of Annual Social Security:
This is the Average Social Security paid)
1.
Social Security: $15,000
Standard Deduction in 2018: $13,600
Total Income: $28,600
How Much is Taxable of the $28,600? $0
A single person couple could withdraw $13,600 of fully taxable money in addition to their $15,000 of Social Security and only pay no taxes. None of this person’s Social Security would be taxable in this example.
This person could withdraw $28,600 of Social Security and fully taxable money every year for 20 years for a total of $572,000 and pay no federal tax: None!
Let’s say the client lives on $26,600 per year. You could show them that they could withdraw another $2,000 per year of fully taxable money and pay no income tax. What could you do with that additional $2,000 per year? Of course, a cash value life insurance program.
2.
Social Security: $15,000
Standard Deduction in 2018: $13,600
10 percent tax bracket: $9,525
Total Income: $38,125
How Much is Taxable of the $38,125? $25,938
A person could withdraw $23,125 of fully taxable money in addition to their $15,000 of Social Security and only pay taxes on $25,938, which would be $1,291.
$13,600 = $ 0
$9,050 = $953
$2,813 = $338
Total = $1,291
This person could withdraw $38,125 of Social Security and fully taxable money every year for 20 years for a total of $762,500 and only pay $25,820 ($1,291 x 20 years) in federal income taxes over 20 years. That is 3.38 percent effective tax rate.
3.
Social Security: $15,000
Standard Deduction in 2018: $13,600
10 percent tax bracket: $9,525
12 percent tax bracket: $29,175
Total Income: $67,300
How much is Taxable of the $67,290? $65,040
In examples 3,4 and 5, 85 percent, or $12,750 of the Social Security is taxable.
This person could withdraw $52,290 of fully taxable money in addition to their $15,000 of Social Security and only pay taxes on $65,040, which would be $7,257.
$23,600 = $ 0
$9,525 = $953
$29,175 = $3,501
$12,740 = $2,803
Total = $7,257
This person could withdraw $67,300 of Social Security and fully taxable money every year for 20 years for a total of $1,346,000 and only pay $145,140 ($7,257 x 20 years) in federal income taxes over 20 years. That is a 10.8 percent effective tax rate.
4.
Social Security: $15,000
Standard Deduction in 2018: $13,600
10 percent tax bracket: $9,525
12 percent tax bracket: $29,175
22 percent tax bracket: $43,800
Total Income: $111,000
How much is Taxable of the $111,000? $108,850
This person could withdraw $96,000 of fully taxable money in addition to their $15,000 of Social Security and only pay taxes on $108,850, which would be $17,150.
$13,600 = $ 0
$9,525 = $953
$29,175 = $3,501
$43,800 = $9,636
$12,750 = $3,060
Total = $17,150
This person could withdraw $111,000 of Social Security and fully taxable money every year for 20 years for a total of $2,220,000. They would only pay $343,000 ($17,150 x 20 years) in federal income taxes over 20 years. That is a 15.5 effective tax rate.
5.
Social Security: $15,000
Standard Deduction in 2018: $13,600
10 percent tax bracket: $9,525
12 percent tax bracket: $29,175
22 percent tax bracket: $43,800
24 percent tax bracket: $75,000
Total Income: $186,000
How much is Taxable of the $186,000? $183,750
This person could withdraw $171,000 of fully taxable money in addition to their $15,000 of Social Security and only pay taxes on $183,750, which would be $36,138.
$13,600 = $ 0
$9,525 = $953
$29,175 = $3,501
$43,800 = $9,636
$75,000 = $18,000
$12,650 = $4,048
Total = $36,138
This person could withdraw $186,000 of Social Security and fully taxable money every year for 20 years for a total of $3,720,000. They would only pay $722,760 ($36,138 x 20 years) in federal income taxes over 20 years. That is a 19.4 effective tax rate.
Ask all of these people, “If you could eliminate taxes on huge amounts of money for tax rates of 20 percent or less, WOULD YOU? Do you want to be in control of the taxes you pay or do you want to leave the control to the Internal Revenue Service and the government?” Americans need to understand this is available to them.
Please, I implore you. Take the time to learn this information. GOOGLE, 2018 income tax rates and learn and practice the information they provide. Then use that information to apply the ideas in this newsletter.
A number of things will happen. You will get more appointments because you will be asking the right questions. You will become more confident because you will get more appointments. YOU WILL NOT SELL EVERYONE. However, you will peak the interest of everyone you talk to and that will make you more interesting and more confident. Becoming successful is a momentum thing. Ask as many people as you can about this information. Go back to existing customers. Return to people you presented to but haven’t sold yet. Share it as “new” information. Ask neighbors, relatives, people you do business with, literally everyone. It will not be long until you see the improvement that will inspire the success you desire.
We're passing on two of the newsletter's monthly sales ideas - every issue of the newsletter contains 7 ideas, plus one idea for the Canadian market. Subscribe to get them all.
Idea #1: Even Warren Buffet Is Warning Us
Please get this article and share it with anyone who believes the market will still go up a lot.
Warren Buffet has informed holders of Berkshire Hathaway to be prepared to lose at least half your money. This really should be a time for safety.
Ask your prospects and clients if they would be more angry at themselves and you if you missed a 10 percent move up in the market or would they be more upset at themselves and you if they lost 30 or 50 or even 70 percent AGAIN!! Don’t forget again. Their answers will tell you what to do.
Title: Buffet to Berkshire Shareholder: Be Prepared to Lose Half Your Money
www.yahoo.com (Yahoo Finance, March 18, 2018)
https://finance.yahoo.com/news/buffett-berkshire-shareholders-prepared-lose-133100821.html
Idea #6: A Fragile Financial Future for Retirees
Mainstream USA Today is now making sure that future retirees understand the serious challenges they will face to have a successful retirement.
Here is a list:
- Diminishing Reliable Income Sources
- Dramatically Increasing Healthcare Costs
- Reduction in Income When One Spouse Dies
- Very Little Room to Cut Back Expenses
- The 4 Percent Rule Isn’t Sound Any Longer
- Unpopular Remedies
Articles like this help to clarify with prospects and clients the challenges they will face to have a successful retirement. Practice discussing these issues with prospects and clients.
Title: Financial fragility likely for future retirees
www.usatoday.com (USA Today, March 27, 2018; section B, page 8)
https://www.usatoday.com/story/money/personalfinance/columnist/2018/03/22/financial-fragility-could-threaten-more-retirees-coming-years/421241002/
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