Van Mueller's Monthly Newsletter: December 2018

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 December 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.

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December, 2018 – 7 Ideas and Views Newsletter by Van Mueller

For me this is one of the most exciting and beneficial newsletters I have written in my 12 years of providing this information monthly. The next five years will be the most beneficial and most important in the careers of agents, advisors and financial professionals.

We must be prepared to offer exquisite advice to our prospects and client because the American people will not be able to depend on the promises made by government, Wall Street and the banks. For the first time ever, Americans will have a Yo-Yo financial and retirement future. Yes, that stands for You're on Your own!

It is vital that agents and advisors and financial professionals have a working knowledge of foundational tax laws so that they can clearly understand what is meant by tax exempt, tax deferred and tax free and how do they apply to and benefit our prospects and clients.

I would strongly recommend that you all go to www.irs.gov and go to the section entitled forms and publications and print the entire 1040 instruction manual and read it. I WOULD NOT DO IT UNTIL I TELL YOU TO IN THIS NEWSLETTER. The current instructions are for 2017 tax returns and will not be useful as the tax law was changed dramatically for 2018 and beyond. When the new instructions are available I will inform you in this newsletter. When they become available please go to www.irs.gov and click on forms and publications and print the entire instruction booklet. You will want to pay attention to the pages that describe the new standard deduction amounts for people under 65 and people over age 65. You will want to familiarize yourself with the form that determines whether your Social Security is taxable or not. Also, very important, will be the new tax tables. These tables and a complete understanding of their new implications will allow us to serve the American people in a way we have been unable to in a while. Because our country's tax laws are progressive, we have a marginal tax rate and an effective tax rate.

Marginal tax rate is the rate of tax you pay on your last dollar of taxable income. So, if you are in the 24 percent tax bracket, your marginal tax rate would be 24 percent.

Your effective tax rate is the average rate you pay on every dollar of taxable income. So, as an example, if you are in the early stages of the 24 percent marginal tax rate it is entirely possible depending on whether you are married or single, itemizing or using the standard deduction that your effective tax rate could be as low as 10 or 12 percent.

Here is where the opportunity lies. Ask prospects and clients if their effective tax rate on fully taxable money can be much, much lower than their marginal tax rate wouldn't it be smart to pay your taxes now while this opportunity is available and then put that money into strategies that never require income tax liability for the rest of your lifetime?

Ask prospects and clients if their effective tax rate on fully taxable money can be much, much lower than their marginal tax rate wouldn't it be smart to pay your taxes now while this opportunity is available and then put that money into strategies that never require income tax liability for the rest of your lifetime?

Wouldn't that help the American people find the money to pay for long term care and healthcare in the future? Wouldn't that allow Americans to take advantage of investment opportunities without having to lose large amounts of money first?

If our clients believe tax rates could be much higher in the future, shouldn't you pay your taxes now and build as big an amount of tax free money as possible?

Even if tax rates are not a lot higher in the future, won't tax free compounding help prospects and clients build larger accounts in the future? And won't access to that money be available without income tax liability in the future? Won't that create more flexibility for our prospects and clients in their retirement years?

Now, here is what I really want to talk about. In my opinion, my April 2018 was one of the most important newsletters I have ever written. Why? Because, I was attempting to show our industry how we could reposition enormous amounts of revenue by using the current favorable tax laws to pay taxes now on all currently taxable money and transfer as much tax free money to the future as possible and then use the leveraging of that money to provide additional benefits that the American people will need using the same dollars to provide coverage for a variety of challenges.

In my opinion, my April 2018 was one of the most important newsletters I have ever written.

Here's my surprise. Just in time to start 2019 with the very important information you will require to provide the exquisite advice I mentioned in the beginning.

Here is the update of the April 2018 newsletter using 2019's standard deductions and 2019 tax tables. I am using people over age 65 as the example because it provides the largest and best example using the tax laws. The standard deductions are slightly lower for people under 65, but the idea is useful at any age.

It is not a huge leap to believe taxes will be higher in the future. With 140 million Baby Boomers and Generation Xers turning 65 in the next 25 years will we need more revenue? Yes or No? Our debt will increase to between $25 and $40 trillion by 2028. If interest rates increase to 5 percent that will increase the interest on that debt to almost $2 trillion which is currently half of our national budget. These are just a few examples. Learn to ask people where will we get the money for these requirements? Will we get this money from the 90 percent of Americans who don't have any money or the 10 percent who do?

I cannot say this strong enough. This is the opportunity of a lifetime for us to serve our prospects and clients. We must be prepared. Here is the information for 2019.

We are starting with a married couple over age 65 using only the maximum standard deduction. In all the examples we will use the approximate average Social Security.

Here's the first example.

1.
Social Security: $30,000
Standard Deduction in 2019: $27,000
Total Income: $57,000

How Much is Taxable of the $57,600? $5,000

A married couple could withdraw $27,000 of fully taxable money in addition to their $30,000 of Social Security and only pay taxes on $5,000, which would be $500.

This couple could withdraw $57,000 of Social Security and fully taxable money every year for 20 years for a total of $1,140,000 and only pay $10,000 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.

You will use the above example most often. Many people may need to use some portion of the $27,000 2019 standard deduction. As an example, let's say they need $12,000 in addition to their Social Security to have enough income to have a good quality of life. That leaves $15,000 per year that can be repositioned in a cash value life insurance policy. The tax is $500. Ask prospects and clients if they could withdraw $27,000 of fully taxable money in addition to their Social Security and only pay $500 in income tax, shouldn't they take advantage of the opportunity?

Please think about this as well. The death benefit will also offset any income tax paid during our clients' lifetimes. Tell these prospects and clients how brilliant they are. Ask them this question. Do you realize you have figured out a way to remove all the taxes from fully taxable investments without paying one cent of tax out of your own pocket? Do you realize how amazing that is?

Now let's look at using the 10 percent bracket.

2.
Social Security: $30,000
Standard Deduction in 2019: $27,000
10 percent tax bracket: $19,400
Total Income: $76,400

How Much is Taxable of the $76,400? $67,190

A married couple could withdraw $46,400 of fully taxable money in addition to their $30,000 of Social Security and only pay taxes on $67,190, which would be $4,435.

This couple can withdraw $76,400 of Social Security and fully taxable money every year for 20 years for a total of $1,528,000 and only pay $88,700 ($4,435 x 20 years) in federal income taxes over 20 years. That is 5.8 percent effective tax rate.

If you add the $19,400 which constitutes all of the 10 percent bracket to the standard deduction of $27,000 you can now reallocate $34,400 which is the $15,000 from the first example plus the $19,400 from the 10 percent bracket. The effective tax rate is 5.8 percent. If you could pay your taxes now and only pay 5.8 percent tax on fully taxable money would you do it? Of course!

Remember to remind them how brilliant they are. The death benefit will easily offset any income tax liability they have paid during their lifetime. Ask them if it is not amazing not to pay one cent of income tax out of their own pocket on hundreds of thousands or even millions of dollars of fully taxable money. And now the repositioned tax-free money can provide a myriad of benefits. Why wouldn't someone take advantage of an opportunity like that?

The next tax bracket is the 12 percent tax bracket. Again, if you understand the difference between marginal tax rates and effective tax rates you can show prospects and clients how to reposition enormous amounts of money that can provide an enormous amount of tax free money that our clients can access at any time.

3.
Social Security: $30,000
Standard Deduction in 2019: $27,000
10 percent tax bracket: $19,400
12 percent tax bracket: $59,550
Total Income: $135,950

How Much is Taxable of the $135,950? $131,450

A married couple could withdraw $105,950 of fully taxable money in addition to their $30,000 of Social Security and only pay taxes on $131,450, which would be $14,696.

This couple could withdraw $135,950 of Social Security and fully taxable money every year for 20 years for a total of $2,719,000. They would only pay $293,920 ($14,696 x 20 years) in federal income taxes over 20 years. That is 10.81 effective tax rate.

An 11 percent tax rate to move an enormous amount of money.

The next tax bracket is the 22 percent tax bracket.

4.
Social Security: $30,000
Standard Deduction in 2019: $27,000
10 percent tax bracket: $19,400
12 percent tax bracket: $59,550
22 percent tax bracket: $89,450
Total Income: $225,400

How Much is Taxable of the $225,400? $220,900

A married couple could withdraw $195,400 of fully taxable money in addition to their $30,000 of Social Security and only pay taxes on $220,900, which would be $38,885.

This couple can withdraw $225,400 of Social Security and fully taxable money every year for 20 years for a total of $4,508,000. They would only pay $697,700 ($34,885 x 20 years) in federal income taxes over 20 years. That is 15.5 effective tax rate.

I hope you understand what the math is telling you. Please really study and practice understanding the information that I am sharing about how to use the tax code to benefit our prospects and clients. Really take a look at the amazing availability of money.

You can help a lot of people with a complete understanding of this opportunity.

Please take a look at the 24 percent bracket. If a really rich person can eliminate income tax liability for an effective tax rate of less than 20 percent, it creates the opportunity to begin an interesting conversation.

5.
Social Security: $30,000
Standard Deduction in 2019: $27,000
10 percent tax bracket: $19,400
12 percent tax bracket: $59,550
22 percent tax bracket: $89,450
24 percent tax bracket: $153,050
Total Income: $378,450

How Much is Taxable of the $378,450? $373,950

A married couple could withdraw $343,950 of fully taxable money in addition to their $30,000 of Social Security and only pay taxes on $373,950, which would be $73,378.

This couple can withdraw $373,950 of Social Security and fully taxable money every year for 20 years for a total of $7,479,000. They would only pay $1,467,560 ($73,378 x 20 years) in federal income taxes over 20 years. That is 19.6 effective tax rate.

Here are the many reasons prospects and clients should take advantage of this newly created opportunity to pay taxes now and reduce or eliminate income tax liability in the future.

6.

#1. Pay only $10,000 to eliminate taxes on $1,140,000 over 20 years. The effective tax rate is less than one percent.

#2. Pay only $88,700 to eliminate taxes on $1,528,000 over 20 years. The effective tax rate is 5.8 percent.

#3. Pay only $293,920 to eliminate taxes on $2,719,000 over 20 years. The effective tax rate is 10.83 percent.

#4. Pay only $697,700 to eliminate taxes on $4,508,000 over 20 years. The effective tax rate is 15.5 percent.

#5. Pay only $1,467,560 to eliminate taxes on $7,479,000 over 20 years. The effective tax rate is 19.6 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 106-12. If a married couple over age 65 make less than $106,000 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

Here is the math for single people over age 65. Remember to ask every grandma and grandpa about this opportunity.

1.
Social Security: $15,000
Standard Deduction in 2019: $13,850
Total Income: $28,850

How Much is Taxable of the $28,850? $0

A single person couple could withdraw $13,850 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 $28,850 of Social Security and fully taxable money every year for 20 years for a total of $577,000 and pay no federal tax: None!

Let’s say the client lives on $26,850 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 2019: $13,850
10 percent tax bracket: $9,700
Total Income: $38,550

How Much is Taxable of the $38,550? $26,575

A person could withdraw $23,125 of fully taxable money in addition to their $15,000 of Social Security and only pay taxes on $26,575, which would be $1,273.

This person could withdraw $38,850 of Social Security and fully taxable money every year for 20 years for a total of $777,000 and only pay $25,460 ($1,273 x 20 years) in federal income taxes over 20 years. That is 3.28 percent effective tax rate.

3.
Social Security: $15,000
Standard Deduction in 2019: $13,850
10 percent tax bracket: $9,700
12 percent tax bracket: $29,775
Total Income: $68,325

How much is Taxable of the $68,325? $66,075

This person could withdraw $53,325 of fully taxable money in addition to their $15,000 of Social Security and only pay taxes on $66,075, which would be $7,348.

This person could withdraw $68,325 of Social Security and fully taxable money every year for 20 years for a total of $1,366,500 and only pay $146,960 ($7,348 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 2019: $13,850
10 percent tax bracket: $9,700
12 percent tax bracket: $29,775
22 percent tax bracket: $44,725
Total Income: $113,050

How much is Taxable of the $113,050? $110,800

This person could withdraw $98,050 of fully taxable money in addition to their $15,000 of Social Security and only pay taxes on $110,800, which would be $17,443.

This person could withdraw $113,050 of Social Security and fully taxable money every year for 20 years for a total of $2,261,000. They would only pay $348,860 ($17,443 x 20 years) in federal income taxes over 20 years. That is a 15.4 effective tax rate.

5.
Social Security: $15,000
Standard Deduction in 2019: $13,850
10 percent tax bracket: $9,700
12 percent tax bracket: $29,775
22 percent tax bracket: $44,725
24 percent tax bracket: $76,525
Total Income: $189,575

How much is Taxable of the $189,575? $187,325

This person could withdraw $174,575 of fully taxable money in addition to their $15,000 of Social Security and only pay taxes on $187,325, which would be $36,138.

This person could withdraw $189,575 of Social Security and fully taxable money every year for 20 years for a total of $3,791,800. They would only pay $750,980 ($37,549 x 20 years) in federal income taxes over 20 years. That is a 19.8 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.

If you study and PRACTICE this information you will never run out of people to talk to. Everyone has an interest in this information.

There is one additional thing I would like to go over before we start with the sales ideas. Because of the information provided at the beginning of this newsletter many agents and advisors ask me if they should use this strategy to reallocate IRA and 401k money for people in their 30's, 40's and 50's. While there are a few examples where the math works, it would not be the best recommendation for most people.

Here is what I recommend most often. See if this makes sense to you. I ask, not tell, them if they think they should continue to build a really large amount of money that has never been taxed and can be accessed by the government and the Internal Revenue Service in the future? Or would it be better to stop contributing to and taking a small tax deduction on a small amount of money in their IRAs, 401ks, 403Bs and 457 plans. These are all tax deferred plans whose enticement is a tax deduction now when taxes are historically low and instead put your annual contribution for these tax deferred vehicles into programs that have no income tax liability in the future such as a Roth IRA or Roth 401k or of course, a CASH VALUE LIFE INSURANCE POLICY? Wouldn't that provide enormous flexibility in the future for all our prospects and clients. Please give this considerable thought.

I believe the above information will change your career dramatically. It will open doors you never thought existed. It will allow you to help prospects and clients in ways that couldn't be considered because money wasn't available and now this allows you to find money that can provide multiple benefits while reducing or eliminating income tax liability. What a concept!

Let's get started with this month's ideas.

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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.

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Idea #1: Taxes Will Be Higher in the Future

This is a very simple article from Market Watch, the newsletter arm of the Wall Street Journal. They clearly state that it would not be advisable to defer taxable income past the year 2020 because there is a real fear that if we end up with a Democratic Congress after the 2020 elections it is highly likely that taxes will be raised.

That brings to mind two important questions that I am sure you will want to ask

First, if taxes go up, does that destroy the idea we talked about at the beginning of the newsletter? Actually, no. Why? Because the tax code will highly likely remain a progressive tax code. That means there will be lower tax rates for Americans with the lower and middle incomes and higher tax rates for the higher income earners. The math will still work, even with changes.

Second, if we remain with a stalemate government such as we have now, very little will change. Therefore, the strategy will benefit the American people under either circumstance. We must begin to understand how to use the tax code to help or prospects and clients find the money they require to protect against all the challenges they will face. Understanding this information will be pivotal to the success of your career and your ability to provide wonderful advice to prospects and clients.

Title: Think twice about deferring taxable income past 2020 – here's why
www.marketwatch.com (Market Watch, November 10, 2018)
https://www.marketwatch.com/story/think-twice-about-deferring-taxable-income-past-2020-2018-11-09

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Idea #3: Inventor of 401k Now Questions It's Use

The father of the 401k, Ted Benna, who created a vehicle that now holds more than $5 trillion dollars of Americans‟ retirement money believes we should wipe away the whole thing. He believes in 401k's. He doesn't believe in the structure with is intended to create fees for companies who administer these plans. He also believes that Americans are not prepared to make investment decisions that are required in the use of 401k's. I completely agree! Americans desperately need our help. They are about to get clobbered again because they do not understand the ebb and flow of the markets. You cannot build a successful financial and retirement future if you lose and make it back and lose and make it back again. Ask prospects and clients if they would be interested in a better strategy of never losing and taking advantage when opportunities present themselves. I believe you will be surprised by their answers.

Title: The inventor of the 401(k) Thinks It Has Gone Awry
www.barrons.com (Barron's, November 16, 2018)
https://www.barrons.com/articles/the-inventor-of-the-401-k-thinks-it-has-gone-awry-1542413142

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Did any of these ideas resonate with you? Have you used any of them in talks with clients? Tell us in the comments!