A LIRP is a very important investment product used in financial planning for many different goals. A LIRP can be used for many things including:
- A retirement plan.
- Retirement income for employees.
- Not paying higher income taxes in the future.
- Estate tax issues when you die
- Pay off any debts owed.
- Be your own bank and make better purchasing decisions.
- Provide access to funds designated for retirement purposes.
- Have multiple investment uses for your money invested.
- Pay for college without being prohibited from receiving financial aid.
- Long term care needs.
- A tax-free retirement income source.
If you’re like most people saving for their future, you probably have most of your money invested in the taxable and tax deferred areas. However, higher taxes can deplete all of this money you accumulate with investing. Because our national debt is increasing, the federal government spending is out of control, only the interest on our debt is being paid, and many baby boomers are exiting the workforce, our tax rates will increase dramatically. David Walker, the former federal comptroller general, said that taxes would have to double immediately in order to sustain the amount of debt we have. http://www.cnn.com/2009/POLITICS/04/15/walker.tax.debt/
If you believe as we do, that income tax rates will be higher in the future, then you want most of your assets in the tax-free investment area. If you look for financial instruments that are good for being tax-free, you’ll find the LIRP as a good option. Many people today are seeking tax-free accumulation and distribution tools like the LIRP to avoid the effect of rising taxes.
What is a LIRP?
A LIRP is a money accumulation and distribution product with many of the same tax-free features as the ROTH IRA but without many of the restrictions. When designed properly, a LIRP has many good features including:
No Income Limitations: The IRS imposes income limitations on who can put money into a ROTH IRA, but the LIRP has no such income limitation.
No Contribution Limits: Those fortunate enough to be able to put money into a ROTH IRA can put a total of $6,000 into one in 2019. If you are age 50 or above, you can put $7,000 into your ROTH IRA. With the LIRP, you can put $2,000 a year into it or $200,000 a year. The only real limitations are what your cash flow allows.
No 1099’s: A way to confirm you’ve got money sitting in the taxable bucket is from the 1099 you receive each year to report and pay tax on the growth of that investment. With the LIRP, your money grows tax-free and you don’t get any 1099’s each year.
Multiple growth possibilities: There are three ways to grow your money in a LIRP. You can choose a fixed interest option which has historically paid anywhere from 3% to 5% annually. Second, you could rely on the performance of the stock market by investments in mutual funds. Third, growth could be based an external index, like the S&P 500 Index, with a floor of zero. This means if the index has positive performance, you gain some of that performance, but if the index is down, you just have 0% growth that year. Historical returns with this strategy have averaged between 7% to 9% which provides a safe way to accumulate tax-free dollars for retirement.
Tax-Free Retirement Income: Withdrawals of your basis in a LIRP or loans against the accumulated value in a LIRP is always tax-free according to the current law.
Long Term Care Coverage: You have access to account values in the LIRP to help with the costs of long term care.
No legislative risk: With history as an example, if the government makes changes to the LIRP, existing LIRP owners would be grandfathered and continue to enjoy benefits of the LIRP prior to any future changes.
What does LIRP mean?
LIRP stands for Life Insurance Retirement Plan. If it is properly designed, it is a “Maximum Premium, Minimum Face, Maximum Accumulation” (MPMFMA) Cash Value Life Insurance Policy.
A MPMFMA Cash Value Life Insurance Policy is one with a policy in compliance with existing tax laws. This allows you to put in the maximum amount of premium into the policy to purchase the absolute minimum amount of life insurance face value or death benefit, which then allows you to benefit from maximum accumulation of the cash value in that policy. Designed this way, a MPMFMA Cash Value Life Insurance Policy allows you to enjoy all of the above features and uses of the LIRP at a cost that is very consistent with other places you currently have your money stored. The expenses in the LIRP can cost as little as 1% of the annual account balance over the life of the program. This is less than the average annual expenses in the typical 401k per USA Today. http://usatoday30.usatoday.com/money/perfi/retirement/2009-08-24-401k-retirement-savings-fees_N.htm
The LIRP is very useful for different financial planning goals. Even though we have not listed all the possible uses and features of the LIRP, a lot has been mentioned to give you a good understanding of the LIRP. If you’re looking for a great ROTH IRA, but without the limitations it has, you should consider the LIRP.
Now that we have explained what LIRP is and some of the uses for it there should be little reason not to have one since it can help you enjoy a totally income tax-free retirement!