Since the launch of the401(k) in the early 80’s,  it has become the most common place that the American public invests for retirement.  Traditional thinking say’s, everyone should max it out and take advantage of the free match.  Let’s talk about the other side of it.

1. Do you have any control over the money in the account?

Infinite Banking

You have full control of the equity in your policy.  If at any point in time you want to access the equity, you can with no questions asked except…how do you want us to send you the money?

If you use the right policy, you can access your money and have never even touched the equity.  The Insurance Company gives you the money in the form of a policy loan, in the meanwhile your equity still grows.

A very unique feature of this kind of policy is that when you borrow your equity, it will continue growing as though you never touched a dime of it.  The equity stays in your policy and continues to receive its guaranteed return and any dividend you would have normally received.

You can also determine your pay back schedule.  You can decide how much, how fast and at what interest rate to pay it back.

401(k) or Qualified Plan

If you need access to your money in a 401(k), you can usually borrow up to 50% of the value.  You would have to sell your shares, so your money is no longer working for you.

You’re on the hook to pay it back over 5 years at a specified interest rate.  If you don’t get it paid back after the time period then you would have to claim it as an early withdrawal and pay tax plus a 10% penalty.  If you quit and can’t pay it back within 30-60 days and are under 59 ½ yrs. old, you will have a tax consequence and a 10% eraly withdrawal penalty.

One study calculated that a 35-year-old with a $20,000 plan balance who takes out two loans in fifteen years ends up with about $38,000 less at age 65 than someone who never borrows, even if the loans are repaid without penalty (”Tempted to Borrow from a 401(k) Account” – New York Times July 5, 2008)

2. Can you take income from the plan when and how you want?

Infinite Banking 

You can pull an income from a banking policy any time you want.  There are no penalties for  early withdrawal.  There are no tax consequences if you pull it out correctly. 

401(k) or Qualified Plan

The 401k withdrawal rules are very restrictive: You can’t take it out before 59 ½ and they make you take out a minimum amount after 70 ½ .

3. Is your growth predictable?

Infinite Banking

The growth in a banking policy has a guarantee component.  It will always grow at the gaurantee and possibly a dividend on top of that.  The dividends are not guaranteed but the top companies for banking have always paid a dividend for 100 years plus.  Our clients love the fact that no matter what happens with other investments they are involved in, they have a guaranteed nest-egg at the end of the day.

401(k) or Qualified Plan

If your money is invested in the market, you can lose all of it at any point in time.  There are no guarantees in the principle or growth.

4. Are there tax consequences?

Infinite Banking

It’s possible to take retirement income without taxes due, under current tax laws. This is accomplished through a combination of dividend withdrawals and loans against your cash value, and making sure the policy does not terminate.

401(k) Withdrawal Rules

Withdrawals from traditional 401(k)’s and qualified plans (other than Roth-type plans) are taxable. If tax rates increase in the future, you could end up paying higher taxes on a bigger pile of money.  Ask yourself…Do you think taxes are going to go up or down over the next 20 years?