Infinite Banking
vs.
Roth IRA
When the Roth IRA came out in the 90’s, we where told by the financial planning world that every one should have one. It got really popular because people started to realize the value of getting a bigger pile of money out on the back end tax free.
Under current tax law, Roth IRA’s are taxed similarly to the policies used for the Infinite Banking Concept: The money that goes into the plan is taxed in the year in which it’s contributed, and can then be accessed – along with the growth – without taxes due on it.
That’s pretty much where the similarities end. Let’s look at how a Roth IRA differs from Infinite Banking Concept:
1. Do you control your money in the plan?
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.
Roth IRA
Borrowing from your Roth IRA, or even using those funds as collateral for a loan, is considered a prohibited transaction, and you’ll owe taxes and penalties.
Although you can withdraw the money you put in at any time without having to pay taxes, you will no longer be earning any interest or investment income on that money.
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.
Roth IRA
Although you can withdraw the money you put in without having to pay any taxes or penalties, with a few exceptions there are penalties for withdrawing your earnings before you reach age 59½.
3. Is your growth predictable and guaranteed?
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.
Roth IRA
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.