Have you ever heard of a LIRP? We’ve asked new clients this question for the past year, and not a single person knew about this spectacular product.
LIRP stands for Life Insurance Retirement Plan. It’s life insurance for use while you’re living.
That’s right. A LIRP is life insurance you can use while you’re alive. People tend to look at us strangely because they always thought life insurance was for their heirs when they die.
What are the benefits of a LIRP? To name a few:
- Tax-free income
- Long-term care protection without annual premiums
- Death benefit protection
Why haven’t I heard of this before?
Everybody’s favorite organization, the IRS, has a very large set of tax codes. You may be familiar with a 401(k) or even a 403(b). These are sections of the Internal Revenue Code that outline American tax laws.
Well, section 7702 of the Internal Revenue Code talks about life insurance. Stated simply, it says that life insurance can build cash, and you can take it out tax-free. All you have to do is avoid closing the policy.
What does “not closing the policy” mean?
Basically, you have to keep the policy until you die. In other words, you have to have a death benefit, the main point of traditional life insurance.
The LIRP was introduced in 1995, and many of the traditional constituents (brokers, financial advisors, etc.) don’t offer it because it doesn’t fit their model of charging annual management fees. Also, it’s a lot of work to set up and review every year, not an easy-money life insurance plan for the broker.
So, it’s a bit more involved that one-and-done form-filling, but once your LIRP is set up properly with experts like the Secure Retirement Strategies team, you get all the benefits we listed above.
How do we know Washington won’t take this away?
We might not exactly be able to trust Congress. But 2/3 of Congress members have one of the two types of a LIRP.
In other words, they are personally disincentivized from doing anything about it.
But why wouldn’t I just go for a Roth?
If you move money from IRAs or 401(k)s into a LIRP, you have the exact same tax structure as a Roth conversion. But with a LIRP, you get more.
You get a life insurance policy that’s collection-proof. You have full access to the cash tax-free. And that includes your estate.
In Pennsylvania, if you leave money to your kids, the state charges you 4.5%. With a Roth IRA, your kids are going to have to pay that 4.5%. But with a LIRP, that fee does not apply.
There’s always a death benefit in a life insurance policy, and that benefit is always larger than a corresponding Roth. Meaning, this is ensured to be a financially-viable strategy.
How a LIRP makes money
The money invested in a LIRP doesn’t just sit there or gain interest at a rate that’s below inflation. Instead, indexing is used to grow the account’s cash value.
Indexing tracks the S&P 500 over a year. You get 100% of the market gain, up to a limit of 13%. If the market goes down or stays flat, you don’t lose anything.
If you look back over time, Over the past 65 years, the S&P 500 has averaged 7.3% annual growth. This LIRP strategy has averaged 7.44%.
This is the best of all worlds in investing: all the market gain with none of the downside.
To find out if setting up a LIRP is the right choice to secure your financial future, call Secure Retirement Strategies at 610-983-8531.