The secret to keeping your retirement plan dollars away from the IRS

Any number of qualified plans can shelter income. But there are also ways to protect that income when it’s time to withdraw it.

For most Americans, retirement planning revolves around qualified plans (for example, IRA, 401(k), profit-sharing plan and the like). It’s a fact:  Mention retirement to any group — no matter how young or old — and the knee jerk reaction is almost always the same: Stuff as much as you can into your qualified retirement plans.  Actually good advice.


Well, the money going into the plan is immediately 100 percent tax deductible and your earnings are tax-deferred until you take the money out. Good! Very good!

But wait! What happens when you take the money out? Not so good. IRS tax monster number one shows up:  You are hit with taxable income (plus a 10 percent penalty if you are less than age 591/2).

But wait! What happens when you go to heaven? If your estate is large enough to be subject to the federal estate tax (currently, in excess of $5.45 million if you are single or $10.90 million if married), you must deal with IRS tax monster number two: estate taxes. Sorry, but your heirs will be robbed by a double tax of both income and estate. The combined tax is about 64 percent Sad, your heirs only get 36 percent.

Think about it.  A million dollars in your qualified plan(s) is demolished down to $360,000. Bad. Real bad. Stop reading for a moment.  Apply this sad tax tragedy your own plan(s) numbers. Then read on.

What about your home state?

Again, you may be double-taxed.

Almost all of the states have an income tax, and as of today, 20 states have an estate tax. This area is in a constant state of flux. When you want to know the estate tax damage for your state, go to Google... type in “Estate tax [then] your state.”

You can get nailed for state estate tax on much smaller estates (than for federal estate tax) and most states have a top tax rate of 16 percent. Dangerous. Get professional help.

Note:  This article in essence, is a repeat of an earlier article, which got the most reader response — phone calls, faxes and emails — than any other article in the 40 years of this column's history.

Options to consider

What’s better? A Roth IRA! Sorry, you can’t deduct your contributions to a Roth. But what happens when you take those Roth dollars out? A drum roll, please. Tax-free! Yes, every penny comes out free — no income tax. Great!

Any problems with a Roth? Unfortunately, yes. There are two significant restrictions: 1) if your income exceeds about $125,000 and you are single, you cannot make any contribution to a Roth; if married the prohibition number is about $190,000 of income. 2) The maximum annual contribution is $5,500, plus an additional $1,000, if you are age 50 or older.

Is there something better than a Roth IRA?  Yes.  And the strategy has been doing its magic for about 60 years. It’s called a “Private Retirement Plan” (PRP).
Tax-wise, a PRP is exactly like a Roth: No deduction when funds go into the PRP, no tax when the funds — contributions, plus tax-free earnings — come out. What makes a PRP superior to a Roth or any other plan? 1) no restrictions based on your income and 2) no limit on the amount of your annual contribution.
Truly, a PRP is the best tax-advantaged retirement plan I have ever seen. 

A PRP is simply a special kind of high cash-surrender value life insurance policy.  We have been using PRPs to fund for retirement for clients, their children and even grandchildren (usually fund for college education) since the early 50s. Each PRP (whether for a 1-year old or a 65-year old) must be individually designed.

So if you are a reader of this column and would like to see real-life numbers of how a PRP works for you (or other family members), fax (to 847-674-5299) or email ( your name and birthday (same for your spouse and other family members) along with all phone numbers (business/home/cell) where you can be reached.

Write “PRP” at the top of the page. You’ll be glad you did.

Now, let’s switch gears to help those readers who answer the question that follows “Yes”.

Are you one of the many readers who has accumulated large amounts (say $250,000 or more) in your IRAs, 401(k)s or other plans? As explained above, you may have a huge double tax problem and can lose up to 64 percent of your hard-earned plan wealth to the IRS — and probably more to your home state.

Are you forever stuck in this horrible double tax trap? No. There are a number of easy-to-do plan rescue strategies to get you out of the trap. Each strategy must be individually designed. One of the strategies, called a “Retirement Plan Rescue” (RPR) turns the double-tax problem into a tax-free victory. The last one we did turned $560,000 in a 401(k) plan into $2,720,000 (tax-free). Want to learn now to escape your qualified plan tax trap? Fax me (Irv) at 847-674-5299 or email me ( the information requested above (birthdays and phone numbers), plus the amount in each of all your qualified plans. Write “RPR” at the top of the page.   

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