Child Asset Builder
What if you could use the magic of compound interest for decades (i.e., a child policy) yet never pay taxes above basis because you take distributions as a loan?
It is not deemed as income, is not subject to required minimum distributions, and will not affect taxation on social security if in a life insurance policy. Death benefits are tax-free as well.
As a parent or grandparent, you can leave a legacy using compound interest’s magic.
The Sad Truth
Over one-half of Americans could not come up with $400 in an emergency. That’s unnerving, to say the least. All of us love our children/grandchildren, but we might not be around to protect them through financial failures. What if part of your legacy was built around helping them get a head start on savings?
Financial Responsibility
One problem is that we’re not taught financial responsibility in kindergarten, grade school, high school, or even college. And many times, what we do learn about savings is simply not true. What if you could give your children a head start with the knowledge of how to manage money? What a legacy that would be.
Tax Implications
When discussing a checking, savings, or even a CD account, we already know that the gain, if any, is taxed at the end of the year. For traditional IRAs and 401k’s, 100% of that money is taxed at distribution.
There are only two methods that are never taxed: Roth IRAs or life insurance when distributed through properly designed loans.
An Example to Follow
I recently came across a 45-year-old man whose father taught him the value of savings. His dad told him to put 25% of every dollar into savings when he took his first parttime job in school. He never stopped setting aside this percentage, and his income has grown through the years. Today, at a relatively early age, he’s a multimillionaire. But, as you know, he’s an exception to the rule.
Compound Interest Magic
The Magic of Compound Interest Combined With Time. Add tax-free distributions with flexibility, and you have a child asset builder.
Remember, compound interest is the addition of interest to the principal sum of a deposit. In other words, interest on top of interest. As the years go by, this method of accruement can develop into a sizable amount of money. This is great, but the problem is that interest is always taxable when you take a distribution.
Child Asset Builder & Life Insurance
Every time I tell the Child Asset Builder story, I get more and more excited. The concept isn’t new, but it can be highly enhanced with today’s products. Today, our program can include life insurance with critical, chronic, and terminal illness coverage. The owner can even use the money as needed as the child matures.
But why would you purchase life insurance? The number one factor is future insurability. Once you’re approved, it’s locked in as long as your policy doesn’t lapse. Think about that for a second. Being able to purchase life insurance at a young age, when costs are low, makes perfect sense. No matter what happens in life, your child is insured.
