case design - 401k reroute

The client is 41 years old and looking for a way to get his family's retirement plan on track. They have a house with a fair market value of $500,000 and a current mortgage balance of $200,000. The current mortgage is a 30 year amortized loan with a payment of $1,200. The husband and wife each have IRA's with a combined balance of $53,300 that have experienced recent losses due to the market. They are concerned about leaving these investments in such a volatile market and would like more safety and security.

The client also has a current 401(k) balance of $63,000 and is contributing 10% of their salary. A credit card balance of $9,500 is carried and they are making payments of $250 per month. For this case we proposed a plan that is utilizing equity in the house along with repositioning qualified funds into a tax favored IUL. A home equity line of credit was used to separate $100,000 of their home equity. Although this increases their current mortgage payments, we were able to offset the increase by redirecting current cash flows and contributions. They are only matched on 5% of their 401(k) contributions, but are contributing the 10%. To allow them to continue to take advantage of the company match of 5% - the non matched contributions were redirected. With them being currently employed by the company they are not able to access the 401(k) balance.

To get rid of their non tax deductible, non preferred debt, the credit card balance was paid off with the current contributions redirected into the plan.

Their current term policy of $250,000 was replaced because we were able to provide substantially more death benefit with this new plan.

The client was fearful about their current IRA's in the market that have declined in value. To provide guarantees the IRA balance was rolled out over a five year deposit period. The new increased mortgage deduction from the HELOC helped to offset the taxes and penalties of the strategic roll-out.

We were able to show the client how they can have a positive cash flow and generate tax free income. The client felt relieved that they had a structured plan that can supplement their 401(k) and provide such favorable tax advantages. He is the breadwinner of the house and now his wife is secure in knowing that she will be taken care of if something happens. At age 65 this plan is able to generate a tax free income stream of $69,280 that will last into perpetuity.

Please call me anytime at (512) 494-0300 as I am always available to assist you in implementing strategies that will save you thousands of dollars in taxes over your lifetime and will provide a "perpetual" income stream.

-J. Michael Nash-
Financial Strategist