From all the qualified retirement vehicles offered by the government, a Roth IRA is probably the most appealing for the financial planners since finally common sense is winning over traditional wisdom. The fact that is better to pay the tax on the seed than on the harvest is being accepted now especially with the trillions after trillions of new federal debt created recently.
People are now struggling with the thought that all that debt will have to be paid and the easiest and more convenient way the federal government has at its disposal is TAXES.
When you understand that you are going to be paying way more taxes later, then you do better paying taxes now, and that is how a Roth IRA works. You deposit money in a Roth IRA with after tax money, which means the money that you deposit there is not accepted in your income tax as a deduction, but the good part is, when you get to spend it, you will not have to pay tax on that money.
There are lots of more details to look into with a Roth IRA and they have to do with restrictions and regulations, plus the fact that it is qualified by the Federal government should hint something to you. Could it be that the Feds have some purpose or plan with those? Could it be that they intend to control those? I will let you ponder on that idea.
Putting aside the fact mentioned in the prior paragraph, a Roth IRA does not allow you to have access to your money unless you wait 5 years and reach 59 ½ years of age. There are also restrictions on how much can you contribute to your Roth IRA annually, plus your income will determine how much you can deposit on it too. You have to follow many rules also about how to take your money out, otherwise you might have to pay taxes on the profits you obtained in your IRA. An advantage a Roth IRA has over traditional IRA and 401K is that you do not have to take the Required Minimum Distribution (RMD) by the required beginning date (RBD).
Most people argue that all those restrictions, specially the locking of your money till you are 59 ½ is good because otherwise you being an irresponsible, undisciplined, weak character, sloppy, hooligan individual, would squander all your money and then the government will have to take care of you. The fact is without you having all those nice attributes, the government is doing everything it can to reduce all your auto determination by leaving you penniless with taxes, inflation, rules and enforcement so the government eventually will end up taking care of you and asking in return unconditional servitude.
We have reviewed some of the advantages and disadvantages of using qualified plans and we found that a Roth IRA is a better choice should you still decide to go along with government control, restrictions and regulations. What about if we review the characteristics of the Infinite Banking Concept as an alternative for you to build your financial future, to build your retirement nest.
First of all, the Infinite Banking Concept is based on a contract between two private parties, you, a private individual and the insurance company, a private entity.
Second, you are the sole owner of the contract; the company is obligated to perform as long as you comply with your part. There are no restrictions on when and how much of your money you want to take other than the fact that you have enough in there to take, so in this case it works as a regular bank account, the bank is not going to pay a check that you write for more money than you have in your account.
It is not a perfect world though; there is a restriction on how much money you can deposit in it that could trigger the collection of taxes by the IRS if you cross the MEC (Modified Endowment Contract) line, but there is an easy solution for that, you can start a new contract .
Third, you have control over this vehicle ; you can elect to leave the money alone, earning a reasonable interest plus a dividend. Using a mutual company will make you part owner of the company and the company will share with you the profits by way of dividends and for more than 100 years, the mutual companies offering these contracts have paid dividends.
If you elect to use your money (cash value) to finance your needs and pay yourself back what you were going to be paying the financial institutions, then you can harness and take advantage of the strategies banks use and grow your IBC stronger.
IRAs normally will develop profit by investing in markets so there will always be the element of risk that will ruin some of your sleep. IBC grows by guaranteed interest and dividends plus your election of whatever needs you want to finance and redirect the payments to you, also any investment you want to get involved with, it is up to you. Therefore with the Infinite Banking, the risk is not a part of it, it is an option.
Last but not least, there is always the protection offered by the insurance component that will provide peace of mind in case something unexpected happens to you and at the end of the line your loved ones will benefit from a larger sum that you built on a tax free basis.
This last benefit can be used for strategic management of money at retirement and estate tax planning.
Based on this elaboration a government qualified vehicle can not even come close to the Infinite Banking Concept.