Uncovering the IRA goldmine using tax reduction strategiesArticle added by Michael Reese on January 23, 2009
Michael Reese

Michael Reese

Traverse City , MI

Joined: August 21, 2010

Imagine the following scenario. You go to your doctor for your annual physical and you learn some bad news. You need open-heart surgery. After doing the research, you learn that you have 20 different surgeons to choose from in the area in which you live. All of them are good surgeons. All of them charge roughly the same amount. How do you choose which one you want to do open-heart surgery on you? The reality is that you will probably use whichever surgeon your doctor recommends.

But what if we changed the scenario just a bit? What if, in your area, there was one heart surgeon who was clearly better than all the others? What if this one heart surgeon has truly set himself apart from the others in some way? Who do you choose to perform your open-heart surgery now?

However, this one surgeon has a couple of disadvantages. First, he charges twice as much as everybody else. Does that matter? Second, he will only do your surgery on Tuesdays, between the hours of 10 a.m. to 3 p.m. Again, does it matter?

Bottom line here is that you don't care, right? Who cares if he costs more or if he's not flexible with his hours. You do what it takes to have this surgeon take care of you, don't you?

By the way, do you think this surgeon makes more money than all the others? Do you think he probably works fewer hours and has more control over his schedule?

Now, let's compare this scenario with you and your business. Are you one of the 20 surgeons? Or are you the one? Success in the financial industry, or any other industry, is all about becoming that one person who is clearly better than all the others.

So how do you become that one person in the financial industry? It's really nothing more than a simple three-step process:
    1. Identify your "perfect" client.
    2. Identify what they want.
    3. Figure out how you can offer them what they want in a unique and valuable way.
Easy, right? So, what's your "perfect" client look like? I'm guessing you probably want "someone with a lot of money that they probably don't need and who are willing to do pretty much whatever I tell them to," or some variation of that. Well, let's see if we can be a little more specific.

How old are most of your clients? Where is their money? IRAs, 401(k)s, non-qualified accounts? Are they taking income from their portfolios? How much? What drives them crazy? Market losses, taxes? What is their money for? Is it there to provide income in retirement? Is it to protect a spouse? Or is it really for the children or grandchildren?

Take your top 10 clients, the ones you would love to duplicate, and ask these questions. I'll bet you'll find that many of them would answer these questions the same way. You now have completed Step 1. You know what your perfect client is looking for and their characteristics.

For Step 2, you need to identify what they want. One of the things I suspect you will find true among all of your top clients is that they probably don't like taxes. And guess what? The more money someone has, the more they usually dislike taxes. Since one of your objectives is to gain higher net worth clients (at least I sure hope it is), focusing on what drives them crazy is a sure winner.

So if someone doesn't like taxes, what do you think they want? That's right, solutions to significantly reduce their taxation. And what is their highest taxed asset? You've got it -- their retirement plans. Now we're getting somewhere!

Finally, you need to figure out how you can offer them significant tax savings (what they want) in a unique and valuable way. Well, we just recognized that their highest taxed asset is their retirement plans. Why not start there? What if you could show your prospects how to significantly reduce the taxation on their retirement plans? Is this something they would find valuable? Is your competition doing that? Would this set you apart in a way that is valuable to the people you are trying to attract to your firm? This is a goldmine of opportunity!

This is exactly what I do in my practice, and I can promise you that I'm that one guy in my marketplace. And you can do the same thing I've done in your marketplace.

Everything about tax planning revolves around what I call the "Four Buckets" (I stole this concept from Robert Keebler, CPA). All liquid investments fall within one of four buckets from a tax perspective:
    1. The "taxable" bucket: If you get a 1099, whether or not you receive the earnings, then the investment falls in this bucket. Common types of investments in this bucket are CDs, bonds and mutual funds held in non-qualified accounts.

    2. The "tax-deferred" bucket: Money grows tax-deferred and is taxed at ordinary income rates upon distribution. This is where your non-qualified deferred annuities and qualified plans reside.

    3. The "income-tax-free" bucket: Money grows tax-free and is distributed tax-free. Only three investments are found here: muni-bonds, Roth IRAs and properly designed life insurance.

    4. The "income & estate tax-free" bucket: Here you have those special trusts that are designed to push assets out of the taxable estate. In this bucket, you'll find ILITs, CRTs and other related planning tools.
From a tax-planning perspective, it all revolves around moving money into a higher bucket. When planning to reduce taxation on retirement plans, we are specifically attempting to move money from Bucket #2 to Bucket #3 or #4.

We may choose to do this all at one time or over a period of years. In future articles, I'll be sharing with you many examples and techniques to move money into higher numbered buckets so that your client can enjoy significant tax savings, and so you can add substantial value to the people you talk to.
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