The hardest-hitting type of income is "earned income
." The rate due to payroll taxes begins at 15.3 percent when you add the employer and employee contribution to the income. Next, you may pay state income tax and federal income tax. It is better to have capital gain income. This income is generally taxed at 20 percent. Even better is to "inherit" or have income from a "gift." This is generally taxed at 0 percent until $10,650,000.
Assuming you do not have a benefactor, can you create a situation that eliminates the payroll tax, state income tax and federal income tax? The answer is yes, with a qualified plan. The payroll tax of 15.3 percent is permanently eliminated — gone forever! You may also permanently eliminate the state income tax, but it may require you to move to a non-tax state such as Nevada or Florida.
Qualified plans have a history of being tax-favored. You may have annuities as the sole investment vehicle, or you can have a combination of annuities and life insurance
, provided the insurance contribution is "incidental" to the plan. Annuities and whole life will work well in a pension. Mutual funds will work well in a 401(k) profit-sharing plan. These days, you can deduct contributions to both plans. We all know taxes are going up, but maybe not for the clients who plan.
There is a great need for retirement planning and not much of a supply. The rules are complex, but not impossible. A producer should be working with a good TPA to approach the market.
Using life insurance in qualified plans
Opportunities to sell annuities to qualified plans: The QLACS are coming
3 reasons to consider indexed annuities as an alternative in qualified plans