All Forum Posts by: Matt Ruttenberg

 Hey @Sean Winchell,

Understanding the loan provisions is pretty important when starting these.  Ideally, having a net 0% loan or wash loan is best.  But it looks like that's not on the table for you, unfortunately.

With that, obviously your still in a net +% on that transaction without any underwriting.  However, it definitely minimizing the attractiveness of using your own money to invest... totally get it.

What I would probably do is look at it as a cheaper "private money" solution for shorter term funding. Similar to private or hard money with BRRRR, and pay it off relatively quickly (12-18 months) with a longer term 30 year loan option just like if it were private or hard money.

Having a net -% loan on your policy will definitely hurt it in the long term.  You probably don't want that loan sitting on the policy too long.

(It could be a good idea to do an analysis on the policy with projected loan amounts (any payoffs) to see how the policy reacts in the long term.  It's called an in-force illustration with the carrier.) 

Does that all make sense?

@David M.

It really does matter on the agent how they were trained. But everything has a net benefit, just need to see it it makes sense for you.

If you want to run any numbers, just let me know. Sometimes just seeing how it works helps to understand it.

IBC doesnt tell the full story in my opinion.  The Power of Zero by David McKnight, although he pushes it a little far and thinks everyone should get one, is where the main benefit falls.  Lending against is just one part of the overall strategy.  Leverage is the main story here...

@Josh St Laurent

I have to agree with @Thomas Rutkowski on this subject.

I understand you’re looking at it from an outside perspective and have done some comprehensive research. However, you can’t compare these with a traditional investment vehicle, like index funds.

They are 2 complete different asset classes and should be used for two completely different reasons, in conjunction with each other.

Personally, I don’t like using the coined phrase IBC. It makes it sounds like a bogus sales pitch. And it kind of is. I think it cheapens the entire concept.

However, one main point of these is using IRS section 7702 (tax code referencing the tax deferral within the policy) to manage taxes in the long term.

This is the same tax code whether you call it IBC, Executive Bonus Plan, or Split Dollar Arrangement (like with Jim Harbaugh at U of Michigan just used) or even Deferred Compensation. It’s all the same tax code and all the same design.

The point of the design is that it uses as little death benefit as possible to keep costs as low as possible. The death benefit is an ancillary benefit.

And the loan rates SHOULD be a net 0%. Anything above that is poorly designed. With this design, commissions are 1/3 of what they would be if it wasn’t optimally designed. That’s how you weed out the bad agents/advisors. This is far less of an income than an advisor charging 1% AUM on that kind of money.

For high income entrepreneurs, they could comparably use a Cash Balance Plan and use high contribution rates as well. However, the actuary and administrative costs are included in those which cost 4-5k annually, and is invested at a very conservative rate as well.

If you’ve studied the long term RMDs on a fully funded Cash Balance Plan, it’s super high. I’ve seen individuals with $400,000 in just RMDs annually because of the amount of pre-tax money in their portfolio.

Yes, it’s not as “lean” as an index fund in a brokerage account, but it should complement to all of that to help manage taxes. Not to mention the tax-free death benefit and other protections it allows.

In business, there’s always a net cost, the question is how much are you in the black, or in the red.

These are legitimate strategies. No, I don’t think everyone should use them, but should never be thrown away unless truly understanding them.

There are too many people “villainizing” the entire lot in this industry when there are legitimate advisors who use it properly.

@Tim Flickinger

Yes, this is a specialty of mine for both RE

Investors and high income businesses owners.

Very important on how your policy is structured. Feel free to reach out.

@Michael Moreno

I agree with Chris. Paying off your mortgage is not wise. You referenced “financial freedom”, which tends to be Dave Ramsey lingo.

Paying off your mortgage ASAP won’t make you money, it just saves you the mortgage interest is all.

Think bigger than that, put your money to work for you and buy income producing assets or invest in other ways that earns more than what you’re paying for on your mortgage.

 You can absolutely take loans against them.  However I would reach out to the carrier to see how they could affect the policy since we don't know the specifics of your policy.  My guess is it's not an completely optimized policy for this strategy, but it might be ok.

Feel free to reach out with any questions at all regarding how all this works.

 I own an agency and can help.  Licensed in 20+ states.  I have some tools and info I can send.

Feel free to reach out and I can run quotes. I own an agency for the Financial Independent and REI community. I can explain, and help you decide on both types. If you NEED life insurance, term is the best option most likely.

Here are a few term quotes to reference, but need more health information to get an accurate quote.  Feel free to reach out.

From a retirement plan perspective, you're right.  You need either W-2, K-1 (partnership), or 1099 to contribute to a qualified account.  You could attempt to switch your passive income to active, but then you lose write off's, and that's a different decision altogether.

I'm a 401k administrator, and when we have clients with passive income (who are often RE investors), we need to go with a non-qualifed option instead of a qualified option (401k, profit sharing, etc.).  

You can use a life insurance platform (LIRP) to house the assets, which "mimics a Roth IRA". However, it needs to be designed very specifically to not endorse the death benefit, but more of the cash value growth. There are a few carriers that offer that design ability... most don't do it well.

Feel free to reach out and I can explain more in detail, but there is alot of information in the above link.