An often overlooked benefit of The Infinite Banking Concept® is the tax efficiency created by becoming your own banker.

In this episode, we discuss three ways IBC can improve your tax situation:

1. Using IBC to create the funds with which to pay taxes
2. Creating the system to build business income which allows for more reduction of tax
3. Retirement strategies that create more tax-free income

Tune in and learn all about taxes with Infinite Banking!

As always - connect with us at www.thefifthedition.com

(upbeat music)

- Hello everyone, this is John Montoya.

- And this is John Perrings.

- We are Infinite Banking authorized practitioners,

and hosts of "The Fifth Edition."

- Welcome everyone.

This is episode 57, "Using IBC to be Tax Efficient."

And if we take a look at our wealth

over the length of our lifetime,

one of the biggest destroyers of wealth

is the lost opportunity costs over the course of our life

that taxes has on us, it's massive.

And so in this episode,

we're going to discuss a few dimensions

on how to be more efficient with your tax obligations

when you've implemented the Infinite Banking Concept.

And in that we're going to cover

how to pay taxes more efficiently,

how to reduce your taxes,

and how to get more to use,

and enjoy while you're still alive

because you've done those things.

- Awesome, well, this will be a good episode

because it's going to give you different ideas

on how you can better manage your money,

because at the end of the day,

we work hard to keep as much of our money as possible,

but we're lacking in ideas

on how we can keep most of what we earn.

It's not what you earn, it's what you keep.

And so the Infinite Banking strategy

really does add a whole nother dimension

that for the majority of Americans they're really lacking

because they follow the traditional,

or what I would say is the typical financial plan,

which is outsourcing our capital to other sources,

and not really following

what we were talking pre-show about,

the American spirit of paying

the least amount of taxes as possible.

Well, here we have a strategy, Infinite Banking,

that will allow you to do that

so you can keep more of what you take home.

So I'm excited to do this episode with you, John.

And let's get started.

- Yeah, likewise.

And so let's talk about the first one,

how to pay taxes more efficiently.

And so there are

ways you can use IBC as a place to store capital

where you can kind of create sort of a virtual escrow fund,

right?

And, of course, the insurance companies

aren't gonna do this for you.

This is all personally calculated stuff for your finances,

but you can kind of carve out some money

for things like property tax,

for things like income tax, right?

In episode 55,

we had an amazing episode with John's wife,

where this isn't really a tax necessarily,

but healthcare costs, right?

All things that

leverage the value of our whole life insurance policy

to minimize the lost opportunity cost on those expenses.

And so if you think about, like, paying your property tax,

or your income tax,

once you pay those it's gone forever, right?

Now you have to save that money again,

and pay that money all over again.

What if you only had to fund,

and save for those expenses one time,

and then you could just recycle the use of that money

over and over again to pay those things to Uncle Sam,

or your state or local tax

in the case of your property taxes?

What if you only had to do that one time,

and then you had that fund that you could reuse

over and over and over again?

- Yeah, you just made me think of how so many practitioners,

or anyone selling life insurance,

they have run on this idea of

how many cars can you finance in your lifetime?

And look at what you can do if you finance

your own cars through your policies.

And it just made me think,

well, that's certainly one aspect

where you could benefit from having an IBC policy

to finance cars,

but that's something where

it's not a given that you're going to finance all your cars

through IBC.

And for a lot of people,

an automobile may be a luxury item.

It's not a requirement by any means,

but here we have what we're talking specifically about

property taxes.

If you own your home, there's no way of getting around it.

You gotta pay that every single year.

Same with your income taxes.

You go labor for your money,

you're gonna have to pay Uncle Sam income taxes,

so there's no getting around it.

Well, what's the best way to make sure

that the money that you are earning gets additional value?

Well, in prior episodes, we've talked about what I call

the ninth wonder of the world,

uninterrupted compounding interest.

The problem with this idea

of uninterrupted compounding interest

is that where in the heck can you find a place

where you can capitalize,

and keep that money growing for the rest of your life?

Well, IBC is that financial unicorn.

We know that we have to pay our property taxes.

We know that we have to pay our income taxes.

Well, where's the best place to capitalize?

Well, we think it's a whole life policy

structured so that we can turbocharge that cash value,

and then use it for

opportunities like this where we know

we have a tax bill coming.

Well, we've capitalized,

we have the ability to borrow against it,

keep our money growing, compounding,

even though we've paid our taxes,

whether that's property taxes or income taxes,

but we're still getting the benefit

of the compounding effect on our money.

And let's not also forget, too, if you're a family person,

you're also getting the additional benefit

of the death benefit,

that extra protection for your family

that's just coming along for the ride.

And then you add in all the extra benefits

that you get with your policy,

the disability waiver premium,

maybe there's a chronic illness rider,

you're getting all this economic value

just because you're saving for your property taxes,

or your income taxes through your policy.

If you don't have an IBC policy,

none of this is even possible.

You're having to spend even more dollars

to get these additional economic benefits

by splitting up your dollars and having to save more.

This just automatically comes along for the ride.

So setting up an IBC policy so that you have,

you can use it as an escrow fund just makes your dollars,

the money that you earn go even further.

And that's what we're talking about here

in being more efficient with your tax dollars,

you're getting way more bang for your buck.

- Yeah, and you mentioned the uninterrupted compounding.

If you ran a future value calculator

on the uninterrupted compounding of the money

that you give up when you pay taxes,

it's insane how much money that would be.

And so what we want to look at

is how can we minimize those losses.

And if you haven't read "Becoming Your Own Banker"

you need to read that ASAP if this is of interest to you.

And in that book, he talks about flying an airplane,

and he talks about you're either flying into a headwind,

like flying from New York to San Francisco,

or you're flying with a tailwind

where you're flying from San Francisco to New York.

San Francisco to New York takes about an hour less time

because you have that tailwind behind you pushing you along.

And that's exactly what we're talking about

with all of these recurring expenses through our life.

By strategically capitalizing first,

and then using the strategies and the capabilities

that a whole life insurance provides you,

a whole life insurance policy provides you,

you can create that tailwind in your life.

And so if you haven't done it yet,

I actually model this out for you in a module

in our online course,

which you can get access to at thefifthedition.com,

and it's called Recurring Expense Funds.

And so I model out how this could work with cars or taxes,

and you can see for yourself

that if you isolate a single expense,

it creates a massive improvement,

and a significant tailwind in your financial life

if you know how to plan for these things correctly.

- Yeah, and I think you said a key word there, planning.

If you're doing IBC,

it affords you the ability to think in the future,

and present yourself with these opportunities

because you are planning.

It's when you don't plan where you get stuck,

and you don't have the additional benefits

that we're talking about you're basically

living for the most part

every six months to a year at a time.

And if you're doing that,

this should be a wake-up call

that you gotta get away from that.

IBC does allow you to better plan out

how you're going to utilize your capital,

and for tax expenses

for what you're talking about there, John,

with setting up a reoccurring expense fund.

Well, what other place are you gonna find

more bang for your buck than with an IBC policy?

I honestly can't think of one,

but let's go even further than that.

Let's talk about creating 1099s,

or other business income with an IBC policy.

- Yeah, so there's how can we create this tailwind

by being more efficient in how we pay taxes that we owe?

How can we actually reduce the amount of taxes that we owe,

right?

To John's point earlier

where there's plenty of legal precedent

that there's no obligation to pay more taxes than you owe.

And so how do we reduce those?

And if we believe in that and we have that spirit,

how is our financial life set up to accomplish that?

W-2 employees, like regular employees who get W-2 income,

they really have very few options

to reduce the amount of taxes that they pay.

The entities that do have a lot of options are businesses.

And so how can we start creating,

and how can we create business income for ourself

so that it gives our total income picture?

Once you create business income,

all of your income is now subject to the options

that you have because you created that business income

to reduce the amount of tax on your total income

by having some income come in that's business income,

and so this could be a business,

it could be rental real estate,

it could be lending out there

like different types of lending,

any of the income that comes in from that,

it opens up your accountant,

it gives them the option to start

actually reducing taxes on your behalf

rather than only getting

the standard deduction that you get,

or only being able to write off

the interest payments on your mortgage,

or having to get married.

Those are really the only options you have as a W-2 employee

until you start getting

some of that business income coming in.

- Yeah, the IRS tax code is basically

set up to benefit people

who are in that business owner quadrant.

If you read Robert Kiyosaki's "Rich Dad Poor Dad"

you come to learn that the people who are W-2

are gonna pay the most taxes.

There's just not a whole lot you can do there.

Well, with IBC,

because you're capitalizing in the best place possible,

we call it an opportunity fund.

And thinking about how I was able to go out on my own,

thinking about Kelly's interview in episode 55,

and what she mentioned about how she started her IBC policy

as an escrow fund.

Well, it later turned for her into an opportunity fund

where she had the capital to start her own business.

Exactly like what I was able to do

when I wanted to venture out on my own,

I had the capital to do it.

And not only did it free me from the W-2 world,

but it also allows me to have greater flexibility,

and just

how much I have to pay in taxes

simply because as a business owner,

there are so many more things that I can write off,

and having the flexibility,

because I have multiple IBC policies at this point,

I'm challenged to put it into words,

but until you capitalize,

and give yourself this opportunity to be your own boss,

you're really gonna be challenged to pay

what you feel is the proper amount in taxes.

I mean, you really have no say if you are W-2.

So having an IBC policy that whether you set it up initially

as an escrow account,

or later to be your opportunity fund,

it does allow you to essentially create a bridge

where you can create additional streams of income

that aren't gonna be taxed the same way as your W-2 wages.

And I think that's huge.

- Yeah, and so I'll just say what John just said, again,

but add a little more detail.

So what he's talking about is,

when you accumulate life insurance cash value,

so you've now strategically capitalized,

what are you gonna buy with that capital?

We talked about paying taxes with it.

What about buying other income generating assets?

So like, I think, John Montoya, his wife, Kelly, myself,

we all have stories about how we were able to use

life insurance cash value to go out on our own,

and start our own businesses.

For John and myself, it's in this business, right?

But it doesn't even have to be that extreme.

You could stay a W-2 employee,

like there are a lot of W-2 employees

who are making a lot of money out there.

They just, unfortunately,

don't have much they can do in the tax world.

What if you strategically capitalized

a whole life insurance policy,

and then you used that capital to go out,

and buy income generating assets

that starts generating 1099 or K-1 income.

Now all of a sudden your accountant

can start itemizing deductions

rather than just taking that standard deduction

that you only have access to when you're a W-2 employee.

By the way, as an aside,

what's one of the most common objections

to whole life insurance

is that it has a horrible rate of return.

It's a bad investment.

Meanwhile, what's the rate of return

on changing your entire economic future

by lowering the amount of taxes that you have,

or even being able to change careers?

Can you do a rate of return calculation on that?

And so I think this kind of vulgar idea

of only looking at the rate of return

of a life insurance policy

is really missing the forest for the trees.

- Yeah, absolutely.

And not only that, but it also brings back the point that,

if you're capitalizing money for a return on it,

meaning chasing rate of return,

you're missing the whole idea of a whole life policy

because it's not an investment.

We talk about this quite a bit.

It's a contract and it's a savings vehicle.

When utilized properly,

it gives you the ability to take advantage of opportunities

that you would otherwise miss out on.

So the idea of just simply setting up a whole life policy

as an investment, completely missing the bigger picture,

but to bring us back to what we're talking about,

and what I think is really critical,

we've talked about this before

is the business owner mindset.

- Yes.

- So if you are W-2'd, okay, great,

but at the same time,

you also still need to take responsibility for your money,

take responsibility for your capital.

And if you are basically,

the type of person who is a W-2 employee,

and all you're doing to, quote, unquote, save

is put money in your 401(k),

you do not have a business owner mindset,

you have an employee mindset, and you're gonna be.

- Hoping and praying.

- Quite literally chained to your job

for the rest of your life.

And you're gonna only have really one source of income

that you've created for yourself,

and it's gonna be 100% taxable with that traditional 401(k).

And you're gonna be riding the markets up and down

until you eventually retire.

And then even furthermore, once you do retire,

you're still riding that rollercoaster

for the rest of your life with no certainty, predictability,

any clarity on how much you're going to have,

and be able to live off once you do get to retirement.

And it all comes back to the fact

that you never developed a business owner mindset.

And so having an IBC policy,

and, hopefully, multiple policies,

you're gonna start to develop

this business owner mindset muscle in your head

because you're accumulating capital,

and you're, hopefully, gonna get to this point

where you're gonna say,

well, how can I be more efficient with this capital?

What can I take advantage of in my life where I can

get more bang for my buck with this capital,

or allow it to be put to use

so that we can create multiple streams of income,

like what you're talking about with real estate,

investing in other businesses.

The wealthy people in this world,

they don't have just one stream of income,

they have multiple streams of income.

Well, what allows you to do that?

It's first and foremost having access to capital,

and then from there multiplying your net worth

through multiple streams of income,

and owning and controlling multiple assets.

Well, that's what IBC is all about.

- So I thought for sure John Montoya was gonna say this,

but he didn't, so I'll say it.

You should always be in two businesses.

Whatever business you're in, doesn't matter if it's W-2,

whatever it is, be in that business, no problem,

but the other business you should be in

is the business of banking,

and that's what IBC is all about and allows you to do,

so I covered for you.

- I was saving that for you.

- Okay, well, so the final piece of our talk today,

we're gonna go into the retirement phase of our life,

and how what we're talking about

has an effect on that, right?

We've talked about retirement quite a bit,

but let's talk,

let's kinda run that through the tax filter a little.

And we have life insurance gives us a lot of options

during the retirement phase

that allow us to be tax efficient.

And at the very worst, if we can't be tax efficient,

and actually save money on taxes,

it allows us to replace the value of the taxes

that we paid for the next generation.

So let's just say that right off the top,

even if we can't do anything with taxes,

we can at least replace all the money that we paid in taxes,

and pass that along to the next generation

through the tax-free death benefit,

but let's talk a little bit about the cash value itself.

The cash value itself is a source of tax-free income.

So just at the very basic level,

we can get tax-free income

from a whole life insurance policy.

And the use and combination of that with other assets

allows us to get more use and enjoyment

out of those other assets while we're still alive.

And speaking of more use and enjoyment,

having the permanent death benefit

gives us the ability to use the permission slip concept.

And what that means is by having,

and I alluded to it a second ago,

by having the value of that permanent death benefit

be able to replace the value of other assets,

it allows us to use and enjoy more of those assets

while we're still alive.

So here's a couple ways we could do it.

One, we could actually offset taxes

through the use of charitable donations.

What if we had a property that we donated to a charity?

By doing so,

we would eliminate the capital gains tax on that property,

and we would also create a tax offset

that could offset taxes in some other asset,

like, for example, the 401(k)

that John was just talking about.

And by doing the donation,

we could actually create an income stream

by annuitizing the full value of that property

rather than only the post capital gains value,

we could annuitize that full value,

and create a guaranteed income for the rest of our life.

So we reduce the taxes, we created more guaranteed income,

and we offset taxes in another asset.

So that's just one idea that could be used

by just having the presence

of a permanent life insurance death benefit.

That's just one strategy that could be taken advantage of

to reduce taxes in retirement.

- Yeah, and the other one is really just being able to enjoy

what you've saved during your lifetime.

For so many people that we talk to,

and what we see is that

they've really set up their retirement

so that they're really

only having to live off one primary asset,

and typically that's their 401(k), or IRA,

and they go into retirement

having to live in what we call scarcity mode,

which, basically, if you can envision it,

imagine being stuck on a deserted island out in the Pacific,

and you've got this huge barrel of water,

and you can drink from it to sustain yourself,

but because you have no idea

how long you're gonna be stuck on that deserted island,

you have to take small sips.

Well, what is your 401(k), or IRA

gonna be in retirement if that's all you have?

Well, you're gonna have to take sips

from that 401(k), or IRA,

to make sure that you don't run outta money.

And so you're constantly gonna be living

in this scarcity mode throughout retirement.

You're not gonna be able to enjoy it.

And that's even if you've done really well for yourself,

and you've saved maybe, and I say the word save,

you've put the money in there,

and maybe it's grown to a couple million dollars,

three million, four million, even five million,

but what's happening?

You're worried about market corrections.

You're worried about taking out too much too soon,

and you're basically living in scarcity mode.

And when you include an IBC whole life policy

as a part of your plan,

now you have a permission slip

to spend down your other assets,

and you can actually enjoy your retirement

because you have a guaranteed contract,

an asset that is guaranteed by the insurance company

to perform every single year for the rest of your life.

You've got this one asset that allows you

to basically spend down all your 401(k),

spend down your IRA,

and you've gotta guarantee that not only do you have

an additional surplus fund,

but you also have the death benefit

to replace that 401(k), or IRA,

that maybe you also wanted to

potentially leave to your beneficiaries, to your kids maybe,

well, you just created the perfect permission slip

to actually enjoy your retirement

because you have an IBC whole life policy,

and hopefully multiple policies at that point.

- Yeah, and you could think of it this way.

If you own a farm,

and this gets into the idea of, like, estate taxes,

not all of us are going to be at that level

where we'll owe estate taxes,

but even if we don't owe estate taxes,

and we can replace the value of any kind of tax,

or lost asset that has to be paid,

if you're a farm owner do you wanna have to give up

all your cows to the IRS to pay the tax?

Or would you rather just give up a little bit of the milk,

right?

Or if you're more of bird type of person,

here's another analogy for you.

If you have a goose that lays golden eggs,

do you wanna give away that goose

that's laying those golden eggs,

or do you just wanna hand over a few eggs?

And so both of those analogies are

the milk or the eggs that's policy premiums.

You can either pay a little bit in premium

to cover the full amount,

or you just have to give up and pay that full amount, right?

And so that's what we're talking about

when it comes to this permission slip concept

where we're funding the replacement of assets

so that we don't have to forego the use of those

for future generations,

and for yourself while you're still alive.

- Awesome, well, I think that might do it.

Any other thoughts you might wanna share, John?

- No, I think that's it.

As we say at the end always,

head over to thefifthedition.com,

and you can get access to our online course

where we go through that recurring expense fund model.

And you can also book an appointment with us

right there on the website for 30 minutes, no cost to you,

and you can find out how this could apply

in your situation specifically.

- Awesome, well, John, thanks again,

and for everyone listening out there,

if you haven't already,

we definitely would appreciate you leaving us a review,

or giving us five stars

because that does help us to promote the show,

and get it out to a wider audience.

If you benefit from

listening to what we have to share about IBC,

make sure you pass it on, pay it forward.

All right everybody, thank you so much.

Take care.