Top critical review
Self-Promotion book to sell you a LIRP
Reviewed in the United States on December 2, 2018
There’s no way the average consumer can understand a LIRP. They are way too complex and convoluted so you can’t determine the true costs. That’s why insurance salesmen have to SELL it to you. His taxable bucket strategy doesn’t even discuss the HUGE tax advantages of long term capital gains. Probably because it competes with his LIRP he wants to sell you. I’ll give you the choice of following this “expert” or Warren Buffet. Warren says put your money in a passive S&P 500 index ETF and don’t take it out until you need it decades later for retirement. Even though we do this in a taxable account all gains are deferred just like a traditional IRA, but ONLY the gains are taxable when you take it out. Remember that taxable accounts also have no contribution limits, no RMDs, no 59 1/2 penalty, you can harvest tax losses, you can sell via tax lots. Since this “expert” gets to cherrypick his tax situations I will do the same. Invest your money in a taxable S&P 500 index ETF like Vanguard VOO which has an expense ratio of .04% which is almost 38 times less than the “experts” 1.5% fee for his LIRP. Over decades and using compounding this alone will result in HUGE savings. Do NOT use a mutual fund because they distribute capital gains at the end of each year. Only use an ETF in your taxable account. Dividends from this ETF will be taxable each year, but they are only 1.85% and are qualified so they are taxed at 0% or 15% depending on your tax bracket. Here’s one example of how you avoid all the long term capital gains in this taxable account resulting in 0% tax rate. You retire at 62 and you don’t have any earnings. You defer taking Social Security until 70 resulting in maximum benefits. You live off your taxable account resulting in long term capital gains. You sell via tax lots so you can determine exactly the amount of your long term capital gains. If you file married filing jointly you can sell $101,200 worth of long term capital gains resulting in 0% tax rate! Notice I did not say you sell $101,200 worth of the ETF. You sell as much of the ETF via tax lot that results in$101,200 worth of long term capital gains. As an example $200,000 of the ETF may result in $101,200 of long term capital gains so in reality you will be selling $200,000 and not $101,200 of your ETF. This example assumes the only taxable income you have comes from this taxable account. At age 65 your standard deduction goes up by $1300 so if you both turn 65 you can do $103,800 of long term capital gains. Even if you exceed these amounts you will pay only 15% tax on the excess. Since Social Security convolutes your tax situation I highly recommend you do this before taking it.
If your ETF is worth $1,000,000 and it consists of $500,000 of long term capital gains you could do this for 5 years all at 0% tax rate! Should you sell $200,00 of your ETF even if you don’t need that much income for the year? YES! By doing so you will never pay taxes on those long term capital gains. Let’s say you don’t need any income for the year. You still sell $200,000 of the ETF so you can get 0% tax rate on $101,200 of long term capital gains and you immediately go out and buy $200,000 of the same ETF to continue deferring. This effectively raises your cost basis on this $200,000. Some will say what about the wash sale rule? That ONLY applies to losses not gains. If you doubt what I am saying then enter this tax information that I have presented into a 2018 tax software program and let it tell you the answer. I am sure you will trust it more than me.