Updated April, 2020
One common question we get is…
“Can I roll over funds from my 401(k)/IRA/403(b)/TSA into a Bank On Yourself policy – and what are the tax consequences?”
Moving money from a conventional tax-deferred retirement account into a Bank On Yourself policy is a common method people use to fund a policy. It’s not technically a “rollover,” since you can only do that from one 401(k) or IRA to another. Here’s how it works…
There’s no getting around paying income taxes on money you withdraw from a tax-deferred plan like a 401(k), IRA, 403(b) or TSA. But there are ways to potentially reduce your lifetime tax bite, as well as avoid paying the 10% early withdrawal penalty. The specifics of how this is done depend on whether or not you’ve turned age 59-1/2 yet.
If you’re 59-1/2 or older…
Once you’re 59-1/2 or older, you can simply withdraw funds from your tax-deferred plan, pay ordinary income taxes on the amount you withdrew, and use the money to fund your Bank On Yourself policy.
TAX TIP: If you believe tax rates are likely to go up over the long term (and how could they not go up), paying taxes on your retirement savings now makes a lot of sense. The money you take from a Bank On Yourself policy can be accessed with no taxes due, under current tax law.
TAX SAVINGS BONUS: Moving money from a government-controlled retirement plan into a Bank On Yourself policy can also reduce the taxes you may owe on your Social Security benefits.
Many people are surprised to discover that it’s possible that up to 85% of your Social Security benefits might be taxed. After all, you paid into the system for a long time – shouldn’t every penny of what you receive from it belong to you?
We think it should, which is another reason the Bank On Yourself method makes so much sense! The income you take from a Bank On Yourself policy does NOT get counted in the IRS calculations used to determine how much of your Social Security benefit is going to get taxed.
If you haven’t turned 59-1/2 yet…
As you’re probably aware, taking distributions from a tax-deferred government-controlled plan before you’re age 59-1/2 requires you to pay income taxes PLUS a 10% penalty, in most cases.
As mentioned above, you can’t get around paying income taxes on withdrawals; however, if tax rates are going up long term, you’ll come out ahead paying the taxes now and moving your money into a Bank On Yourself policy. You can access both your principal and growth in a Bank On Yourself plan with no taxes due, under current tax law.
How to avoid owing the 10% early withdrawal penalty…
You can avoid paying the 10% early withdrawal penalty by taking advantage of Internal Revenue Code 72(t). That’s shorthand for a provision in the tax code that allows you to take early distributions from your retirement plan or IRA and avoid the 10% penalty.
You can avoid that penalty as long as the distributions are made as part of a “series of substantially equal periodic payments” (or SOSEPP for short).
Once you start taking these distributions, you have to keep it going for the longer of five years or until you reach age 59-1/2.
There are three different methods you may use to determine what your withdrawals would be. Rather than spell that out here, here’s a link to FAQ’s regarding the 72(t) on the IRS’ website.
Moving money from a retirement plan is only one of the 8 common ways to free up money to fund a Bank On Yourself plan
These range from restructuring debt, to reducing funding of your traditional retirement account, converting existing life insurance policies, and tapping your savings.
Moving some of your “safe” money into the Bank On Yourself wealth-building strategy can result in your dollars working much harder for you, without losing sleep. The return is many times greater than you can get in a CD, money market or savings account – but without the risk of stocks, real estate or other volatile investments.
The Bank On Yourself Professionals are masters at helping people restructure their finances to free up more seed money to fund a plan (or to start additional plans) that can help you reach your goals and dreams in the shortest time possible – without taking any unnecessary risk.
Click here to learn more about common ways to fund a Bank On Yourself plan.
How to add the Bank On Yourself method to your financial plan today
To find out how you could enjoy guarantees and financial peace of mind by adding the Bank On Yourself method to your financial plan, request your free, no-obligation Analysis right here:
Mrs.Yellen. I’m very interested in opening up a BOY policy,but there are some things I still do not understand, in terms of retirement income,such as: when I get ready to retire,will I draw from this policy in the form of an annuity, or will I continue to haved to take out policy loans ,one after the other to live on until I die?Also if these life insurance policies do not have to rely on the performance of the stock market or bond market, what then are these policies invested in, that allow dividends,and interest to be paid to the policy holders??if you would please provide me with more information about this I would then be more confident in making a decision in regards to opening up a BOY policy.
There are numerous ways you can take income from the policy in retirement—you can take it as an annuity, or take withdrawals until you reach your cash basis, then switch to policy loans (this method allows you tax-free access to your money).
And you don’t have to decide how to take it until you hit that point, with the advice of a Bank On Yourself Authorized Advisor.
This article explains how life insurance companies invest their money to avoid the risk of volatile investments, and also addresses other safety concerns you may have.
To find out what your guaranteed numbers and results could be if you added Bank On Yourself to your financial plan, request your FREE Analysis here today.
Ms.Yellen, thank you for answering the questions I had concerns about.I now have a much better understanding about how these policies work.Thanks again!
Hi Ms. Yellen,
I currently have a whole life policy that costs me a lot of money due to several health conditions. However, even with these health conditions, I’d be perfectly confident in banking on myself. However, I worry that this plan will not work for me due to the high cost of the premiums. You mentioned above that health conditions might not be a problem. I don’t understand how I can get around high premiums. Please advise.
Thank you!
Michelle
Hi Michelle,
Neither age and/or poor health are necessarily obstacles. What matters is only that you CONTROL the policy and the equity in the policy, NOT that you are the insured.
You could have anyone that you have an “insurable interest” in be the insured. Typically this could be a member of your immediate family, such as your spouse, a parent, a child or a grandchild, or a business partner.
This is also something many older folks like to do for their children and/or grandchildren to help them build financial security, fund college educations, buy a house, etc.
People of all ages can – and do – use this proven wealth-building method. And there are special Bank On Yourself programs available for folks who are age 60 and up.
To learn more about those programs, check out the two videos and transcript at:
http://www.bankonYourself.com/bank-on-yourself-for-seniors
If you are interested in this strategy and would like to find out if you qualify for it and how you could benefit from it, given your unique goals, circumstances and dreams, why not take advantage of a no-obligation Bank On Yourself Analysis that will help you get those answers? You can request it online by going to:
http://www.bankonYourself.com/analysis-request-form
Thanks again for your interest – I hope this helps!
Hello I want to take my 401k I’m 67 years how much tax I need to pay
I’m sorry, but we aren’t experts in all of the many technical ins and outs of 401(k) plans.
Our specialty is helping people avoid all the rules and restrictions placed on you when you lock up your savings in government-sponsored retirement plans like 401(k)s and IRAs, while helping you grow your nest-egg safely and predictably every year – even when the market is crashing.
Learn more by downloading our free Report here.
You may also be interested in this article.
If I am disabled now and I am 59 1/2 can I pull out my money from my 401k
Plan.with out paying penalties.
Once you turn 59 1/2, you can withdraw from your 401(k) without owing penalties. You will owe the taxes you deferred all those years, of course.
We get emails everyday from people who realize (too late) that once they put money in their 401(K), they have essentially put it in prison. They are confused and frustrated by the many restrictions and strings attached to a 401(k) or IRA. Once your money is in one of those plans you don’t control it- the government does. And you need to beg permission to use your own money.
If you’re ready to discover a proven alternative that gives you control over your money, and numerous other benefits, learn more by downloading our free Report here.
Ms Yellen,
You mentioned a study from Boston College but failed to mention that it addressed the benefit of 401(K) plans for low income workers. The whole life insurance policies you recommend are not designed for the low income worker market. Whole life policies are an excellent choice for higher income workers with positive cash flow both now and in the future. Since these policies are not very liquid in the early years the examples of financing purchases like cars are not realistic. Additionally in cases where cash value is stressed over death benefit many BOY followers are probably under insured. Everything has its time and place but to market high premium whole life policies to individuals who don’t have adequate cash flow is irresponsible. I’ve been a successful life insurance professional for thirty five years. I recently contacted one of your advisors with a sample case (an actual client of mine, no names given). The advisor had is manager, one of your top producers, get involved as well. They had no idea what they were doing and couldn’t seem to understand what the client was working for. I take pride in my profession. I earned a CLU designation and and MBA degree in Finance from a Big Ten University. I work with knowledgeable and their attorneys and CPAs. I’d like to know how many policies your advisors sell don’t lapse during the first ten years. I hope people who read your stuff (I bought your book by the way) take the time to get second opinions before they make any decisions on BOY. I’ll look forward to hearing from you regarding my question on lapse rates. Thanks, Michael Johnson, CLU
Mike, I am not a Certified BOY agent, but I have fifty year experience in the life insurance business. I have read both of Pamela Yellen’s books, and based on your comments it appears that you have not read her second book.
I agree with you that a Whole Life policy, by itself is insufficient to meet the needs of a low income household, However, this is not what Ms Yellen is recommending. I am sure that your thirty-five years has exposed you to Term Riders, and you should be familiar with Paid-Up Additions Riders. Proper blending of these features can quickly make these policies secure enough to survive economic bumps.
i have a question i work for coleman and i quit cause i move to American Samoa for a family emergency but i didnt cash out my 401k but one of my friend told me he only work for 4 month and he already cash out his how can i. do mind i have a bank account i need help about this its been 2 years now i didnt get a anything
I’m sorry, but we aren’t experts in all of the many technical ins and outs of 401(k) plans.
Our specialty is helping people avoid all the rules and restrictions placed on you when you lock up your savings in government-sponsored retirement plans like 401(k)s and IRAs, while helping you grow your nest-egg safely and predictably every year – even when the market is crashing.
Learn more by downloading our free Report here.
You may also be interested in this article.
I am over 59 1/2 years old
What to do to draw my 401k
And I still working but need this money
And I want to keep some in my 401k
Thanks
I’m sorry, but we aren’t experts in all of the many technical ins and outs of 401(k) plans.
Our specialty is helping people avoid all the rules and restrictions placed on you when you lock up your savings in government-sponsored retirement plans like 401(k)s and IRAs, while helping you grow your nest-egg safely and predictably every year – even when the market is crashing.
Learn more by downloading our free Report here.
You may also be interested in this article.