Self-Directed IRA and the Infinite Banking Concept

Many real estate investors are familiar with the concept of using a self-directed IRA to finance their portions of their portfolios. It can be an appealing strategy due to its potential for high returns and diversification.

Implementing the Infinite Banking Strategy would never take away from the value of a Self-Directed IRA, but instead, could create greater opportunities and additional tax advantaged assets.

The Infinite Banking Concept (we call it IBC) revolves around utilizing properly designed Whole Life insurance policies to build a cash reserve that policyholders can access through policy loans. Implementing IBC provides liquidity, tax advantages, and financial flexibility. The cash value within the policy grows tax-deferred, and policy loans are typically tax-free, allowing policyholders to leverage their cash value for various financial needs without interrupting the growth of the underlying funds. Unlike an IRA, when a loan is repaid, the gains do not need to go back into the policy. The gross growth of the policy happens independent of any other way the loan was used. The taxes may also be deferred indefinitely, as long as the policy stays in force. If designed and used properly, and policy loans are deducted from the inevitable death benefit, with the reminder going tax-free to the beneficiaries.

IBC excels in providing liquidity, financial flexibility, and tax advantages within the framework of a life insurance policy. Policy loans may be used for anything one wishes- and the loan is unstructured. You simply receive an annual statement for the loan interest which can be tax deductible if used for business expenses or real estate investments. This interest is deductible because technically it goes back to the life insurance carrier. If one is already familiar with using a self-directed IRA, accessing and using policy loans may feel like a breeze in comparison.

Many call IBC the “AND Asset”. (There is even a book with this title discussing the very topic.) IBC functions with any existing financial strategies, including a self-directed IRA. Often real estate investors believe they need a significant sum set aside in order to start IBC. However, time is more important than actual amounts. A young client starting in her twenties with $500 a month has the added value of a decade or two of compounding interest growing inside her policy, compared to someone older with three times that amount of premium. With the premiums remaining liquid, she can easily begin her REI journey AND IBC simultaneously… depending on which area of REI she chooses to start.

One hundred percent of all people will eventually pass away… but not all will pass on the death benefit of a life insurance policy. A benefit which is tax free, bypasses probate, and goes directly into the hands of the ones you want to receive the gift. If you would like to know specific examples, we would love to meet with you!

Set up a free consultation today with: Olivia McGraw at omcgraw@unbridledwealth.com or Jason K. Powers at jpowers@unbridledwealth.com. We look forward to meeting with you!