David McKnight addresses Doug Andrew’s recommendation of turning your IRA into an IUL.

David agrees with some of Andrew’s views, including his objection to rolling a 401(k) into an IRA, and then leaving it there until you die.

Given the exploding national debt, most experts predict that taxes 10 years from now will have to rise dramatically to keep the U.S. solvent…

Doug Andrew lists Indexed Universal Life as his “favorite financial vehicle because of liquidity, safety, predictable rates of return, and tax-free growth”.

David is skeptical of advice that denigrates every tax-free alternative within the IRS tax code in an attempt to glorify the IUL – which happens to be the product Andrew sells.

While David recognizes some admirable qualities that are unique to IUL (and that no other financial tool has), he doesn’t recommend having an IUL as the only prong in your tax-free strategy.

David’s preference is for you to opt for an approach that takes advantage of every tax-free nook and cranny within the IRS tax code.

Many gurus are “married” to and recommend only one strategy. David, on the other hand, prefers “multiple streams of tax-free income, none of which show up on the IRS’ radar, that contribute to you being in the 0% tax bracket.”

David lists the unique qualities of financial tools such as Roth IRAs, Roth 401(k)s, Roth Conversions, and IULs.

If you’re someone who’s looking for advice, David recommends being careful whenever someone recommends you liquidate a retirement account you’ve been saving into your entire life and move it wholesale into an IUL!

Your ideal goal should be to have multiple tax-free income streams that will land you in or near the 0% tax bracket in retirement.

Why is that so important? Because even if tax rates were to double, two times zero is still ZERO.

Mentioned in this episode:

David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter 

@davidcmcknight on Instagram

David McKnight on YouTube

Get David's Tax-free Tool Kit at taxfreetoolkit.com

Doug Andrew

This episode of The Power of Zero Show revolves around a recent Ray Dalio video in which he issued warnings about the U.S. debt crisis.

In the clip, Dalio appears to be giving America three years to get their act together and to right the fiscal ship of state.

Dalio mentions the draft of his new book that goes through the mechanics of the debt – and highlights the supply-demand problem he believes will occur if the deficit doesn’t go from the current 7.2% of GDP to about 3% of GDP.

Dalio touches upon what people should do when there isn’t an adequate supply-demand balance.

He believes that looking back at history will show you that the current problems are the results of history repeating itself.

A recession isn’t the one thing Dalio is afraid of… the breakdown of the monetary order is! 

Host David McKnight talks about the bid other countries may have on the U.S. fiscal debt, as well as the related crisis of confidence of sorts.

According to a recent Penn Wharton study, if the U.S. doesn't right their fiscal ship of state by 2040, no combination of raising taxes and/or reducing spending will arrest the financial collapse of the nation.

David believes that in the next 10 to 15 years, the U.S. is likely to need huge infusions of capital to avoid a financial collapse, the likes of which we haven’t seen since the Great Depression.

What should you do? If you have the lion’s share of your Retirement Savings, IRAs or 401(k)s, you need to act now while tax rates are historically low.

Since we’re on the cusp of Trump extending his tax cuts for another 8 years, it’s important to know that, if you count 2025, we’ll have historically-low tax rates for another 9 years.

David is in favor of taking action before tax rates increase, also because he believes that, come 2034, tax rates aren't going to simply revert back to what they were in 2017.

If the American fiscal ship doesn’t get right on time, we could go back to seeing high tax rates that were part of the past – such as 94% in the last two years of World War II, or 89% as it was throughout the entire decade of the 70s.

Mentioned in this episode:

David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter 

@davidcmcknight on Instagram

David McKnight on YouTube

Get David's Tax-free Tool Kit at taxfreetoolkit.com

Ray Dalio

Penn Wharton

David McKnight looks at why many people wait until the fourth quarter to do a Roth conversion, the potential penalties, and what can be done to avoid having to pay underpayment penalties to the IRS.

David begins the episode by highlighting the fact that a lot of investors wait until Q4 before they do a Roth conversion – and they prefer to pay taxes on it in cash instead of simply having the taxes withheld by the IRS.

From a mathematical standpoint, it’s the correct thing to do because it allows you to get 100% of the converted dollars into your tax-free account.

However, if you didn’t pay quarterly taxes on that income evenly throughout the year, the IRS can charge you an underpayment penalty!

The IRS’ safe harbor rules can spare you from any underpayment penalty for a Q4 Roth conversion, if certain requirements are met…

David goes over two scenarios in which you wouldn’t have to pay an  underpayment penalty, as well as when, and why, you may need to file Form 2210 A1.

Make sure to familiarize yourself with Form 2210 A1 because, as David puts it, it will “become your best friend if you’re hoping to avoid underpayment penalties on a fourth quarter Roth conversion.”

Mentioned in this episode:

David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter 

@davidcmcknight on Instagram

David McKnight on YouTube

Get David's Tax-free Tool Kit at taxfreetoolkit.com

Form 2210

In today’s episode, David McKnight focuses on whether you should do a Roth conversion, how much you should convert per year, and whether it’s possible to over-convert to Roth.

David explains that an effective tax rate is the actual percentage of your income that you pay in taxes after accounting for deductions, exemptions, and credits.

For David, the only reason you should do a Roth conversion is if you believe that your effective tax rate in retirement will be higher than your marginal tax rate today.

David touches upon a couple of reasons why your effective tax rate in retirement could be higher than your marginal tax rate today.

Remember: the national debt is projected to be $57 trillion by 2035. If Trump extends his tax cuts, you can layer another $5 trillion right on top of that…

According to a recent Penn Wharton study, if the U.S. doesn't right its fiscal ship of state by 2040, no combination of raising taxes or reducing spending will arrest the nation’s financial collapse.

Before undertaking your Roth conversion strategy, you have to remember that in retirement, absent any other deduction, the IRS will give you a deduction called standard deduction.

The standard deduction is $30,000 if you retired today as a married couple and $15,000 as a single filer.

David illustrates a scenario that can lead you to fall into the Roth IRA over-conversion trap.

Your goal should be to keep your balance in your IRA or 401(k) low enough that required minimum distributions in retirement are equal to or less than your standard deduction, but also low enough that they don’t cause Social Security taxation.

David has done the math: if you don’t have a pension or other residual taxable income, you want to keep between $300,00 and $400,000 in your 401(k) or IRA in retirement.

Got a sizable pension or another significant source of taxable income? Then, your ideal balance would be much closer to zero.

It’s crucial that, when converting your money, you do it slowly enough that you don’t rise into a tax bracket that gives you heartburn, but quickly enough that you get all the heavy lifting done before tax rates go up for good.

If Trump ends up extending his tax cuts, they’ll expire at the end of 2033. That means that somewhere between 2034 and 2040 tax rates will likely rise in dramatic fashion.

By including the 2025 tax year, that gives you nine full years during which you can execute your Roth conversion strategy.

Mentioned in this episode:

David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter 

@davidcmcknight on Instagram

David McKnight on YouTube

Get David's Tax-free Tool Kit at taxfreetoolkit.com

Donald Trump

Penn Wharton

David McKnight looks at Target Date Funds (TDFs) and why their set-it-and-forget-it approach to investing is NOT something you should rely on.

David kicks things off by explaining how TDFs work, including why they tend to be a popular option for novice investors.

While it sounds like an excellent approach, David points out two major flaws.

“A lot of the problems with TDFs come down to sustainable withdrawal rates in retirement,” says David.

The 4% Rule consists of you being able to withdraw 4% of your day one balance in retirement, adjusted every year thereafter for inflation.

Unfortunately, a TDF is fundamentally incompatible with the 4% Rule.

Since the 4% Rule is the most expensive way to ensure that you don’t run out of money in retirement, David suggests doing something else. 

He recommends figuring out what your retirement shortfall is and then buying a Guaranteed Lifetime Income Annuity to help bridge your income gap. 

While being on a glide path or relying on a set-it-and-forget-it approach may sound like a good idea, it actually isn’t conducive to evaluating the strategies that will help you reap the most efficiency from your retirement savings.

Mentioned in this episode:

David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter 

@davidcmcknight on Instagram

David McKnight on YouTube

Get David's Tax-free Tool Kit at taxfreetoolkit.com

In this episode of the Power of Zero Show, host David McKnight discusses the scenario in which you have maxed out your 401(k) and are wondering where you should invest the rest of your money.

The episode kicks off with David addressing the type of 401(k)s you should be investing in first.

There are two types of 401(k)s: the traditional pre-tax 401(k) and the Roth 401(k).

Should you go for a traditional 401(k) or a Roth 401(k)? It all depends on whether you think your tax bracket is likely to be lower or higher in retirement…

With the national debt set to hit $62 trillion by the year 2035, David believes that, “There isn’t any way the Federal Government can service that type of debt without increasing taxes.” 

Planning on retiring past 2035 and you’re currently in the 24% tax bracket? Then, David recommends opting for a Roth 401(k).

This year, you can put $23,500 into your Roth 401(k) if you’re younger than 50, and $31,000 if you’re over the age of 50.

David talks about what to do if you’re married and have maxed out your Roth 401(k), as well as what you can do if your modified adjusted gross income is less than $246,000 as a married couple, or $161,000 as a single filer.

David illustrates the scenario in which relying on a LIRP (Life Insurance Retirement Plan) would make sense.

According to a recent Ernst & Young study, if you can save between 3 and 5 years worth of living expenses in your LIRP by day 1 of retirement, you can increase the sustainable withdrawal rate of your stock portfolio from 4% to as high as 8%.

David points out that there’s no limit on how much you can put into your LIRP and, unlike with what happens with Roth contributions, you are not constrained by your modified adjusted gross income level.

Another point in favor of opting for a LIRP is the fact that it grows safely and productively – the growth of the money in your LIRP is linked to the upward movement of a stock market index.

Whatever that index does in any given year, you get to keep up to a cap that’s typically between 10% and 12%. Index going down? Then, you’re simply credited a zero.

Mentioned in this episode:

David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter 

@davidcmcknight on Instagram

David McKnight on YouTube

Get David's Tax-free Tool Kit at taxfreetoolkit.com

Ernst & Young

In this episode of the Power of Zero Show, host David McKnight addresses the claim that sees Paul Atkins owning 54 life insurance policies for an astounding 10% of his $327 million net worth.

Someone may ask themselves why someone with such a massive net worth would own so many life insurance policies…and even why someone who has equity in Chinese tech giant Alibaba, holdings in cryptocurrency, and stakes in venture capital firms would also want their wealth growing in cash value life insurance policies.

Looking at Atkins, who’s President Trump’s nominee to chair the Securities and Exchange Commission, can help understand how the ultra-wealthy view taxes and wealth accumulation.

One possibility could be that Paul Atkins may have exhausted all of the usual sources of tax-deferred and tax-free growth available to him through government-sponsored retirement plans. 

Something worth remembering: Cash Value Life Insurance policies don’t have any income threshold, and they have no contribution limits at all.

A second potential scenario that has led Atkins to have over 50 life insurance policies is that he might be looking for a way to diversify his holdings.

David points out to the fact that owning shares in single stocks like Alibaba – like Atkins does – can be a fairly risky proposition.

Cash value and life insurance policies like whole life or IULs, on the other hand, aren’t exposed to market risk.

There’s yet another possibility: Atkins may not be the insured on all the policies.

According to the ethics filings, the cash value of the policies in question ranges from as low as $1,000 to well over $1 million.

For some experts, that may be a sign that Atkins is investing in life settlements.

The final potential scenario is the one in which Atkins owns all the policies for the purpose of estate planning.

David points out that there are many more efficient ways to purchase life insurance policies than buying 54 separate contracts

David shares that he understands the concept of wanting to spread your risk out among multiple carriers, but feels that doing so through the purchase of 54 different policies is a bit extreme.

David points out that diversifying away from the stock market with some of your portfolio is, typically, a good idea.

Want safe and productive growth without the risks associated with traditional bond allocations? Look at cash value life insurance policies, says David.

Remember: cash value life insurance can also be beneficial because many carriers allow you to receive your death benefit in advance of your death.

While it’s true that cash value life insurance isn’t for everyone, Paul Atkins ethics disclosure shows that it can play a critical role in someone’s long-term wealth-building strategy.

Mentioned in this episode:

David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter 

@davidcmcknight on Instagram

David McKnight on YouTube

Get David's Tax-free Tool Kit at taxfreetoolkit.com

Paul Atkins

Alibaba

In this episode of the Power of Zero Show, host David McKnight looks at every possible tax or cost that may result from a Roth conversion.

The first tax you’ll have to pay when executing a Roth conversion is federal income tax. 

Whatever portion of your IRA you convert to Roth is realized as ordinary income and piled right on top of all your other income.

David is an advocate for not converting to Roth unless you think your federal tax rate in retirement is likely to be higher than it is today.

The second tax you could end up paying when doing a Roth conversion is state tax.

The situation will vary depending on where you live – in Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming, you don’t have to pay state tax, including on Roth conversion.

Do you live in Illinois, Iowa, Mississippi, or Pennsylvania? Then, you’ll have to pay state tax, but Roth conversions are exempted.

If you’re thinking about moving to one of these states to avoid paying these taxes, just know that, while they may not charge income tax on Roth conversions, they do make up for it in other ways (sales and property tax, for example).

IRMAA – the Income Related Monthly Adjustment Amount – is the third cost you could end up paying when doing a Roth conversion.

IRMAA represents an additional charge you could be required to pay on your Medicare Part B and Part D premiums.

The next potential tax you could pay as a result of doing a Roth conversion is Social Security taxation.

The fifth cost you could incur because of a Roth conversion is NIIT (Net Investment Income Tax) – also known as the Obamacare surtax.

NIIT is a 3.8% surtax on the lesser of your net investment income or the amount of your modified adjusted gross income that exceeds the threshold of $200,000 for single filers and $250,000 for married filing jointly.

The sixth tax you could potentially pay as a result of doing a Roth conversion is an indirect one and results from the phase out of certain credits or deductions.

The list of credits and deductions includes child tax credits, student loan interest deductions, the saver’s credit, and education credits.

Underpayment penalties is the seventh tax you could potentially pay by doing a Roth conversion.

David explains that many people opt to pay taxes on their Roth conversion in the fourth quarter.

The problem, however, lies in the fact that when you pay the taxes on your Roth conversion out of cash in the fourth quarter, the IRS expects you to have paid taxes on that Roth conversion evenly throughout the year.

The eighth and final tax you could end up paying as a result of doing a Roth conversion applies to those who are getting health insurance through the Affordable Care Act.

Does your Roth conversion push you above the subsidy threshold? If so, know that you could have a partial or total loss of subsidies or may have to repay subsidies at tax time.

“Think of all of these additional taxes or costs as tradeoffs, not problems or unintended consequences,” says David.

For example, you may pay increased Social Security taxation during your Roth conversion period, but will then eliminate Social Security taxation altogether by the time your conversion is complete.

If President Trump extends his tax cuts, then the national debt will grow to $62 trillion by 2035.

Most experts believe that the only way we can service this massive debt load is to dramatically increase income tax rates.

According to a recent Penn Wharton study, if the U.S. doesn't right its fiscal ship by 2040, no combination of raising taxes or reducing spending will prevent the nation’s financial collapse.

Remember: while it’s true that Roth conversions do cause you to pay additional taxes and expenses in the short term, they do dramatically reduce those costs over the balance of your life, once your conversion is complete.

Mentioned in this episode:

David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter 

@davidcmcknight on Instagram

David McKnight on YouTube

Get David's Tax-free Tool Kit at taxfreetoolkit.com

Penn Wharton

This episode of the Power of Zero show explores whether you should be taking more risks in your Roth accounts than in your other investments.

Host David McKnight kicks things off by stating that if you have Roth IRAs or Roth 401(k)s in your portfolio, you should be allocating 100% of these dollars to a stock allocation.

That’s because these are your most tax-efficient investments and they’ll remain tax-free right up until your death – and even 10 years beyond.

Remember: you want the biggest returns in your portfolio to take place in a tax-free environment.

David explains which of your assets you should be allocating towards bonds.

David isn’t a huge fan of bonds because of three words: fixed index annuities.

He uses a study by the University of Chicago’s Dr. Roger Ibbotson to illustrate his preference for fixed index annuities over bonds.

Ibbotson’s research showed that the stock FIA portfolio did not just increase, but it did so with less risk, while also protecting the investor to some extent from irrational investment behavior that erodes returns over time.

David is all in favor of allocating your Roth IRAs to your most aggressive investments, as he thinks you should want your tax-free accounts to house your most explosive investments.

While conventional wisdom advises people to allocate the rest of their assets to bonds, David believes in a better alternative: incorporating a fixed index annuity into your overall strategy.

By doing so you’ll increase your return, lower your risk, lower the standard deviation of your entire portfolio, and give yourself a better outcome over time.

David concludes by pointing out that you don’t have to love annuities for this strategy to work – you just have to love the idea of increasing the likelihood that your money will last as long as you do.

Mentioned in this episode:

David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter 

@davidcmcknight on Instagram

David McKnight on YouTube

Get David's Tax-free Tool Kit at taxfreetoolkit.com

University of Chicago

Dr. Roger Ibbotson

In this episode of The Power of Zero Show, host David McKnight looks at Doug Andrew’s recent video in which he implored his audience to never use a Roth IRA or a Roth 401(k) again.

Andrew sees Indexed Universal Life insurance (IUL) as far superior and believes it should be the source of the vast majority of your distributions in retirement.

While David likes IUL in certain circumstances, he isn’t a fan of sales strategies that debase every other viable tax-free alternative in an effort to exalt IULs.

For David, the video is riffed with errors, exaggerations and omissions.

Moreover, Andrew’s video appears to have an obvious pre-commitment to persuading you to reposition the lion’s share of your retirement savings into an IUL.

In the video, Doug Andrew’s liking for IUL as the top investment vehicle is evident.

At the beginning of his video, Andrew says that he will explain why the IUL is far superior to the Roth IRA.

David believes that the choice should never be between a Roth IRA and an IUL or between a Roth 401(k) and an IUL.

Remember: your tax-free strategy can incorporate as many as SIX DIFFERENT STREAMS of tax-free income, not just the IUL…

And every one of these tax-free income strategies has unique qualities that set them apart from all the others.

Don’t forget about what your #1 goal should be: to take advantage of every tax-free nook and cranny in the IRS tax code.

David lists the qualities that tools such as Roth IRAs, Roth 401(k)s and Roth conversions have and that IULs do not have.

One of the unique things about IULs is that they give you a death benefit that doubles as long-term care and helps grow your money safely and productively.

David touches upon what he considers “wild claims” featured in Doug Andrew’s video.

An example of inaccurate or untrue information shared by Andrew is that the IUL’s expenses will be paid out of the money that would have otherwise gone to pay a tax… which is wrong!

Contributions to Roth IRAs and IULs are both made with after-tax dollars.

“If anyone ever debases a Roth IRA or a Roth 401(k) in an attempt to sell you an IUL, you should run – not walk – the other way,” concludes David.

Mentioned in this episode:

David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter 

@davidcmcknight on Instagram

David McKnight on YouTube

Get David's Tax-free Tool Kit at taxfreetoolkit.com

Doug Andrew

Doug’s video - Why You Should Never Use a Roth IRA Again (6 Reasons Why)