Years ago I saw an eye-catching financial stat, oddly enough, in a Physician’s magazine.  The stat was in an article promoting the use of “deferred comp” plans for doctors.  In essence, the article was imploring physicians to use the very same retirement vehicle the Fortune 500 use for their senior executives: deferred compensation plans.

The specific stat said that 86% of Fortune 500 companies have a deferred comp plan (NQDC) and that a whopping 98% of those plans use a specific type of life insurance.  That may elicit a big, “Huh?” from many, but it didn’t surprise me at all. Why? Because I knew the Fortune 500 had long ago done their homework and determined that insurance was far and away the most efficient and effective tool to use for retirement planning.  It is the only asset that can provide:

  • Tax-deferred growth
  • Possible tax-free income
  • Tax-free benefits when the person passes away

No other asset offers this!

The KEY, and this is critical.

The key is to design the Plan so that it uses the minimum amount of insurance allowed.  That way, only a very small piece of the annual contribution goes toward the cost of insurance.  The rest grows tax-deferred and then later can come out tax-free.

The article was, therefore, imploring doctors to use this exact same strategy for themselves.  Set up their own.  We call these Personal Retirement Plans, PRP®’s.  PRP®’s are not bound by ERISA regs, so they can design the PRP® any way that they want.  They can exclude who they want from it and even implement a PRP® just for themselves.

Fast forward to the recent Forbes article, “The Rich Man’s Roth” and you can see that anyone can have the same chassis and engine that the Fortune 500 uses.  Subsequently, we have seen an explosion in the PRP® space with clients taking advantage of this powerful tool to drive their own tax-free income stream.

Like all things, it doesn’t work for everyone.  It’s my opinion that if someone has less than 9 years or so to retirement, this likely isn’t the train to get you there.  But if a person has at least 10 years to go, can contribute at least $25K/yr, they will find this asset is a very powerful tool that can drive tax-free income.   A CPA friend of mine put it like this: that’s income that will never see a tax return.  This means it is income that will not drive the client into a higher tax bracket in their retirement years and will not affect their Social Security etc.

The Rich Man’s Roth, as Forbes called it, is pretty accurate because like a Roth, this will drive tax free income.  But unlike a Roth, a PRP® has NO contribution limits.

So, ask yourself, “Which of my clients would benefit from this great strategy?” Fill out our contact form for help getting started.

Mercury Financial Group does not provide tax or legal advice. All clients are urged to seek counsel on such matters.



In case you missed it:

.Here is a recent success story utilizing this Plan:



Want more information? Here is a video we created on Personal Retirement Plans, PRP®’s