David McKnight looks at what happened when NASCAR legend Kyle Busch reportedly lost $8+ million in what was supposed to be a tax-free retirement plan.

The plan Busch relied on was built around an indexed universal life insurance policy.

According to Kyle and Samantha Busch's lawsuit, they paid more than $10.4M into several IUL policies issued by Pacific Life Insurance between 2018 and 2022.

While these policies were pitched as a safe, self-funding, tax-free retirement plan, things didn't go as promised…

Poor design, unrealistic expectations, a delayed 1035 exchange, and poor oversight are the key reasons why the Busch's retirement plan ended up belly up.

"If you're going to do a 1035 exchange, make sure you do it at the start of the policy, not years into it", warns David.

David goes over the lessons that can be drawn from the Busch's case.

For instance, you should never enter into a contract that you don't understand, nor should you do an IUL if you can't overfund it from day one.

David believes that you shouldn't rely on the IUL alone…

In his opinion, the Busch case is a cautionary tale about what happens when one strategy is positioned as a silver bullet retirement solution.

In a balanced, comprehensive approach to tax-free retirement, which includes Roth IRAs, Roth 401(k)s, and Roth conversions, the IUL's purpose is not to carry the whole load, but rather to act as a shock absorber.

A recent Ernst & Young study demonstrated that a retirement income strategy that incorporates IUL provides far more income than a strategy that calls for investments alone.

David shares a few tips on how to avoid the IUL trap that the Busches unfortunately fell into.

Mentioned in this episode:

David's new book, available now for pre-order: The Secret Order of Millionaires

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

Tax-Free Income for Life: A Step-by-Step Plan for a Secure Retirement by David McKnight

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

NASCAR

Kyle Busch

Samantha Busch

Pacific Life Insurance

Ernst & Young

David McKnight compares the approach of some of the biggest names in personal finance: Suze Orman, and William "Bill" Bengen (the man who invented the 4% Rule).

In a recent interview covered by MSN, Suze Orman declared flat out that the 4% Rule is dead since markets are volatile, interest rates fluctuate, and people are living longer.

David shares the "origin story" of how the 4% Rule came to be – and its creator Bill Bengen.

Interviewed by MSN, Bengen updated his research and concluded that, based on current data, a 4.7% withdrawal rate is now sustainable.

David compares Orman's views on the 4% Rule with those of Bengen.

As explained by David, when you purchase a guaranteed lifetime income annuity, you're transferring a portion of your retirement savings to an insurance company in exchange for a guaranteed paycheck for life.

Remember: not all annuities are created equal – that's why you need to understand fees, credit ratings, inflation writers and surrender periods.

Mentioned in this episode:

David's new book, available now for pre-order: The Secret Order of Millionaires

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

Tax-Free Income for Life: A Step-by-Step Plan for a Secure Retirement by David McKnight

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

Suze Orman

William Bengen

David McKnight discusses one of the most destructive pieces of retirement advice he has ever heard: that you should never do a Roth conversion in retirement or within five years of retiring.

Dave Ramsey believes you should forego doing a Roth conversion if you're within five years of retirement or are already retired – because of the so-called Five-Year Rule.

The problem with this approach, according to David, is that Ramsey is misinterpreting what that rule actually means, in addition to confusing multiple rules and applying them to the wrong people.

Ramsey's advice, continues David, encourages retirees to make choices that could cost them a fortune and taxes over time.

The bigger issue, however, is the fact that Ramsey is focusing on the wrong thing – what he should really focus on is where tax rates are headed in the future.

The current historically low tax rates won't last, as the U.S. national debt is on track to hit $63 trillion by 2035.

If that were to happen, the U.S. Congress won't have the luxury of keeping tax rates low anymore.

According to former Comptroller General David Walker, tax rates will likely need to double just to keep the Government solvent.

A recent Penn Wharton study found that if the U.S. doesn't get its house in order by 2040, no combination of raising taxes or reducing spending will arrest the financial collapse of the nation.

David warns that if you're still contributing to or sitting on a big tax-deferred nest egg like a 401(k) or IRA, you're setting yourself up to pay massive taxes in the future.

Remember: 2035 is your Roth conversion deadline.

David goes through his suggested strategies to avoid paying higher tax rates and potential penalties in the future.

Something good to keep in mind is that if you're in the 0% tax bracket and tax rates double, two times zero is still zero…

David sees Dave Ramsey as the go-to expert for get-out-of-debt advice, not retirement planning 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

Dave Ramsey

David Walker

Penn Wharton

David McKnight addresses something that can make or break your Roth conversion strategy: how you actually pay the tax.

David kicks things off by sharing that Federal and state estimated tax payments are usually made in four equal installments: April 15th, June 15th, September 15th, and January 15th of the following year.

Did you know that doing a Roth conversion in December, like many people do, will lead to the IRS pretending that income was earned evenly throughout the year?

If you don't account for that, you could get hit with an underpayment penalty (8% of the underpaid amount).

David goes over different ways you can handle the tax payment.

The first way is to pay it using cash or a taxable brokerage account – this allows the full conversion amount to move from IRA to Roth IRA.

By doing that, you're essentially using your least efficient dollars, from a tax efficiency perspective, to catapult 100% of the converted amount into the Roth IRA.

David touches upon the IRS Form 2210 Schedule AI, which informs the IRS of the fact that your income was uneven and it can wipe out the penalty for the first three quarters of a year.

The second way is to withhold the tax at the time of conversion. While this method helps prevent the risk of penalty (and you don't have to file extra forms) it comes with a downside: less money ends up in the Roth IRA.

Thirdly, you could make a second IRA distribution and withhold 100% for taxes.

David shares a word of caution: when using this approach, you don't want to bump up into a higher tax bracket, especially if it's a jump from the 24 to the dreaded 32% bracket.

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

David McKnight explains why he has chosen to avoid bonds entirely and why you might want to rethink how you protect your portfolio as you approach retirement.

David kicks things off by illustrating the so-called sequence of returns risk.

According to conventional wisdom, bonds tend to be less volatile, so they help smooth out the rough years in the stock market.

However, bonds aren't the safety net they used to be. And over long periods of time, bonds tend to underperform stocks by a wide margin.

David warns against "stuffing your portfolio with bonds just to be safe."

The reason for that is that you're not only capping your upside, you're also taking on risks of your own: inflation risk, interest rate risk, and the risk of simply not having enough growth to fund a long-term retirement.

Instead of watering down his stock portfolio with bonds, David uses a volatility buffer.

He keeps 3-5 years' worth of living expenses in a separate, safe, and productive account – his go-to option is Indexed Universal Life Insurance (IUL).

An IUL gives you safety from market downturns because it's linked to an index but has a floor that protects you from losses.

In other words, an IUL has potential for reasonable growth without the full downside risk of stocks.

David discusses a scenario in which he's retired and living off his investments when the market suddenly drops by 30%...

The approach David relies on enables him to have peace of mind – something that really helps because, as he puts it, "The more you can take emotion out of the equation, the better your investment returns."

David goes over what to consider and do to get started with a volatility buffer.

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

David McKnight addresses something Dave Ramsey has been saying for years: "You should NEVER own bonds in retirement!"

David points out that the tool that actually solves the problem Ramsey has been trying to avoid is the same one he spent years mocking on his call-in show: the Fixed-Indexed Annuity.

Ramsey's argument is that stocks outperform bonds over time – hence, bonds should be avoided as they're "slow, underperforming, and risky."

David indicates what Ramsey is half right about, as well as something he's missing the mark on…

David discusses how bonds can act as a sort of volatility buffer, despite what Ramsey preaches.

The irony is that the best alternative to bonds is something that Ramsey has derided for years (the Fixed-Indexed Annuity).

David goes through the key differences between a Fixed-Indexed Annuity and a bond.

In years when your stock portfolio is down, you can draw from your annuity – this gives your stock time to recover before you start taking further distributions.

That act alone can increase your sustainable withdrawal rate on the stock portion of your portfolio from 4% to as high as 8% with a 95% success rate.

David's disagreement with Dave Ramsey isn't so much with the suggestion of getting rid of bonds, something David actually agrees with, but it's missing the most important part: what you replace bonds with matters.

Remember: there's no better bond alternative in the retirement space than the Fixed-Indexed Annuity.

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

Dave Ramsey