The Powerful Advantage of Tax-Exempt Investing in your Holding Company
Just a quick recap from the last video. We discussed that investing within your Holding Company (Holdco) is subject to the highest corporate tax rates (50.17%), and to get this money out of your Holdco, you’re subject to a further 47.4% qualified dividend tax rate.
Today, we wanted to discuss an alternative way of getting money out of your Holdco.
Instead of traditional investing, you can use a tax-exempt life insurance investment.
Like the last video, we will transfer an after-corporate tax amount of $100k annually for ten years. Instead, we will purchase a tax-exempt life insurance investment where we are not subject to the tax grind.
In the last scenario, after 25 years, the $1 million invested at 6%/year to get the money into your hands personally would only total $951k.
Using the life insurance investment, you are not subject to the passive income tax rate because life insurance is tax-exempt. In getting the money out of your Holdco, you’re not subject to the 47.4% qualified dividend tax rate for the same reason.
Therefore, the original $1 million, after 25 years, can now be in your hands personally worth approximately $2.2 million versus $951k in the other scenario.
To achieve this same yield in the other scenario, you would need an average return of 14.7%!
The difference is the tax!
In our next video, we discuss what to do if your investments in Holdco have average returns of more than 20%.
Stay tuned.
Reproduced with permission by WealthInsurance.com
