Note from Phil Aderton, VP Sales IZALE: I interviewed Chris Fehr, another Lion Street Owner, when I realized that he could share specific information for IZALE clients on a personal level. Chris is the owner of Freedom Financial Group in Springfield, IL. We have worked together on advanced tax planning concepts.

Phil: Many of our clients have the challenge of not just managing the assets of their institution, but their own 401K and retirement plans. What advice do you have for them?

Chris: One of the best things about being a CPA and an investment advisor is the ability to give tax advice. For example, since 1913 when the “temporary” income tax was first passed, the highest marginal tax rate was 94 percent. The average of the top tax rates is 58 percent. Today, our top rate is about 40% including the 3.8% Obamacare investment tax. Plus, income tax rates are scheduled to increase automatically on January 1, 2026 with no action by Congress. So if you have accumulated $1MM in a 401k, the value of the money that’s actually yours is 500k-650k at best net of taxes. If tax rates return to historical averages, your cut is even less.

Phil: How do you avoid or lessen the huge impact of taxes on your tax deferred retirement assets?

Chris: There are currently only two tools to create wealth or income free of taxes-Roth IRAs and overfunded life insurance. You see, we have all been trained very well by the IRS, mutual fund companies, and well meaning CPAs to create a huge pot of money for the Internal Revenue Service to tax right when we want to use it, at retirement. The problem for us is that all of it gets taxed. Roth conversions are a great option, but paying the conversion tax is not easy.

Phil: Is there a less painful way to move assets from tax deferred to tax free?

Chris: Yes, it’s called QLS – the Qualified Leverage Strategy. By taking advantage of several different tax regulations simultaneously, it is actually possible to lessen or even avoid the pain of conversion taxes. How can this be accomplished? Well, in involves two trades that use the two ways to create money free from tax, the Roth IRA and overfunded life insurance. This is a straightforward plan that’s easy to understand, but it has several steps that cannot be easily explained in a short article. Suffice it to say, if you and/or your spouse has tax deferred assets, this may be a strategy that can work for you.