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
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
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