Now that you know what a Private Retirement Plan is, how it generally works, and the benefits it can provide, you can start learning about the inner workings of a PRP and the added benefits that come with a private retirement. Funding your future retirement should be a big deal. As we have previously mentioned, traditional retirement plans are primarily funded by allocated assets and funds that will yield a high amount of tax benefits; as a result, there are many restrictions on what types of funds you can put into a PRP in addition to restrictions on the amount of funds being allocated. This can create a huge savings gap for Californians who have a higher level of income. In short, you can not stuff enough money into your IRA, 401k or any other tax deferred vehicle to have enough money at your retirement.
Contrasting heavily from its tax oriented counterparts, PRPs allow you to deposit pretty much any private or appreciating asset that has inherent tax benefits. Contributions can made to your PRP with little to no restrictions including private business interests and stock, private equity, contracts, receivables, real estate, promissory notes, private investment portfolios, private life insurance, and private annuities.
With a Private Retirement Plan, contributions are only made after they are taxed which results in a great degree of freedom for the types of funds that can be allocated in addition to very few restrictions on funding amounts. Funds and contributions to your PRP are primarily going to be in the form of private assets that are taxed as they are earned; the only difference between private assets and funds contained in a PRP is that those funds are allocated specifically for use in retirement.
PRP beneficiaries do not face the restrictions that IRA plan holders may face; however contributions are not tax deductible because the assets being allocated for retirement have already been taxed. Though they are not tax deductible, contributions retain their full character once contributed to your PRP so the inherent tax benefits in each asset are preserved for your benefit during retirement.
Deferral benefits and capital gains treatment are fully retained by capital assets, not forfeited when seeking tax deductions since PRP funding consists of assets that are taxed as earned; In addition, Tax-free benefits are fully retained by muni-bonds and life insurance. Private business stock, private real estate, private equity, or life insurances are all legitimate assets that can be allocated to a PRP and business expenses, deductions, and tax credits are fully retained.
Private Retirement Plans are constructed in a similar way to traditional retirement plans and IRAs. Similar to more traditional retirement plans, your PRP is distributed based on the plan designed by the participant-beneficiary and the plan administrator. Capital payouts have the added benefit of tax neutrality without any need for unnecessary re-characterization.
Private Retirement Plans also provide the added benefits of that exemption from the statute the plans are based on, so all plan distributions retain full creditor exemption if properly administered. Any plan loans prior to formal benefit payouts are fully secured by the PRP and are therefore protected from the greedy hands of creditors.Unlike traditional retirement plans, all proceeds paid to designated beneficiaries from a PRP are protected against attacking creditors or predators.
Private Retirement Plans are the safest form of protection for your financial success in retirement; it also gives you the financial freedom to save for retirement the way you want with very few restrictions.If you’re a Californian that wants to ensure the safety of your financial future, PRPs give you an unmatched level of protection from creditors and lawsuits in addition to a degree of freedom in how your plan is constructed is not found in traditional tax oriented retirement plans.
Next time we will discuss the details of a PRP, how they are constructed and managed, and the best way to ensure the security of your retirement savings with a properly constructed PRP.
Make sure and read Part 3 in our series- Is My Private Retirement Plan Legit? Part 3