Trump Accounts vs. Whole Life Insurance: The House of Both – Episode 681

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[00:01] Welcome to the Prosperity Podcast. Prosperity thinkers, welcome to the podcast. Today, we’re going to be talking about the Trump accounts. This is where families can put money into an account for their children that are 18 or younger. The reason why we’re bringing this up right now is because as of July 4th, the portal is, I believe the portal opened on July 5th. And so it’s new because it’s new. It means that we won’t have all the answers, but we’re going to go based off of principles and we’re also going to share things that are valuable. Kim, since this is a new product, I don’t expect you to know everything about it, but I understand that you have a knowledge around these related pieces.

[00:54] So let’s take the first step. So why is there so much hype around these Trump accounts? Well, it’s literally the government giving us money, so there can be some good to that and it is the government controlling things 100%. And so it’s something that is, I’m excited about it, even though I may not choose to personally get involved. The reason that I’m excited about it is it’s starting conversations, especially between generations, which is fabulous and so helpful and so needed. And so you have grandparents or parents with children, grandchildren, great-grandchildren that are having the conversation about should we do this? And if so, how, and to what extent? And so that is valuable, even if maybe others don’t like to get involved

[01:55] in things where the government controls them 100%. It does. Absolutely. So you mentioned the government’s giving money. So how it’s, how it works is for the newborns, they are getting a thousand dollar government seed. Now, I don’t know about you, but I’ve never seen it where they’re like, oh, here you go. And there’s no strings attached. There’s always fine print in there. Maybe the fine print isn’t as bad, but one of the things that you and I are, I imagine we’re going to discuss is this, that we have this option, which is the Trump accounts and the thousand dollar seed, or we have the other accounts that we can control, which one are you favoring? Well, as you know, I like to state that we live in the house of both.

[02:48] So I am one of those people that says, yes, you absolutely can have your cake and eat it too, not always, but it’s worth a try. And if you don’t ask how might I do both, then you’ll never get there. Actually, I prefer cake and ice cream. Actually skip the cake. I’ll just go for the ice cream. But if there’s two kinds, I want both, right? So that is a mindset that I have played with for forever. Don’t remember where my husband, Todd and I came up with it, but it is a house of both. And we literally talk about that. So I’m not going to say one or the other in terms of preference, but I will state some things to think about. So the first is there is government control. Like I get that it’s a gift and there’s government control.

[03:36] Like I haven’t read the friend print. I will absolutely admit to that. But there is just going to be some level of control somewhere that we have to be aware of. And, you know, if you think about to things like in the old days, like when I was first in the business, we did uniform gifts to miners accounts, that was the thing. And then at some point, the 529 came available. And so everybody switched to doing 529s. And then of course, the Roth IRAs became available. Well, in both the 529 and the uniform gift, and so I guess in all three, the Roth IRAs, the government still controls a hundred percent. Now, maybe in time, these Trump accounts will end up being different. Yet I think it’s very important that we be conscious of that

[04:20] government control and choosing to either play in that game or not. Or like I said, to do both. So I literally could see people doing both. I mean, you know, it’s a thousand dollar account. You want to add to it? Great. Have at it. And let’s also talk about something that you can do, especially as it relates to your children and your grandchildren, great grandchildren, that is zero percent government controlled. And that is the life insurance industry. In fact, it is literally the only financial industry that is state regulated, not federally regulated. Now, we don’t pay federal tax. So you could say, well, there’s still impact there. Yes, of course there is. And because it is not taxed and it is not federally regulated,

[05:13] we have a position that is one hundred percent controllable and controlled by the owner. So a lot of times when people hear about, oh, my gosh, buying life insurance on your children or your grandchildren, that’s so weird. Like, I wouldn’t want that money if they died. You’re not doing it for that. It’s not called death insurance. It’s called life insurance. And it’s for a reason. So as an example, I literally have on my screen today paperwork to sign for my third grandchild. I will be the owner of that policy, meaning I am paying the premium. Now, remember, with whole life insurance, premium is building an asset. It’s not an expense. And it’s not deductible nor what I want it to be. So I am paying a premium.

[06:01] I am putting this asset on my balance sheet. It’s literally ours policy. And I am the beneficiary. So I’m the owner. I am the payer and I’m the beneficiary. And then the grandchild is the insured. So it’s literally utilizing a physical body of somebody else, the insured. And I own it. I pay for it. I’m the beneficiary of it. And I control it 100 percent. Now, maybe in the future, I’ll give it to her parents. Maybe in the future, I’ll give it to her. Maybe I’ll die with it on my balance sheet. And then it will go to the next generation or the next in this case. And so that’s a space that is zero percent government controlled and something that should be learned about. Absolutely. So we’ve had conversation and this one actually goes back a while.

[07:01] There are other cultures throughout the world that this is normal. Is it India? Is that correct? I believe so. Yeah. So it’s normal for them. Whereas this is a newer concept for us. And by newer concept, I’m meaning that normal people. This is something that wealthy families have done for generations and generations. And now there’s books that are written, podcasts and things like that. Let’s circle back to why the grandchild and why now versus the parents or you or someone else. It’s a very important point because you really do want to go in the order of the generations. Meaning life insurance in this family has already been purchased on the grandparents, me. Life insurance has already been purchased on the parents.

[07:59] My children, again, owned and paid for by me, as well as they are now adults in their lives. So they have owned and paid for their own with the beneficiary to be their spouse. So that is the reason that we are looking at the grandchildren who are literally under the age of one now, because those other generations have already had insurance purchased on them. Now, it is perfectly acceptable for a grandparent to call us and want to buy insurance on their grandchild. And that’s legit. And that can happen. But a lot of times I suggest to people that grandparent purchase insurance on their children first. A lot of times the grandparents, maybe they’re in their 70s or 80s and they just don’t want to insure themselves

[08:54] or maybe they can’t insure themselves because of medical issues. But that 30 to 40 year old child or late 20s, wherever their adult children are, that is really what they should focus on first to make sure that person is insured, because it’s that generation that has 20 to 30 to 40 to 50 years of work ahead of them that has this young child that’s the grandchild. And the loss would be catastrophic if the parent died uninsured or insured only at their work level benefits, which are usually one times income or something like that. So, again, order of generations is important. Grandparents should be looked at briefly, then the adult parents, then the grandchildren. So that means a lot of the times if somebody is calling us

[09:44] and they’re a grandparent, we will halt the grandchild idea, work on getting the parents insured, that 20, 30, 40 year old, and then work on the grandchildren. Now you can do all of it together, but it can be a little overwhelming paperwork wise and such. And it does depend on capability. You know, if somebody just has maybe two to five thousand a year to work on, then fine, just go straight for the grandchildren. And literally, the insurance companies will not let you insure that grandchild if those adult parents don’t have at least the term insurance that is available so cheap these days to insure those parents. So maybe the grandparent purchases the term insurance, maybe the parents themselves purchase the term insurance.

[10:34] We’re talking a thousand dollars a year, two thousand a year at the most. And then that grandchild can be insured, but you can’t skip generations. The insurance companies won’t let you if that parent doesn’t at least have some protection. It can be cheap term on the web. It just needs to be there. No gaps. So, you know, we’ve kind of gone full circle. We started with the Trump child accounts that we call it. And what’s happening here? One, there’s a limit up to five thousand a year. And then for newborns, they get a thousand. And we’ve talked about something that we have control over. Now, do both of those come together at some point? Maybe depends on the type of ice cream that we want. We take both, right?

[11:21] But what it does look like is getting the entire picture. And again, the Trump accounts limit at five thousand a year. That’s not a high ceiling. The family going through. And if it’s a high income family, the ceiling is going to be higher than five thousand. And when you’re doing that, something that you need to use strategy. So hello at Prosperity Thinkers dot com. Any last little wrap up pieces that would be helpful, you think, be around this Trump account? Well, I love what you said. You know, five K for a lot of people is just a small step. So great. Take that. And just like Roth IRAs, a lot of people either can’t do them or they’re limited with what they can put in. And so life insurance tax law is exactly like Roth IRA tax law,

[12:14] with the exception that you can actually get all of the money accessible and liquid. You do not have to wait until you’re 59 and a half like you do on a Roth for your own principal dollars. Sorry for the growth. The Roth is the money on the growth is locked up until you’re 59 and a half. So it’s just a space that is very traditional. It has been around for a couple hundred years longer than that in Europe. You know, we talked about some other parts of our world. The area of England has life insurance in the whole life form. The area in India has it. I’m not aware of anywhere else in our world that does. So it is a little bit of a unique product and absolutely one well worth learning about. Awesome.

[13:06] Kim, thanks for sharing your wisdom today on the podcast. Thank you for listening to the Prosperity podcast. To take control of your money and have it work for you, visit ProsperityThinkers.com