Just How Green Are You?

     This case study is a compilation of several clients with whom we currently work. They are self-employed consultants working primarily in the sales area, and for the purposes of this case study, we are collectively calling them Mark*. The figures used are an aggregate of the client group.

     Needless to say, when the economy imploded, Mark's business hit rock bottom.   Although Mark is still receiving some residual income, his monthly take was dramatically reduced. Mark's been paying more than $4,000 a month to credit card companies, which is primarily finance charges, and about the same toward his mortgage. He's drowning in debt and he's angry, but not for the reason you think.

     Why is Mark angry? Well, he's sitting on over $700,000 that is tied up in 401Ks and IRAs from his corporate days, which he can't access without paying penalties and the deferred tax. He's been relying on the traditional banking, saving, financing, investing system to provide for him. Now, he's being penalized for wanting to use his own money to keep himself afloat until the economy rebounds. Wouldn't you be angry, too?

     When Mark came to National Private Client Group, we showed him that if he took the money now from the 401K/IRAs that he needs to get rid of the credit card debt, and to pay the deferred taxes and the early withdrawal penalty, that within fifteen months, he could be whole again. How will this work?

     First, we'll create his bank with the 401K/IRA money, about $50,000, and borrow against it from Mark's Self-Empowered Banking System (SEB) to pay the credit cards, the deferred tax, which you already knew you would have to pay, and the penalties. Now, he is no longer racking up finance charges that he's been paying, so that essentially stops the 'paying finance charges on finance charges' cycle that happens with credit cards. Mark then turns around and pays the $4,000+, which he's been paying the credit card companies, back to his bank.

    Some of you might be thinking, why didn't he just borrow the money from the 401K/IRAs and then pay it back the same way he pays it back to his banking system?

    STOP!!! That's not a good thought. PLEASE DO NOT EVER BORROW AND PAY BACK TO ANY OF YOUR RETIREMENT PLANS. There's a long explanation about this, which we'll cover in a future newsletter, but know that borrowing from a retirement plan is financial suicide that creates triple taxation and additional penalty fees. Remember, financial institutions want to keep your money as long as possible, pay you as little as possible on it while they have it, and then give it back to you with as little gain and as late as possible.

    OK - now back to Mark's situation.

     To use his Self-Empowered Banking System (SEB) to his advantage, he then borrows that $4,000+ back and puts it against his mortgage principal, and effectively begins reducing his mortgage payments. Any extra funds he recaptures, Mark then deposits in his banking system to borrow as he needs. Essentially, we have helped him create the financial sustainability he needs to safeguard his future.

     Mark will continue this process, all the while earning dividends on his original 'deposit' to his SEB, and taking advantage of the multiplier effect created by the borrowing, repaying and borrowing again cycle, just as traditional banks do.

    The real bonus is that in about 8 months, Mark will be 59 and 1/2 and he can shift his 401K/IRA monies over to his bank without penalty. He'll still have to pay the deferred tax, but again, once he puts the money to work into his banking system, in no time he will recoup those tax dollars. Even without turning 59 and 1/2, Mark would still be better off at any age creating a Self-Empowered Banking System to resolve his personal financial crisis.

    Mark was looking for an alternative way to get access to and use the money that he had tied up. With Self-Empowered Banking, he found a way to get control of his funds, and now, Mark is going green in more ways than one.

    For more information, contact Julie Ann Hepburn or call 312.957.9400 x 403.

* Mark is a real group of clients of National Private Client Group. Their names has been omitted to protect their confidentiality, and they have given their permission for us to compile and share their stories.