Parenting Hack: Tax-Smart Family Wealth Building
In my journey toward financial security, I’ve discovered strategies to create and sustain wealth—not just for myself but for my kids. One method I use is a combination of tax strategies and cash value life insurance, specifically within the framework of the Infinite Banking Concept (IBC). This approach sets them up for financial success by teaching them about responsible wealth creation, disciplined saving, and the power of compound growth.
Disclaimer: Consult a Tax Professional First
Before implementing any tax strategy, always consult a tax professional. I’m sharing what works for my family, but it’s important to seek professional advice.
1. Paying My Kids a Salary: A Smart Tax Move
One of the first strategies I use is paying my kids a salary through my company, which offers unique tax advantages. By allocating up to $14,600 annually to each child, they receive a payroll income that’s completely income-tax-free due to the current tax limits on minors. While I do pay payroll taxes on these wages, it’s a small cost considering the benefits.
This salary goes directly into each child’s checking account, giving them firsthand experience with financial management and the value of earning a paycheck.
2. Leveraging Cash Value Life Insurance for Wealth Creation
The next part of my strategy is setting up each of my kids with a cash-value life insurance policy through an Infinite Banking Concept (IBC) account. This type of policy not only provides life insurance coverage but also builds cash value over time, acting as a “bank” they can leverage throughout their lives.
I allocate their salaries toward funding each IBC account, setting up an investment that grows with tax advantages. Here’s the breakdown of each child’s annual cash value life insurance investment:
Johnna (15 years old): $18,000 annually, compounding to $197,000 by age 25.
Teagen (12 years old): $15,000 annually, growing to $201,000 by age 25.
Jorja (8 years old): $12,000 annually, reaching $213,000 by age 25.
This type of whole-life policy is designed for long-term wealth creation, growing in value every year and compounding on itself.
3. Life Insurance as a Safety Net
The IBC policies also include life insurance, providing a valuable safety net for each child. Since I am the owner of each policy, I maintain control over the funds, while the life insurance remains in place for them. This guarantees they’ll have coverage even if their health changes. Many conditions, such as diabetes or cancer, can make individuals uninsurable, so setting up life insurance now gives my kids lifelong coverage and peace of mind.
4. Teaching Financial Responsibility with Controlled Access
Cash value life insurance within an IBC account grows consistently, but it’s not just a savings vehicle—it’s a long-term tool for financial responsibility. Since I control access to the funds, my kids can only use them when I see they’re financially ready, like buying a car, funding a wedding, or even launching a business. This setup differs from a traditional trust fund because I can gradually allow access, coaching them on responsible wealth management along the way.
5. The Power of Compound Growth
A key benefit of cash value life insurance is uninterrupted compound growth. With IBC policies, the balance compounds on the full amount, regardless of withdrawals. For example, if an account grows to $100,000 and I pull out $50,000, the growth is still calculated on the full $100,000. In a standard savings account, you’d only receive interest on the remaining $50,000, but the uninterrupted compounding in an IBC policy significantly boosts long-term returns.
Compound growth is the magic of this approach, allowing each child’s savings to build up year after year. Even if initial contributions are small, the growth potential over time is exponential, creating a foundation of financial discipline and security.
Creating a Pathway for Wealth Creation and Financial Independence
My goal isn’t to make my kids instantly wealthy but to set them up with the resources and education to achieve true financial independence. Warren Buffett once advised: “Give your kids enough so they can do anything, but not so much that they can do nothing.” Through cash value life insurance and strategic payroll funding, I’m giving my kids tools for wealth creation and independence—not a blank check, but a pathway to responsibly build their own wealth.
The Long Game of Financial Literacy and Compound Growth
Is this approach for everyone? Not necessarily. But for my family, it offers a powerful blend of financial literacy, disciplined saving, and the tax advantages that come with payroll and cash value life insurance strategies. By guiding my kids to create their own wealth and fostering a deep understanding of financial responsibility, I’m building a legacy that extends beyond dollars.
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Financial literacy is a lifelong investment, and together, we can help the next generation build real, lasting wealth.
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