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Ask a Fool: What Is a 7702 Retirement Plan?

In this video as part of The Motley Fool's "Ask a Fool" series, senior advisor to The Motley Fool's Rule Your Retirement service, Robert Brokamp, takes a question from a Fool reader, who asks: "What are your thoughts on a 7702 retirement plan? We are in negotiations with an agent about a 7702 plan that is alleged to be better than an IRA or 401(k) in terms of safety and growth potential." Robert gives several reasons to be suspicious of this 7702 plan, and reiterates the strengths of a more traditional retirement plan.

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Read/Post Comments (5) | Recommend This Article (11)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On January 24, 2014, at 11:44 PM, bdjphillips wrote:

    I very disappointed at the liberty Mr. Bokamps takes in his assumptions on this topic. Traditional investing and 401k comments benefit from very generous assumptions, while the 7702 structure receives no generosity.

    7702 fees, including COI, are significantly less expensive than median 401k fees over any 30 year period. Since the discussion presumes longterm retirement planning, that would be a more fair overall comparison.

    Whether you get a tax deduction for 401k contributions or simply a deferment may only be a matter of technical semantics but the 'deduction' theory is surely generous. In fact, simply deferring income and taxes to a future date could be the riskiest gamble of all. Given the recent increase in top tax rate by over 13% should be evidence for future rate concerns.

    IUL plans, offered by A rated providers, offer significant upside potential with zero downside risk. VUL plans can provide greater return but with obvious risk.

    7702 plans incorporate protections for the family and essentially avoid probate delays bringing almost immediate relief to surviving family members.

    Finally, in 1978 when Sub-section 401(k) of the IRC was first utilized to defer executive compensation from 70% tax burden to a future, hopefully lower rate, there wasn't a 401(k) plan. It was a 401(k) strategy, legal under the tax code, that grew to become a 401(k) plan.

    Sub-section 7702 of the IRC is mostly similar in that respect. As products and financial instruments have evolved to create security, growth potential, and risk mitigation the 7702 will become the 401(k) with the exception that it will work.

  • Report this Comment On January 27, 2015, at 5:38 AM, EPProp wrote:

    I too am disappointed with Robert Brokamp's comments regarding a "7702 Plan". Just because Mr. Brokamp has the letters "CFP" (Certified Financial Planner) after his name, that doesn't make him the "authority" on retirement plans, and especially Life Insurance. Mr. Brokamp's training is NOT in Life Insurance or the IRS codes (namely 7702); it's most likely in Securities products, Mutual Funds, and stock market investing...almost the complete opposite things that the 7702 life insurance policies offer. Well, to be fair, comparing 7702 Plans to securities products is like comparing apples and oranges. The bottom line is, with a 7702 Plan, the insurance policy would most likely be an Index Universal Life policy. On the other hand, A 401K or IRA is funded via the Stock Market. If you're ok risking what's supposed to be your retirement money in the stock market (where your investments may be up one day but down the next)...then Qualified Plans are yours. But look at history...thousands of people have lost their life savings in the stock market just in the last two big stock market crashes. Talk to anyone who's owned a 7702 Plan in the last 50 years and they'll tell you their policy has grown and has not lost money.

    And as Motley Fool's Disclosure Policy states, they are supported by advertisers! Some of Mr. Brokamp's main supporters/sponsors are E*Trade, Fidelity, Scottrade, Options House, and ShareBuilder....all investment companies who deal in the Stock Market! The 7702 is an insurance policy-foremost, which provides money to your named beneficiaries upon your death. You can also use the money (while you're alive) in your account TAX-FREE during the life of the policy and you don't have to pay it back...oh by the way, it keeps growing due to your indexed allocations. And if you want Long Term Care Insurance, you don't need to get a separate policy...just get an LTC Rider with your 7702! I don't know any Stock Market investment that can do all the above named (that a 7702 provides). So Mr. Brokamp....I don't think you did your research before bashing the 7702 Plan. But I understand...the 7702's increasing popularity is taking away business from CFPs, those who sell stock investments, and stock broker-types. My main point here is there is no comparison to a 7702! 401Ks, IRAs, or any stock market investment is no match for a 7702 because it's like comparing apples and oranges.

    Thank you,

    J. Pascual

    Honolulu, HI

  • Report this Comment On May 22, 2015, at 7:19 PM, chavezc6 wrote:

    Sorry Mr. Brokamp, you have no idea what a 7702a IUL is. J. Pascual pretty much sums it up. As we are Life licensed we understand the product much better than you. Please feel free to reach and we can explain what a great retirement vehicle it really is.

    Thank you,

    C Chavez

    San Jose, CA

  • Report this Comment On June 14, 2015, at 6:38 PM, Jester1957 wrote:

    Brokamp needs to go back to school.

    He's either completely ignorant on this matter or has a bias.

    My vote is the latter.

    Typical slant from a "CFP"...what a joke.

    How's about a little intellectual integrity there, Bob!

    S Hill

    Atlanta, GA

  • Report this Comment On August 13, 2015, at 2:23 AM, inspir61 wrote:

    Sadly, Mr. Brokamp's lack of education in this area is a disservice to the Motley Fool and its followers.

    As already stated, there are many valid reasons to consider an IUL policy to accumulate retirement assets.

    Forward thinking employers are now starting to quite successfully use IULs in lieu of 401Ks and can still offer matching contributions.

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