50 • MARTIN H. RUBY
enables individuals to save funds for retirement, with certain re- strictions, in a tax-deferred manner. That’s it. The section basically says, for certain retirement funds, you can deduct your contributions in the year you save in exchange for paying taxes on both those contributions and the in- vestment earnings when you withdraw the funds. It’s a funny realization. In truth, what you and I think of as 401(k)s are just savings vehicles that use a certain portion of our tax code. Basically, they’re tax shopping carts. You can load up mu- tual funds, bonds and other financial instruments into your 401(k) shopping cart and they’ll receive a particular tax status as long as you keep them in the cart. IRAs work the same way. They are also just shopping carts given a certain tax treatment by the government. But here’s something many of us forget, or perhaps never knew: Section 401 subsection k is not the only part of the tax code that delivers tax benefits to a given savings approach. In fact, there are many parts of the tax code under which you can house your savings. In this book, I want to introduce you to Section 7702.
7702 Meet Section 7702 of the U.S. Tax Code.
Section 7702 has been available for saving for years. In fact, it’s almost as old as Section 401(k). Only recently has its use become more widespread, as people like you have realized the large defi- ciencies in Section 401(k). Here’s what a properly structured 7702 plan can deliver: • Growth when the market is up • Protection when the market drops
• Tax-free income in retirement • Additional funds for your legacy
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