Explaining “770 Accounts” and Palm Beach’s “How to Fund Your Own Worry-Free, 100% Tax-Free Retirement.”

Reading into Tom Dyson's Palm Beach Letter pitch for “The Secret Investment Account: How to Fund Your Own Worry-Free, 100% Tax-Free Retirement.” This was originally pitched as the "770 Account" and has also been touted as a "702(j) Account" that "pays 30-40X more than bank accounts"

By Travis Johnson, Stock Gumshoe, April 3, 2018

This was originally published on June 3, 2013, and it continues to be one of the most-discussed topics we’ve covered during those years.

The idea continues to be teased and promoted actively by Tom Dyson and his folks at Palm Beach Letter, sometimes using different names, so we’re re-posting it for those new readers who might be interested… the idea is now sold partly as a secret strategy used by Warren Buffett, Joe Biden, Wall Street Bankers, and other notable names… but the basic idea and the type of “bank on yourself” life insurance policy they’re pitching is unchanged (yes, I expect Buffett probably has some whole life insurance, since essentially all wealthy people use life insurance as part of their estate tax planning, and Berkshire Hathaway has engaged in life settlements/secondary life insurance investments in the past).

While you’ll still sometimes see it teased as the 770 Account, or as the “World’s Most Notorious Asset,” it’s mostly now being teased as the “702(j) Account” (just another mysterious-sounding number, like 770, that refers to the part of the IRS code that deals with cash-value life insurance)…

…the story otherwise hasn’t changed much, here’s our original article…

—-from 6/3/13—-

“Imagine an account that…

“Lets you retire 100% tax-free

“Is NOT reportable to the IRS

“Pays you an average of 5% per year

“Has paid out, on average, for 121 straight years

“And which, unlike traditional retirement plans like IRAs and 401(k)s, lets you withdraw money anytime you like, for whatever reason you like, and with no penalties whatsoever.”

That’s what Tom Dyson and a few other folks who sign their promo letters are promising in the latest pitch for the Palm Beach Letter, which he publishes with Mark Ford. It’s all about an account that’s been used by the uber-wealthy for generations, and by “at least six different U.S. Presidents,” including John F. Kennedy and FDR, whose pictures grace some of the ads to provide gravitas, to generate “IRS-exempt” income for retirement.

So what’s the story? Well, Dyson calls it the “770 account” to make it seem mysterious (why else, of course, would you buy the newsletter?), but, frankly, it’s plenty mysterious on its own even if you don’t give it a sneaky name. More on that in a moment.

In fact, this kind of “Account” is already being touted by lots of skeezy-sounding infommercials and books whose promises make you very suspicious — they come with names like “Bank on Yourself” and “Infinite Banking.”

That’s not to say that any of the heavily marketed versions of these plans are skeezy, just that their promises give me that feeling, and the numbers and specifics for plans like this come usually only when you’re sitting in an office with an agent. “Skeezy”, by the way, is defined by your friendly neighborhood Gumshoe as a combination of “sketchy” and “sleazy.”

But what they’re talking about with those plans, and what Tom Dyson is pitching for his newsletter, is life insurance.

Not just ordinary term life insurance like most people under 60 carry, though — we’ll get to that in a minute. First, a bit more of his tantalizing teasing:

Manhattan’s Secret Vault: Why Wall St. has kept this powerful secret hidden from you

“There’s a very good reason you’ve never heard about the “770” account before:

“That’s because Wall Street doesn’t want you to know about it!

“And neither do the big banks too, for that matter. (More on this in a minute.)

“Now, even though this is the investment account The Wall Street Journal is on record as saying is better than 401(k)s and IRAs… the majority of Americans don’t know it exists.

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“Why?

“Well here’s a clue…

“I just got off the phone with an insider who works in the 770 industry. This person has worked first-hand with one of America’s biggest financial gurus (a name you’d instantly recognize), as well as several employees from Goldman Sachs and other big investment banks.

“And this is what this person said to me: NO ONE in Wall Street has their money in stocks—many of them are invested instead in ‘770’ accounts!

“Now, consider what this means…

“Here are the same investment professionals who’ve been telling us for years to “buy stocks”… and meanwhile… they’re all putting their money somewhere else!

“Ridiculous.

“Can you imagine the outrage this would create if most people found out about this?

“That’s why you’ll never hear your broker mention this investment to you, no matter how much money he (or she) has parked into it.”

We get a lot more in Dyson’s ad about the safety of these plans, and about how the big banks have tons of their own capital tied up in these plans (that’s true, by the way — banks have massive life insurance assets called “bank owned life insurance” or BOLI, they take it out on their top employees and it’s a large portion of their core capital), and Dyson’s reiteration that he has been putting increasing amounts of his own family’s money (20% of his net worth) into these accounts and getting a safe 5.5% yield … and it’s money that he can take out whenever he wants to by borrowing against it without penalties.

So what he’s talking about is not just life insurance, but probably a specific class of permanent life insurance that’s called “whole life.”

And it’s not really life insurance, not in the way those of us with term life insurance policies think of it (making sure your family’s not destitute if you die when your kids are young, or your mortgage has 20 years to go), it’s more of a wealth protection and tax-avoidance savings policy.

Whole life insurance is an agreement between you and an insurance company that they will pay out a certain amount of money when you die, and the agreement never expires as long as you keep paying the premium. That obviously means the premium is far larger than with a term life insurance policy, since a term policy expires at some point — term life insurance almost never pays out, so it’s cheap. You can pay $25 a month for $500,000 of 20-year term life insurance if you’re 35 years old, which is obviously cheap, but that’s because you’re young and healthy and the insurance expires when you’re 55, well before you reach the highest mortality risk years.

Whole life insurance does have that insurance portion, in that if you die in the early years of the policy there’s a death benefit that probably exceeds the money you’ve put in. But it’s not really for that — it’s set up to accumulate your death benefit over time. So if you want a $500,000 policy and the actuaries think you’ll die in 35 years, your premiums plus whatever returns the insurance company can earn on those premiums will have to add up to $500,000 in that length of time, plus whatever the insurance company wants to make as a profit. Life insurance companies do not generally do crazy investing or earn great returns in times of low interest rates, and they know pretty precisely when their insured people will die (for a large group, on average) so your premiums would likely be pretty stiff.

But that’s if you’re thinking about it as insurance — much of your premium goes into building a cash value for the insurance policy, and if you buy your policy through a mutual insurance company (like State Farm, or many others) that’s owned by the policyholders, and you get a “participating” or dividend-paying policy (meaning you get a dividend from the insurance company when they make money), then your cash balance can compound nicely and provide what are effectively decent investment returns that are indeed tax-advantaged. I don’t know whether the 5.5% gain that Dyson is expecting is typical or not.

Life insurance is often used by families who have some wealth to pass some of that wealth down to the next generation without taxes, and it doesn’t have accumulation limits that I’m aware of, like tax-advantaged retirement plans that restrict the amount you can put in every year — for most people contribution limits are a theoretical concept, but for the upper middle class and the wealthy the cap of 25-50 thousand a year across various retirement accounts is a bother.

So the key aspects of this, from what I can tell, are that you would want to buy whole life insurance, that you would want to have a participating or dividend-paying policy, and maybe even, if Dyson is following the same track as folks like the “Bank on Yourself” people, that you want to maximize the amount of savings you put into the plan (these are often called “paid up additions”) to increase your potential dividends from the mutual company and the growth of the account over time. The maximizing and “be your own bank” stuff is all about putting so much of your net worth into these policies that you do all of your big purchases (like buying cars, etc.) by borrowing from your policy. But of course, to do that you have to be the kind of person who can put a substantial amount of money aside for these large premiums as your “forced savings” plan.

And the reason it’s confusing, even if you don’t call it a “770 Plan”, is that these are complex contracts, they’re not standardized across different insurance companies, and from what I can tell you can only really buy them through an agent, whose commission structure may drive him in a different direction than you want to go. There are many, many variations and riders on these policies that I have only seen briefly mentioned, and I don’t know how most of them work — I suspect that they’re difficult to compare across providers, which is a hallmark of most commission-driven, hidden fee businesses.

Life insurance has a reputation for being riddled with fees, and for permanent life insurance and whole life insurance like this, the articles I’ve read suggest that most of the policies start to make sense after 10-15 years, but they suck up substantial costs and fees that mean you might lose out if you needed to try to pull your money out before that. This is a small segment of the insurance business that’s focused mostly on the wealthy, and the stuff that Dyson seems to be talking about is probably better handled with agents who are specialists in this … preferably those who don’t also happen to market a skeezy “secret plan.”

That is an extremely non-expert view. I don’t have a policy like this and I have not researched them fully, I’m sure there are people with whole life plans and probably agents who sell these plans out there in the great Gumshoe readership who could probably explain it better (feel free to use our friendly little comment box below) — all I can tell you is that Dyson seems to be teasing participating/dividend-paying whole life plans as his “770 plans” (and no, I don’t know what the 770 refers to), and they are real, and I don’t know whether they’re a good idea for you or not.

P.S. As of November 2013 this is now also being teased as “The ‘Underground Wealth’ Account: How to Fund Your Own Worry-Free, 100% Tax-Free Retirement” — these “accounts” were pitched in a different Palm Beach Letter teaser ad that was mostly about silver, I covered that one here on November 7.


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robert
Member
robert
June 3, 2013 2:48 pm

Anyone know why Mark Ford changed his name from XXX to Mark Ford? Is he hiding something from his past? What might he be running away from?
Curious minds would like to know.

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Martin
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Martin
June 3, 2013 3:33 pm
Reply to  robert

From Mark Ford in the Palm Beach Letter about his name
“Many years ago, I advised some of my protégés—Paul Hollingshead, Don Mahoney, and Katie Yeakle—to start a business. They came up with the idea of teaching copywriting, since Don and Paul had both learned to be A-level copywriters under my tutelage.

They wanted the program to be based on my teachings. I agreed but told them that I didn’t want to be actively involved because I was very busy consulting and had no time to get involved. They said okay, but they still wanted to use my story. I said you can do that, but don’t use my name.

So they gave me a name—Paul Hollingshead came up with Michael Masterson. It wasn’t a lie. It was a pen name. (A very common practice in publishing, by the way.) Everything they said about me was true. At the time, we thought they’d use my story (as Michael Masterson) to launch the program and after that they could drop it.

What happened was that I became interested in that business and found myself writing for them and consulting with them. Since we had introduced me as Michael Masterson, we kept using that name. Several years later, when I started ETR, I kept using it, because by that time Michael Masterson was a brand.

Whenever I spoke at an AWAI or ETR conference, I told the crowd the story and gave them my real name. But this didn’t stop rumors from spreading around the Internet about my pen name. Some of those rumors were wild. I was this king pin of the mafia and all that. It was amusing.

Anyway, when I agreed to write for The Palm Beach Letter, I had already retired from ETR, so I thought I could now go back and use my real name. We have made it clear to everyone since then that Michael Masterson is Mark Ford.”

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Roger Bond
Member
June 3, 2013 4:43 pm
Reply to  Martin

Back in the day of ETR they did try to keep the Mark Ford thing “secret”.
I remember one conference video where a speaker would refer to “Mark” and “Michael Masterson” would lean in and say “Michael”, “It’s Michael”.

It’s not like there was any dirty laundry associated with the name Mark Ford, but they seemed to try to keep the pen name alive as best they could for the duration.

Roger.

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Catharine McCasland
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August 1, 2013 11:23 am
Reply to  robert

Michael is his pin name for writing books.

Glenn
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Glenn
May 22, 2014 1:03 pm

It’s “pen name”, also known as a “pseudonym, a “stage name”, a “nom de plume”, an “alias”, an “assumed name”, etc.; there’s no such thing as a “pin name”.

Jim
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Jim
August 8, 2014 4:38 am
Reply to  Glenn

You know what she meant. You didn’t have to rub it in.

Group One
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Group One
November 9, 2014 9:06 pm
Reply to  Jim

In the more advanced cultures where fabrication is the rule, the term is indeed “pin name.”

Robert
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Robert
September 1, 2013 12:25 pm
Reply to  robert

Back to the Life Insurance, or “770” account as you/Tom Dyson describe it. What you are referring to (I believe) is called an “Indexed Universal Life Insurance” policy. If written correctly, it is a “contractual” agreement between you and the Insurance Co to pay a death benefit when you die. But, there are certain benefits and disadvantages. First, only “buy” one of these if you have plenty of disposable income, i.e. you can pay the premiums and then wait for 15-20 years before you begin to withdraw funds. Having said that, I purchased one of these and this is the basic plan: 1. Guaranteed no loss of principle (see following) 2. The “index” is tied to the S&P 500 index (usually there are several different indexes to select), and the “index” is reset every year at the new S&P level. So, the only way your “investment” does not GAIN extra money is if the S&P was to go down every year, below your index point. 3. But, this is an indexed insurance policy, so you are guaranteed no loss. Also, my policy is guaranteed to increase AT LEAST 3% every year, no matter what the S&P Index does. However, if the S&P 500 increases more than the 3% minimum, you are paid the % increase of the index up to (capped at) 13% (my policy). 4. I have a separate annuity that funds the annual premium, estimated to last more than 20years. 5. I received a substantial “bonus” when I purchased the policy of 15%! (True!). 6. Yes, there is a penalty for ear