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

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“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.

“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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Mike
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Mike

I hae one of these policies after learning about it thru the PBL. (and Mark Ford, his real name). I have owned a term policy and it went up considerbly when I turned 50 (2nd 15 year term). I am now 54.I wish I had done this type of policy 20 years ago. it is a really good vehichle and the company I have my policy thru is top notch (over 150 year old company). The base insurance is not much more than my term, but the cash accelerates due to the way the policy is written. It’s not a… Read More »

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J PERKINS
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J PERKINS

OK, MIKE:
YOU SOLD ME, BUT CAN YOU TELL ME WHAT YOUR TOTAL RETURN FROM THIS INVESTMENT HAS BEEN OVER THE LIFE OF THE POLICY?

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jim wahler
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jim wahler

I like Mike’s comments on sept. 6, 2013 at 3:00pm. did he ever e-mail you back on total return. also did he mention to you what 150 year old company he is with and who to contact. thanks for any e-mail back for info. I like your comments. I don’t do much on this level. it sounds very interesting.
Jim

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DON YONCE
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DON YONCE

Whole Life Policy ‘ cash value’ after several years is great collateral for loans.

corbin auto
Guest

This is a topic that’s near to my heart… Take
care! Where are your contact details though?

wes
Guest

I am 81 years of age and have a large amount of cash in CDS and paying almost nothing.

What can I do to get a much better income stream on this asset. What can a 770 acct. do for me and my wife (76).

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Harold
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Harold

You need an annuity. Contact several of the largest insurance companies and compare what they offer. Be careful about fees. At your age the payout should be quite good.

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Gary
Guest

At age 81 and 76 dont pay a penny to any life insurance co. Invest your money in low cost, high dividend paying ETFS or funds. Vanguard is THE BEST. Their VYM or VIG are peerless.

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jamespaul108
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jamespaul108

Both VYM and VIG are good, but not risk-free. Both lost significant value in the 2008 downturn.

rkatz0
Member
👍5

THERE is NO RISK FREE! The top 10 companies that make up VYM and VIG if held in
equal proportions are the closest thing to a reduced risk you can get but the index might do better in the long run! It *might*, there is no guarantee.

rkatz0
Member
👍5

PS I personally have around 40% of my holdings in these indexes
and around 40% in Dividend Growth stocks and the other 20% in whatever
turns me on. I try to keep sector allocations balanced and position sizes low
(1-2%) so everything is diversified.

Deborah G Flynn
Guest

At that age I would simply look for a portfolio of good dividend stocks and a bond fund like
xmpt . i don’t know how much you have but a steady income stream is important. I have been buying income stocks for my own retirement to generate the gap in what we can draw down from annuities , SS payments and what we will need to live

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Paul Ray Millet
Guest

I have been researching investing for quite a few years. As an electronic test engineer formerly with Motorola, Intel, Orbital Sciences, etc. I have tested quite a few different strategies. The best one I have found is an online investment strategy with a base return rate of about 5% PER MONTH. Like I said, some of these positions only last a few days to a few months and you are out of them. I never enter a position without doing a ‘test’ on it first to see if it is likely to be profitable. I am not selling a book… Read More »

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Harry Liu
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Harry Liu

5% per month is almost 80% per year. that better than Warren Buffet. Would you share your way to invest?

Larry Williams
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Larry Williams

On a web site for the so-called “palm beach newsletter,” the people who promote this stuff have a presentation that claims that the 770 account comes from “the IRS legal code section that allows these accounts to exist.” Umm.. Earth calling: There is no such Internal Revenue Code provision numbered “770”. Per Internal Revenue Code section 101, life insurance proceeds received by reason of the death of the insured are non-taxable, and that’s no big, deep dark secret. Very unsophisticated sales pitch.

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brad tittle
Guest

I am guilty of having purchased products from both Wade Cook and Charles Givens. Between the two I spent $1400. Some might conclude that I had been ripped off, but I learned enough useful information from both of them that it was worthwhile. Givens made a very simple statement that is worth way more than the combined amount I spent… “Buy insurance as if you are going to die tomorrow, invest as if you are going to live forever!” Learn as much as you can about how money works and figure out what the scam is before jumping in. Both… Read More »

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Sheryl
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Sheryl

I have a whole life policy that now has cash value of more than I have put into it.
However, I’ve been paying tax on my premiums….where does the tax free aspect come in?

Larry Williams
Guest
Larry Williams

Dear Sheryl: If you’re speaking of life insurance, I think what you mean is that the payment of the premium is non-deductible for federal income tax purposes (which is correct). The benefit received by the policy beneficiary in the event of the death of the insured person is, per Internal Revenue Code section 101, non-taxable to the beneficiary. That’s where the tax-free aspect comes in.

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Larry Williams
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Larry Williams

Dear Sheryl: By the way, if you cancel the policy and thereby receive an amount equal to the cash surrender value at that time, the receipt of those funds is generally non-taxable to you. However, over the years, the payment of the premiums was non-deductible to you when you made the payments — and a portion of the premiums you would have paid would have been reflected as increases in the cash surrender value.

J PERKINS
Guest
J PERKINS

ANOTHER BENEFIT AFTER I’M DEATH. THANKS A LOT !!
WHY DO INSURANCE COMPANIES SELL THE INVESTMENT ASPECT?
BECAUSE THEY CAN. MAKE MORE MONEY.

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Russell Graham
Guest

love forgets all mistakes amen.

Chris Calabrese
Guest
Chris Calabrese

Sounds like a “LIRP” to me Life Insurance Retirement Plan. That is worth looking into with a good broker.

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Robert Davidson
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Robert Davidson

Please send more info. Thank You!!!
Bob Davidson

Edgar
Guest

The best is to sit down with life insurance agent who knows about this type of accounts. Don’t get your normal whole life or universal life insurance because it is not going to have the same results – it will probably benefit the insurance agent more than it will benefit you. I am in Nashville, TN and have dealt with those type of accounts for years. But if you are somewhere else, send me an email and I can probably find somebody that lives near by that can meet with you – and come up with a good plan based… Read More »

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Leo
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Leo

Wow, folks!! It seems like the only person who did the math was Mr. Perkins. Seriously insurance is risk protection not investment. Some of the math is hard, but do it.

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Terry
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Terry

Interesting discussion about Life Insurance and you are likely correct. However, I wonder if 770 accounts are not Trust accounts. You can search state of VA tax documents. Their Form 770 is for Trust account reporting. The rich have used trust accounts for generations. Might be worth a search.

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Larry Williams
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Larry Williams

A tax lawyer friend of mine (disclosure: I am also a tax lawyer and CPA) has theorized that the term “770” may have been dreamed up by the promoters of the “770 account” based on Internal Revenue Code section 7702 (which defines the term “life insurance contract” as used in the Internal Revenue Code). Whether that’s how the “770” label came about or not, by simply dropping the “2” and then claiming that their Jethro Bodine super-secret double-naught spy “770 account” is somehow based on a provision of the tax law, the promoters can fool unsuspecting readers in to thinking… Read More »

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Larry Williams
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Larry Williams

PS: I just noticed that at least one other poster here has already linked the “770 account” to “7702.”

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Harris Levy
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Harris Levy

The 7702 reference is to “Modified Endowment Contract” which definition is used as a bumper at the end of the track in our station in building the plan. If we put too moch money into the PUA segment, we lose tax advantgages. So, we ascertain the ideal mix or balance of life insurance and added deposits to achieve the desired result. It is not something that many life insurance people can handle. Call Harris Levy, better email harlind@optonline.net if in NY or NJ if in other states we may have a competent party to involve. There is so much wrong… Read More »

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Larry Williams
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Larry Williams

Dear Harris Levy: For what it’s worth, “modified endowment contracts” are covered by Internal Revenue Code section 7702A. They’re not even mentioned in section 7702 (these are two different provisions).

Arlene
Guest
Arlene

This thread is a life insurance agent’s dream come true! A herd of unsuspecting sheep volunteering -no begging!- to be fleeced! In an environment of ultra-low interest rates, the whole life concept sounds great to the average consumer because he doesn’t know the difference. No, I’m not a licensed anything, but I have done my homework. If you are reading the Gumshoe, then you have the time and intelligence to do the same. If you do, you’ll learn that paying an insurance company to buy term and invest the difference for you via any type of cash value policy (which… Read More »

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Harris Levy
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Harris Levy

Just make damned sure to die early enough for this to work.

arparkhill
Member
👍1
arparkhill

Oh! Forgot to mention that universal life policies are interest rate sensitive. That is, the premium quoted is based on the “assumed” interest rate for the accumulation account. If interest rates decline, then the premium must go up! Some companies will notify you, and let you decide if you are going to pay the larger premium or cancel the policy. others will quietly begin taking the difference from the accumultion account, effectively cannibalizing the policy. I say cannibalizing because once all the cash value is gone, the policy lapses. Imagine you bought one of these 10 years ago when assumed… Read More »

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andrea
Guest

EXCELLENT comment , specially with rate’s diving deeper these days. and looking to stay there for “a while”. People do set it and forget it” as tautedd by the insurance companies.

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John H
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John H

I’m 76 old and retirement plans have not gone the way I had anticipated. A $250K term policy just expired on Oct. 17 and the cost to continue is prohibitive so I’m entertaining buying a universal life policy of $3oK for about $1500 annual premium to cover funeral expenses. My wife and I are comfortable with soc. sec. and a small pension, but nothing extravagant. My health is very good, no problems whatsoever. Any advice?

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Arlene
Guest
Arlene

Not sure who your question is directed to John, but I would ask first if you have any debt? In the absence of debt, if you have enough savings to bury (or cremate) you without leaving your wife penniless, what is the insurance for? it doesn’t sound like you’re concerned about leaving a large estate to someone that needs the proceeds to pay taxes. Your wife would still recieve social security, and I assume the death benefit of your pension. The $30K insurance benefit would just be a bonus? That being said, if you don’t have long-term care insurance and… Read More »

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Jane S
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Jane S

Maybe I’m reading your situation wrongly, but I’m Just wondering why you don’t simply put aside the money for funeral expenses or pay for it in advance, and keep the $1500 you were going to spend on the annual premium.

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