Account Ideal Characteristics

The objective is to outline the desired potential benefits one would like the private reserve to exhibit.

When looking for a vehicle to serve as your private reserve account, you're going to want to look for an account that has characteristics and benefits that meet your needs. Well let's talk about some of those. One of the things you're really going to want is tax deferred growth on your money. Compounding interest in a taxable account is not going to serve you very well. Tax free distribution would be awesome - to be able to get the money out without needing to pay taxes. You would like to get a competitive rate of return during the accumulation phase (when you're putting the money in the tank.) You would like to put in as much as you want - thus having high contribution limits. Deductible contributions would be preferred. Collateralization opportunities is a key.  Remember, if the account you're thinking about will not allow you to collateralize, thus forcing you to drain the tank, that account will not function well as your private reserve. A safe harbor - you want the money in an account that's safe. You would prefer no loss provisions - meaning you can't lose this money. You would also want guaranteed loan options. If you're going to collateralize loans from time to time, you're going to want to be able to do it at your discretion with guaranteed access. Unstructured loan payments would be preferred - meaning you do want to pay the money back, but you're not under any obligation to do so on a set and rigid schedule, thus eliminating the pressure of forced payments. You would want liquidity, use and control of the money at all times. And then finally additional benefits such as death protection, disability waivers and maybe even lawsuit protection.

While many accounts will work as a private reserve, there are some that will work better than others.

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