We train clients to call us when a tax opportunity arises or a tax problem raises its ugly head. This article is about one of the best tax opportunities in all the books — even in the best tax books.

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Okay, you are a new Mom or Dad (or Grandma or Grandpa). Using the miracle of tax-free compounding you can use a small amount of money to create millions of dollars.

For example, give someone in a group a penny. Tell them it’s the next day and exchange the penny for 2 cents; 4 cents for the 2 cents on the next day; and so on, doubling the number of pennies each day for a month. Then, ask the group how much money they would have after 30 days? (Want to stop reading for a moment and venture a guess yourself? Write down your answer.) Rarely, does anyone come close to the right answer. A drum roll. Followed by the answer… Would you believe over $10 million? Try it.

Now let’s take a look at some actual illustrations (we call them Private Retirement Plans or a PRP, for short) prepared for our real-life clients, which takes advantage of tax-free compounding.

This client, Joe, (a real client from New Jersey who winters in Florida) wanted to know what the retirement amount would be for his new grandson, David, if he put away $10,000 per year for seven years in a PRP. The projected plan would allow the funds to accumulate until David attains age 65. Are you ready? David would get $98,381 every year, for 30 years, to age 95.

More than $21 million. My, how those tax-free pennies grow!

Actually, Joe would make a $10,000 gift each year (for seven years) to a trust created for David’s benefit. Then the trust will pay the premiums on a high cash surrender life insurance policy on David’s life. If David were to die before age 95, a death benefit (the amount in millions of dollars varying with the age of death; the longer David might live, the larger the death benefit) would be paid to his heirs.

Another client, Jack, wanted a PRP for his granddaughter (Sara, age 9) to provide $120,000 ($30,000 per year for four years) for a college education and $70,000 at age 32 as a down payment on a house. The retirement payments to Sara starting at age 62 (to be paid until age 95) were projected to be $187,653 per year.

The computer genius, Lou Robinson — her real name — of the Orchard Group in Chicago told us Grandpa Jack’s plan could be implemented for an annual premium of just $10,000 for 9 years. A total investment of only $90,000 will not only get Sara started in life, but will take care of her retirement. Truly amazing!

This article could go on to become a small book with endless examples to exactly fit your various specific ages and plan requirements.

Instead, here’s the most important point to remember: A PRP works well as long as the person receiving the benefits is about age 45 or younger.

Two significant factors make a PRP work: time (the more the better) and the fact that a quirk in our crazy tax law allows the funds in the PRP to compound without being subject to taxes.

Also, females get benefits (more funds accumulated over time) of about 10 percent greater than males of the same age.

A final tax idea: young dads (up to about age 45) use a PRP to kill two birds with one (an insurance premium) stone.

(1) a need for insurance coverage for his family if he gets hit by a bus early in life and (2) a retirement plan if he lives to a ripe old age

Want to learn more about how a PRP can enrich the younger members of your family — tax-free? Send for Strategy #10, Private Retirement Plan ($19) to Book Division, Blackman Kallick Bartelstein, LLP, 10 South Riverside Plaza, 9th Floor, Chicago, IL 60606.

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Irv Blackman is a certified public accountant and lawyer who specializes in estate planning, business succession and asset protection. Contact him at wealthy@blackmankallick.com or call 417-9732. His Web site is www.taxsecretsofthewealthy.com.