Life Insurance Available With Tax Relief.
Life insurance is a policy that provides death benefits for dependents of a person who has died. This ensures their needs are met. However, "life insurance" can be utilized in a different sense as to show the life insurance coverage available under the tax-exempted status of IRAs and 401K plans through HSA’s or Health Savings Accounts. For example, life expectancy calculator shows how long you will live based on your risk level and racial groups
This article will discuss different considerations for using life insurance as an investment opportunity with tax relief as well as conventional life insurances policies available to individuals in North America today. Primarily, this article is written to the benefit of those that have retirement savings plans and are wishing to use insurance as either an investment vehicle or as part of their estate planning strategies.
Life Insurance as an Investment: Life insurance can be used as an investment in several ways. One manner is through the use of what is called a Whole Life policy. These policies combine both term and permanent insurance and work like a savings plan at a bank. The premium payments go into the policy where it compounds tax-deferred until it is withdrawn upon death. Within which time, there are options that can be exercised by the owner such as loans against the cash value, conversion to variable universal life or adding more term insurance to increase cash value amounts. A very popular option is to convert to an Annuity where you can collect monthly payments for the rest of your life based on a number of factors which can be found in the digital or print versions of the policy. Once death occurs, you roll-over into a permanent agreement with an insurance company.
Estate Planning: There are three tax advantages that are commonly associated with using life insurance as part of estate planning strategies. The first is keeping principal amounts inside a retirement account where it is sheltered from federal taxation and second contributing to an account where it qualifies for the ROTH feature. Lastly, if the life insurance is issued by an Employer with a death benefit rider, then it can be used as part of a strategy to lower or eliminate estate taxes for those that pass away.
Tax Exempt: Tax-exempt is available on the interest earned on the cash value within the policy. This is similar to other tax-deferred retirement accounts such as IRAs or 401Ks. It is the basis for a very common strategy within retirement planning to invest in life insurance.
General Rules: Tax-exemption rules are put in place in order to avoid an excessive accumulation of wealth by the few, especially those that have inherited wealth. In general, amounts up to $5,000,000 per person ($10,000,000 per couple) can pass free of federal estate tax if certain provisions are met.
No Taxation Until Withdrawn: The policy owner is not taxed on yearly interest earned as they cannot access the cash value without it being paid out as part of the death benefits or surrender charges applied when a policy owner withdraws from a Whole Life insurance account before age 85 years old.
Tax-Exempt Interest: The interest earned on the policy is tax-exempt since it constitutes "covered interest" under the federal estate and gift tax laws. This means that no tax is paid on these amounts and they are subject to estate tax.
Taxable Interest: There is a capital gains tax attached to the cash value of the life insurance policy at death. This includes any cash value in excess of $1,000,000 per person although changes in basis rules will also apply for married couples filing joint returns if asset amounts are pooled into an account as part of estate planning strategies.
Federal Estate Tax Exemption Limits: The federal estate tax exemption limits have remained at $5,000,000 per person and $10,000,000 per couple since 2013. Prior to that it had been raised from $1,500,000 in 2001 to $3,500,000 in 2009 and up to $5,000,000 in 2010; since then the exemption limit has stayed the same. For deaths occurring Jan. 1 of 2019 or later the exemption is scheduled to increase to $11.4 million for individuals ($22.8 million for married couples).
State/Estate Tax Exemption Limits :The exemption limits are determined by state laws and vary significantly. In order to qualify for the federal estate tax exemption, the death policy must be purchased in a state that has an estate tax.
Rollovers: There is no rollover provision within Whole Life insurance policies. The cash value in the policy can be rolled over from a defined benefit plan if that plan also has an exclusion for retirement savings assets such as IRAs or 401Ks. This can be used to either lower taxes or eliminate taxes entirely in emergencies.
Death Benefits: The death benefits are defined within the policy and those benefits can be paid directly to the beneficiaries of a person’s choice. The beneficiaries can also use the proceeds as they wish while still maintaining an estate plan for tax planning purposes.
Income Tax: There is no income tax on death benefit proceeds nor are they taxable upon withdrawal unless premiums were paid with after-tax dollars.
Cost Basis: Cost basis rules apply remember that cost basis is used to determine gains or losses for any asset held beyond 12 months after it was acquired. This includes any and all income, losses, taxes and any other deductions from holding an asset as part of your portfolio strategy.
https://www.cnbc.com/2018/04/30/can-you-take-out-a-401k-or-ira-without-paying-taxes.html
http://www.wsj.com/articles/theres-no-rollover–but–whole–life–isnt–taxable–either–1492333599?mod=rss_LifeInsurance
http://www.investopedia.com/financialindependence/#axzz4E8kkf1al
http://www.lifeinsurancebyjcalson.com/?p=266
https://www.linkedin.
Conclusion: In closing, there are many ways for people to put together a strategy that would work best for their individual circumstances within their own individual lives. We may have different ideas about what our families’ and our personal futures will look like but we certainly can all find a way to make those visions work to our benefit. In order to do so, we must start by understanding and then working through the various concepts that life insurance can afford us as informed consumers. If we as consumers understand how insurance works, we can utilize it in order to identify both our needs and the probabilities of meeting those needs.