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Why are wealth accumulation and tax planning important to you?  Naturally, you want to keep more of your money for yourself. However, it is also quite likely that you are trying to preserve your legacy and look after the ones you care about even after you are gone.  Today’s tip will teach you how to do both and make the most of the tax code’s biggest benefit that too few CPAs talk about – using permanent life insurance.

Permanent Life Insurance is a Great Long-Term Tax Planning Strategy

Yes, I said it.  I am well aware that there are many who howl at the thought of permanent life insurance.  As a CPA who does not sell insurance, it is important to note that the benefits outlined here are seen through the lens of a financial and tax expert, and not through the eyes of an insurance salesman. It is also worth noting for clarity that this article is discussing only permanent life insurance, also referred to as whole life insurance, which is different from term life insurance

  • Permanent Life Insurance:  Whole life insurance is an investment.  Your policy has an actual cash value that you can tap into before your passing if need be, though the policy is intended to be kept active and paid throughout the course of your life.
  • Term Life Insurance:  On the other hand, term life insurance has no cash value, aside from what a beneficiary may receive after your passing.  It is generally not considered a lifelong plan, but rather a security blanket for those you leave behind if you should pass away earlier than you expect.  Since it comes with fewer benefits, term life is less expensive than permanent life insurance.  There is nothing wrong with having term life insurance.  In fact, in a lot of cases, having a lot of term insurance along with some permanent insurance can be a very good strategy.


Permanent Life Insurance Tops Other Common Investment Options


  • Since permanent life insurance is not taxed on disbursement, future tax rates cannot impact the amount paid out.  The money disbursed to your beneficiaries from a permanent life insurance policy are tax-free when taken in a lump sum, as opposed to payments over time. This is much different from a 401(k), which comes with total uncertainty regarding how much will be taken by the government when funds are released.
  • Rather than creating debt, you are creating pure wealth with life insurance.  Whether your alternate options are a 401(k) or IRA, the tax difference means that tax debt is accruing alongside the funds.  This is not a concern with life insurance, as only the value grows over time.  The money you invest goes further and builds quicker.
  • You are not forced to take money out, as you are with other investment options such as IRAs.  With the exception of Roth IRAs, annual required minimum distributions (RMDs) are necessary after a person reaches age 70 ½.  This not only takes control of your money out of your hands but also forces you to pay the taxes then and there.  Perhaps at a time when you do not even require funds. That is not to say that IRAs are all bad.  Roth IRAs, in particular, can be beneficial.  However, with their limitations and the difficulties associated with building large balances, it may be more beneficial for someone in a high-income bracket to avoid the pitfalls with a life insurance policy instead.
  • Two of the biggest risks associated with retirement investments are mitigated.  Given that the funds are not dependent on the economy, stocks, bonds, or anything else, there is virtually no risk associated with life insurance.  There is also no worry about what the tax rate will be when the money is disbursed.


Get More Information on Tax Benefits You Are Missing

The best way to learn which tax laws can benefit you most is to sit down with an expert and create a custom plan to build your wealth and minimize your tax obligations. If you would like more information, contact us today.


Dan Lucas
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