Good tax planning will help you reduce your taxes when you’re alive, and when it comes to leaving money to your beneficiary.
If you’re wondering: is life insurance taxable? The answer is “not necessarily.” The amount given to the policy’s beneficiary is typically paid out without taking out income tax from it. That’s huge! Contrast this with the taxes taken out when your beneficiary takes over individual retirement accounts, qualified retirement plans, or tax deferred annuities, where they could lose up to $.35/dollar.
When your heirs inherit the payout from a life insurance policy, they’re not worried about the chunk taken out by the IRS.
Secondly, whole and universal life insurance policies build up their cash value as you continue to pay your premiums. This pot of money can grow without being taxed (otherwise known as tax-deferred growth), and can eventually become an additional part of your overall financial health plan.
Finally, you’re able to withdraw or borrow cash from your policy without paying “cost basis” taxes, which is the amount paid into the policy. Be careful though, you’ll want to have a professional financial advisor look through your policy to make sure you’re not hit with a penalty tax, or put in a position where your policy lapses!
What to Consider When Looking at the Tax Advantages of My Life Insurance?
You’ll want a professional financial planner to examine your plan, so you can avoid any tax penalties. While there are potential tax advantages to utilizing your life insurance policies, there are also some specific guidelines you’ll need to take into account.
A professional financial advisor will ensure everything looks good so you can enjoy the benefits coming to you, or your beneficiary.
Trajan Wealth Can Help!
When it comes to making decisions for your financial well-being, our team is here to answer your questions, offer informed opinions, and help you get your finances set up in the way that best serves your financial needs and situation.
Contact us to find out how we can make your life insurance policy work for you.