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What Are the Tax Advantages of Life Insurance?

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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.

© 2024 Trajan® Wealth LLC. Nothing in this blog is intended as investment advice, nor is it an offer to buy or sell any security. Please consult your financial advisor for questions about your personal financial situation. All investments involve risk, including the potential for loss. Trajan Wealth clients and employees may have a position in any of the securities mentioned. Portfolio holdings and other data are subject to change at any time and without notice. Additionally, the above links provided as a convenience and for informational purposes only; they do not constitute an endorsement or an approval by Trajan Wealth, L.L.C., of any of the products, services or opinions of the corporation or organization or individual. Trajan Wealth, L.L.C., bears no responsibility for the accuracy, legality or content of the external site or for that of subsequent links. These materials are for informational and educational purposes and are not designed, nor intended, to apply to any person’s individual circumstances. It does not take into account the specific investment objectives, tax and financial condition, or particular needs of any specific person. Please consult with your legal and/or tax advisor before making any tax-related decisions.

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