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Generally, life insurance proceeds received by a beneficiary are received income tax free. Permanent, cash value, life insurance allows for tax deferred accumulation, tax advantaged income and income tax free death benefit. Withdrawals and loans reduce the policy’s cash value and death benefit, and withdrawals in excess of the policy’s basis are taxable. However, under current rules, loans are free of income tax as long as the policy remains in force until the insured’s death. At that time the loan will be satisfied from the income tax free death benefit.
Structured properly, cash valued life insurance can provide for a robust tax deferred accumulation and distribution (retirement income) option to supplement other tax advantaged savings plans such as 401k’s, Simple IRA’s, SEP’s, IRA’s, etc.
Fahmy & Associates, Inc, does not provide tax or legal advice. The tax information and tables above are for illustrative purposes only and are not intended as tax, accounting or legal advice. Fahmy & Associates, Inc. does not guarantee or accept liability for the accuracy of this information. Please consult with a licensed CPA or ax attorney for more information.