How to Create Tax-Free Income by Banking on Yourself
There is one over looked strategy that can be used like your own little private bank and create tax-free income at the same time.
Tax-free income can be obtained from the IUL by taking tax-free loans against the cash value. These loans work similarly to home equity loans in the sense that the investor does not pay income tax on the money borrowed. Unlike a home equity loan, though, the investor does not have to pay back the loan balance during their lifetime. This is pertinent to tax codes 7702 and 72(e).
We expect taxes1 to move up rather than down from here over time so having a source of income tax free during retirement3 is crucial going forward. When evaluating an IUL policy you need to work with an advisor who can properly design the policy to obtain the most tax benefit from it.
You can actually dump a large sum into an IUL but in doing so you would be creating a modified endowment or a MEC and that would adversely affect your tax-free distributions. So the way to do it as an example using 250k would be to spread it over five annual payments of 50k each thus avoiding creating a MEC. There are some companies that allow you to deposit your lump some premium into a deposit account earning 2% interest on your premium while waiting to be applied to the policy.
To get the best understating of how you can benefit from an IUL you need a custom illustration created based your objective by an adviser well versed in this subject.
Stuart Chamberlin
Chamberlin Financial
561-962-2775
email us here
1 http://www.chamberlinfinancial.com/resource-center/tax/the-fact-about-income-tax?utm_campaign=The+Facts+About+Income+Tax&utm_medium=email&utm_source=contacts:all&utm_content=video+image+link&utm_term=FEB+2017&cmid=529037b9-21c8-4dc2-8f5a-3235f447b067
2 https://www.allianzlife.com/life-insurance/fixed-index-universal-life/life-pro-plus/video
3 http://www.chamberlinfinancial.com/resource-center/retirement/an-inside-look-at-retirement-living