What if you could:
Provide an income tax-free death benefit for the people who depend on you.
Defer Taxes as your accumulated cash value grows
Potentially access that cash value using income tax-free policy loans and withdrawals, to use for retirement income or other needs.
Strategies to Save for Retirement
After Tax Strategy – when you set aside a portion of your after tax income into an account earmarked for retirement. Taxes are paid annually on any earnings. An example of this type of savings is a Certificate of Deposit.
Tax-Deferred Strategy – when you set aside a portion of your after tax income for retirement, earnings on the account grow tax-deferred. When retirement income is taken, taxes are due on the tax-deferred gain. A Nondeductible IRA or an annuity is an example of this type of savings.
Pre-Tax Strategy – might include an Employer sponsored qualified plan, like a 401(k) and 403(b) plan. You don’t pay current taxes on contributions made to the plan and earnings grow tax-deferred. Later when you take retirement income the benefits are income taxable.
Tax-Free Strategy – is similar to the Tax-Deferred Strategy: you set aside a portion of your after tax income, and earnings grow tax-deferred. Retirement income is received income tax free. A Roth IRA is an example of this type of savings. Another type of financial vehicle is permanent life insurance.
It’s not just about how much you can accumulate for retirement… It’s how much you can keep after Taxes
If you were a farmer, would you rather be taxed on the seed or the harvest?
When you save on a before tax basis, such as a Traditional IRA, your contributions are usually tax deductible. The tradeoff is all income received is taxed as ordinary income. If you make a withdrawal prior to age 591/2 you may incur an additional 10% penalty. This leaves you exposed to potentially higher future tax rates. If you believe taxes are going up this could be devastating to your retirement income. In this example, you are taxed on the harvest. On the tax-free side, in our example of a Roth IRA, the contributions, i.e., (the seeds), are taxed before they are deposited and both the contributions and earnings may be tax-exempt,3 thereby insulating you from possible future tax rate increases.
3 To qualify for the federal tax-free and penalty-free withdrawal of earnings, a Roth IRA must be in place for at least five years, and the distribution must take place after age 591/2 or due to death, disability, or a qualified special purpose distribution, which is a qualified first-time home purchase (up to a $10,000 lifetime maximum). Depending upon state law, Roth IRA distributions may be subject to state taxes.
What direction do you think future tax rates are going to go?
Your outlook on future tax may effect your retirement strategy.
If you think future tax rates will be lower, then saving today on a pre-tax basis, such as a qualified plan or Traditional IRA, makes a lot of sense.
If you think future tax rates will be higher, then you may want to consider a tax-free retirement strategy such as a Roth IRA or permanent life insurance.
What are your options if you don’t qualify for a Roth IRA, or if you want to contribute more?
Permanent Life Insurance: The primary purpose for purchasing permanent life insurance is for the death benefit protection that it provides. However, permanent life insurance offers the ability to build up tax-deferred cash value that can be accessed during your lifetime to generate a stream of retirement income – potentially income tax free.
4. Payment of Accelerated Benefits will reduce the Cash Value and Death Benefit otherwise payable under the policy. Receipt of accelerated benefits may be a taxable event and may affect your eligibility for public assistance programs, and may reduce or eliminate other policy and rider benefits. Please consult your personal tax advisor to determine the tax status of any benefits paid under this rider and with social service agencies concerning how receipt of such a payment will affect you. There is generally no restriction placed on the use of the benefit received. Riders are supplemental benefits that can be added to a life insurance policy and are not suitable unless you also have a need for life insurance. Riders are optional, may require additional premium and may not be available in all states or on all products. This is not a solicitation of any specific insurance policy.
Permanent Life Insurance Provides:
- Income tax-free death benefit
- Tax-Deferred build-up of cash value
- Potential Tax-Free retirement income
Tax-Free Retirement Strategy Using Permanent Life Insurance
Additional Benefits of Permanent Life Insurance
Self completing
In the event of a premature death, the income tax-free death benefit would help fund your spouse’s retirement goals.
Access to funds in the event of illness
Accelerated Benefit Riders are available at no additional cost and may allow you to access all or a part of your death benefit to help pay for costs associated with a terminal, chronic or critical illness.
Protection in the event of disability
For an additional fee, many policies offer an optional Waiver of Premium Rider that continues to pay your planned premiums if you became permanently disabled, keeping your policy on track with your original accumulation goals.
Permanent life insurance may be the solution.
If you have someone who depends on you financially, then you may need life insurance. In addition to the death benefit protection, permanent insurance cash value can also serve as an accumulation vehicle, with some great tax advantages. Premiums are determined based on the amount of coverage you need and distributions, through tax-free withdrawals and loans, can generally be taken after your first policy anniversary. Your insurance agent can help you determine the best coverage to meet your goals.
