Posted by Biden AdministrationOn September 9th, the tax reform proposal was published, including the proposal for high-income groups (Households with annual taxable income of more than $45/individuals with $40) Income tax, corporate income tax, retirement plans for high-income groups,Inheritance and gift taxAnd other related amendments.
The tax reform proposal is forHigh-income groupThe potential impact of TLT (TheLifeTank.com) will beWealth Inheritance ColumnInterpretation and analysis.
And for the largest numberMiddle class(Families with annual taxable income of less than $45/individuals with annual taxable income of $40) Families, when looking around for tax incentives for middle-class families, few people mention the benefits of life insurance.
American life insurance provides powerful tax incentives, which can provide comprehensive protection for families, help middle-class families accumulate assets, and the ability to inherit wealth for the next generation we care about.
Despite the various benefits, most families and some financial advisers still do not know that there are many tax reliefs for the broad middle class in their life insurance accounts.
This article further introduces and emphasizes these advantages before the Biden tax reform plan officially takes effect.
1. No tax for annual appreciation
Life insurance accounts with cash value, especially insured accounts whose main goal is the accumulation of cash value, will generate cash value with the accumulation of premiums and the passage of time.
It’s not the same as buying and selling stock funds, or earning dividends.The annual value-added part of the cash value in the life insurance account does not need to be taxed that year.
In this type of life insurance account, the cash income earned is currently not taxed.Especially when we are faced with the Biden tax reform proposal to increase the capital gains tax, this advantage of life insurance accounts is more competitive.
2. Wealth inheritance is tax-free
The death of a person is an inevitable event.Therefore, we usually use multiple leverages of life insurance to pass on a huge amount of wealth to beneficiaries or institutions such as children.
Many people usually ignore this tax benefit,That is this way of inheriting wealth, which is completely tax-free.
Life insurance can be used to use death claims to create a tax-free inheritance for the beneficiary or beneficiary entity.
This wealth can serve family members, charities, religious organizations, or educational institutions, etc.This approach allows us to use life insurance to inherit a spiritual wealth, promote social influence, and benefit more members of society.
The exception is that if the amount of the insurance policy for wealth inheritance is too large, it may beTrigger estate tax, Please discuss with professional insurance planners.
3. Tax-free supplementary retirement income channels
Policyholders with cash value insurance policies can withdraw or borrow cash from their life insurance policy accounts on a monthly or annual basis as an annual supplementary retirement income.
Certain withdrawals or loans are not subject to personal income tax.
If we withdraw money from the insurance account, it will reduce the death benefit and the cash value of the policy, which is equivalent to "using" the death benefit left to the beneficiary in advance.
(>>>Recommended reading:How to use life insurance to increase retirement income?）
4. Income tax exemption for insurance claims
Most people don’t know that life insurance claims are not subject to income tax.
Our children, or beneficiaries, received death claims from insurance companies——This money is usually cash in full-it does not need to be declared as taxable income.
To be precise, this money became the income of the beneficiary that year, and this income does not have to pay taxes to the federal and state governments.
The beneficiaries can freely dispose of this wealth according to their own wishes.
5. Tax incentives for withdrawing money at any time
Another unknown feature of life insurance accounts is that life insurance allows account holders to use tax-friendly loan and withdrawal methods to withdraw cash from policy accounts.
From the life insurance account directly withdrawing the cash value, up to the amount of "premium cost", there is no need to pay tax.For example, in the past 10 years, if we have deposited a total of US$20 in premiums, and now the policy account has increased to US$40, then we directly withdraw US$20 without paying taxes.
If we borrow money directly from our life insurance account—borrow money from ourselves—there is no “premium cost” restriction, and this money is not subject to income tax.
The legal provisions do not stipulate how the insured must withdraw money from the life insurance account, and there are no corresponding regulatory restrictions.
This way of withdrawing money on demand from the policy account provides us with great flexibility.
We can use this money to pay for a vacation trip, or family decoration, etc.
(>>>Recommended reading:What is going on with "borrowing money" from a life insurance account?How is it different from a bank loan?）
Article summary
Various types of marketing and frequent news of getting rich overnight often push many middle-class families into extremely risky trading markets.
However, the fact is that the vast majority of ordinary people are not suitable for stocks.Warren Buffett also put forward a famous piece of advice,Some people are inherently unsuitable for buying stocks.
And when we try to find financial channels and tax incentives for middle-class families, we rarely mention the advantages of American life insurance.
如果Biden Tax ReformThe proposal has come into effect. The increase in capital gains tax and the tax-free retirement account conversion strategy that will be closed in 2022 will further reduce the wealth management channel space for the majority of middle-class families.The five major tax advantages of life insurance will provide more families with a competitive choice. (End of full text)
