Posted by Cash value life insurance is often used to supplement the retirement income of individuals or families.When an insured retires, he can take money from his life insurance policy account as a pension on a monthly or yearly basis.Do I need to pay taxes on the money I took from life insurance?
This article does not discuss the tax issues of life insurance, but based on our point of view, gives the "normal" and "abnormal" watershed, and tries to help you who are thinking independently to judge whether your insurance policy meets these conditions.
At the same time, through the sharing of this article, we also hope to help policyholders understand,Why does this happen, and how to avoid these problems when applying for insurance.
Marketing social media is good at creating problems, amplifying "abnormalities", and then appearing in the role of "authority".If consumers cannot tolerate the dangers inherent in the free market and give up the responsibility of self-learning, consumers will succumb to the "biggest voice" in the noisy social media. -insurGuru Insurance Academy LBYB principle
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Under what circumstances will I receive tax forms?
American Life Insurance GuideThe editor consulted the CFP®️ Committee on"Cash Value" Life InsuranceTax regulations, which clearly states:
"Tax will be due only when the policy is surrendered or when withdrawals exceed the cost basis."
"onlyWhen surrendering the insurance,orWithdrawals exceed the total amount of premiums paidTaxes will only be incurred under the circumstances. "
This statement is very clear,In the first case,When you have a cash value life insurance, based on various reasons, you decide to surrender the insurance and take out all the cash value accumulated in the policy account.In this case, the policyholder will receiveLife insurance companyDocuments sent.
In the second case,It is the situation where the amount we directly withdraw (Withdrawals) from the policy account exceeds the principal deposited by us.For example, if we accumulatively deposit 10 premiums in the policy account, and over the years, the cash value in the policy account has accumulated to 15, then when we withdraw (Withdrawals) more than 10, we will receiveLife insurance companyDocuments sent.
What documents will life insurance send?What should I do after I receive it?
When the above situation occurs, the life insurance company usually mails the 1-R form to the insured person before the tax season every year-usually in January, as shown in the figure below.
In it2aIn part, the life insurance company has already helped the policyholder to calculate the income that needs to be declared for tax in the year.In the upcoming April, the insured will use this form for tax declaration.
Used forRetirement income planningIf you receive such a document,It means that an "unusual event" has occurred.And our core goal is to understand,Why does this happen, and how to avoid these problems when applying for insurance.
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How to avoid this situation?
Policyholders of retirement planning policies,Shouldn't encounter such problems.
For the use of life insuranceSupplementary retirement income planning, Focusing on the policyholder who took money from the policy before his death, encountering the above situationAll are abnormal.
Accepted unreasonable insurance product selection and design plans when applying for insurance, and lacked the professional services of life insurance brokers when receiving income.Are the two main causes of "abnormal".
Due to the unreasonable selection of products when applying for insurance, the policyholder was dissatisfied with the performance of the product after many years. Later, in the absence of professional help, he carried out a one-time extraction operation. This is the most common occurrence in reality. "Case.
Take "surrender" as an example. Many policyholders think this is a way of withdrawing cash from the policy account.But this is not a "tax-friendly" withdrawal method, nor is it the only way to get money.
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When you are ready to take money from the policy, be sure to contact yourLife Insurance Advisor, Understand the life insurance policy product you applied for, what are the options for withdrawing pensions, what are the advantages of different withdrawal plans, how to calculate the amount of money and design the most beneficial withdrawal plan, so as to avoid the above-mentioned "abnormal "problem.
Finally, we conclude again that taking money from a retirement planning life insurance account is a very flexible thing, and there is no standard answer.However, if the insurance product education and program choices that the insured received at the beginning are not good for them, then the chance of encountering "abnormal" after many years will greatly increase, and it will cost more to make up for the cost of repairing the "abnormal" .
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Frequently Asked Questions
1. My life insurance policy was terminated. I did not receive any money, but I received a 1099-R form from the insurance company. Why?
Answer: There is only one situation in which this happens.When the policy is terminated, there are still outstanding loans in the policy account, and the cash value of the policy has increased in the past time.If these three conditions are met, the insured person will receive the 3-R form.
Before the insurance is terminated, any cash borrowed from the policy is considered tax-free.To avoid this situation, we recommend choosing to have "Excessive loan protection function"Life insurance products."
2. The cash value of the life insurance policy account I applied for in the past was not satisfied with the growth, so I performed a 1035 conversion, but received a 1099-R form. Why?Isn't 1035 conversion tax-free?
Answer: The law requires life insurance companies to report all policy conversions.Therefore, if we upgrade the policy to 1035, we may also receive Form 1099-R.But in most cases, the taxable area in the table will be blank.
If during the 1035 conversion and upgrade, the policy has both benefits and loans, and there is no plan to transfer the loans to the new insurance company at this time, the old insurance company will calculate the value and fill it in the taxable area.If you insist on doing this, please be sure to contact a professionalLife insurance brokerPerform a policy account test. (Finish)
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