- 24,978
Independents: Some of this one, Some of that one, and that one. One size does not fit all.
Life Insurance Tax Advantages Repealed if Trump Wins
- Thread starter Justin Bilyj
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- life insurance
Independents: Some of this one, Some of that one, and that one. One size does not fit all.
- 1,405
So if I keep my permanent policy until I die, and not remove cash from it, nothing is taxed. Is that correct?
- Thread starter
- #23
unless he decides to tax the growth...
- 11,278
No. The classic tax attack on cash value life insurance is to remove the tax-deferral nature of the product and make its gains (interest & dividends) taxable as ordinary income, just like it is with CDs, money markets, or brokerage accounts.
It won't be capital gains because you'd have to have something to sell and a gain to realize in order for it to be considered a capital gain.
EE (the OP) is suggesting that Trump would remove that exemption (privilege) for higher income earners. Probably just those at the highest tax bracket, but that's just my guess.
It won't be capital gains because you'd have to have something to sell and a gain to realize in order for it to be considered a capital gain.
EE (the OP) is suggesting that Trump would remove that exemption (privilege) for higher income earners. Probably just those at the highest tax bracket, but that's just my guess.
- 1,405
Typically you pay capital gains taxes when you dispose of the investment. If you don't dispose of the investment, then the tax defers. At death you have a deemed disposition.
If I have a whole life policy, with cash value, and I don't remove money from the product, then what does the government tax? And if I didn't take money from the product, where would I get the money to pay the tax on money I did not receive?
The devil is in the details; the mechanics.
If I have a whole life policy, with cash value, and I don't remove money from the product, then what does the government tax? And if I didn't take money from the product, where would I get the money to pay the tax on money I did not receive?
The devil is in the details; the mechanics.
- Thread starter
- #26
If they open a doorway, they will open it all the way. Either way, if that passed the only people who have the money to use these vehicles in a tax-advantageous format will no longer have a use for it, Whole life sales would plummet imo. I wonder how this would affect BOLI...that would be interesting.
- 11,278
If you have a certificate of deposit, and it earns interest, you will have a taxable event for the year. How and where you get the money to pay the tax doesn't matter... as long as you do.
If you have mutual funds, and even if you don't SELL them, you may still have capital gain distributions, interest, and dividends. You will have a taxable event for the year if the mutual funds are held outside of a retirement plan. How and where you get the money to pay the tax doesn't matter... as long as you do.
Cash value life insurance earns interest and dividends. Dividends are classified by the IRS as a "return of excess premium" in order to preserve their tax-preferred status. Variable life policies may also have capital gain distributions, interest, and dividends. The IRS won't care how and where you get the money to pay the new imposed tax on the increased values of your cash value life insurance policy above your premium contributions... as long as you do.
If and/or when life insurance becomes a taxable asset, it will be comparable to the above... NOT comparable to an individual dividend-paying stock (stock dividends are taxable) or the market value of a home.
The devil is in the details; the mechanics.
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Remember that they already changed the taxation of executive benefit plans (section 162 plans) about 10 years ago or so.
Name one that was signed this month.
No I know there's a process followed to create the sort of change on the magnitude you are suggesting and it doesn't happen by executive order.
I also know there's a rather complex system of nuance beyond just the creation of law.
- 11,278
https://www.whitehouse.gov/briefing-room/presidential-actions/executive-orders
How about 3 for September, 2015?
And that's whitehouse.gov... not any other political website.
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BTW, I'm so glad you stick with term life insurance instead of doing any planning - especially with businesses.
Did you know that if you have a taxable estate, regardless of liquidity, the IRS needs to be paid in CASH whatever the estate tax is?
If you have a business worth $10 million and if the estate tax is 50%, that's $5 million due to the IRS (not including any exemptions, etc.).
If you don't pay the $5 million... they'll seize the assets. If you don't have the cash, you'll have to generally do a 'fire sale' where everything is sold at a discount... thereby gutting the value of the business.
Just because you have a taxable event happen, doesn't mean that you'll be guaranteed to have the cash to pay the taxes when they are due.
The devil is in the details; the mechanics.
How about 3 for September, 2015?
And that's whitehouse.gov... not any other political website.
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BTW, I'm so glad you stick with term life insurance instead of doing any planning - especially with businesses.
Did you know that if you have a taxable estate, regardless of liquidity, the IRS needs to be paid in CASH whatever the estate tax is?
If you have a business worth $10 million and if the estate tax is 50%, that's $5 million due to the IRS (not including any exemptions, etc.).
If you don't pay the $5 million... they'll seize the assets. If you don't have the cash, you'll have to generally do a 'fire sale' where everything is sold at a discount... thereby gutting the value of the business.
Just because you have a taxable event happen, doesn't mean that you'll be guaranteed to have the cash to pay the taxes when they are due.
The devil is in the details; the mechanics.
- 1,405
Let's try to discuss this at the simplest level first.
Assume I have a non-par, whole life policy. Cash values are the only element that has a "value" other than the death benefit.
1. Are we all on the same page, that the death benefit isn't taxable?
2. Cash surrender values - only become a value if I quit the policy. If I don't quit, they are simply a "potential" disposition. How does that get taxed?
Let's not complicate it beyond that, to begin with.
