Tax Free Insurance Withdrawls

Submitted by Jed Stander on Sun, 2020-06-07 07:18

My wife and I watched Ed Slott’s Tax Free Life Insurance presentation. We understand about using an IRA to pay for a tax free life insurance, but we don’t understand what type of life insurance is tax free for withdrawals from the policy, or or how it can multiply to many times the IRA investment to pay for it. Is it a special life insurance annuity, or such? We are stumped.

Thank you for any clarification.



Submitted by Alan - IRA critic on Sun, 2020-06-07 15:42

  • Like just about anything else, life insurance products have become quite complex, but amounts you can withdraw while still living will be tax free, as will the death benefit. The collapse of interest rates is going to generally reduce the amount cash value generated by these policies, as it is expected that the current rates will remain low for quite some time. The life contract can be structured to accent the cash value accumulated vs the death benefit depending on your desired goals. The following is a UTube explanation which may help. Note that the “expenses” referred to are likely mostly commission costs with some other fixed expenses added in. I will assume that if you are primarily interested in the tax free death benefit, your medical condition and age will have a higher effect on the premium or underwriting acceptance of the policy. Of course, if you are subject to RMDs when the life product premiums are due, your tax rate will be affected by both the RMD and the additional amount you withdraw to pay premiums (unless your RMD is large enough to cover your daily expenses in addition to the premium. That makes 2020 a rare opportunity to either do a Roth conversion of purchase one of the life policies since there are no RMDs due this year.
  • https://www.youtube.com/watch?v=L3XGit63KqY

Submitted by Jed Stander on Wed, 2020-06-10 06:10

Alan, thank you soooo much for your reply, and referring us to the youtube information.  That was precisely what we were looking for associated with the question that we posed to you.  We’re too old for the product type to take advatage of it; nevertheless, it answered the question that we posed to you, and we sincerely appreciate your assistance!!!

Submitted by Brett Sause on Thu, 2023-05-25 12:06

We do this concept with our clients all the time. 

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