Purchasing Life Insurance with Before-Tax Dollars

Today I want to talk about life insurance and how it can be purchased. Most of the time people buy life insurance with after-tax dollars — dollars that they’ve already paid taxes on. Since the SECURE Act was signed into law, one of the things we are doing more and more is looking at ways to buy life insurance that are creative and don’t affect your cash flow. For instance, if you have a business and you have a profit sharing or a 401(k) plan, that account can buy your life insurance. By doing so, you are now paying the premiums with dollars that have yet to be taxed.

This is a very big advantage for two reasons; 1) it’s using before-tax dollars, and 2) it helps people who are in a position where they do not have the cash flow or the ability to afford life insurance because their lifestyle cost is X and their income is Y. Your qualified account gives you another pool of money, worth the least to your heirs, because when you pass away with money in a qualified account, like an IRA, 401(k), profit-sharing plan, 457 plan or 403B plan, the government has to take their piece before your beneficiaries can enjoy their inheritance. And that might mean that you’re not only going to have to pay income tax on it but, for the wealthy, potentially estate tax as well.

The ability to purchase life insurance in that plan will enable the family to receive a significant amount of money from the policy, income tax free. This type of planning can be very helpful for many people that want to buy their life insurance, but don’t have the cash flow to pay for it.

If you have any questions or you’d like to learn more about this strategy and see if you can utilize it, give us a call and let us know. You’ll be glad you did.

Registered Representative offering Securities through American Portfolios Financial Services, Inc. (APFS) Member FINRA/SIPC. Investment Advisory Services are offered through G&G Planning Concepts, Inc. which is not affiliated with APFS.  Strategic Wealth Advisors Network and Gassman Financial Group are not affiliated with APFS.

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This material is for informational purposes only. Neither APFS nor its Representatives provide tax, legal or accounting advice. Please consult your own tax, legal or accounting professional before making any decisions.American Portfolios Financial Services, Inc.(APFS) and American Portfolios Advisors, Inc.(APA) are not affiliated with any other named business entities mentioned.