If you’ve done your homework, there is a good chance you already know about the different vehicles to leverage when creating a financial plan. Even though most people tend to be more familiar with more ‘traditional’ avenues, like employer-sponsored 401(k) plans and Individual Retirement Accounts (IRAs), there is more to it than meets the eye.
Actually, there are many more additional options that investors and retirees aren’t aware of. One of these is the IRC 7702 Plan. Considering most people tend to have their retirement in a tax-deferred vehicle, they tend to underestimate how much their taxes will be upon retiring. That’s why you should do a bit of research to find answers to some of your burning questions.
So, what is an IRC Section 7702 Plan and how does it work? Named for a section of the Internal Revenue Code (IRC), the 7702 plan is a specific type of permanent or cash value life insurance policy. It can be leveraged for numerous tax benefits, including supplementing your retirement income with tax-free funds.
Sometimes 7702 plans work in a similar manner like other permanent life insurance policies. For example, they’re contracts between a policyholder and the offering insurance company. As long as the plans meet certain regulations, a portion of the premium you pay into a 7702 plan goes towards building up cash savings while another portion goes towards the cost of the insurance coverage.
Although a good number of individuals prefer purchasing life insurance for the death benefit proceeds, it can provide for debt payoff and income replacement. The reality is that these flexible financial tools can be leveraged for so much more, even when the insured is still alive.
Remember, there are different types of cash value life insurance options to choose from. Among the most notable ones worth your attention include whole life insurance, universal life insurance, variable life insurance, variable universal life insurance, and indexed universal life insurance.
Take it upon yourself to understand what they entail since they use different parameters for how the return in their cash value components is determined.