- 1 May have AMT consequences and may impact taxation of Social Security benefits.
- 2 Federal tax law limits the amount of premium that can be paid into a policy for it to retain certain tax advantages. When premiums exceed this limit, the policy is classified as a modified endowment contract (MEC). Distributions from MECs (such as loans, withdrawals, and collateral assignments) are taxed less favorably than distributions from policies that are not MECs to the extent there is gain in the policy. For distributions from a MEC prior to age 59½, a federal income tax penalty may apply to the extent there is gain in the policy. However, death benefits are still generally received income tax-free pursuant to IRC §101(a). The death benefit will be reduced by any withdrawals or loans (plus unpaid interest). Clients should consult a tax advisor.
- 3 According to IRC §101(a).
- 4 Access to cash value is through loans and withdrawals. In general, loans are not taxable and withdrawals are taxable only when more money is taken out of the policy than has been paid in premiums. Loans and withdrawals may impact the ultimate death benefit payable to beneficiaries. If a policy lapses or terminates with an outstanding loan, the loan becomes immediately taxable to the extent of gain in the policy. Policies classified as MECs receive less favorable tax treatment.
Life insurance is issued by The Prudential Insurance Company of America, Pruco Life Insurance Company (except in NY), and Pruco Life Insurance Company of New Jersey (in NY). All are Prudential Financial companies located in Newark, NJ.
Cash value life insurance policies are issued by Pruco Life Insurance Company (except in NY), and Pruco Life Insurance Company of New Jersey (in NY). Variable universal life insurance policies are offered through Pruco Securities, LLC (member SIPC). All are Prudential Financial companies located in Newark, NJ.
Prudential Financial and its financial professionals do not give legal or tax advice. Your clients should consult their own advisors.
Created Exclusively for Use by Financial Professionals. Not for Consumer Use.
For Compliance Use Only: 1000597-00002-00 Ed. 12/2020