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Adding More Life Can Equal Less Tax in Retirement

When clients need death benefit protection, the right life insurance policy can be a solution that also helps with retirement and taxes. Nearly all retirement vehicles generate a tax bill. And for clients with higher incomes, there’s even more at stake. Life insurance can be a solution that helps with death, retirement, and taxes.

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Most Retirement Assets Make a Client’s Tax Bill Worse

Clients who want to maintain a higher income may find their retirement savings are going to work against them. Any income from tax-deferred vehicles will generate a tax bill. With a higher income, even their Social Security income may be taxed up to 85%! To add insult to injury, because of their tax-deferred nature, whatever retirement savings they don’t use for income in retirement will result in a tax bill for their heirs.

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When taxation occurs on common financial vehicles

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Taxation currently occurs on:

  • Certificates of Deposit
  • Stocks
  • Mutual funds
  • Bonds

Taxation occurs later on:

  • Pensions
  • Traditional IRAs
  • Annuities
  • Traditional 401(k)s, 403(b)s, and other employer-sponsored retirement plans
  • Social Security income

Taxation likely never occurs on:

  • Muni bond interest*
  • Life insurance death benefits and loans**
  • Roth IRAs, 401(k)s, and 403(b)s
  • Health Savings Accounts used for medical expenses

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But That’s Not All ...

Other taxes that are likely to continue to rise and will affect your clients’ retirement income include: 

  • State income tax
  • Municipal tax
  • Property tax
  • Sales tax
  • Gift tax

Be sure to consider them all when creating a strategy for the future.

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Add More Life to Help Tame the Tax Bill

Life insurance is a product solution that is unmatched in the financial world. In addition to providing a generally income tax-free death benefit (according to IRC §101(a)), it can help both reduce a growing tax bill and cover taxes in retirement. All this with:

  • No age restrictions on premium payments, loans, and withdrawals for the life of the policy.
  • No premium payment limits based on your income (although overfunding can create a MEC).**
  • No minimum distribution requirements based solely on age.

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Life Insurance Gives Clients Options to Help Reduce or Offset Taxes

Many life insurance policies offer tax-efficient growth potential that clients can:

  • Access through tax-free loans and withdrawals while alive***
  • Pass to heirs upon death to cover Income in Respect of Decedents (IRDs)
  • Leave to a trust to help offset taxation of the estate

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Advisors - Life Insurance

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How Tax-Deferred Cash Value Can Bolster Clients’ Retirement Strategies

  • Supplemental income,*** potentially helping to delay the need to take Social Security benefits until later in life
  • Increased retirement income*** if they are already maxing out contributions to qualified plans
  • A source of estate liquidity for their heirs to offset state and/or federal taxes
  • Funding for a trust to help preserve a legacy from taxes
  • A supplement to their existing retirement plans for business owner clients

With all that life insurance can do for your clients, building your business can be easy. Call our Sales Desk to learn how.

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Life Insurance: One Solution, Many Benefits.

We can help you build your practice using life insurance. Use our resources to protect and support your clients’ retirement dreams and help address taxes.

9 Tips to Protect affluent clients’ assets using life insurance  

Listen to a podcast: “Are Your Clients Overlooking a Tax-Free Retirement Income Source?”  

Review a client strategy: Tax-free retirement income

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Explore More Retirement Challenges

Add More Life to help solve some of these challenges without causing others.

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Life Insurance Sales Desk

    Call Us: 844-606-7868

   Email Us: lifesalesdesk@prudential.com

Unlock the Life Insurance in Retirement Planning sales strategy to learn more about how life insurance can help your clients meet their protection needs and plan for retirement.

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Footnote

  • * May have AMT consequences and may impact taxation of Social Security benefits.
  • ** 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.
  • *** 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/or NJ), and Pruco Life Insurance Company of New Jersey (in NY and/or NJ). All are Prudential Financial companies located in Newark, NJ.

For Compliance Use Only: 0298324-00003-00 Ed. 05/2017 Exp. 11/08/2018