Tax Shelter Investments 101

Whole life insurance tax shelter investments

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Are you preparing for tax season? January 31 is the last day for employers to mail W-2 forms to employees. You may also have 1099s or other forms regarding your investments, such as 401(k)s, IRAs, HSAs, and various types of  insurance. It can be confusing to know what you actually have to account for when it comes to paying taxes. In particular, what taxes do you have to pay on your whole life insurance policy?

Tax shelter investments like whole life insurance offer a variety of benefits, including keeping more of your money out of the hands of the IRS. In fact, there are only two instances where you’re required to claim money in a life insurance policy on your taxes:

  1. When a death benefit is paid in installments instead of one lump sum. 
  2. If you’re heir to an estate valued above $11.58 million.

The following instances do not need to be claimed on your taxes*:

  • Dividends from your mutual whole life insurance provider, as long as they don’t exceed the amount you’ve paid in insurance premiums.
  • The cash value of your life insurance policy.
  • A death benefit you receive in one lump sum, not to exceed $11.58 million.
  • Accelerated death benefits for terminally or chronically ill policyholders.

Tax Shelter Investments & The Wealth Maximization Account™

Dividend-paying whole life insurance policies are great ways to grow your wealth and protect it from the IRS. When structured in a Wealth Maximization Account, they provide liquidity and control not found in typical investment vehicles like a 401(k) or IRA. These are dependent upon the stock market and are subject to penalties for early withdrawal. 

A Wealth Maximization Account offers these unique tax benefits over other types of investments:

  • Income tax-free death benefit
  • Growth of cash value can be used tax free
  • Tax-free retirement income
  • Tax-free policy loans
  • Estate tax-free death benefit
  • Earns interest and dividends tax free

Beyond the tax advantages of using whole life insurance in a Wealth Maximization Account, this type of investment is structured for maximum cash value. It’s one of the most lucrative short- and long-term investments to keep money off the IRS radar. Request a free virtual consultation to learn more about how a Wealth Maximization Account can help you grow and protect your income.

*For specific tax questions, please consult your tax advisor.

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