Why Should a High Income Earning Professional Consider Whole Life? 3 Reasons.


1. Income Taxes

Issue/Concern: Where can I create additional deductions, or at the very least, reduce my interest and dividend income tax without sacrificing return potential. I'm also concerned about a rising tax environment during retirement….what can I do?

Whole Life Insurance as a Strategy: When properly structured, whole life insurance can provide tax free income to the owner. Having the ability to draw tax free funds from an account during a period of high capital gains and/or income taxes, allows the owner time for tax law to change (again).

2. SEP-IRA / Qualified Plan limits

Issue/Concern: I maximize my SEP-IRA every year…what else can I do?

Whole Life Insurance as a Strategy: Non-Qualified Plans funded with whole life insurance tend to be explored because of the flexibility, high limits, and tax benefits. There is no discrimination testing with non-qualified plans so, for example, the business owner could establish it solely for himself/herself. Properly structured whole life insurance policies can be 'over funded' (not to exceed MEC guidelines*) to take advantage of the tax deferred build up of cash values. Finally, because there is no tax deduction on contributions into the plan, the ability to take tax free distributions in retirement can provide much needed flexibility and 'tax diversification'.

3. Investment Concentration / Lack of Diversification

Issue/Concern: You save into what you know. If you're in the real estate business, your retirement assets are predominantly real estate. If you're in the banking or financial industry, your retirement assets are predominantly invested into the stock market. If you're a doctor/attorney, you may do a little of both. As we've seen, however, the challenge is that no asset class is guaranteed to outperform.

Whole Life Insurance as a Strategy: Whole life insurance provides an alternative, tax favored vehicle to supplement primary retirement accounts. Returns inside of competitive whole life contracts, outperformed most all other asset classes during the recent economic challenges.

This publication is offered for the purposes of education and information only and should not be considered tax or legal advice. For more information on your specific situation, please consult your legal or tax advisor. Neither Guardian, nor its subsidiaries, agents, or employees provide tax or legal advice.

* If the policy is a Modified Endowment Contract (MEC), any loan and any distribution is considered a withdrawal. These withdrawals are distributed as gain first and subject to ordinary income taxes. If the insured is under age 59 1/2, the gain portion of the withdrawal is subject to a 10% tax penalty.