If you’re familiar with the Internal Revenue Code (IRC), there is a good chance you have about the IRC section 7702. This section defines the type of life insurance contract that receives tax benefits. A 7702 plan in common terms is regarded as cash value life insurance.
Upon payment of premiums on these cash value policies, you pay with after-tax dollars. For this reason, the cash value in the policy grows tax-deferred. In this blog post, we will take you through some of the important things you should know regarding the 7702 plan.
What is a 7702 Plan?
A 7702 plan is simple definition is a privately issued standalone life insurance policy. It can be universal, variable universal, indexed universal or whole life insurance. You should keep in mind that a 7702 plan isn’t a qualified plan. Moreover, the plan’s value depends on what type of life insurance policy you take out and how many your premiums costs.
It is common to stumble across individuals who associate 7702 plans with retirement accounts. What they fail to realize is that they are not the same. Considering a 7702 plan is a life insurance policy, its payout goes to people other than beneficiaries you include on your policy.
Retirement plans, on the other hand, are accessible only to you or perhaps your spouse. You are tasked with the responsibility of increasing its value over several decades so you can access its funds and retire from the workplace later in life. Taxation, penalty, and insurance concerns are further used to differentiate 7702 policies from retirement plans.
An important point to remember is that 7702 plan is structured so that its benefits and payouts are taxed fairly. This structure is in existence because there is a long history of certain investment plans that are structured falsely to appear like life insurance plans. These plans then receive life insurance tax benefits even though they don’t meet life insurance qualifications.
Now that you have insights into what a 7702 plan entails, why not consider using it to your advantage?
