If you’re looking for ways to reduce your taxes in retirement, you might want to consider purchasing life insurance. While it’s not a tactic that many people think about, tax experts say it can provide a tax-efficient retirement stream.
So, what type of policy should you consider? Our Retirement Daily’s Robert Powell caught up with Jeffrey Levine, CPA and tax pro from Buckingham Strategic Wealth Partners, for some advice.
Recommended Read: Is Your Life Insurance Taxable?
Watch the video interview above, or read the video transcript below.
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Quotes| Can Life Insurance Help Mitigate Taxes in Retirement? Jeffrey Levine, Chief Planning Officer, Buckingham Strategic Wealth Jeffrey Levine, Chief Planning Officer, Buckingham Strategic WealthVideo Transcript| Jeffrey Levine, CPA and Tax Expert, Buckingham Strategic WealthRobert Powell: How can life insurance help mitigate taxes in retirement? Well here to talk with us about that is Jeffrey Levine from Buckingham Strategic Wealth. Jeffrey, welcome.
Jeffrey Levine: It’s good to be with you, Bob.
Robert Powell: So it’s probably not a tactic that many people think about, but you can use life insurance.
Jeffrey Levine: Yeah, absolutely. I would say that from a tax code perspective, there are really two ways that life insurance may be able to help someone create a tax-efficient retirement stream. The first is, depending upon the type of policy, some policies allow cash to build up inside the policy.
So in addition to, let’s say, the death benefit component if someone passes away, they also have a savings account, if you will, inside the policy. And those savings account structures within the life insurance policy can be structured in a way that can allow tax-free loans or tax-free withdrawals. So both of those could create an efficient means of accessing dollars within the life insurance policy that can be used for any purposes, retirement or otherwise.
The other way life insurance can be used with respect to a retirement income stream is simply by its originally designed mechanism, right? When someone dies, life insurance pays a death benefit. And so if you have a married couple and they each have life insurance, well, when the first spouse dies, the second spouse will be able to use the proceeds from that policy, which are paid tax-free. Life insurance benefits are tax-free. So that surviving spouse, I should say, would receive a tax-free influx of cash that they could use to support the remainder of their own retirement.
Editor’s Note: The content was reviewed for tax accuracy by a TurboTax CPA expert.
Zach Faulds contributed to the writing of this article and produced the video and/or the graphics associated with it.