Life Insurance - How To Get Tax Free Retirement Income

For people that also have a need for protecting their loved ones with life insurance, they can use their life insurance policy as an accumulation vehicle by paying in additional dollars over and above the premiums required to support life insurance. (Note: There are certain limits on the additional amount you can put in, relative to the death benefit). Those additional dollars go into separate accounts. Depending on the type of policy, those accounts could be called either sub-accounts or index accounts. Then those additional dollars grow tax-deferred over the years. The nice part is that you can take out your “basis” (the money you put in) first and that comes out tax free. Then when you depleted that basis amount, you can switch over and start taking out the gains as income free loans against the income tax free death benefit. Finally when you pass on, the remaining death benefit money, after subtracting the loan amounts you took out, goes tax free to the beneficiary.

Keep in mind that there will be additional costs associated with using life insurance in this manner, but those costs are substantially offset compared to the taxation you would have had, because you would have been able to take loans against the death benefit. Note: The policy needs to stay in force until the insured passes on, in order to enjoy the tax free retirement distributions while living. 

Another benefit is that you can take out your retirement income before age 59 and a half without an additional tax penalty. That is in contrast to other types of deferred retirement income assets such as: 401(K)’s, IRA’s, and annuities that do have an additional 10% tax penalty if funds are taken out before age 59 and a half.

Lastly, in contrast to a tax qualified account such as 401(K), IRA, etc., life insurance death benefit amount paid out when the insured passes is completely tax free to the beneficiaries!

Disclaimer: I am not a tax advisor. I am insurance licensed only, thus regarding tax advice always be sure to check with your tax accountant first for your individual situation before making any decisions.

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Note: Life Insurance information can be confusing to many people. As an "independent licensed agent" I can explain things to you in simple terms so you feel comfortable making a decision. Then I can help you choose a life insurance policy, from many choices of different insurance companies, that you feel fits your needs. Plus if you choose to work with me you will have personalized service by a local agent that can shop premium quotes for you. If you would like my assistance to discuss and/or start the process of getting you insured please call me at 941-404-5334. 

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