What is 702(J) Retirement Plan?
A 702(J) Retirement Plan, also known as a 702 or 7022 Account, is basically life insurance named after Section 7702 of the U.S. Internal Revenue Service (IRS) Tax Code. This section of the taxation provision determines what qualifies as legitimate life insurance plan and how that is taxed by the federal government.
Understanding 702(J) Retirement Plan
In terms of retirement income, several alternatives are to the 702(j) including 401(k) plans and annuities. While conserving in any form is beneficial, each one havantages and disadvantages. When you open a 702(j), keep in mind that this is not your typical pension plan.
A 702(j) is -
- A policy of death benefit
- Planned to offer tax-free earnings throughout retiring
- A strategy that must be closely monitored
- A savings approach with advantages tailored to individuals with higher tax rates
A 702(j) policy is perpetual life insurance. This implies you'll remain qualified for such a life insurance payout as long as you've got your premiums. On the other hand, temporary life insurance policies are only valid for a limited time.
A 702(j) plan requires you to pay a small amount of life insurance. You are charged extra premiums every month, which raises the financial value of the insurance, and you may subsequently withdraw or apply that amount against your premium. If you borrow the money, you don't have to pay the tax on that. However, you must repay it with interest because it is legally a loan.
This high-priced insurance policy is not a good option for majority of people but it doesn't imply that it is awful for everyone. These plans are usually tailored for high-net-worth individuals seeking higher tax advantages after exhausting most other choices.However, evenndividuals with a high salary or net value may indeed be better suited to investing in a basic taxed investment portfolio. When contemplating these sorts of programs, always visit a professional financial advisor who compensates hourly.
These financial consultants should be free of prejudice when advising in favor of services that best your position. Financial planners who earn commissions are easily lured by monetary incentives to market certain products over others and often end up advising 702(j) retirement plans to lower income individuals putting their financial security in jeopardy.
- Because a 702(j) retirement plan is life insurance, the monthly premiums you pay can accumulate tax-deferred.