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What is Section 7702 of the Internal Revenue Code?

What is Section 7702 of the Internal Revenue Code?

A 7702 plan is a tax-advantaged life insurance policy and is named based on the Internal Revenue Code that spells out how cash value life insurance policies retain their tax-advantaged status. Contrary to its name, a 7702 plan is not a type of life insurance policy, such as term or whole life.

Why are dividends not taxable as income when paid out to a participating policyholder?

Why are dividends not taxable as income when paid out to a participating policyholder? D. A participating insurance company’s dividend consists of the amount of premium that is returned to the policyowner if the insurance company achieves lower mortality and expense costs than expected.

What is included and excluded from gross income?

Income excluded from the IRS’s calculation of your income tax includes life insurance death benefit proceeds, child support, welfare, and municipal bond income. The exclusion rule is generally, if your “income” cannot be used as or to acquire food or shelter, it’s not taxable.

How do you qualify for a TFRA account?

A TFRA is a long-term investment plan. At a minimum, you must be able to fund the plan for three to seven years and allow it to grow for seven to 10 years before you plan to access the income stream.

What is the 7 pay test?

The seven-pay test helps the IRS determine whether your life insurance policy will be converted into an MEC. It compares the total premiums you paid in the first seven years of the policy with what you’d need to pay it in full. If your payments exceed what’s needed, your policy becomes recognized as an MEC.

Do you have to pay tax on cash surrender value?

Is Cash Surrender Value Taxable? Generally, the cash surrender value you receive is tax-free. This is the case, because it’s a tax-fee return of the principal of the premiums you paid.

What are the examples of exclusion from gross income?


  • § 101. Certain death benefits.
  • § 102. Gifts and inheritances.
  • § 103. Interest on State and local bonds.
  • [§ 103A. Repealed.
  • § 104. Compensation for injuries or sickness.
  • § 105. Amounts received under accident and health plans.
  • § 106.
  • § 107.

Are funeral expenses tax deductible?

Individual taxpayers cannot deduct funeral expenses on their tax return. While the IRS allows deductions for medical expenses, funeral costs are not included. Qualified medical expenses must be used to prevent or treat a medical illness or condition.

Are TFRA accounts legit?

A TFRA retirement account is not a qualified plan so it doesn’t follow the same rules as a 401(k). But it can offer both tax benefits and risk protection for investors. Breaking down how a tax-free retirement account works can help you to decide if this strategy may be right for you.

Is a TFRA better than a Roth IRA?

Growth on these funds are not taxed. Unlike a Roth IRA, a tax-free retirement account doesn’t have IRS-regulated restrictions for withdrawals. If you are likely to be in a higher tax bracket at retirement, then a TFRA is an excellent way to mitigate tax implications.

What is a tax code number?

What Is a Tax Code? A tax code is a federal government document, usually numbering thousands of pages, that details the rules individuals and businesses must follow in remitting a percentage of their incomes to the federal or state government.

How do I learn my tax code?

  1. The Internal Revenue Code.
  2. Consult IRS Publications.
  3. Make a Phone Call to the IRS.
  4. Consult Texts for Tax Professionals.
  5. Hire a Tax Professional.
  6. Seek Volunteer Income Assistance.
  7. Consult Texts for Consumers.
  8. The Bottom Line.

How can you avoid a MEC?

To avoid being declared a modified endowment contract, a life insurance policy must meet the “7-pay” test. This test calculates the annual premium a life insurance policy would need to be paid up after seven level annual premiums. (When a life insurance policy is “paid up,” no further premiums are due.)

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