Are Your Tax Bills Rising? Life Insurance May Be the Answer

Do you have mutual funds? Many of us do, so this is certainly a heads up: Mutual fund investors’ tax bills have been on the 200329564-001rise again recently.

The average capital gains distribution (a payment to shareholders of profits realized on the sale of a fund’s securities) for U.S. equity funds (based on data as of April 2014) is 19.3% of assets, compared with 6.9% back in 2007. These recent distributions are among the largest seen since the start of the financial crisis in 2008.

Mutual funds are required to distribute their capital gains once a year. All of the realized gains are tallied while the realized losses and loss carry forwards from the previous year are subtracted to arrive at the total sum to be paid out. The distributions are made in equal proportions to all shareholders regardless of when they bought the fund. Then all the fund holders who own the fund in a taxable account have to pay taxes on those distributions—even if they reinvest their distribution.

Here is one way to eliminate those pesky capital gains. Purchase cash value life insurance. The earnings on the cash value of life insurance are tax deferred until you take the cash out, and if you take this as an income stream, the tax can be minimized or even eliminated.  Many companies call this type of plan a Supplemental Life Insurance Retirement Plan. This takes some careful planning, but your agent or advisor can set one up and tailor it just for you.

Marvin H. Feldman, CLU, ChFC, RFC, President and CEO of Life Happens

by Marvin H. Feldman

Marvin H. Feldman, CLU, ChFC, RFC, is president of the Feldman Financial Group in Palm Harbor, Fla., and president and CEO of Life Happens. He is a 41-year Million Dollar Round Table member and was the 2002 president. He is a 33-year member of the MDRT Top of the Table and a past Top of the Table chairman. He also is the recipient of the 2011 John Newton Russell award, the highest honor bestowed on an individual by the insurance industry.

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