An Eight Year Window

Saving for retirement is key for most business owners and professionals. Its need is now magnified – with all the comings and goings in Washington — with talk of reducing 401k contributions — with other threats to retirement benefits. The time is now to become more self-sufficient in planning for your retirement.

The new Tax Cut and Jobs Act gives sole proprietors and pass-through entity owners a special tax benefit, but one with a narrow window. For 8 years starting in 2018, most owners can deduct up to 20% of their business income. It’s an unprecedented gift to help fund retirement. Take your tax-free income and relay it into a tax-advantaged cash value life insurance policy. Grow your cash values tax-free and receive tax-free income in retirement.

The Fine Print

How much you have by way of savings, and how much you might contribute to a life insurance policy will vary from person to person. To participate in this approach, you need to have an established life insurance need. The amount of life insurance and the contribution will vary based on many factors, including your life insurance need. The
accumulation potential may vary based on the premium for the policy and the insured’s medical underwriting.

• To be effective, you need to hold the policy until death. A life insurance policy generally takes years to build up a substantial cash value.

• Tax-free distributions will reduce the face amount and cash value of a policy. You may need to fund higherpremiums in later years to keep the policy from lapsing.

• Generally, there are many additional charges associated with a life insurance policy, including but not limited to, a front end load, monthly administrative charge, cost of insurance charge, additional benefit rider costs and surrender charges. The amount that can be contributed will also vary from person to person. You’ll want to work with your tax advisor to determine how much is a reasonable annual contribution based on their business.

• This is only a limited window that expires after December 31, 2025. To take maximum advantage of this window, work with your financial professional to develop a design that optimizes this limited opportunity.

• $315,000 for married couples ($157,500 for single tax filers) is the key number. For many, your K-1 income will be below these amounts. Beyond these amounts there are a complex series of calculations. For most white-collar professionals, their ability to deduct 20% phases out over the next $100,000 of income over these key numbers.

• For other business owners, additional tests apply over these thresholds that are tied to the business’ wage income and a portion of the depreciable assets. Your tax advisor might be able to suggest other tax planning that can help you plan your income and business deductions to help bring your income in line with the $315,000/$157,500 thresholds. Your tax professional can tell you your approximate tax savings to help steer some of the tax savings towards your retirement savings.

About Jeffrey Berson

40 years in and around the industry has made Insurance a part of my DNA. I have had the pleasure of working with and for some of the greatest minds in our industry. My "Bersonal" View is an attempt to capture some of the best ideas, the best concepts and the best practices in a way that can lead to success for others. It will certainly be my point of view, so please...don't take it "Bersonal".
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