If Taxes Rise in 2013, More Americans May Take Advantage of This Lesser-Known Tax Shelter, in This Third Installment by the Financial Firm Wealth Preservation Strategies

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Taxes may be rising in 2013, and tax shelters are hard to find. However, there is one tax shelter that is fully approved by the IRS that still remains relatively unknown that is available both for the middle class and the wealthy. It is typically not promoted by Wall Street firms because it involves a life insurance contract, but the basic concept has been used by wise investors for decades, according to the financial firm Wealth Preservation Strategies of NJ.

Tax Hikes May Await You in 2013

Average American families can utilize this strategy as a supplement to their overall financial plan.

Everyone is hearing lots of buzz not only about tax rates increasing in 2013 but also certain deductions being eliminated, such as for mortgage interest. A tax-advantaged strategy that does not appear to be on the proverbial “chopping block” are cash value life insurance policies.

Part 1 of this three-part series gave the overview of the tax-free investment strategies available to the average American, while Part II focused on the particulars of the tax codes and Acts of Congress surrounding the least known of these strategies: cash value life insurance policies. This third and final installment will explain how average American families can utilize this strategy as a supplement to their overall financial plan.

It may be beneficial for families and individuals to consider this strategy now, before the government decides one day to strip off the tax benefits on future contracts.

"Take the situation of a 56-year couple who are each contributing to their 401(k) plan and are about ten years away from retirement. They are getting an immediate tax break on their contributions and building up retirement money in a tax-deferred account. However, they are fearful that taxes might be higher ten years from now when they retire, and they don’t want to have all of their retirement money in tax-deferred accounts," says Brian Solik, CRPC, President of Wealth Preservation Strategies of NJ.

Also, they realize that if they have little to no money in tax-free accounts, they have limited options in retirement. If they need some extra money and have to access it from their retirement accounts, any withdrawals will be fully taxed and could possibly bump them up into a higher tax bracket.

Their income is too high to contribute to a Roth IRA. Even if their incomes were lower, they each could only contribute $6,000 maximum each year to a Roth IRA, according to IRS guidelines, and they want to put away much more than that. How can a cash value life insurance policy be a solution for them?

If proper guidelines are followed under the current IRS rules, the cash value can grow in a tax shelter and be accessed at any time for any reason through loans or withdrawals without having to pay federal or state taxes, adds Solik.

The amount that can be invested in these policies is not limited by IRS rules, so an individual or couple can potentially build up a significant amount of money that could be utilized for tax-free income throughout their retirement. There are no income limits either, so the middle class or the wealthy can invest in these policies.

Using this strategy, this couple won’t have to worry about having all of their retirement money in tax-deferred accounts and being at the mercy of Uncle Sam and how much he decides he will keep on their withdrawals one day. They will have the option of tax-free withdrawals or loans from their cash value life policy, potentially for a lifetime, comments Solik.

They also won’t have to worry having no life insurance and possibly leaving a surviving spouse or heirs in a difficult financial situation, since these policies always have a death benefit that is paid out federal and state tax-free to heirs.

These policies are not the perfect solution for every individual or couple, and anyone considering this strategy should meet with a qualified insurance professional to discuss the pros and cons for their unique situation. However, since no one knows how long the above tax benefit will be allowed by the IRS and Congress, it may be prudent for individuals to consider adding this tax shelter to their overall retirement plan.

Brian Solik, CRPC is President and Founder of Wealth Preservations Strategies of NJ. He is a former Wall Street broker who now focuses on educating investors on how to maximize their financial security and minimize taxes. If you would like to receive the remainder of this article contact Brian at 732-415-7717 or visit his website http://www.wpsnj.com.

Securities and investment advisory services offered through Brokers International Financial Services, LLC, Panora, Iowa. Member FINRA/SIPC. Brokers International Financial Services, LLC and Wealth Preservation Strategies of NJ are not affiliated companies. The opinions expressed are those of Brian Solik and not necessarily those of Brokers International Financial Services, LLC.

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