You have probably come across insurance agents who advertise ‘7702 plans’ as a type of retirement plan. For them, it is just like any other retirement plan you may decide to leverage. Even though there is some truth in that, you ought to keep in mind important details are sometimes ignored in this process.
No wonder it is in your best interest to go out of your way and understand what the 7702 plan entails before deciding on anything. And that’s precisely what this quick guide will help you uncover today. Below are some of the things you need to know about 7702 plans.
What is a 7702 Plan?
Before delving deeper into how the 7702 plan works, you need to know what it is in the first place. To help clear some of the doubts you might already be having, 7702 plan is more of a life insurance policy. In fact, you can deem all life insurance policies ‘7702 plans’ since they are covered under section 7702 of the Internal Revenue Code (IRC). Either way, you ought to keep in mind that 7702 plans are merely cash value life insurance policies that boast higher premiums than term insurance policies.
7702 Plan Requirements
If you’ve done your homework, you might already be aware of the different requirements that section 7702 puts in place for life insurance policies to receive tax-favorable treatment. Among the most notable ones include Cash Value Accumulation Test (CVAT)& Guideline Premium and Corridor Test (GPT). Keep in mind money accessed through the policy contract is taxable on a Last-in-First-Out basis if your life insurance policy falls in either of the above-mentioned tests.
The Bottom Line
There you have it, some of the things you probably didn’t know about 7702 plans. Of course, there is more to a 7702 plan than what is mentioned in this simple guide. No wonder you should be more than ready to spend some time doing your due diligence to find answers to all your burning questions. It is then that you can leverage the 7702 plan to your advantage hassle-free.