The Benefits of Tax Diversification

Shawn Plummer

CEO, The Annuity Expert

How can I take steps today to seek advantages in future tax environments?

The national debt is rising in America, and in time, you may expect your income taxes to rise too. Given the potential impact on your accessible assets, it’s wise to seek products with tax advantages that can help provide financial flexibility now and in the future. One way to gain flexibility is through tax diversification when you mix various tax categories using various financial vehicles within your financial portfolio.

Income taxable vehicles may include a checking or savings account, stocks, bonds, or mutual funds. Income tax-deferred vehicles may include traditional IRAs, pensions, or non-qualified annuities. And income-tax-free may include a Roth IRA or Roth 401k.

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But what can make an income tax diversified strategy worth considering?

For one thing, it can help you manage your taxable income in retirement. For another, you could discover flexibility in other financial vehicles that you may have overlooked like cash value life insurance. One such vehicle is fixed index universal life insurance or FIUL.

FIUL can provide valuable death benefit protection for your beneficiaries, as well as the opportunity for additional benefits that can complement a tax diversification strategy. FIUL also offers a combination of three tax advantages:

  1. a death benefit that is generally income tax-free,
  2. tax-deferred cash value accumulation potential, and
  3. the opportunity for income-tax-free loans and withdrawals from any available cash value accumulation, which you can use for various purposes, such as helping to supplement your sources of income in retirement.

FIUL can help add financial flexibility during your retirement, too, because you can choose to access more or less from your policy based on the tax environment and your retirement income sources.

For instance, you may decide to access more from non-taxable sources, such as your IUL policy, if you’re in a higher tax rate environment in retirement than when you were paying a premium into your policy.

Conversely, if you are in a lower tax rate environment in retirement than when you were paying in your policy, you could access less from the FIUL policy and more from sources that provide taxable income, like a traditional IRA or 401k.

Keep in mind that how you fund your policy and other factors may affect how the loans and withdrawals are taxed. Index universal life insurance could be a good choice to help diversify your retirement strategy and potentially benefit you in retirement in any environment.

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Shawn Plummer

CEO, The Annuity Expert

I’m a licensed financial professional focusing on annuities and insurance for more than a decade. My former role was training financial advisors, including for a Fortune Global 500 insurance company. I’ve been featured in Time Magazine, Yahoo! Finance, MSN, SmartAsset, Entrepreneur, Bloomberg, The Simple Dollar, U.S. News and World Report, and Women’s Health Magazine.

The Annuity Expert is an online insurance agency servicing consumers across the United States. My goal is to help you take the guesswork out of retirement planning or find the best insurance coverage at the cheapest rates for you. 

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