Any Fixed or FIA with Greater Than 10% Free W/d?

[scagnt83]

My understanding fwiw....Tax is due on the gain in the policy when he took out the $ (w/d or loan) so that would be the 1099. Even though its a loan since it was a MEC its still LIFO and taxable on the gain. If there was no gain, there should be no 1099. The interest really shouldn't have anything to do with the IRS I wouldn't think. Just addl money owed back to the company, reducing DB if insured dies.

I have done a few MEC's... not had anyone take a loan from them.

Tax is due on gains just like an annuity. But what Brandon is describing is different than just normal annuity taxation.

 

[pfg1]

I'd be interested to hear if it is.

 

[scagnt83]

I'd be interested to hear if it is.

I did some digging and found some more info. It seems that when a policy is a MEC, and you take a Loan. Any Dividends (or credited interest) that are used to pay the interest or balance on the Loan, is considered a Distribution and taxable as income.

The problem might be that pretty much all Loans receive some type of Credited interest or Dividend on the Loaned amount. So I am guessing whatever is Credited for the Loan is subject to taxation?

 

[YP1]

Something that might help if the situation permits( assuming the client is married) is to file and restrict their SS benefit when they turn their full retirement age, and then the spouse can take a spousal benefit while their own benefit keeps increasing to age 70. This can help fill the gap.

 

[BNTRS]

I did some digging and found some more info. It seems that when a policy is a MEC, and you take a Loan. Any Dividends (or credited interest) that are used to pay the interest or balance on the Loan, is considered a Distribution and taxable as income. The problem might be that pretty much all Loans receive some type of Credited interest or Dividend on the Loaned amount. So I am guessing whatever is Credited for the Loan is subject to taxation?

Correct and sorry for the delay in replying (I'm in Hawaii at the moment). Any loan used to capitalize interest is subject to income and tax liability if there is still an outstanding gain in the policy. Withdrawals would be best in a MEC situation possibly making UL contracts safer bets than WL contracts since there is no requirement to take loans against guaranteed cash values.

The requirement to take loans against guaranteed cash could become a major issue for some bonafide SPWL contracts sold for cash purposes.

 

[securico]

If you are looking at SPIA's check out Integrity...... Great payouts to the client.... Under the radar carrier, A rated!