G
Guest
Guest
What are the tax implications of surrendering a VUL. Is it ordinary income... or is there a basis to be considered?
Al
Al
Why would someone surrender a VUL? Once you have a solid answer for that, the gains are taxed at capital gains rates.
You'll have to get a statement from the life company to really sort this out, or you can go through statements, figure out what they paid minus the various charges that apply to the life side, calculate what was invested, and what the current value is. Also, you need to know what the surrender penalty is, if any.
Again, make sure you have a solid reason for surrendering a VUL. It's hard to rollover a VUL into something else and have it pass any type of smell test. Not impossible, but there are a lot of things to consider.
Dan
You'll have to get a statement from the life company to really sort this out, or you can go through statements, figure out what they paid minus the various charges that apply to the life side, calculate what was invested, and what the current value is. Also, you need to know what the surrender penalty is, if any.
Again, make sure you have a solid reason for surrendering a VUL. It's hard to rollover a VUL into something else and have it pass any type of smell test. Not impossible, but there are a lot of things to consider.
Dan
- Thread starter
- #3
G
Guest
Guest
- 1,926
the gains are taxed at capital gains rates.
I assume you mean short term capital gains?
I assume you mean short term capital gains?
Why short term? When was it bought?
If it will implode in 3 years, I assume there are no gains to worry about. Why not just decrease the death benefit to something sustainable?
Are you planning on a 1035 exchange? If so, you are back to that question of why surrender a policy that has been in force for a while to get a policy that probably has higher rates and starts the surrender charge time all over again?
By the way, I'm not trying to be confrontational on this question, but its the right question to always ask when surrendering a permanent life policy and getting a new one. I'm not sure this is what you are doing, but you need to have a solid answer for this, it will keep everyone out of trouble later on.
Dan
If it will implode in 3 years, I assume there are no gains to worry about. Why not just decrease the death benefit to something sustainable?
Are you planning on a 1035 exchange? If so, you are back to that question of why surrender a policy that has been in force for a while to get a policy that probably has higher rates and starts the surrender charge time all over again?
By the way, I'm not trying to be confrontational on this question, but its the right question to always ask when surrendering a permanent life policy and getting a new one. I'm not sure this is what you are doing, but you need to have a solid answer for this, it will keep everyone out of trouble later on.
Dan
- 15,319
If I worked for an insurance company, I might ask the manager or home office.
Rick
Rick
- 149
DAX is right. Life insurance is an ordinary income property for tax purposes. Anytime a policy is surrendered the gains surender value) above basis are considered ordinary income.
See IRC Section 72. Also in TaxFacts I think it is under Q250
The only time it would be considered a capital gain is if the policy was sold as a Life Settlement, than the money received from the sale would be taxed in the following way:
up to basis - no tax
from basis to surender value - ordinary income
above surender value - capital gain
- 4,132
Al is this the one you were asking about last month?
where they wanted to sue, but really had no case?
Are you sure it will explode in three years? Have you checked with the company?
Can you provide more detail?
where they wanted to sue, but really had no case?
Are you sure it will explode in three years? Have you checked with the company?
Can you provide more detail?
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