WE HAVE THE ANSWER

Is Retirement
Income Taxable?

Is retirement income taxable? The answer is “maybe not.” Surprisingly, certain types of life insurance may actually help some retirees to have income during retirement and pay no tax on it. How does this work? Mostly, this tactic uses a life insurance product called an indexed universal life (IUL) insurance policy. Of course, there are other life insurances that may offer a similar benefit. However, an IUL is one of the more common life insurance products for retirees.

Life Insurance & Retirement Income

Most people understand that life insurance protects those you love once you pass away. It is thought of as a peace of mind product. However, in retirement, life insurance may also provide additional benefits. For example, a max cash value IUL could provide you with a tax-free* retirement income. Instead of just a death benefit, an IUL may give you more options to consider. For instance, your Roth IRA or some Roth 401(k) accounts could potentially have tax-free* withdrawals. However, most traditional retirement strategies do require you to pay taxes on the money you take out. In addition, there are rules and requirements as to when and how much money to take. Because an IUL is a life insurance policy and not an investment, the rules are different.

Another way to use life insurance is retirement income. Perhaps you have already fully funded your retirement income. In that case, an IUL may provide a safe place to hold some of your wealth. In addition, you may be able to access your money for other unexpected expenses or college for the grandkids. This frees up your other financial vehicles to provide income while the IUL pays these expenses. Indeed, life insurance could provide a strategic answer to “is retirement income taxable?”

Senior Couple Walking on Beach with Dog at Sunset Is Retirement Income Taxable California
Family Laughing on Hammock Is Retirement Income Taxable California

Is Retirement Income Taxable For Me?

Of course, each person has a different situation. Therefore, you should meet with a professional to best determine if your retirement income is taxable. However, an IUL may be one product that could provide an income, tax-free.* Using life insurance like this as part of your strategy may suit you if…

  • 401(k), IRA, or other retirement plans cannot have any more $ added to them
  • Tax deferral sounds interesting
  • You prefer to have money set aside to take care of any surprises
  • Protection of your money is important to you
  • Someone in your family will need income when you’re gone
  • You look for  stability in a retirement strategy
  • Market volalitity is something you like to avoid
  • Your “cost basis” of life insurance is more than the income you need

Beneficiary Info

A main reason people choose life insurance is it allows you to leave a legacy. If you do this, you want the transfer of wealth to be as seamless as possible. Avoiding probate is often a goal for many retirees. Because an IUL is an insurance policy, tax laws are different for that versus an investment account. This is also true when it comes to your estate planning. Your money was built to protect your family. With the right strategy and type of life insurance, you can ensure that is exactly what happens.

Could You Retire Tax-Free?

Tower Bridge Financial truly wants our clients to understand all their possibilities. For some, life insurance may play an important role in their retirement strategy. Tax-free* income can help give stability for the long-term. If you’d like to learn more about how an IUL or life insurance in general may help you, reach out. We’re here to help guide you.

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SET UP MY “TAX FREE INCOME”
APPOINTMENT TODAY.

*Proceeds from an insurance policy are generally income-tax-free, and if properly structured, may also be free from estate tax. Income-tax-free distributions are achieved by withdrawing to the cost basis (premiums paid), then using policy loans. Loans and withdrawals may generate an income tax liability, reduce available cash value, and reduce the death benefit, or cause the policy to lapse. This assumes the policy qualifies as life insurance and is not a modified endowment contract. The Host and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. You should consult your own tax, legal, and accounting advisors before engaging in any transaction. This content is not intended to serve as the basis for any investment or purchasing decisions, nor does it recommend or involve the purchase, holding, or sale of a security.  All figures herein are hypothetical and for illustrative purposes only to explain general concepts.  No figure is to be relied upon as being accurate nor a guarantee or projection and is meant only as a partial overview of some relevant features and benefits of general insurance products that may be in the marketplace, and whose availability will be dependent on the State of residence of the consumer, and their individual suitability for the product they are wanting to purchase. Where insurance products are mentioned, any and all guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.

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