One goal I had in estate planning was to allow the client to deduct the cost of his or her life insurance
, but they could not. However, in a pension plan, the cost of life insurance can be fully deductible.
Using 100 times the monthly earnings for the death benefit
Basically, to stay safe, you should set the death benefits at 100 times the monthly earnings. For example, if someone earns $50,000 a year, the monthly earnings are $4,166 a month and the death benefit is $416,666. The client will then purchase life insurance within the plan, and it will be fully deductible.
One problem: The death benefit
will come out taxable unless you pay (or re-include) the table 2001 rates, formerly known as P.S. 58 rates. Another problem in qualified plans is that the employees must be included — but not all the employees, only 40 percent. The balance can receive their benefits in a 401(k) profit-sharing plan.
The balance of the pension is funded with a fixed annuity. Result: The client is now able to deduct the death benefit or life insurance within the plan. Since the estate tax monster has all but dried up for estates less than $10.5 million, it appears that income tax planning with life insurance will be (once again) the driving force behind insurance products.
Insurance contract pensions
Insurance contract pensions allow a safe method to accumulate funds, provided the IRS follows congressional policy (which is to encourage individuals to save for retirement). A recent study stated the average American has saved $3,000 for retirement; this is really a crisis. In addition, when over 10,000 individuals turn age 65 every day, it is clear that individuals will need more help in reaching their retirement goals