December 2020 Changes to IRS Section 7702

Congress included a small change to IRS section 7702 in the Dec 2020 budget bill. The change affects the tax-favored status of Life Insurance contracts. In a nutshell,it allows for more money to be paid into a permanent policy and still retain its tax-deferred & tax-free access status.

This article from the “Society of Actuaries” provides a comprehensive review.

This will only affect policies issued in 2021 and later. If your policy was issued prior to that, consult with a knowledgeable life insurance agent if you are interested in taking advantage of the change through a 1035 exchange.

The youngest insured persons will benefit the most since the change has a greater impact the longer a policy is held. For example, parents and grandparents funding juvenile policies would likely see the greatest benefit.

Permanent life insurance (Whole & Universal Life) has been used for years to accumulate wealth that can be accessed tax-free. If you are interested in learning more, schedule some time with me. We can discuss this topic in whatever depth you desire.

Schedule a strategy session here: https://calendly.com/southard

Thanks for reading!

Tom Southard