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The new tax cut offers long-term benefits

Individuals and business owners may have extra cash and possibilities from the tax reform

As we say goodbye to winter and hello to spring there is much to relish this time of year. Warming temperatures and longer days are welcome but for CPAs like me the spring brings one thing to mind … tax season. This tax year will differ than some in recent memory as the new tax law from 2017 may offer new opportunities for you and your clients. Tax rates decreased in 2018, leaving more cash in many people’s pockets.

This influx of new cash will be spent in several different ways, and I will personally vouch for the merits of resort vacations and puppies. Your clients, however, may be paying down debt or thinking of investing their new found money.

Here are some ideas for insuring against potential financial loss and saving for the future.

Tax cut opportunities for individuals

For individuals looking for protection from financial loss, cash value life insurance can satisfy several needs, like protection for family, business partners or from creditors by providing a tax-free death benefit.

It can also provide a source of tax-free income through withdrawals (up to the investment in the contract) and loans from the cash value. You should know that withdrawals and loans will reduce the amount of death benefit that will be paid at death, but this is an option that can be utilized to provide funds at retirement or however else you’d like. Have I mentioned how wonderful resort vacations are?

Some life insurance products offer additional riders such as long-term care coverage and no-lapse guarantees to help insure against losses, as well.

Another option for your client to is to contribute to a Roth IRA or convert a Traditional IRA to a Roth. You can still contribute to a Roth IRA even if you participate in a 401(k) plan or some other qualified plan sponsored by your employer. Your clients can also convert all or a portion of a Traditional IRA to a Roth IRA, but they should be aware that income tax must be paid on the full conversion amount in the year converted. If your client meets certain requirements,1 the distributions will not be taxable when paid.

Businesses can benefit at tax time too

I think the most important asset to any business is its people, and businesses will have an opportunity to make it easier to recruit, reward and retain those key employees. Installing a nonqualified deferred compensation plan (NQDCP) to help key employees save for retirement while decreasing their taxable income is a great way to keep your best people from leaving.

Use some of that cash on the balance sheet to purchase company-owned life insurance on the lives of the employees in the NQDCP to provide the company with a source of tax-free withdrawals/loans from cash values to pay benefits and ultimately to receive tax-free death benefits.
A company can also look at installing an executive bonus plan. For some businesses this may be a good way to reward and retain key employees. In this type of plan, the employee owns a life insurance contract, and the employer pays the premium by providing a bonus (deductible compensation) to the employee.

There are other ways to save but some might be more practical than others

There are some time-tested savings strategies that your clients can consider, like investing in real estate, purchasing cash value life insurance or just stuffing some cash under your mattress or in an old shoe. I personally would suggest the mattress over the shoe because I have far too many shoes and a dog that likes the taste of Italian leather.

If your client decides to go the route of life insurance, it does provide their family with financial protection if they were to die prematurely.

It’s always a good time to think about the future

The best decision a business can make at this time of year could be a decision for the long-term future. With lower tax rates, the value of some businesses could potentially increase more and faster than was anticipated even just a few years ago. This can leave some businesses and their owners with greater insurance needs. Buy/sell arrangements should be reviewed to make sure that the valuation formula still makes sense for all parties and then insure appropriately to fund the succession plan.

To learn more about cash value life insurance, I invite you to read the Advanced Consulting Group whitepaper, The position of life insurance in financial diversification.

In it, you’ll find more information on the importance of diversification and the value life insurance adds to a well-structured portfolio.



This material is not a recommendation to buy, sell, hold or roll over any asset, adopt an investment strategy, retain a specific investment manager or use a particular account type. It does not take into account the specific investment objectives, tax and financial condition or particular needs of any specific person. Investors should work with their financial professional to discuss their specific situation.

Neither Nationwide, nor its employees, its agents, brokers or registered representatives gives legal or tax advice.


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    No sooner than five years after the first taxable year in which you contributed to the Roth; and the payment is made after age 59 ½, or due to death or disability.