Tratamiento FiscalPregunta 453 de 716
Once a policy is classified as a modified endowment contract (MEC), distributions taken during the insured's life, such as loans and withdrawals, are:
a.Completely free of income tax as a return of basis
b.Exempt from any early-distribution penalty regardless of the owner's age and treated first as a tax-free return of premium
c.Taxed on a last-in, first-out basis, with earnings taxed first and a possible ten percent penalty before age 59 1/2
d.Fully deductible from the owner's income in the year they are taken
Explicación
In a MEC, living distributions (including policy loans) are taxed LIFO, so the taxable earnings come out first as ordinary income, and a ten percent penalty may apply if taken before age 59 1/2, similar to annuity taxation. They are not tax-free, not deductible, and not penalty-exempt. Importantly, MEC status affects only living distributions; the death benefit paid to a beneficiary generally remains income-tax-free. This is why overfunding a policy into MEC status must be done knowingly.
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Preguntas relacionadas de este tema
- Life insurance proceeds may be pulled into the insured's taxable estate for federal estate tax purposes if, at death, the insured held:
- The 'transfer-for-value' rule can cause a normally income-tax-free death benefit to become partly taxable when:
- A life insurance policy becomes a modified endowment contract (MEC) when it:
- A Section 1035 exchange allows a policyowner to:
- Which of the following is a permissible tax-free Section 1035 exchange?
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Revisado por John Zihao Zhang — California-Licensed Life Insurance Agent (CA Dept. of Insurance License #4396095 — verificar)