June API – Stock Market Performance, Cash Rich Testing & Life Insurance Withdrawals

The basic rule for taxing withdrawals from a life insurance policy that is not a modified endowment contract (MEC) is well understood. However, it may be surprising to learn that, even for non-MEC policies, withdrawals that are less than the policy’s cost basis may have tax consequences if the policy is cash rich. The June Advanced Planning Insights & Ideas Bulletin reviews the cash rich rule and when it needs to be considered.