December 8, 2022

There is nothing wrong when you make up your mind to open a cash-value life insurance policy. But one thing you ought to keep in mind is that policy won’t perform in the same way as a 401(k) or an IRA. In short, you shouldn’t take it as a substitute. 

This is especially the cased when dealing with an insurance agent who advertises the 7702 plan as a traditional retirement plan. With that being said, today we will take you through some of the differences between 7702 plans and traditional retirement plans. Keep reading to find out more!

Tax Deductions

The money you decide to invest in your retirement plan is tax-deductibles, but the limits tend to change from year to year.  It doesn’t stop at that since life insurance premiums are viewed as personal expenses and are not tax-deductible. That explains why a 7702 plan is worth your attention when you want to safeguard your financial future.

Penalties

When you withdraw cash from a retirement account before you reach retirement age, you will most likely have to pay a penalty. While there are some exceptions for this, but for the most part, if you pull out money early, you’ll be taxed.

Things tend to be quite complicated when dealing with a cash-value life insurance policy. With cash-value life insurance policy, you can withdraw cash up to your basis, which is the cash amount of your paid premiums, not including withdrawals you’ve already taken.

FDIC

The Federal Deposit Insurance Corporation is responsible for covering deposits made to bank accounts. For this reason, you can rest in knowing your money is safe at all times. But it doesn’t insure investments since that’s a risky business. An insurance policy is a contract, not an account so the FDIC doesn’t protect it.

The Bottom Line

There you have it, some of the differences between a 401 (k), a 7702 plan and an IRA you should know about. Ensure you do your homework if you are to unearth more differences before deciding on anything.

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