A Complete Guide to the Modified Endowment Contract (MEC)

A Complete Guide to the Modified Endowment Contract (MEC)

What is a Modified Endowment Contract? A Modified Endowment Contract (MEC) is a life insurance policy that fails the 7-pay test established by the Tax and Miscellaneous Revenue Act of 1988 (TAMRA). Failure of this test reclassified the life insurance policy, which comes with several changes to the taxation of the insurance contract. It’s important …

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How to Calculate Taxable Amount on a 1099-R for Life Insurance

How to Calculate Taxable Amount on a 1099-R for Life Insurance

1099-R reports distributions from: Profit-sharing/retirement plans Life Insurance/Annuity Contracts IRA’s Disability Plans It’s important to understand that 1099-R reports distributions regardless of taxability.  This means it’s possible to receive a 1099-R even when no taxes are due on the distribution. For example, if you take out a $50,000 loan against a universal life insurance policy …

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Are Life Insurance Dividends Taxable?

Life insurance dividends benefit from special tax treatment that make them largely non-taxable.  This being said, there are some circumstances that can make the dividends paid on life insurance policies taxable.  Today we’ll walk you through both the non-taxable and taxable circumstances most commonly found for individuals receiving dividends on their life insurance policies. Refund …

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