What is a 7702 plan?

Asked by: Laisha Schinner II  |  Last update: July 22, 2022
Score: 4.4/5 (24 votes)

A 7702 plan is a tax-advantaged life insurance policy and is named based on the Internal Revenue Code that spells out how cash value life insurance policies retain their tax-advantaged status. Contrary to its name, a 7702 plan is not a type of life insurance policy, such as term or whole life.

Is a TFRA life insurance?

Instead, says Chuck Czajka, founder of financial-planning firm Macro Money Concepts, TFRA usually references a whole life insurance policy or an indexed universal life insurance policy. Both are permanent cash-value policies that offer tax benefits and risk protection to investors, he says.

What are the 7702 changes?


In a nutshell, 7702 sets limits around how life insurance policies must be designed in order to qualify for their tax treatment. The rules in section 7702 are designed to put financial limits on what qualifies as permanent life insurance.

What is a 7022?

(Getty Images) A 702(j) account is frequently marketed as a retirement plan, but it's actually a life insurance policy. Sometimes referred to as a 702 or 7022 account, this type of plan is named after a section of the tax code. Before you sign up for a 702(j), keep in mind that it is not an ordinary retirement account.

When did 7702 start?

What is IRC Section 7702 and 7702A? IRC Section 7702 sets forth tests to define whether a life insurance contract may be treated as a life insurance contract for federal tax purposes. Implemented in 1984, the tests were enacted to limit the investment orientation of a life insurance policy.

What Is a 7702 Retirement Plan? | Ask A Fool 1/24/14 | The Motley Fool

45 related questions found

How does a split dollar life insurance policy work?

Split-dollar life insurance is an agreement—rather than a policy—between an individual and employer (or trust) using permanent life insurance. The employer pays all or most of the premiums while retaining an interest in the policy's cash value and/or death benefit.

What is the 7 pay test for life insurance?

The 7-pay test examines the cumulative amount paid under a contract during the first seven policy years. This amount is compared to the sum of the net level premiums that would have been paid on a guaranteed seven-year pay whole life policy providing the same death benefit.

How do you qualify for a TFRA account?

A TFRA is a long-term investment plan. At a minimum, you must be able to fund the plan for three to seven years and allow it to grow for seven to 10 years before you plan to access the income stream.

What is a VUL policy?

Variable universal life is a type of permanent life insurance policy. With features that include cash value, investment variety, flexible premiums and a flexible death benefit.

What happens if a life insurance policy failed the 7 pay test?

If a life insurance policy fails the 7 Pay Test, it loses its status as a life insurance contract and becomes a Modified Endowment Contract (MEC).

What does IRS Section 7702 State?

Section 7702(a) provides that, for a contract to qualify as a life insurance contract for Federal income tax purposes, the contract must be a life insurance contract under the applicable law and must either (1) satisfy the cash value accumulation test of § 7702(b), or (2) both meet the guideline premium requirements of ...

How do I use the tax code 7702?

Key Takeaways
  1. Section 7702 of the Tax Code differentiates between income from a genuine insurance product and income from an investment vehicle.
  2. Certain types of permanent life insurance build up a cash value over time.
  3. The proceeds of a true life insurance contract receive favorable tax treatment.

Can you use your life insurance for retirement?

You can also use life insurance for retirement by borrowing from your cash value. Think of it as a loan you're getting from your future self.

Are TFRA accounts legit?

A TFRA retirement account is not a qualified plan so it doesn't follow the same rules as a 401(k). But it can offer both tax benefits and risk protection for investors. Breaking down how a tax-free retirement account works can help you to decide if this strategy may be right for you.

Is a TFRA better than a Roth IRA?

Growth on these funds are not taxed. Unlike a Roth IRA, a tax-free retirement account doesn't have IRS-regulated restrictions for withdrawals. If you are likely to be in a higher tax bracket at retirement, then a TFRA is an excellent way to mitigate tax implications.

What is the most tax friendly state to live in?

1. Wyoming. Congratulations, Wyoming – you're the most tax-friendly state for middle-class families! First, there's no income tax in Wyoming.

Why is VUL not good?

VUL isn't a good investment for most people. It comes with fees and complexity at a high price that isn't worth the investment returns. Most people will save more by using a traditional investment account and buying term life insurance.

What are the disadvantages of VUL?

Cons of VUL Insurance
  • Higher risk of loss. You can earn more in a VUL, but you can also lose more. ...
  • Higher fees. All cash-value policies have fees built into the premiums and VUL Is no exception. ...
  • High surrender charges. ...
  • Premiums may rise. ...
  • Complexity.

What are the cons to variable life insurance?

  • High premiums. The premiums for variable life are generally pricier than other types of life insurance and you may also have to pay management fees for your investments. ...
  • Capped returns. ...
  • Limited investment options.

Can you withdraw from a tax-free savings account?

Your TFSA savings can be withdrawn from your account at any time, for any reason1, and all withdrawals are tax-free. And if you want, you can put back the amount you withdraw into your TFSA. However, you have to do it the following year so it will not impact your contribution room.

What is an SGRA?

No matter what happens to the market, no matter how far it may fall, your income is 100% guaranteed. Think of this as your very own private pension.

Where can I put money tax-free?

Below are seven important tax-efficient investments you can incorporate in your portfolio.
  • Municipal Bonds. ...
  • Tax-Exempt Mutual Funds. ...
  • Tax-Exempt Exchange-Traded Funds (ETFs) ...
  • Indexed Universal Life (IUL) Insurance. ...
  • Roth IRAs and Roth 401(k)s. ...
  • Health Savings Accounts (HSAs) ...
  • 529 College Savings Plans.

Can you Overfund a whole life policy?

Overfunded life insurance is when you pay more into a policy than is required. Permanent life insurance policies, such as whole life insurance or universal life insurance, have a cash value component. So, by overfunding your policy, you contribute more to the cash value.

Does Permanent life insurance have a cash value?

Permanent life insurance policies offer a death benefit and cash value. The death benefit is money that's paid to your beneficiaries when you pass away. Cash value is a separate savings component that you may be able to access while you're still alive.

What is the proper order of initial life insurance?

What is the proper order of initial life insurance premiums, from lowest to highest? The order of initial premiums for life insurance policies, from lowest to highest, is the following: modified premium, ordinary life, single premium.