• A "7702 Plan" (Indexed Universal Life Insurance)
   
• Fixed / Indexed Annuities - A hybrid of two older strategies

   

A "7702 Plan" (Indexed Universal Life Insurance)

A 7702 Plan is first and foremost life insurance. When designed properly, this policy can be used to provide an income stream during retirement. The principal and any interest earned can be taken income tax-free and penalty-free much like a Roth Plan, without the low contribution limits and the requirement to wait until age 59½ to draw income. There are, of course, some limitations. Each 7702 Plan is uniquely designed for each client.

What Is Section 7702?

Section 7702 of the U.S. Internal Revenue Service (IRS) Tax Code defines what the federal government considers to be a legitimate life insurance contract and is used to determine how the proceeds the policy generates are taxed.

The proceeds of policies that do not meet the government's definition are taxable as ordinary income. Proceeds from genuine life insurance contracts are tax-advantaged. Section 7702 applies only to life insurance contracts issued after the year 1984.

Office of the Law Revision Counsel, United States Code. "26 USC 7702: Life Insurance Contract Defined."

This balance of this article is available at: https://www.Investopedia.com/terms/s/section-7702.asp

Fixed / Indexed Annuities - A hybrid of two older strategies

How Good of a Deal Is an Indexed Annuity?

By DANIEL KURT
Updated July 18, 2022

Annuities once came in two basic varieties. On one side were fixed annuities that provided the owner with modest returns but the security of guaranteed payments. The alternative was a variable type, whose return was based on how well a particular basket of stocks performed.

In more recent years, however, annuity customers have had a third, middle-of-the-road option, indexed annuities.

KEY TAKEAWAYS

• Indexed annuities promise a guaranteed return plus one based on a market index, like the S&P 500.
   
• Many annuity contracts apply the guaranteed interest rate to only a portion of the money you pay in premiums.
   
• Your market-based return may also be less than the market's actual percentage gain.
   
• Indexed annuities typically feature both caps and floors on your returns.

Understanding Indexed annuities

Indexed annuities feature a guaranteed return plus a market-based return. The result is a greater potential upside than a traditional fixed contract, with less risk than a variable annuity.

If sales figures are any indication, many investors see indexed annuities as a “best of both worlds” proposition. Sales reached a record total of $254.8 billion in 2021, according to the LIMRA Secure Retirement Institute—that's up 16% from 2020.

This balance of this article is available at: https://www.investopedia.com/articles/personal-finance/051214/how-good-deal-indexed-annuity.asp