This worked so well the Federal Government stepped in and placed limitations on the minimum amount of death benefit per dollar of premium and the maximum amount of premium you could deposit. Together these are known as the DEFRA guidelines.

What happened? This action put a spotlight on such plans and we sold even more of the guideline premium and single premium plan. So the government came back with another set of rules this time to limit the amount you can pay in premium and still enjoy the tax favored status available to policy distributions. These rules are called the MEC (Modified Endowment Contract) guidelines.

While these two rules have placed limits on universal life insurance structured to accumulate funds for retirement, these plans remain a powerful retirement planning tool. Yet, for many, Maximum Tax Advantaged (MTA) life insurance is an overlooked component of a retirement planning strategy. What is MTA Life? It is a universal life policy designed to have the lowest possible initial death benefit, with the highest possible non- MEC premium and in most cases an increasing death benefit option. The last item, the increasing death benefit option, creates a higher annual DEFRA guideline which enables the client to put more money into the contract on an annual basis. Under such a contract, the client will pay no income taxes on the annual cash value growth, no current income taxes on withdrawals and loans and no income taxes on the death benefit. So, in most cases, as long as the contract ends with the insured’s death, no income taxes are ever due. Permanent life insurance can enjoy favorable income tax treatment and MTA Life takes maximum advantage of that treatment.

What is the hot design in the universal life market today? It is really the complete opposite of MTA Life. What is really selling are low cost guarantees, i.e. buying the highest possible death benefit for the lowest possible premium. This is great when only a lifetime death benefit is needed, but we are overlooking the potential role of life insurance in a comprehensive retirement plan when minimally funding the policy.

Many say there are better ways to save for retirement that are also tax favored. IRAs, TSAs, 401Ks, and Qualified Plans are all tax deductible or utilize pre-tax dollars. Aren’t these better? Maybe, but they may not be for everyone and all have contribution limits. What about the Roth IRA and non-qualified annuities? With all of this available why should life insurance be used for anything other than death benefits?

Take a look at the chart of tax advantaged retirement savings products or contracts below.

As the chart outlines, MTA life insurance offers benefits that other typical retirement planning vehicles do not. First, the policy distributions (withdrawals and/or loans) can be structured to be income tax free, which in turn avoids exposing Social Security benefits to taxes. Second, the benefit paid at death is much higher than the account value and is almost always income tax free. Furthermore it’s free from many of the rules and limitations that apply to the other vehicles (non-discrimination, contribution limits, premature distribution, minimum distribution, etc.)

Given the benefits of MTA life insurance, why don’t more people use it as part of their retirement savings plan? First, they are probably thinking about saving taxes today and not about the tax effects on distributions during retirement. Many assume they will be in lower tax brackets after retirement, but with today’s tax brackets, this may not be the case. In fact with fewer deductions after retirement, some may actually see their taxable income go up not down during retirement and for many, Social Security benefits may be included in taxable income as well. So the well-designed retirement strategy should consider after tax retirement income, not simply gross income, and MTA life can clearly help in that regard.

Second, many dismiss the need for life insurance beyond retirement and therefore discount the value of a life insurance vehicle in their overall retirement plan. While they may no longer need to replace lost income, there will still be many needs for life insurance after retirement --- final expenses, gifts, replacing lost benefits, and death taxes will continue to take their toll. Besides life insurance is a great way to pass on wealth that you don’t need to live off today.

MTA life is certainly a great way to diversify many clients’ retirement plans as a supplement to other vehicles. For others, the simplicity and flexibility and of MTA life may make it more appealing than a qualified plan.

MTA life is certainly a great way to diversify many clients’ retirement plans as a supplement to other vehicles. For others, the simplicity and flexibility and of MTA life may make it more appealing than a qualified plan.

Structuring an MTA life policy is different than normal life insurance planning. You want to set the death benefit as small as allowed under the government rules for the amount of premium being paid. What is a good plan to use for the MTA life? How about our Elite Index UL? It offers interest crediting linked to the performance of the S&P500 stock index to determine the yearly interest rate to credit, subject to an annual cap currently set at 11 percent (that can change yearly) but with a minimum interest of 1 percent for downside protection. It also offers optional long-term death benefit guarantees. This is a good long-term plan for an overfunded life policy.

To summarize, MTA life offers:

• Pre & post retirement death benefits
• Tax deferred cash accumulation
• Opportunity for policy distributions during retirement without current taxation
• No effect on Social Security benefits
• No income tax on death benefits
• No minimum distribution rules
• No plan administration costs
• The option to earn interest based on S&P500 index by using Elite Index UL