Tax Diversification E-Book

Keep more of your retirement income, so you can enjoy more of your retirement. Tax diversification through life insurance can help.

It’s your retirement—protect it. Whether it’s lyingon a beach, golfingwith your buddies, or rediscoveringwhy youmarriedyour spouse, everyonehas their own ideaof aperfect retirement. At ClearPathWealth Strategies , wewant tohelpmake your retirement dreams come true. It’s not what you make, but what you keep. Chances are you’veheard theexpression, “It’s notwhat youmake, butwhat you keep.” It’s something that’sworth remembering—especiallyasyouprepare for retirement—because it helps reinforce the impact that taxes canhaveon your lifestyle and savings.

1 Theprimarypurposeof life insurance is toprovidea life insurancebenefit. Youcanaccess cashvaluevia loansorwithdrawals throughsurrenders.Whenaccessingcash valuevia loans, the total outstanding loanbalance (which includesaccrued loan interest) reducesyour policy’savailablecashsurrender valueand life insurancebenefit. Theamount youborrowwill accrue interest daily.When takingawithdrawal throughsurrenders, youaresurrenderinganyavailablepaid-upadditional insurance for its cashsurrender value. Thismeans that your policy's cashvalue, availablecashsurrender value, anddeathbenefitwill be reducedby theamount of thewithdrawal. Policy values are in part based on non-guaranteed factors, such as dividends and interest rates, which are subject to change. Therefore, the supplemental retirement income is not guaranteed.

Where do you think tax rates are headed? Right now, taxes arenear their historic lows.Whilewe’dall like to think they’ll remain thatway, odds are rateswill eventually start to rise. Howhigh?Noone knows for sure, but even themost incremental increase is likely tomake adifference in the amount ofmoney youhave available in retirement.

90% 95% 100%

10% 15% 20% 25% 30% 35% 40% 45% 50% 55% 60% 65% 70% 75% 80% 85%


Income is critical to your quality of life. When it comes to retirement, income is king. That’swhy it’s so important tomake themost out of your income-generating assets. Typically, the income you receive fromthese assets falls in to three tax categories: Taxable, TaxDeferred, or Tax Free. That'swhere tax diversification comes in. Thegraph above illustrates thehigh and lowmarginal tax rates over history. Exemptions, deductions, and state and local taxes arenot taken intoaccountwhen illustrating thesemarginal tax rates. Your actual tax ratesmay vary fromthose shownon thegraph. Remember that historical rates arenot a guaranteeof future rates. Source:



TaxFree *

1099 now

1099 later

1099 never

*Certain interest, although exempt from federal income tax, may still be reportable to the IRS and, in certain circumstances, may be subject to the alternative minimum tax (AMT).

You diversify your assets…why not your income? In the investment world, diversification is a practice that reduces overall market risk by distributing assets into multiple categories. It works much the same with retirement income, only in this case diversification reduces the risk taxes may pose to your lifestyle. Whole life insurance: a tax-efficient source of retirement income. While thepurposeofwhole life insurance is togive your family financial protection in case youpass away, the cash value it generates canbeused toprovide supplemental income in retirement. Best of all, this income is usually tax free,making it one sourceof tax-free income toconsider. 1,2

Diversifying your future income sources may provide more income to use during retirement. Below is a general example of how that diversification may look.

Tax-free income

Income subject to tax

Income subject to tax

Without tax diversification

With tax diversification

2 Please refer to the back page for this footnote reference.

With tax diversification, you may be able to keep more of your money. As theexample shows, dedicating some assets to the tax-free income categorymeans that you may ultimately havemoremoney touse in retirement. 1 And thehigher tax rates go, themore advantageous this strategymaybecome.

Retirement income of $100,000

Without Tax Diversification

$78,000 to spend after taxes

$100,000 401(k)/qualified plans

= $22,000 tax

100% taxable

$100,000 taxed at 22% 3

$50,000 401(k)/qualified plans $50,000 4 cash value life insurance

= $6,000 tax

100% taxable

$50,000 taxed at 12% 3

Tax Diversification Strategy

$94,000 to spend after taxes

$50,000 taxed at 0% 5

= $0 tax

tax free 5

Hypothetical example of an approach to tax diversification for illustrative purposes only. This does not represent the performance of any particular product. Your actual results will vary and may be more or less favorable.

What you do today, can lower your taxes tomorrow. Let’s get started.

3 Assumedmarginal federal income tax bracket under current rates. Assumption includes state and other local taxes in addition to the federal income tax. 4  As stated earlier, accessing the cash value through loans or withdrawals (i.e., partial surrenders) will reduce the available cash surrender value and life insurance benefit. Loans accrue interest. Policy values are in part based on non-guaranteed factors, such as dividends and interest rates, which are subject to change. Therefore, the supplemental retirement income is not guaranteed. 5 If structured properly. Policy loans andwithdrawals will reduce the life insurance benefit andmay cause the life insurance policy to lapse.

2 Certain tax advantages are no longer applicable to a life insurance policy if too much money is put into the policy during its first seven years, or during the seven-year period after a “material change” to the policy. If the cumulative premiums paid during the applicable 7-year period at any time exceed the limits imposed under the Internal Revenue Code the policy becomes a “Modified Endowment Contract” or MEC. AMEC is still a life insurance policy, and death benefits continue to be tax free, but any time you take a withdrawal from a MEC (including a policy loan), the withdrawal is treated as taxable income to the extent there is gain in the policy. In addition, if you are under 59½, a penalty tax of 10%could be assessed on those amounts and upon surrender of the policy. Taxpayers should always seek and rely on the advice of their own independent tax professionals . ClearPath Wealth Strategies, LLC is not owned or operated by New York Life Insurance Company or it's affiliates. Please understand that New York Life Insurance Company, its affiliates and subsidiaries, and agents and employees of any thereof, may not provide legal or tax advice to you.

The Whole Life policy form number is ICC18217-50P (4/18) © 2020, New York Life Insurance Company. All rights reserved. NEW YORK LIFE, and the NEW YORK LIFE Box Logo are trademarks of New York Life Insurance Company

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