This extraordinary rule provides so many opportunities that I could write a book just on rules 112-12. It provides a single-digit (less than 10) income tax opportunity to reallocate money in a more beneficial manner than our customers currently are employing.
“A faithful man will be richly blessed, but one eager to get rich will not go unpunished.” — Proverbs 28:20.
First Example: Social Security reports that 80 percent of Americans make less than $75,000 per year. Let’s begin with a couple over the age of 65 making $75,000 of taxable income per year. If we have the market crash that everyone is predicting and is already partially occurring, what if this couple withdrew $37,000 of long-term capital gains and NOT pay any income tax to do that. Do you think they would appreciate preserving those gains, especially if there was no income tax liability involved? Why is this possible? Under current income tax law, if a customer is in the 12 percent or less marginal tax bracket, they pay no income tax on those gains. Couldn’t they then reallocate this $37,000 to a single premium life insurance policy, or a 10-pay annual premium life insurance policy costing $3,700 per year? Second Example: Same couple with a $75,000 annual taxable income, and both are over the age of 65 filing a joint income tax return. Now, let me ask you a question. Is there someone at the Internal Revenue Service that you have decided you are so madly in love with that you want to leave them a whole bunch of your money? I bet not. Again, the difference between $75,000 and $37,000. If this couple withdrew $37,000 per year, their effective tax would be $3,290, if you multiply by 10 years, this couple could withdraw fully taxable income of $370,000 and only have an income tax liability of $31,900 over those 10
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