Income-shifting Strategies
Ownership of tax-free or tax-deferred investments by a child or for a child, given that these investments will not reach maturity before the child attains at least age 14. The objective is to shift investment producing current income from high-tax-bracket adults to low-tax-bracket children. Possible means of achieving this objective would be the utilization of the following investment instruments:
- Municipal bonds interest earned is not subject to federal or state taxes.
- Savings bonds U.S. EE savings bonds that have a maturity date after the child attains age 14 these bonds guarantee payment of85% of the average interest rate of U.S. Treasury notes and bonds subject to a minimum guarantee rate of 6%. These bonds must beheld for at least five years for the full interest rate to apply.
- PERMANENT LIFE INSURANCE earnings accumulate on a tax-deferred basis with the possibility of avoiding taxes on the accrued earnings if the policy remains in force until the insured's death.
- DEFERRED ANNUITY this instrument offers the same tax-deferred treatment as life insurance.
- Growth equities taxes need not be paid on "paper gains;" taxes on gains are paid only after stock is sold.
- Custodial account parent retains control of the asset owned by the child until the child reaches the age of majority. The first $1000of income in the account is taxed at the child's rate (if child is less than age 14), and any additional income is taxed at the parent's rate. When the child reaches age 14, all income in the account becomes taxable at the child's rate.
Popular Insurance Terms
Day-to-day care that a patient (generally older than 65) receives in a nursing facility or in his or her residence following an illness or injury, or in old age, such that the patient can ...
Law under which one state gives favorable tax treatment to an insurance company domiciled in a different state that is admitted to do business, provided the second state does the same for ...
Clause common to life and health insurance policies issued during wartime that exclude benefits for military service-connected perils of death, disability, illness, accident, or sickness. ...
Use of another party's property in exchange for rental payment. ...
In marine insurance, clause giving an insured the right to abandon lost or damaged property and still claim full settlement from an insurer (subject to certain restrictions). Two types of ...
Wrongful conduct causing false arrest, invasion of privacy, libel, slander, defamation of character, and bodily injury. The injury is against the person in contrast to property damage or ...
professional designation earned after the successful completion of three national examinations given by the insurance institute of America (IIA). Covers such areas of expertise as ...
Same as term Unallocated Funding Instrument: pension funding agreement under which funds paid into a retirement plan are not currently allocated to purchase retirement benefits. The funds ...
Type of individual retirement account (IRA) allowed by the employee retirement income security act of 1974 (ERISA), in which contributions are paid into the bank's interest-bearing ...
Have a question or comment?
We're here to help.