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
Membership organization representing professional actuaries in all insurance fields in Canada including life and health, casualty, consulting and fraternal actuaries. A member must reside ...
Organization formed to encourage research in insurance and to foster an exchange of ideas and research methodology among the society members. ...
INSURANCE health insurance policy providing coverage for an insured's medical expenses except those that are specifically excluded. This may be the most advantageous medical expense policy ...
Trust named from a private-letter ruling by the IRS that involved a trust established by a Jewish congregation on behalf of its rabbi. The operation of the trust involves the employer's ...
Bonds issued by the United States Treasury that earn a fixed interest rate plus the rate of inflation. These bonds are sold at face value in denominations of $50 up to $5000 and may earn ...
Activities of interest in underwriting an application for life insurance to determine the rate classification (premium) for the applicant. For example, a sky diver is at greater personal ...
Documents completed by the agent to effect authorization to act on behalf of the company. ...
Automobile purchased or leased by the insured or the insured's spouse that is in addition to the insured or the insured spouse's present car as covered under the personal automobile policy ...
In property insurance, amount that an insured does not have to pay when a loss exceeds a predetermined sum; here the insurance company pays more than 100% of the loss, so that the ...
Have a question or comment?
We're here to help.