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
Coverage for small mercantile establishments on a package basis. Combines six layers of protection: burglary of a safe; damage caused by robbery and burglary, whether actual or attempted; ...
Type of guaranteed investments contract in which the interest credited is adjusted on a periodic basis to reflect the investment earnings of the underlying assets of the contract. ...
Same as term Compulsory Insurance: coverage required by the laws of a particular state. For example, many states stipulate minimum amounts of automobile liability insurance that must be ...
Period, set by law, after which a damage claim cannot be made. Limits are set by individual states and usually range from one to seven years. ...
Inland marine policy addition that provides coverage to owners of sheep, and to warehouseowners who store wool as well as wool in transit. ...
Measure of the rate at which policies are cancelled or allowed to lapse. The termination rate is a factor in setting premiums for group life and health policies. ...
Method of funding a pension plan after a worker retires. An employer purchases an annuity or sets aside a sum when an employee retires that will pay monthly lifetime benefits. ...
Coverage that will indemnify the insured for the expenses, up to the limits of the policy, if a building is damaged by a peril such as fire, and zoning requirements and/or building codes ...
Type of derivative traded on the Chicago Board of Trade that takes the form of an option on a catastrophe futures contract using a call-option spread as the basis for the contract. The ...
Have a question or comment?
We're here to help.