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
Insured's age at the date a term life insurance policy is issued. An original age or retroactive conversion option permits the insured to convert the term policy to a cash value policy as ...
Coverage for property damage by a covered peril to insured cotton during the time period from its weighing in at the gin until its delivery to the buyer. Written either on a specified peril ...
In health insurance, the applicable average rate charged for a semiprivate room in the geographical area in which the charge is incurred. ...
Written document containing instructions on managing one's assets during one's lifetime. The document may be revoked (unless made irrevocable at creation), terminated, or amended at any ...
Exposure present only at certain times of the year. For example, resort property faces a business interruption risk only from damage that cannot be repaired in time for the resort season. ...
The cancellation provision clause appears in an insurance policy to leave a door open for the insurance company or insured to cancel a policy. This type of cancellation applies in instances ...
Types of contracts that insure building contractors for damage to property under construction. The completed value form requires a 100% coinsurance because insurance carried must equal the ...
Retirement taken after the normal retirement age. For example, if the normal retirement age is 65 or 70 an employee may continue to work beyond those ages. Normally the election of deferred ...
Determination that policies entered into on or after June 21,1988, that fail the 7-pay test (aggregate premiums paid at any time during the first 7 years of the contract exceed the annual ...
Have a question or comment?
We're here to help.