Which of the following is not a taxable event for a modified endowment contract (mec)?
What is not subject to taxation under a modified endowment contract?
Taxes on gains are regular income for MEC withdrawals under last-in-first-out accounting methodology. However, the cost basis within the MEC and withdrawals is not subject to taxation.
What is considered a modified endowment contract?
A minimum non-MEC face amount is the initial death benefit on an IUL policy providing the least death benefit possible for a given premium and not have the policy be classified as a Modified Endowment Contract (MEC) for income tax purposes.
What is a non MEC policy?
To avoid being declared a modified endowment contract, a life insurance policy must meet the 7-pay test. This test calculates the annual premium a life insurance policy would need to be paid up after seven level annual premiums. (When a life insurance policy is paid up, no further premiums are due.)
What is modified endowment contract-MEC?
What is 'Modified Endowment Contract - MEC'. A modified endowment contract (MEC) is a tax qualification of a life insurance policy whose cumulative premiums exceed federal tax law limits. The taxation structure and IRS policy classification changes after becoming a modified endowment policy. Next Up.
How are withdrawals from a modified endowment contract taxed?
The taxation of withdrawals under the MEC is similar to that of non-qualified annuity withdrawals. A modified endowment contract (MEC) happens when the IRS no longer recognizes a policy as a life insurance contract, because the total collected premiums exceed federal tax law limits.
What happens if a life insurance policy becomes a modified endowment contract?
If a life insurance policy becomes a Modified Endowment Contract, the taxation rules of the cash value held in the policy will dramatically change. These rule changes have almost no impact on the death benefit of the policy. MEC's will still pay an income tax-free death benefit to the beneficiary of the policy.
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- which of the following is not a taxable event for a modified endowment contract (mec)