What is considered a modified endowment contract?
What is a modified endowment contract? A modified endowment contract (MEC) is a designation given to cash value life insurance contracts that have exceeded legal tax limits. When the IRS relabels your life insurance policy as an MEC, it removes the tax benefits of withdrawals you can make from the policy.
Can you withdraw from a modified endowment contract?
Withdrawing money from a modified endowment contract is similar to withdrawing from a non-qualified annuity, which is funded with post-tax dollars. When you take money out of your MEC, the earnings are taxable as ordinary income before you turn 59 ½ and you also incur a 10% penalty.
What are the benefits of a modified endowment contract?
A term life policy is exactly what the name implies: Coverage for a specific term or length of time, typically between 10 and 30 years. It is sometimes called pure life insurance because, unlike whole life insurance, there's no cash value to the policy.
c Pre-death distributions are typically taxable If the result of a modified... c Pre-death distributions are typically taxable If the result of a modified endowment contract that failed to meet the seven-pay test in pre death distribution becomes taxable.It is a designation given to cash value life insurance contracts that have exceeded legal tax limits.
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