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Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: missj on July 21, 2015, 09:17:57 PM

Title: Tax implications of liquidating and canelling a universal life policy?
Post by: missj on July 21, 2015, 09:17:57 PM

 I made the huge mistake of buying a universal life policy almost 10 years ago.  The surrender period will be up in a couple of months and I will end the policy.  The cash value (once I lose the bogus surrender charge) is $23,000.

I'm thinking of just moving that money into a taxable vanguard brokerage account.

Does anyone know if there will be any tax considerations with doing this?

Title: Re: Tax implications of liquidating and canelling a universal life policy?
Post by: MDM on July 21, 2015, 09:45:37 PM

You will likely owe tax (at ordinary income tax rates) on any amount above what you contributed from outside the policy.

E.g., if you wrote checks for $13K in premiums, you will owe tax on $23K - $13K = $10K in interest.

The notes above assume any interest credited to your account over the past 10 years has not been taxed.