Good morning. I have been sitting on a whole life policy my parents took out on me when I was young. It was a 20 year policy taken out in 1980. I would like to simplify my financial house a bit more and am considering cashing in this policy. I have term policies on me and my wife and don't see the need for this small policy.
How would I determine the potential tax implications (if any) if I were to cash this in?
Are there other factors that I should consider when evaluating whether or not to cash in this policy? There is loan interest due each year but my parents and now I haven't paid.
Please advise if additional information is required.
Type: Limited Pay Whole Life
Total Death Benefit / Net Death Benefit: $ 30,312.12
Cash Value / Net Cash Value: $ 2,890.94
Policy Date: 1980
Policy Status: Paid-Up
Outstanding Loan: $12,360 (as of May 2013) - I believe taken out by my parents to help pay for High School tuition years ago.
Current interest on contract loan of 8%
The policy statement noted that since 1995, $7,882 in unpaid interest has been added to principal.
Cash Value $ 9,899.77
Cash Value of Paid-up Additional Insurance $ 6,328.62
Dividend Accumulations + 418.07
Total Cash Value $ 16,646.46
Policy Debt - 13,755.52
Net Cash Value $ 2,890.94
Other relevant info on portfolios:
Vanguard taxable account: $38K, ETFs
Vanguard Roth IRA: $75K (me), max annual contribution via backdoor Roth conversion
Vanguard Roth IRA: $18K (wife), max annual contribution via backdoor Roth conversion
401K: $80K (wife), contribute approx $11K annual.
401K: $267K (me), max annual contribution
Cash: $44K
28-30% tax rate (estimate)
Debt: $163K home mortgage, approx $1,500 P&I per month, 3.25%, 15 year. Home value is $255K per Zillow.
CC balance paid in full each month.
Thank you in advance for any advice you may have.