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Can it be completely tax free?

Knowledge Vault > FAQ Continuation > Can it be completely tax free?

It definitely CAN be! As long as the policy is set up correctly and everything is done properly, you can absolutely avoid paying any taxes. However, it is possible to trigger a taxable event.

There are 2 taxable events to avoid:

Triggering a MEC / exceeding the IRS’s limit on the total amount you can put into a policy annually
If this does occur, the policy will act very similarly to a 401K. The cash grows tax-deferred, but if you take any cash out, you will have to pay income tax and a penalty tax of 10% if you are under 59-½ years old, on any dividends you’ve earned.
Having a policy lapse or cashing out
If you loan out too much of the cash and the policy lapses, or you are done with the policy and you take out 100% of the cash value, you would receive a 1099 and the amount of interest earned throughout the policy will be taxed as regular income.
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