Understanding the Differences between a 7702 Plan and a Retirement Plan

There is a good chance you’ve come across insurance agents or brokers who refer to the 7702 plan as a retirement plan worth pursuing. Such agents promise you numerous benefits that are designed to ensure you enjoy your retirement life. Unfortunately, this is far from the truth.

Actually, the nomenclature is merely a marketing moniker designed to mislead people into viewing life insurance as a viable alternative to legitimate tax-advantaged retirement accounts. No wonder you should understand the existing differences between a 7702 plan and a retirement plan to avoid making the wrong decision.

In a nutshell, a section 7702 plan is a specific type of cash-value life insurance policy. What this simply means is that it has a cash value, which goes beyond the potential death benefit. Paying premiums into this kind of life insurance policy means a portion goes to the death benefit and a portion goes to the policy’s cash value.

The thing with a 7702 plan is that is accumulates cash value throughout the period of the policy. Depending on your employer, it has the potential to be a universal life insurance policy or a variable life insurance. Bear in mind the cash value always continues to grow on a tax-deferred basis.

So, what are some of the key differences between a 7702 plan and a retirement plan. Well, 7702 plans have no tax deductions while contributions made to a tradition IRA or 401(k)) can be tax-deductible. You’re required to pay income tax on any qualified withdrawals from a retirement plan.

Even though a 7702 plan and a retirement plan might sound fairly similar, they tend to operate in completely dissimilar ways. A cash value life insurance policy can sometimes be a remarkable financial strategy to pursue. But it’s not always going to be a perfect solution as a retirement plan if you want to invest for the long haul.

You should take it upon yourself to research more about the 7702 plan to ensure it is precisely what you need to help change your life for the better.

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