QUESTION:
If I specify a cash infusion tax rate as 0% but that the Extra Infusion Added to Taxable, will the cash infusion then get taxed at the income tax rates specified on the Other Assumptions page?
Thanks for considering,
Mark M., CFA
Portfolio Manager / Client Advisor
ANSWER:
The tax rate on the cash infusion line item always controls the taxes deducted when the money is infused into the plan.
So say there is a multi year infusion at age 65 for 5 years of $10,000 and no growth rate and a 10% tax rate. At age 65 it will inject $9000 into the plan. At age 66 another $9000 after taxes etc.
The last column controls “where does the money get added” if it is NOT USED in the year received. So if you need only $10,000 in a particular year but inject a $500,000 life insurance proceeds… where does the $490,000 go? It goes into the bucket specified by the last column.
If that is “taxable” then from that year forward it will be in the taxable bucket and in future years grow at the growth rate of the taxable bucket AND have taxes deducted out based on the Other Assumptions tax rates.