Taxation of Death Benefit from a Keogh
Mr. Slott,
You state in your book that a self-employed person can buy life insurance inside their Keogh as a round about way to deduct premiums. How is the death benefit taxed? Is the entire DB taxed as income, only the amount of the cash value, or (and I doubt this possible as the IRS loves to tax us) is the DB paid straight to the beneficiary w/ no tax due?
Permalink Submitted by Al Fry on Wed, 2008-02-13 20:34
The cash value portion is taxable, the NAR (Net Amount at Risk) is income tax free. There is a recoverable cost basis (the PS-58 or term costs) based on the amount that was taxable to the insured/participant. Of course the entire amount would be includible in the estate (notwithstanding possible sub-trust ownership ala A. Fair).