Life Insurance & Taxes, Compound Interest & Retirement Calculators, and Shells

Life Insurance Retirement Plans Help Taxpayers with These 7 Taxes

What you make in return is important, arguably, what you keep is more important. Dividends and loans from cash value life insurance are not reportable to the IRS, thus are not subject to income tax. Depending on your Adjusted Gross Income and Modified Adjusted Gross Income, there are additional taxes that higher reportable income can create. Tax-advantaged distributions from cash value-focused life insurance policies may assist in reducing these seven taxes.

1. Income Tax. A distribution from a high cash value life insurance policy can’t help you completely avoid income if you have a wage paying job, pension or distribution from a pretax retirement account. However, it can help you live with more money with less taxation. Dividends and loans are not reportable as income. Thus tax-advantaged distributions from life insurance policies are not subject to federal, state or local taxes. 
2. Taxation on Social Security. Depending on your Adjusted Gross Income, up to 85% of your Social Security benefit may be taxable. Social Security benefits were intended to provide partial income replacement in the absence of sufficient income in retirement, therefore any amount over $34,000 in provisional income for single tax filers and $44,000 for joint tax filers opens 85% of Social Security benefits to be subject to taxation. If a retiree has saved most of their assets in a pretax retirement plan and/or has a pension or continues to work this may be difficult to avoid. 
3. IRMMA Taxes. IRMMA (Income Related Monthly Adjustment Amount) is a tax related to Medicare premiums. In short, the higher income you show in retirement, the higher your Medicare premiums are. In 2026, there is a 75% difference between the lowest IRMMA tax bracket and the highest. The ability to show less income can help you keep more of your money. 
4. Alternative Minimum Tax. We actually have two tax systems in the United States and the one you will pay depends on which tax bill is higher. The Alternative Minimum Tax makes sure high income earners pay taxes regardless of deductions and tax credits they claim. Non-reportable income may keep you out of the Alternative Minimum Tax system, which can be as high as 28%. 
5. Additional Senior Tax Deduction. This one isn’t a tax but rather an additional tax deduction that The One Big Beautiful Bill gave to seniors who are under a certain income threshold. The deduction is sizable, $6,000 for each qualifying individual or $12,000 for married couples. The full deduction applies to single filers under $75,000 and phases out completely after $175,000 modified adjusted gross income. Married filers must be under $150,000 and completely phases out at $250,000. Showing too much reportable income can cause a senior to lose this deduction.
6. Net Investment Income Tax (NIIT): NIIT is a 3.8% surtax levied by the IRS on investment earnings for high-income earners. Non-reportable distributions from cash value does not contribute to NIIT. 
7. Capital Gains Tax: If you sell a stock or security outside of an IRA or qualified plan the gain on the stock or security is taxed at short- or long-term capital gains rates, even if you don’t take a distribution from the investment account. Tax-advantaged distributions from life insurance cash value do not trigger capital gains even if your cash value is higher than your principal.

New Tools on Crosby Advisory Website

Derek Ballinger, our Chartered Financial Analyst charterholder, recently added a few financial tools to our website. Our Compound Growth Calculator allows you to estimate future growth based on either historic investment index returns provided or you can enter your own compound growth rate. There are three components that determine how much your invested money will grow: time invested, growth rate, and how much you contribute. You can easily manipulate all of them to help you determine your accumulation goals.

Another tool is a Retirement Readiness Calculator for those who are interested in seeing if their current accumulation strategy is on pace for a desired retirement age. Derek, being the over achiever that he is, added in many components that affect retirement income such as inflation, taxes, investment return, and withdrawal rate that can be easily manipulated. The calculator will provide an estimated asset total needed to retire, the required return, any funding gaps that may be present as well as expected retirement income. This calculator is a high-level view of general retirement readiness and may not consider all aspects of your individual needs.

We highly recommend working directly with an advisor if you have any questions on how to use or read the results of these calculators. Crosby Advisory Group, LLC does not charge for financial planning meetings.

How Long Should You Own Individual Stocks?

Derek recently wrote a blog about time horizon. Being successful at investing in individual stocks over the long-term requires patience and discipline. He shared brief insight on historical success against indexes and our strategy at Crosby Advisory Group for investing in individual stocks. You can read it here.

What I took back from Sanibel Island

My family recently visited Sanibel Island, which is connected by a bridge to Fort Myers, FL. I highly recommend it if you are looking for a quiet, low-key beach vacation. My daughters love to hunt shells, which is why we selected Sanibel, known as one of the best places in the world to find a variety of beautiful shells. We would have had to check another suitcase if my daughters brought home all the shells they initially brought back to our room. There are bike paths all over the island. My oldest daughter and I biked to her favorite smoothie bar, Sanibel Sprout, every morning. We also kayaked through the Mangroves at the JN Darling Wildlife Preserve, while manatees swam beside us. Sanibel is also connected to Captiva Island; both islands have great places to eat. My personal favorites were The Green Flash, The Timbers, and Wickies Lighthouse, ranked in order of amazing. I always take pictures of my daughter’s footprints in the sand because the real prints only last for a moment, just as every moment we are given. 

Disclaimer: Crosby Advisory Group, LLC is a registered investment advisor. This newsletter is for informational purposes and does not reflect direct investment or tax advice. Investing involves risk including the potential loss of principal. Not all investments are suitable for all people. Crosby Advisory Group, LLC has ownership interest in NMD Insurance Agency and CAG Marketing.