Managing Your Tax Bracket: Planning If Taxes Go Up and Planning If Taxes Go Down

The Bailey Group shares “Managing Your Tax Bracket: planning if taxes go up and planning if taxes go down,” resourced from

It’s always important to diversify and spread your risk among many investments. Diversification can help protect you from fluctuations among different assets and asset classes.1

But, what about diversifying your tax rate exposure? By diversifying among different financial products, you may have the ability to protect yourself against fluctuations in tax rates. Why is this important? During years with high tax rates, you may want to have the option to take funds from tax-free investments. In today’s uncertain tax and budget environment, planning for this is all the more important.


Peter and Ruth are a middle-aged couple. They’re saving for retirement, but need to care for their children and plan for college. Peter is also looking at life insurance to help protect the family in case something happens to him. At the same time, the couple is funding their IRAs and 401(k)s, but know these won’t address all they need for retirement.

  • Ideal Candidates
    • Need life insurance
    • Think taxes will increase
    • Need more retirement income than Social Security, their IRAs and other current savings can provide
    • Already maximum fund their 401(k)s and IRAs

A Possible Solution

Sarah, their financial professional, shows them an option – cash value life insurance. It offers Peter and Ruth:

  • Death benefit protection in case something happens to Peter during his working years.
  • Policy cash value that grow tax-deferred.
  • During the couple’s retirement years, any available cash surrender value can be taken from the life insurance policy via withdrawals and loans. So long as the life insurance remains inforce, the funds can be received income tax-free.
  • The couple can use these tax-fee withdrawals and loans to supplement income in years they need added income without increasing their tax bracket.2
  • Withdrawals and loans from life insurance policies are exempt from the 3.8% Medicare surcharge.

There’s a final added benefit: Life Insurance cash values, along with the couple’s IRA and 401(k) accounts, aren’t included in the expected family contribution calculations for many colleges that determine financial aid done by FAFSA.

1. Diversification is a method of asset allocation. It does not guarantee a profit or protect against a loss. A diversified method of investing may result in a loss of principle to the investor.

2. Loans and Withdrawals reduce the policy’s cash value and death benefit and increase the chance that the policy may lapse. If the policy lapses, terminates, is surrendered or becomes a modified endowment, the loan balance at such time would general be viewed as distributed and taxable under the general rules for distributions of policy cash values.

Managing Your Tax Bracket

Peter and Ruth estimate that during retirement they’ll need $350,000. They have several sources of income, but they’re worried about taxes. Here, their life insurance cash values can also help. Each year they will take non discretionary payments, such as Social Security and their required distributions from taxable retirement funds. This fills up their lower tax brackets. As they approach the higher tax brackets, they can minimize taxes with available life insurance surrender values.

By diversifying via taxes, you can also make the choice and take income from taxable or nontaxable sources to optimize taxes.

For the best answers and specifics to your life insurance policy and taxes, it’s best to seek the help of a professional. For all of your small business needs, The Bailey Group is here to assist you. If you have additional questions, feel free to reach out and someone on our team will be happy to help!

Contact Us Today or Call 866.207.8988


Withdrawals from life insurance policies may be subject to fees, penalties, and income taxes depending on the specific life insurance policy and the policyholder’s tax situation. Withdrawals reduce the policy value and death benefit. Life insurance contains exclusions, limitation, and terms for keeping it in force. This information is provided for informational purposes only. For costs and complete details, we encourage you to seek personalized advise from qualified professionals regarding all personal finance issues.

Please be advised that this document is not intended as legal or tax advise. Accordingly, any tax information provided in this document is not intended or written to be used, and cannot be used, by any taxpayer for the purpose to avoiding penalties that may be imposed on the taxpayer. The tax information was written to support the promotion or marketing of the transaction(s) or matter(s) addressed and you should seek advise based on your particular circumstances from an independent tax advise.

Please consider the charges, risks, expenses, and investment objectives carefully before purchasing a variable life insurance product which is sold by prospectus. For a prospectus containing this and other important information, please contact a financial professional. Read it carefully before you invest or send money.

Equitable Financial Life Insurance Company (Equitable Financial) (NY,NY) issues life insurance and annuity products. Securities offered through Equitable Advisors, LLC (NY, NY 212-314-4600), member FINRA, SIPC (Equitable Financial Advisors in MI & TN). Annuity and insurance products offered through Equitable Network, LLC, which conducts business in CA as Equitable Network Insurance Agency of California, LLC, in UT as Equitable Network Insurance Agency of Utah, LLC, in PR as Equitable Network of Puerto Rico, Inc. Equitable Financial, Equitable Advisors and Equitable Network are affiliates and do not own or operate The Bailey Group. AGE-153832 (6/20)(Exp.6/22)

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