Using a CIRP to Save Taxes and Boost Your Retirement Income
If you are a business owner who has accumulated a large amount of savings inside your corporation, you may be looking for ways to invest them wisely and access them tax-efficiently. You may also want to leave a legacy for your family or your favorite charity. If so, you may want to consider a Corporate Insured Retirement Plan (CIRP).
A CIRP is a strategy that involves buying a permanent life insurance policy on your life (or the life of another key person in your business) and using it as collateral for a loan. The loan can be used to supplement your retirement income or for any other purpose. The loan interest is generally deductible for the corporation and the loan advances are tax-free for you. At death, the insurance proceeds are used to pay off the loan and the remaining amount is paid to your beneficiary as a tax-free capital dividend.
Sounds too good to be true? Well, there are some risks and limitations involved, so you need to consult with a qualified financial advisor or an insurance specialist before implementing this strategy. But if done properly, a CIRP can offer you several benefits, such as:
- Tax-sheltered growth: The cash value inside the policy grows on a tax-deferred basis, allowing you to accumulate more wealth over time.
- Tax-free access: You can access the cash value of the policy through a loan without triggering any tax consequences.
- Flexibility: You can decide when and how much to borrow, depending on your needs and circumstances.
- Estate preservation: The death benefit of the policy is paid out tax-free to your beneficiary, reducing the impact of taxes and probate fees on your estate.
- Enhanced estate value: The insurance proceeds can create a credit to the Capital Dividend Account (CDA) of your corporation, which can be paid out as tax-free capital dividends to your beneficiary.