--- title: Life Insurance May Mitigate Biden's Capital Gains Tax Increase description: President Joe Biden's proposed capital gains tax increase will negatively effect retirement savings. Cash value life insurance may mitigate these effects. image: https://blog.advisors-resource.com/hubfs/bigstock-Portrait-of-a-happy-young-coup-116492102.jpg --- [Skip to content](https://blog.advisors-resource.com/blog/life-insurance-may-mitigate-biden-capital-gains-tax-increase#main-content) ![advisors-resource-company-logo-horizontal-full-color-green-1](https://blog.advisors-resource.com/hs-fs/hubfs/advisors-resource-company-logo-horizontal-full-color-green-1.png?width=150&height=65&name=advisors-resource-company-logo-horizontal-full-color-green-1.png) - [Home](https://advisors-resource.com/) - [Who we Serve](https://advisors-resource.com/who-we-serve/) Show submenu for Who we Serve - [CPAs](https://advisors-resource.com/cpas/) - [Business Owners](https://advisors-resource.com/business-owners/) - [Financial Professionals](https://advisors-resource.com/financial-professionals/) - [Webinars & Blogs](https://advisors-resource.com/webinars-case-studies/) Show submenu for Webinars & Blogs - [Our Blog: Industry Insider](https://blog.advisors-resource.com/blog) - [Webinars](https://advisors-resource.com/webinars-case-studies/) - [Contact](https://advisors-resource.com/contact-us/) Open main navigation Close main navigation - [Home](https://advisors-resource.com/) - [Who we Serve](https://advisors-resource.com/who-we-serve/) Show submenu for Who we Serve - [CPAs](https://advisors-resource.com/cpas/) - [Business Owners](https://advisors-resource.com/business-owners/) - [Financial Professionals](https://advisors-resource.com/financial-professionals/) - [Webinars & Blogs](https://advisors-resource.com/webinars-case-studies/) Show submenu for Webinars & Blogs - [Our Blog: Industry Insider](https://blog.advisors-resource.com/blog) - [Webinars](https://advisors-resource.com/webinars-case-studies/) - [Contact](https://advisors-resource.com/contact-us/) Apr 27, 2021 5:21:17 PM # Life Insurance May Mitigate Biden's Capital Gains Tax Increase [Travis Pence](https://blog.advisors-resource.com/blog/author/travis-pence) Share: [facebook-f icon](http://www.facebook.com/share.php?u=https://blog.advisors-resource.com/blog/life-insurance-may-mitigate-biden-capital-gains-tax-increase) [linkedin-in icon](http://www.linkedin.com/shareArticle?mini=true&url=https://blog.advisors-resource.com/blog/life-insurance-may-mitigate-biden-capital-gains-tax-increase) [Twitter icon](https://twitter.com/intent/tweet?url=https://blog.advisors-resource.com/blog/life-insurance-may-mitigate-biden-capital-gains-tax-increase) [pinterest-p icon](http://pinterest.com/pin/create/link/?url=https://blog.advisors-resource.com/blog/life-insurance-may-mitigate-biden-capital-gains-tax-increase) [envelope icon](mailto:?body=https://blog.advisors-resource.com/blog/life-insurance-may-mitigate-biden-capital-gains-tax-increase) This month the White House announced President Joe Biden’s “American Families Plan.” Within this proposed bill is a substantial increase to the top federal tax rate on long-term capital gains and qualified dividends. This rate would increase from 23.8 percent to 39.6 percent for higher earners. When including the net investment income tax, the top federal rate on capital gains would be 43.4 percent. Rates would be even higher in many U.S. states due to state and local capital gains taxes, leading to a combined average rate of 48 percent compared to about 29 percent under current law. These changes, if enacted, will make it more difficult to retire comfortably. The challenge is planning during a time of uncertainty. Nevertheless, we can be certain of two things: 1. The national debt is climbing. As of April 2021, the national debt is greater than 28 Trillion! 2. The government will be looking for ways to increase revenue through tax changes and/or by decreasing benefits offered. ## The Life Insurance Solution In other words, Biden’s proposed tax increase will likely make tax-deferred accumulation tools more attractive to individuals who are planning for retirement. Most advisors traditionally look towards IRAs or deferred annuities in this situation; however, [life insurance may be a more powerful solution](https://blog.advisors-resource.com/blog/iul-or-ira) thanks to two key-factors: 1. [The Tax Benefits of Life Insurance](https://blog.advisors-resource.com/blog/is-cash-value-life-insurance-taxable) 2. [The Recent MEC Limit Increase](https://blog.advisors-resource.com/blog/7702-tax-code-update-life-insurance) ## The Tax Benefits of Life Insurance For the purposes of this article, I am referring specifically to cash value life insurance, as it provides both a guaranteed death benefit as well as a cash accumulation feature that may be utilized as a retirement savings tool. As you know cash value life insurance falls into the category of permanent life insurance. A portion of its premiums go into an account to build the cash value, while the other portion pays for the policy. Unlike term insurance, it does not terminate. Its death benefit exists from the moment of policy purchase. Its cash value accrues over time. The cash value that accumulates in the policy is tax deferred. The owner can access the money tax-free by taking withdrawals and/or policy loans provided it is structured properly. ## The Recent MEC Limit Increase Now that we have covered the cash accumulation feature, that leads us right into an even greater opportunity (probably the greatest in the industry in recent history): The recent MEC limit increase. At the end of last year, there was a pleasant surprise in the COVID-19 Relief Bill, otherwise known as the Consolidated Appropriations Act, 2021 or CAA, 2021. Buried in this massive 5,593-page bill are changes to the interest rates used in Section 7702 of the U.S. Internal Revenue Service (IRS) Tax Code. This represents the first major change to the life insurance industry since 1988. This update to the tax code has brought about potential for new tax planning opportunities utilizing cash value life insurance. [The Section 7702 update](https://blog.advisors-resource.com/blog/7702-tax-code-update-life-insurance) which is effective as of now, has [DOUBLED the MEC limit](https://blog.advisors-resource.com/blog/mec-limits-doubled-april2021) for all new policies. This will certainly result in more efficient policies when the objective is the accumulation of cash values. It will also allow you to short pay policies when you want to get the funding out of the way without running into the issues of creating a MEC. There is no better time than now to revisit your IUL prospects and/or illustrations. If you have any clients who are interested in an efficient cash accumulation tool that can mitigate Biden’s proposed tax plan, follow the link below to speak with our product expert: [![Schedule a Time to Speak with our On-Staff CFP](https://no-cache.hubspot.com/cta/default/6074374/2bb29446-7ef1-45c0-ab52-474fd0b53aac.png)](https://cta-redirect.hubspot.com/cta/redirect/6074374/2bb29446-7ef1-45c0-ab52-474fd0b53aac) [Tax](https://blog.advisors-resource.com/blog/tag/tax), [iul](https://blog.advisors-resource.com/blog/tag/iul), [Universal Life Insurance](https://blog.advisors-resource.com/blog/tag/universal-life-insurance) ## Related posts [![401k Banner](https://blog.advisors-resource.com/hs-fs/hubfs/bigstock--195076192.jpg?height=200&name=bigstock--195076192.jpg)](https://blog.advisors-resource.com/blog/bidens-plan-to-overhaul-401ks) [Planning](https://blog.advisors-resource.com/blog/tag/planning), [Qualified Plans](https://blog.advisors-resource.com/blog/tag/qualified-plans), [Retirement](https://blog.advisors-resource.com/blog/tag/retirement) ## [Biden's Plan to Overhaul 401(k)s](https://blog.advisors-resource.com/blog/bidens-plan-to-overhaul-401ks) ![Picture of Jordan Pence](https://app.hubspot.com/settings/avatar/59c5c149de751f6daed462d84605c4a6) [Jordan Pence](https://blog.advisors-resource.com/blog/author/jordan-pence) Oct 8, 2020 9:08:31 AM Democratic presidential nominee Joe Biden has proposed a plan to change 401(k) retirement savings... [Read more](https://blog.advisors-resource.com/blog/bidens-plan-to-overhaul-401ks) [![Guide for Life Insurance](https://blog.advisors-resource.com/hs-fs/hubfs/Guide-for-Life-Insurance-Agents-and-Advisors.jpg?height=200&name=Guide-for-Life-Insurance-Agents-and-Advisors.jpg)](https://blog.advisors-resource.com/blog/how-to-efficiently-and-effectively-write-life-insurance) ## [How to Efficiently and Effectively Write Life Insurance](https://blog.advisors-resource.com/blog/how-to-efficiently-and-effectively-write-life-insurance) [Travis Pence](https://blog.advisors-resource.com/blog/author/travis-pence) Jun 29, 2021 10:05:28 AM Many business owners and entrepreneurs, like yourself, spend too much time working in their... [Read more](https://blog.advisors-resource.com/blog/how-to-efficiently-and-effectively-write-life-insurance) [![Why advisors dont (4)](https://blog.advisors-resource.com/hs-fs/hubfs/Why%20advisors%20dont%20(4).png?height=200&name=Why%20advisors%20dont%20(4).png)](https://blog.advisors-resource.com/blog/effective-versus-marginal-tax-rates) [marginal tax rate](https://blog.advisors-resource.com/blog/tag/marginal-tax-rate) ## [Marginal vs Effective Tax Rates](https://blog.advisors-resource.com/blog/effective-versus-marginal-tax-rates) ![Picture of Ralph Pence](https://app.hubspot.com/settings/avatar/d41d8cd98f00b204e9800998ecf8427e) [Ralph Pence](https://blog.advisors-resource.com/blog/author/ralph-pence) Dec 13, 2019 10:34:57 AM The first major law passed by President Donald Trump, "The Tax Cuts & Jobs Act of 2017", was signed... 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