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What is considered a modified endowment contract?

What is considered a modified endowment contract?

A modified endowment contract (MEC) is a designation given to cash value life insurance contracts that have exceeded legal tax limits. When the IRS relabels your life insurance policy as an MEC, it removes the tax benefits of withdrawals you can make from the policy.

What happens when a life insurance policy becomes a MEC?

When a permanent life insurance policy becomes an MEC, you can no longer make tax-free withdrawals from the cash value. Before age 59 ½ you’ll pay taxes and a 10% fee to access your money. After age 59 ½ you’ll still pay taxes, but with no additional penalty.

What are the tax consequences of a modified endowment contract?

Tax Implications of a MEC The taxation of withdrawals under the MEC is similar to that of non-qualified annuity withdrawals. For withdrawals before the age of 59 1/2, a premature withdrawal penalty of 10% may apply. As with traditional life insurance policies, MEC death benefits are not subject to taxation.

What causes a modified endowment contract?

A modified endowment contract (MEC) is the term given to a life insurance policy whose funding has exceeded federal tax law limits. The policy must fail to meet the Technical and Miscellaneous Revenue Act of 1988 (TAMRA) seven-pay test.

What is the 7-pay rule?

The seven-pay test determines whether the total amount of premiums paid into a life insurance policy, within the first seven years, is more than what was required to have the policy considered paid up in seven years.

Is MEC a good investment?

A MEC provides liquidity. These benefits make the MEC something that certain investors may choose to round out their portfolio. If they don’t need access to the cash prior to death, the MEC is a great tool for an investor to use to provide a tax free death benefit for their loved ones after they’re gone.

How is a modified endowment contract taxed?

Unlike traditional life insurance policies, taxes on gains are regular income for MEC withdrawals under last-in-first-out (LIFO) accounting methodology. However, the cost basis within the MEC and withdrawals is not subject to taxation.

What was the replacement for the Morris Marina?

The 1980 replacement for the Marina, the Ital, was the same car with only mild styling changes. It was only fully replaced by the Austin Maestro in 1983.

Why was the Morris ADO28 badged as a marina?

It was thus decided that the ADO28 would be badged as a Morris. The Marina would use a conventional rear-wheel drive, live rear axle drive-train as found on other popular mass-market cars such as the Ford Escort and Vauxhall Viva. This strategy was also intended to improve sales in BL’s export markets.

When did the Morris Marina diesel engine come out?

With no more than 37 or 40 hp on offer depending on the source, performance was often lethargic; 3,870 diesels were built between 1977 and 1980. They were never sold in Britain, where diesel engines were almost unheard of in passenger cars.

When did the Morris Marina come to Australia?

The Marina was introduced to the Australian market in April 1972 as the Morris Marina and then, following a change in marketing policy, sold there from 1973 under the Leyland Marina name.