Ways a 7702 Plan Can Fit into Your Investment Strategy from Alina Mark's blog

Every investor wants to achieve a reasonable rate of return, protect their investments, take the best advantage of tax codes and attain some flexibility with liquidity. Investors generally carry with them a checklist to determine the pros and cons of an investment. No wonder it takes time for one to choose an investment over another.

In this simple guide, we will try clearing the confusion that exists by talking about the 7702 planand how it can work in an investment strategy. Section 7702 of the Internal Revenue Code (IRC) created the 7702 plan regarding how the tax code is applied to the accrual of cash in a life insurance policy commonly referred to as cash value or account value.

The reason for bringing up the 7702 plan is that some insurance companies took advantage of the legal loopholes in existence and created a class of policies with a major investment feature. These policies could grow faster than ever before from the investment side of the contract while avoiding taxes on the accumulated value.

Some insurance agents might discourage you from mixing insurance and investment or that a 7702 plan is not a retirement plan. But the perfect way to assess any investment vehicle is by focusing on what it does rather than what it is. Most advisors promote and rave about Roth individual retirement accounts, Roth 401(k) plans and 529 college savings plans.

Taking a close look at the above-mentioned vehicles and 7702 plans, you’ll immediately realize that all of them offer the same tax benefits and similar investment options. They are all funded with after-tax dollars, grow tax-deferred and allow tax-free distribution. Not forgetting the fact that they all have set conditions, aside from 7702 plans.

With that being said, life-insurance based investment is not for everyone. Furthermore, it serves as a long-term investment very similar to any stock market or real-estate-based investments. While 7702 plans work similarly to Roth 401 (k) and 529 plans, they are not suitable in all scenarios as some people think in the first place.