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Old 05-26-2014, 01:16 AM
 
Location: Marina del Rey, CA
245 posts, read 355,538 times
Reputation: 69

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I have a life insurance policy that I opened back in 1970, and which now has a cash value of $25K+. I'd like to cash this policy in and combine it with other cash for a down payment on a retirement home. I've been paying annual taxes on interest earned over the years. I'll be 65 next month, and hope to retirement a year or two later.

Question #1: If I cash in the policy now, do I pay additional federal taxes on the amount received?

Question #2: My home of record is in California. Related to question #1, if I cash in the policy, does the amount received count as additional income and therefore is taxable by the state?

It might seem that since I've been paying federal/state taxes on the interest earned over the years, that I wouldn't have to pay extra taxes once the policy is ended. But maybe that doesn't work in this situation.

These might more legitmately be insurance questions, but I couldn't find a forum that seemed to fit, and since the property would be a retirement house, I figured this category would be as good as the next.

Thanks in advance for comments/advice.
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Old 05-26-2014, 11:20 AM
 
Location: Florida
4,376 posts, read 3,714,793 times
Reputation: 4116
Good question. You included the necessary info. Yes some part of what you get back is taxable. Try a search on taxes on cash value of life insurance.
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Old 05-26-2014, 02:09 PM
 
Location: southwestern PA
20,419 posts, read 37,702,086 times
Reputation: 39059
DH just cashed in a policy... and he will be issued a 1099 for part of the amount.
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Old 05-26-2014, 06:32 PM
 
Location: Marina del Rey, CA
245 posts, read 355,538 times
Reputation: 69
Quote:
Originally Posted by rjm1cc View Post
Good question. You included the necessary info. Yes some part of what you get back is taxable. Try a search on taxes on cash value of life insurance.
Thank you. That was excellent advice and much appreciated.
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