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Magi income
Old 10-11-2017, 09:24 AM   #1
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Magi income

Hi all,
Planning future income sources to Minimize MAGI for ACA purposes I found that Roth distributions are not counted in MAGI but could not find if Return of Principal from Variable Life Policy counts as income. Any advice or sources is much appreciated.

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Old 10-11-2017, 10:25 AM   #2
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doesn't look like it is:

The Taxation Of Withdrawals From A Life Insurance Policy
One caveat to the favorable treatment for the taxation of life insurance policies is that it applies only as long as the life insurance policy is actually held intact.

If a withdrawal is taken from the policy, the gains may be taxable (as ordinary income), although under IRC Section 72(e)(5)(C), any distributions are treated first as a return of principal (the “investment in the contract”), and gains are only taxable after all the cost basis has been recovered. (Though policies treated as a “Modified Endowment Contract” or MEC are taxed gains-first.)

If the policy is fully surrendered – which means by definition all principal and all gains were withdrawn (at once) – any gains are fully taxable as ordinary income under IRC Section 72(e)(5)(E), to the extent the total proceeds exceed the cost basis.

Notably, when it comes to life insurance, the cost basis – or investment in the contract under the rules of IRC Section 72(e)(6) – is equal to the total premiums paid for the policy, reduced by any prior principal distributions (which could include prior withdrawals, or the previous receive of non-taxable dividends from a participating life insurance policy).

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Old 10-11-2017, 10:25 AM   #3
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I would say not since ACA MAGI starts with tax return AGI and then makes some specific adjustments.

By return of principal I think you are referring to that for life insurance contracts that only surrender values in excess pf premiums paid are subject to tax. If so, since it doesn't make onto AGI in the tax return and is not one of the specified adjustments then it would not be included in ACA MAGI.
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Old 10-11-2017, 02:55 PM   #4
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Thanks for the replies!!
Yes I meant Return of Premium and yes the policy remains in effect. This is good news as I can still manage to minimize MAGI to maximize ACA benefit.
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