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Financial Questions and Answers

Q: Our kids have grown up and made successful lives for themselves, and we've paid off our house. Should I cash in my permanent life insurance policy and let it lapse now that I don't really need it?

A: Most permanent life policies allow for withdrawals of cash buildup. You can also use cash value to fund future premium payments. Before you cancel the policy, ask if you have any other financial protection needs. Will your heirs need income tax-free benefits to help settle estate taxes? Do you want to equalize your estate or simply leave a financial legacy to loved ones? Weigh your premium costs against the potential cash and death benefit your policy provides before making a final decision.


Q: I opened a Simplified Employee Pension (SEP) plan last January and have contributed to it diligently, but I'm confused by the contribution formulas. Which one do I use?

A: First, congrats on choosing a generous pension plan. Based on the first $270,000 of compensation for 2017, you can contribute the smaller of $54,000 for 2017 or 25% of compensation. However, you must calculate your adjusted net earnings if you’re self-employed or in a partnership. This is your revenue minus business tax deductions minus one-half of your self-employment tax (Social Security and Medicare). Your result is the amount of compensation to use when figuring your contribution limit. IRS Publication 560 has more detailed information on this calculation.

November 2017 Newsletter Previous Article