Postretirement Benefits, I choose to focus on life insurance. There
are similarities and differences between pensions and life insurance.
A similarity between life insurance firms and pension funds, or
pensions, a type of retirement plan, that is offered by employers is
that both give the capability to make premiums (or payments) today
in exchange for a guaranteed cash payment under certain conditions.
A similarity between life insurance and pensions is that most
employers or companies offer to pay the money in one (single) lump
sum payment or in installments (Vernon, 2016)
The recipients who receive monthly payments whether it is from their
pension or life insurance policies will have their monthly pension
payments and/or monthly life insurance payments subject to federal
and state income taxes. The lump-sum life insurance payments paid
out to beneficiaries of life insurance policies are normally not subject
to taxation (Huddleston, 2020).
Retired employees who receive their lump sum pension payments
will be subject to federal and state income taxes unless they move the
balance in their accounts that are part of the pension plans to a Roth
IRA account to decrease retirement taxes (Leach, 2018). Income
earned on pensions are subject to income tax (or federal income tax
withholding) because pension income is regarded as earned income
for income tax reasons (Pendell,2016). Normally, the payments paid
out to the beneficiary of a life insurance policy is not considered
taxable income by the Internal Revenue Service (Pendell, 2016). Thus,
the beneficiaries of life insurance policies do not have to report this
income on their federal individual tax returns when they must submit
(file) their federal individual tax returns to the Internal Revenue
Service (Bowman, 2020). Most large companies offer health
insurance coverage to their employees, especially to part-time
employees, that comprise their work staff.
References
Bowman, C. P. (2020, June 8). Taxes on life insurance: Here’s when
proceeds are taxable. msn.com. Retrieved November 18, 2020, from
How Does a Life Insurance Policy Payout Work? (havenlife.com)
D.S. Leach & C.E. Leach (2018, January 21). Take The Monthly
Pension Payments Or A Lump Sum Distribution? seekingalpha.com.
Retrieved November 18, 2020, from Take The Monthly Pension
Payments Or A Lump Sum Distribution? | Seeking Alpha
Huddleston, C. (2020, January 15). How does a life insurance policy
payout work? havenlife.com. Retrieved November 18, 2020, from
How Does a Life Insurance Policy Payout Work? (havenlife.com)
Pendell, C. (2016, September 26). How To Use Insurance for Pension
Maximization. jrcinsurancegroup.com. Retrieved November 17, 2020,
from How to Use Life Insurance for Pension Maximization
(jrcinsurancegroup.com)
Vernon, S. (2016, August 24). Pension payment: Lump sum or
monthly check? cbsnews.com. Retrieved November 18, 2020, from
Pension payment: Lump sum or monthly check? - CBS News
