Cost Basis
The original value of an asset for tax purposes, used to calculate gain or loss when the asset is sold or distributed.
Understanding Cost Basis
In life insurance policies, cost basis equals the total premiums paid minus any dividends received and any non-taxable distributions taken. Withdrawals up to cost basis from a non-MEC policy are tax-free. Understanding cost basis is important for policy loan and withdrawal strategies in IUL policies. For Roth IRA contributions, the cost basis equals the contributions, which can always be withdrawn tax-free.
Why This Matters for Retirement: Understanding Cost Basis is essential for making informed decisions about tax-free retirement income strategies. Whether you are evaluating an IUL policy, planning Roth conversions, or comparing retirement vehicles, this concept directly affects your outcomes.