7702 Plan (Life Insurance Retirement Plan) in Maryland: Complete Guide for Maryland Residents
A retirement funding strategy using cash-value life insurance structured under IRC Section 7702, designed to provide tax-free income in retirement through policy loans.
Why 7702 Plan (Life Insurance Retirement Plan) Makes Sense for Maryland Residents
Maryland is one of only two states with both an estate tax and inheritance tax. Life insurance death benefits are generally exempt from Maryland inheritance tax when paid directly to named beneficiaries, making IUL an important planning tool. A 7702 plan - structured life insurance under IRS Code Section 7702 - provides tax-free accumulation and distribution regardless of state income tax rates.
Maryland Tax Advantage: In Maryland, 7702 plan distributions via policy loans are not counted as taxable income at the state level, which compounds the federal tax advantage.
What Is 7702 Plan (Life Insurance Retirement Plan)?
Key Benefits
- Tax-free income via policy loans in retirement
- No contribution limits
- No income limits
- No required minimum distributions
- Tax-deferred accumulation
- Death benefit provides legacy wealth
- Protection from creditors in many states
- No impact on Social Security taxation calculations
Best For
- High earners who have maxed out qualified plans
- Self-employed business owners
- Those seeking supplemental retirement income with no RMDs
- People who want to keep retirement income off tax returns
- Those concerned about future tax increases on qualified accounts
7702 Plan (Life Insurance Retirement Plan) vs Alternatives: At a Glance
| Feature | 7702 Plan | Traditional 401(k) | Roth IRA |
|---|---|---|---|
| Contribution Limit | Unlimited (MEC limits apply) | $23,500/yr | $7,000/yr |
| Income Limits | None | None | Yes (phase-out $146K+) |
| Early Access (before 59.5) | None (via loans) | 10% penalty | Contributions only |
| Required Minimum Distributions | None | Yes, at age 73 | No |
| Tax on Withdrawals | Tax-free via loans | Fully taxable | Tax-free |
| Death Benefit | Yes | No | No |
Legal Basis: IRS Code Section
Section 7702
After-tax premium payments. Tax-deferred cash value growth. Tax-free policy loans in retirement. Tax-free death benefit to beneficiaries.
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