How Does Pension Tax Relief Depend On Payment Schemes?

Pension tax relief exists for certain types of retirement plans, depending on how they are set up.  Private pension plans funded with life insurance have the ability to make income payments to the recipient without having to pay taxes on the payments. The amount of deduction available is based on an individual taxpayer’s tax table rate, found in an income tax deduction chart.

Private Pension Plan

A private pension, which is a term that is not used anymore, refers to a permanent cash-value life insurance policy used to fund a retirement plan.  The IRS permits the owner of cash-value life insurance to take money out of the policy tax-free.  This means a life insurance policy can fund a pension for retiree that provides tax relief.  Note however that the loan used to take money from the plan will have an interest charge that if left unpaid may result in an adverse situation for the life insurance policy.

Use of Payment Schemes

It should be stated that the word “payment scheme” indicates some type of device used to circumvent or get around tax law.  Such “schemes” are usually found out to be in violation of IRS rules and may subject the beneficiary to some penalties.  You should be cautioned from entering into pension arrangements that may turn out to be a fraudulent investment scheme. This includes those using terms such as pension tax credits or tax relief for private pensions.

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