I know if the annual premium of an insurance contract is over a certain amount, it is classified as a MEC (modified endowment contract) by the IRS. What is that amount for 2013 and 2014? Is it somewhere around $10,000?
Thanks in advance.
What is the modified endowment contract amount for 2014 tax year?
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Generally speaking, lump sums of money will create a MEC unless it falls under the 1035 exchange guidelines. I have clients however who have put a lump sum of over $10k and not create a MEC.
Can you provide more specifics or call me or your broker to look at the insurance you have or looking to apply for?
Unfortunately, you are mixing your investment or plan up. There is no annual guideline for a Modified Endowment Contract. You are thinking of qualified money contributions and confusing the two. Determination of a modified contract is something that can occur at any time if the extra monies applied to a policy trigger a formula known as the 7 pay test. When extra money is suggested to be added to a policy, the insurance company performs the 7 pay test on those funds and determines if the addition of those funds will trigger a MEC, before the funds are applied. More often than not, a deposit of extra funds triggers a MEC at some future date. If that's the case, the policy does not become a MEC until that date. So money could sit and grow for several years, even decades without becoming a MEC. As the policy draws closer to the MEC date, simply taking money out of the policy can eliminate the MEC. There are several other ways to eliminate the MEC classification as well.