Turn $12,000 per year of taxable income into your child’s college fund, retirement plan, and life insurance all in one
Step 1 – Father Pays Child Salary (IRS Rule)
A parent who owns a family business can legally pay their child a salary for real work (filing, social media help, cleaning office, etc.).
Example:
- Father pays child $12,000 per year
- Child age: 8 to 19
- Total years: 11 years
Total salary paid:
$12,000 × 11 years = $132,000
Tax Advantage
- Child income below standard deduction
- Child pays $0 federal tax
- Parent deducts salary as business expense
So the money moves from taxable income → tax-advantaged wealth building.
(Always advise clients to confirm with CPA.)
Step 2 – Salary Deposited Into IUL
Instead of spending the salary, the parent deposits it into a Kids Indexed Universal Life policy (IUL).
According to the illustration you uploaded:
- Annual premium: $12,000
- Duration: 11 years
- Total contribution: $132,000 POLICY SINCE AGE 8
Policy features:
- Linked to S&P 500 index strategy
- 0% floor
- Cap around 11.75% POLICY SINCE AGE 8
Meaning:
- Market goes down → 0% loss
- Market goes up → gain up to cap
Step 3 – College Money at Age 19
At age 19, the policy has accumulated enough value to take money for education.
Illustration shows:
- Loan/withdrawal ≈ $113,165 for college POLICY SINCE AGE 8
Important point:
Policy loans are generally not taxable if the policy stays in force and is not a MEC. POLICY SINCE AGE 8
So the child can use it for:
• college
• first business
• down payment on home
Step 4 – Retirement Income Later
Even after the college withdrawal, the policy continues to grow.
At retirement age the illustration shows lifetime income withdrawals around $113,165 annually beginning later in life. POLICY SINCE AGE 8
This can continue for decades depending on policy performance.
Meaning:
One strategy funds:
- education
- retirement
- death benefit
Step 5 – Permanent Protection
The policy also maintains:
- Death benefit about $1,166,663 for the child’s life POLICY SINCE AGE 8
So the child has:
• education funding
• retirement income
• life insurance protection
“Instead of paying taxes on $12,000 each year, a business owner can legally pay their child that salary.
The child pays no tax if under the standard deduction, and the money can be placed into an Indexed Universal Life policy.
By age 19 the policy can help pay for college, and later it can provide tax-advantaged retirement income for life.”
Build Protection, Stability, and Long-Term Financial Options
In uncertain markets, many families are looking for ways to protect their savings while still allowing for long-term growth. One strategy some individuals consider is Indexed Universal Life (IUL) insurance, which combines life insurance protection with the potential to accumulate cash value linked to a market index.
How Indexed Universal Life Works
Indexed Universal Life policies provide a death benefit for your family while also allowing a portion of your premium to accumulate cash value. The cash value growth is typically linked to an index such as the S&P 500, but it is not directly invested in the market.
Most policies include two key features:
• Downside protection: If the index performs negatively during a crediting period, the credited interest rate may be 0%, meaning the policy does not lose value due to market declines.
• Growth potential: If the index performs positively, the policy may earn interest up to a stated cap or participation rate.
Why Some Families Consider This Strategy
An Indexed Universal Life policy may offer several potential benefits depending on the individual’s goals and financial situation:
• Life insurance protection for loved ones
• Potential tax-advantaged cash value accumulation
• Access to policy value through loans or withdrawals (subject to policy terms)
• Flexible premium structure in many policies
• Protection from direct market losses due to index declines
Planning for the Future
Some families use life insurance as part of a broader financial strategy that may include:
• Supplemental retirement planning
• Education funding strategies
• Legacy or estate planning
• Protection for business owners and families
Every situation is different, and these strategies should always be evaluated within a complete financial plan.
Important Considerations
Indexed Universal Life is not an investment in the stock market, and policy values depend on multiple factors including policy charges, interest crediting rates, and the performance of the index strategy.
Loans and withdrawals may reduce the policy’s cash value and death benefit and could result in tax consequences if the policy lapses or becomes a Modified Endowment Contract (MEC).
Professional Guidance Matters
Before making any financial decision, it is important to review your options with a qualified financial professional and, when appropriate, consult your tax or legal advisor.
The right strategy is the one that fits your family’s goals, risk tolerance, and long-term financial plan.