by John Darer® CLU ChFC MSSC RSP CLTC
The changing tax structure is an important consideration when comparing structured settlements to alternative investment choices on large settlements or for settlement involving those with high incomes or sizable assets.
Dividends are only as valuable to investors as the portion left after taxes. The current 15% rate cap comes from a 2003 series of temporary rate reductions that were extended through 2012. On Jan. 1, 2013, the rate cap expires, unless Congress acts in the interim.
Say you in invest in dividend paying stocks (e.g. GE, a blue chip that currently yields about 3.5%) The current federal tax rate on qualifying dividends is 15%. For 2013, however, that rate explodes to about 44.8% after factoring in the end of various tax cuts, the phasing out of deductions and exemptions, and the addition of a 3.8% tax from the health care legislation.
The higher rate would apply to single individuals who earn more than $200,000 and to married couples earning more than $250,000.
Structured settlements which are for payment of damages for wrongful death, physical injury, physical sicknesss are income tax free pursuant to IRC 104(a)(2)
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