Tackle Tax Payments With an Insurance or Securities-Backed Line of Credit

A large tax bill can catch anyone off guard, and the best way to handle this unpredictable situation is to start conversations early on. As financial professionals meet with clients to proactively plan for the 2023 tax season, one of the first items to cover should be how to strategically pay their 2022 tax bill by utilizing assets, preserving wealth, and keeping portfolio investments in place.

One tactic that can help achieve these goals is accessing liquidity through the cash value of an eligible whole life insurance policy with an Insurance-Backed Line of Credit (IBLOC)1,2 or from non-retirement investments through a Securities-Backed Line of Credit (SBLOC).3 Both options can provide financial professionals and their clients the flexibility to pay taxes and meet other cash needs throughout the year without disrupting long-term financial goals.4

For the 2022 tax year, here are federal income brackets and rates to be mindful of:5

Tax Rate Single Individual Married Joint Return Married Separate Return Head of Household

10%

$10,275 or less

$20,550 or less

$10,275 or less

$14,650 or less

12%

$10,276 to $41,775

$20,551 to $83,550

$10,276 to $41,775

$14,651 to $55,900

22%

$41,776 to $89,075

$83,551 to $178,150

$41,776 to $89,075

$55,901 to $89,050

24%

$89,076 to $170,050

$178,151 to $340,100

$89,076 to $170,050

$89,051 to $170,050

32%

$170,051 to $215,950

$340,101 to $431,900

$170,051 to $215,950

$170,501 to $215,950

35%

$215,951 to $539,900

$431,901 to $647,850

$215,951 to $323,925

$215,951 to $539,900

37%

$539,901 or more

$647,851 or more

$323,926 or more

$539,901 or more


Capital Gains Tax Rates6

Tax Rate Single Individual Married Joint Return Married Separate Return Head of Household

0%

$44,625 or less

$89,250 or less

$44,625 or less

$59,750 or less

15%

$44,626 to $492,300

$89,251 to $553,850

$44,626 to $276,900

$59,751 to $523,050

20%

$492,301 or more

$553,851 or more

$276,901 or more

$523,051 or more

Why pay taxes with a
line of credit?

Other financial goals and obligations can take priority throughout the rest of the year, and a large tax payment can easily be overlooked. To maintain progress toward financial goals, it’s beneficial to have a plan in place to pay unavoidable tax bills.

Through the use of a line of credit, clients can access the money necessary to get this expense paid on time and avoid unnecessary penalties. By accessing credit through an IBLOC or SBLOC, clients can access liquidity from assets already available and avoid high-interest payments from other lines of credit. The Bancorp’s Institutional Banking team offers flexible payment terms with 36-month fixed rates for both an IBLOC and SBLOC. With this option, clients can choose to use funds to pay the entirety of their tax bill and use the extra cash to continue to fulfill other financial goals.

The IBLOC and SBLOC can offer competitive interest rates and cost-efficiencies compared to other conventional loans, including no application fees, underwriting fees, appraisal fees, or penalty fees for early payoff.7 When determining if an IBLOC or SBLOC is right for you, there are a few differentiators to keep in mind:

IBLOC

SBLOC

Interest-only revolving credit line that lets borrower access up to 95% of the cash value of an eligible whole life insurance policy1

Interest-only revolving line of credit based on nonqualified assets in an investment account

Minimum Credit Line: $75,0008

Minimum Credit Line: $100,0009

Available to individuals and trusts

Available to individuals, trusts, and entities

No closing costs

No annual or monthly fees

 

No charge for the portion of line not in use

How to get started?

Our Institutional Banking team is backed by more than 20 years of experience providing banking solutions for financial professionals and non-bank institutions. Our team partners directly with financial professionals to understand the wealth management strategy of their clients and provide a high level of support without fear of competition that can often come from other banks. Whether an IBLOC or SBLOC is the right fit for your client, the process is simplified with the help of TALEA®, our proprietary loan origination platform that enables speed and simplicity.10

When developing a strategy to pay 2022 taxes, an IBLOC or SBLOC could provide financial professionals and their clients with a strategic method to pay their tax bill and other living expenses without disrupting portfolio assets or assets under management.

Learn more about what we can offer by visiting The Bancorp Institutional Banking at institutionalbanking.thebancorp.com.

Opinions, findings, or perspectives contained in this blog are those of the authors.
1. Line of credit is contingent on life insurance policy remaining in good standing. The insurance policy owner must be the borrower and borrower must maintain a primary residential address in the U.S. Insurance policy must be issued by one of the following approved insurance providers to be eligible as IBLOC collateral: Guardian, MassMutual, Northwestern Mutual, NY Life, John Hancock, Penn Mutual, and Ameritas Life Insurance Corp. Other terms apply, See application for details.

2. Subject to credit approval and underwriting.

3. Securities-based lending has special risks and may not be suitable for everyone. If the market value of the pledged collateral declines below required level, the client may be required to pay down the loan or line of credit or pledge additional eligible collateral in order to maintain it, or the Bank may require the sale of some or all of the client's pledged collateral. The sale of the client's pledged collateral may cause adverse tax consequences.

4. An IBLOC or SBLOC offered through The Bancorp Bank, N.A. (“Bank”) cannot be used for the purchase of securities or to pay off a margin loan that was used to purchase securities.

5. Internal Revenue Service. "Rev. Proc. 2021-45," https://www.irs.gov/pub/irs-drop/rp-21-45.pdf, Pages 5-8 Accessed Nov. 16, 2022.

6. Internal Revenue Service. “Topic No. 409 Capital Gains and Losses” https://www.irs.gov/taxtopics/tc409, Accessed Jan. 6, 2023.

7. The Bank does not charge an application fee. State, local, and/or third-party fees may apply in some states.

8. Minimum requested amount must be $75,000.00 or such greater amount as may be prescribed from time to time pursuant to 12 C.F.R. Section 1026.3(b) of Regulation Z issued by the Consumer Financial Protection Bureau as the minimum threshold necessary to qualify the Line of Credit as an exempt consumer credit transaction thereunder.

9. Minimum requested amount must be $100,000.00 or such greater amount as may be prescribed from time to time pursuant to 12 C.F.R. Section 1026.3(b) of Regulation Z issued by the Consumer Financial Protection Bureau as the minimum threshold necessary to qualify the Line of Credit as an exempt consumer credit transaction thereunder.

10. The Bank does not offer tax, legal, or investment advice. Clients should consult a tax advisor, lawyer, or financial professional, as necessary.