Why Your Financial Advisor Hasn't Told You About Section 7702

There's a section of the IRS tax code that allows for:

• Unlimited contributions (no IRS caps)
• Tax-free growth (like a Roth, but no income limits)
• Tax-free access (at any age, no penalties)
• Asset protection (creditor-protected in most states)
• No Required Minimum Distributions (your money on your timeline)

It's called Section 7702. It's been in the tax code since 1984. It's completely legal.

And your financial advisor probably hasn't mentioned it.

Why not?

Reason #1: It Doesn't Fit the AUM Model

Most financial advisors are compensated based on Assets Under Management (AUM)—typically 1% of the assets they manage for you.

Section 7702 vehicles are insurance products. The cash value isn't "managed" by your advisor in a way that generates ongoing AUM fees.

The math:

• You invest $100,000 in advisor's portfolio → Advisor earns $1,000/year
• You fund $100,000 into Section 7702 policy → Advisor earns $0 ongoing

Which option do you think gets recommended?

This isn't necessarily malicious—it's human nature. People recommend what they know and what they're compensated for.

Reason #2: Advisors Don't Understand It

The financial advisory industry is built around securities—stocks, bonds, mutual funds, ETFs. That's what the Series 7 and 66 licenses cover.

Life insurance products require different licensing (state insurance licenses), different training, and different expertise.

Many advisors:

• Never learned about max-funded life insurance strategies
• Associate life insurance only with death benefit, not wealth building
• Were taught to dismiss insurance products as "expensive"

What you don't understand, you don't recommend.

Reason #3: The Industry Has Poisoned the Well

Let's be honest: the insurance industry has historically done itself no favors.

High-commission whole life policies sold to people who didn't need them. Misleading illustrations. Aggressive sales tactics.

The result? A generation of advisors (and consumers) trained to say "buy term and invest the difference."

That advice isn't wrong for everyone. But it's become dogma—repeated without nuance.

The reality is more complex:

• "Buy term and invest the difference" assumes you actually invest the difference
• It assumes taxes won't increase
• It ignores the unique benefits Section 7702 provides

Reason #4: It Requires a Long-Term Mindset

Section 7702 strategies aren't get-rich-quick. They require:

• 10-15+ year time horizons
• Consistent funding
• Patience during early years (when costs are highest)

Modern financial culture is obsessed with short-term returns. "What did your portfolio do last quarter?"

Section 7702 doesn't optimize for that question. It optimizes for lifetime wealth accumulation and tax-free retirement income.

Advisors who are judged on quarterly performance aren't incentivized to recommend 20-year strategies.

What Section 7702 Actually Does

Let's cut through the noise and explain what we're talking about.

Section 7702 of the IRS code defines how life insurance policies are taxed. When properly structured, these policies allow:

Tax-Free Growth

Cash value grows without annual taxation. Unlike a brokerage account where dividends and capital gains are taxed each year, growth inside the policy is tax-deferred.

Tax-Free Access

Policy loans allow you to access cash value without triggering taxable events. Unlike 401(k) withdrawals that are taxed as income, policy loans are not income.

No Contribution Limits

The IRS limits 401(k) contributions to $23,000 (2024). IRAs to $7,000. Section 7702? No statutory limit. Fund based on your income and goals.

No Income Limits

Roth IRAs phase out at higher incomes. Section 7702 has no income restrictions. Earn $1 million? Still eligible.

No Required Minimum Distributions

Traditional IRAs and 401(k)s force distributions starting at 73. Section 7702 policies have no RMDs—keep the money growing as long as you want.

Who Benefits Most?

Section 7702 strategies work best for:

• High-income earners who've maxed retirement accounts
• Business owners seeking tax-advantaged accumulation beyond qualified plans
• Those seeking early access (before 59½)
• Risk-averse investors who want growth without market exposure
• Asset protection needs (varies by state)

They're less appropriate for:

• Those who can't commit to long-term funding
• Lower income earners with unfunded Roth IRAs
• People primarily seeking maximum death benefit

The Right Way to Implement

Here's the dirty secret: Section 7702 can absolutely be done wrong.

Wrong way: Buy a traditional whole life policy focused on death benefit, pay high commissions, get minimal cash value growth.

Right way: Work with a specialist who designs max-funded policies optimized for cash value accumulation, minimized insurance costs, and long-term tax-free income.

The difference between a poorly designed policy and a properly designed one is enormous—potentially hundreds of thousands of dollars over a lifetime.

Questions to Ask Your Advisor

If you're curious about Section 7702, ask your current advisor:

1. "Are you licensed to sell life insurance products?"
2. "Have you ever recommended cash value life insurance for wealth building?"
3. "How does this compare to maxing tax-advantaged accounts first?"
4. "What are the costs in years 1-10 vs. years 10-30?"
5. "Can you show me illustrations with different funding levels?"

Their answers will tell you whether they can genuinely help or whether you need a specialist.

The Bottom Line

Section 7702 isn't right for everyone. But it's right for far more people than currently use it.

The reason it's not more widely recommended has less to do with its merits and more to do with industry structure, compensation models, and inertia.

If you're high-income, have maxed your qualified accounts, and want tax-free growth and access, you owe it to yourself to understand this option.

Don't let your advisor's blind spots become your missed opportunity.

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Ready to learn if Section 7702 fits your strategy?

Schedule a Section 7702 Consultation →

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Related reading:

• Section 7702 Deep Dive
• FlexVault Strategy Overview
• Tax-Free Retirement Income