Net Investment Income Tax (NIIT)
A 3.8% surtax on net investment income (interest, dividends, capital gains, rental income, passive activity income) for individuals with MAGI above $200,000 (single) or $250,000 (married).
Understanding Net Investment Income Tax (NIIT)
The NIIT was enacted by the Affordable Care Act in 2013. Life insurance policy loans and distributions from properly structured IUL policies are generally not subject to NIIT. Roth IRA distributions are also excluded. This makes tax-free income strategies especially valuable for high-income earners who would otherwise face the 3.8% surtax on investment income.
Why This Matters for Retirement: Understanding Net Investment Income Tax (NIIT) is essential for making informed decisions about tax-free retirement income strategies. Whether you are evaluating an IUL policy, planning Roth conversions, or comparing retirement vehicles, this concept directly affects your outcomes.