Definition
IRC §7702A
The Modified Endowment Contract rules — the seven-pay test that governs whether a policy is a MEC.
Full definition
Section 7702A defines a Modified Endowment Contract. If cumulative premiums in any of the first seven policy years (or after certain material changes) exceed the seven-pay benchmark, the policy is a MEC for all future years, and lifetime distributions are taxed on a LIFO gain-first basis.
Related terms
Modified Endowment Contract (MEC)
A life insurance contract that fails the §7702A seven-pay test, losing tax-free access to cash value during life.
Non-MEC Design
A PPLI policy funded within the §7702A seven-pay limits so lifetime loans and withdrawals stay tax-favored.
TAMRA
The Technical and Miscellaneous Revenue Act of 1988, which enacted §7702A and the seven-pay MEC test.
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