Final answer:
Angela should be aware that withdrawing cash value from her life insurance policy could be subject to ordinary income tax and a potential 10% early withdrawal penalty if under age 59½. She should check her policy's terms or consult with a tax professional.
Step-by-step explanation:
When Angela, aged 52, considers withdrawing cash value from her variable universal life insurance policy to help pay for her child's college tuition, she should be aware of the potential tax consequences involved. Typically, the cash value in a life insurance policy grows tax-deferred, which means you don't pay taxes on the growth. However, if a withdrawal exceeds the amount of premiums that have been paid into the policy (the cost basis), then the amount over the cost basis will be taxed as ordinary income. Additionally, depending on the specific policy and its terms, there may be fees or surrender charges associated with the withdrawal, especially if the policy hasn't been in force for a significant amount of time.
Regarding penalties, if Angela is under the age of 59½, any amount taken from a life insurance policy may be subject to a 10% early withdrawal penalty by the IRS, in addition to any ordinary income tax on the earnings portion of the withdrawal. However, some policies have loan provisions that allow for borrowing against the cash value, which may not incur the same penalties or taxes. It's critical for Angela to check her individual policy or consult with a tax professional before proceeding.