Unlike with traditional 401(k)s, The IUL is funded with non-qualified money, or after-tax dollars. So what you pay into IUL has been taxed already. That’s good news for future income – tax-free retirement income! IUL also offers the advantage of a tax-efficient death benefit for loved ones.
The index universal life policy is a worthy alternative to the 401(k), the IRA, the Roth IRA, and other investment strategies for your retirement fund.
What Are Some Other Key Differences?
- Money within a 401(k) plan is exposed to losses from market downfalls
- 401(k) plans don’t let you borrow against them with the same flexibility as you might with IUL, generally speaking
- 401(k) withdrawals before age 59.5 are subject to a 10% penalty and income taxation
- Unlike with the 401(k), distributions from an IUL policy, when taken as loans, are non-taxable
- Withdrawals from a 401(k) are subject to more substantial tax liability
- There are less restrictions on contributions to an IUL policy than they are to a 401(k) plan
- In the 2020 tax year, the contribution limit for a 401(k) is set at $19,500. THAT’s ALL!
- With its contractual guarantees, IUL offers the benefit of preserving your earning power in your professional working years
- Indexed universal life insurance can also be customized for different situations: there are riders for chronic illness, work disability, and other specialized circ*mstances
And It Gets Even Better!
- You can pour money into the IUL while other retirement options have restrictions on the amount of contributions you can make
- You get life insurance that cannot be revoked
- You cannot lose your principal to a recession
- When you start withdrawing money in retirement it’s tax-free! The federal government cannot look at a steady $100,000 a year withdrawal from your IUL, combine it with your $32,000 Social Security income and declare that you are making too much money and tax your Social Security money
The IUL is going to prove to you it beats traditional retirement strategies every time. So don’t walk into the “retirement casino” that has been beating you year after year. Build your OWN casino. You play the games YOU want and get some gains without losses due to a bad market. Walk out with your wealth in tact.
FAQs
What Distinguishes IUL From the 401K? Unlike with traditional 401(k)s, The IUL is funded with non-qualified money, or after-tax dollars. So what you pay into IUL has been taxed already.
Is an IUL better than a 401k? ›
IUL offers a safety net by protecting against market losses and ensuring that the cash value does not decrease even if the market underperforms. On the other hand, 401(k) investments are directly tied to market performance, exposing investors to potential risks and fluctuations.
Is it better to invest in life insurance or 401k? ›
Better returns than life insurance: Because 401(k) contributions grow over time, the returns are more significant than the cash value of a life insurance policy. More varied investment options: Compared to investment opportunities for life insurance, employers offer a more diverse portfolio of options for 401(k)s.
Should I move my 401k to an IUL? ›
Benefits of Considering an IUL Account
Tax Advantages: IUL policies offer tax-free growth, meaning you won't pay taxes on the cash value growth. Additionally, qualified withdrawals can be tax-free, providing an advantage during retirement.
What is better than an IUL? ›
Whole life insurance provides the stability of a fixed premium, and it's generally more affordable than indexed universal life insurance.
What is the bad side of IUL? ›
This type of life insurance offers permanent coverage as long as premiums are paid. Some of the drawbacks include possible limits on annual returns and no guarantees as to the premium amounts or future market returns. An IUL policy may be canceled if you stop paying premiums.
What is a drawback to IUL? ›
IUL also comes with inherent risks, such as capped growth and market volatility, along with higher fees and the need for active management. IUL offers tax advantages, including tax-free death benefits, but also has specific tax rules regarding withdrawals and loans against the cash value.
What age should you invest in life insurance? ›
The best time to buy life insurance if you want affordable coverage is typically before age 30, but will vary based on an individual's health, budget and reason for purchasing life insurance.
Is an Iul a retirement plan? ›
Indexed universal life insurance and 401(k) plans can both be used as investment tools for retirement. But there are some important differences to note. With IUL, returns are tied to the performance of an underlying index. If the index performs well, then your policy earns a higher interest rate.
Can I transfer 401K to life insurance? ›
401(k) rollover to a life insurance policy
Technically, you can't roll over your 401(k) account into an insurance policy; however, if you have a life insurance needs, you can withdraw funds from the account and redirect them to pay for a life insurance policy.
The main reason why IUL is considered a bad investment is because the S&P 500's total returns have undeniably outperformed Indexed Universal Life over any multi-decade timeframe. To make IUL vs. the S&P 500 look superior, life insurance agents have to isolate and cherry-pick the worst decades in stock market history.
Who should get an IUL? ›
IUL policies are highly complex and come with more ups and downs than many other types of life insurance. For a savvy investor looking for a policy with flexibility, IUL could be a good fit. But if you're simply looking for permanent coverage with guarantees, a whole life policy is a better option.
What is the average return on an IUL? ›
A minimum percentage return is guaranteed, but this is offset by capping out at a top end of return, typically between 8% and 12%. This may make IULs more attractive as an investment than whole life insurance, which earns a smaller rate of return.
What's better an IUL or a Roth IRA? ›
IUL, a life insurance policy, offers lifelong coverage, tax-free death benefits, and the chance to build cash value – it even guarantees some growth during market slumps. On the other hand, Roth IRA lets you stash away post-tax money that can grow tax-free under specific circ*mstances.
Is an IUL tax free? ›
Tax-free growth and distributions: “IUL distributions are tax-free versus tax-deferred in the other vehicles,” says Chris Abrams, an IUL expert at Abrams Insurance Solutions. That means you don't have to pay taxes on the money you eventually draw from the cash value of the IUL.
Is 529 better than IUL? ›
A 529 plan is subject to tax and penalty if distributions are for colleges outside of the U.S.. IUL distributions have no such restrictions. Most 529 plan investments may suffer losses. The investment component of IUL will never suffer an investment loss, while still offering nearly unlimited upside potential.
Is an IUL a good retirement plan? ›
IULs tend to have have complicated terms and higher fees. High-net-worth individuals looking to reduce their tax burden for retirement may benefit from investing in an IUL. Some investors are better off buying term insurance while maximizing their retirement plan contributions, rather than buying IULs.
How much can you put in an IUL annually? ›
There is no contribution limit on an IUL policy, unlike an IRA or 401(k). You can put as much as you'd like into the contract and the amount will grow.
