401k vs Indexed Universal Life for Retirement

BY Justin Scott - Live Legendary

Anyone who wants to continue living a comfortable life after they stop working needs to plan their retirement. People have relied on index universal life insurance (IULs) and 401k plans, among other retirement plans. There are multiple options, but we are going to look at IULS vs. 401k. But how do these two choices compare? Should you continue using your 401k, or is an IUL the best retirement option? We'll go over both of these options in-depth to assist you in choosing the best one for you.

What is Indexed universal life for retirement and 401k

401k plans are employer-sponsored retirement savings plans available to employees of companies that offer them. Indexed universal life (IUL) policies are a type of permanent life insurance that provides cash value growth that is linked to the performance of one or more indexes, such as the S&P 500® Index.

IULs offer policyholders the opportunity to participate in the upside potential of the index without being subject to its downside risk. The cash value of an IUL can be used for various purposes, including supplementing retirement income, providing a death benefit for loved ones, and more.

Prospective savers should be aware of some significant differences between 401k plans and IULs, even though both can be used to save for retirement. For instance, IULs do not typically have annual contribution limits set by the IRS as 401k plans do. IUL's also have the potential for tax-free cash value growth, whereas 401k plans are tax-deferred.

The best retirement savings plan for you will ultimately depend on your particular situation and long-term financial objectives. For those looking to lay the foundation for their golden years, both 401k plans and IULs can be good choices if appropriately funded.

What is the benefit of Indexed universal life for retirement over 401k?

Indexed universal life has many advantages over 401k for retirement. You could potentially earn more money with IUL than you would with a 401k thanks to the 0% floor and not having to make up losses in down years, which is one advantage. An IUL also has the advantage of being a retirement income replacement strategy prior to the age of 59 ½ without penalties. You can supplement your retirement income with an IUL by taking advantage of tax-free growth of the cash value accumulation. The cash value serves as collateral and you can borrow against it for other investments, vacations, college tuition, etc. The money is accessed tax free, usually at a rate of 5% (simple interest) and paid back on your terms. There are living benefits which gives you access to the death benefit early for critical or chronic illnesses. In the event of your passing away, IUL’s also offers your family a death benefit plus your cash value tax free.

IUL is an insurance product with the potential for tax-deferred growth, living benefits, death benefit protection, and growth in cash value. The growth in cash value is associated with one or more stock market indexes, so even if the market increases, it won't lose money. Additionally, you won't be required to pay taxes on the growth of your cash value and when money is taken out properly through a loan, the principal is never reduced. An IUL is taxed on the seed, not the harvest.

What are the benefits of a 401k?

"When the government creates a problem and gives you a break, it benefits them more than you. In the case of taxation, they could help consumers by cutting taxes; instead, they offer “tax breaks” such as retirement and pension plans"

- Nelson Nash

Employer-sponsored retirement savings plans, known as 401k plans, provide tax-deferred growth and occasionally employer-matching contributions. Your 401k funds become tax-deferred, meaning you won't be required to pay taxes on them until you retire when you have fewer deductions which will usually put you at a higher tax rate. You are taxed on the harvest, not the seed.

Why should I choose Indexed universal life for retirement over 401k

So, what are the benefits of IUL vs. 401(k)? Here is a quick overview:

IUL:

• Offers potential for cash value to grow tax-free

• Linked to stock market indexes, get all the upside and none of the downside

• Access money tax-free

Why should I choose Indexed universal life for retirement over 401k

There are a few key reasons to consider indexed universal life (IUL) for retirement over a 401k. One thing to keep in mind is when the government creates a problem (onerous taxation), then turns around and grants you an exception to the problem they created (401ks, IRA's), aren’t you just a little bit suspicious that you are being manipulated?

As mentioned above, an IUL offers the potential for better growth than 401k without market risk because you don’t need to make up for down years. Additionally, you can access your cash value without interrupting your money from compounding and at any age, not 59.5.

Lastly, money earned in an IUL is accessed tax-free, whereas a 401k is taxed deferred. An IUL is more like a Roth IRA, they are taxed on the seed, not the harvest. An IUL offers liquidity, and safety from civil suits and taxes while providing you with living benefits and a death benefit for your family.

When you withdraw on a 401k, the money is taxed, and the principal is reduced. When you take a loan from an IUL, the principal is collateral with the insurance company and continues to compound uninterrupted. Policy owners can take out as many loans as they want against their cash value and repay on their terms, unlike a 401k, where you can have only one loan for something specific, comes with terms, and the principal is reduced.

There are numerous other options available when it comes to retirement planning. An IUL and 401k plan are two of those options. Before deciding, it's crucial to understand the differences between the two because each has a unique set of advantages.

If you want to learn more about IUL and how it can help you achieve your financial goals after retirement, schedule a no-obligation consultation with me. I would be glad to work with you over the years and help you achieve your financial goals.

*Disclosures: Educational purposes only. No statements should be considered advice. Past performance and numbers do not guarantee future results. Life insurance is not an investment.

"When the government creates a problem and gives you a break, it benefits them more than you. In the case of taxation, they could help consumers by cutting taxes; instead, they offer “tax breaks” such as retirement and pension plans"