When Life Insurance Pays Off (Part 1 of 2)

When thinking of long term financial security saving options like 401k’s and IRA’s are the most popular forms of saving money for retirement. After all, these types of accounts are made primarily to help the individual save toward future life expenditures. With good planning and a little know how, the IRA, in particular, can pay off well for their users. With continued contributions, an IRA can grow to become quite a lucrative retirement funding option. However good and simple to use an IRA may be, ignoring the value of Indexed Universal Life Insurance, when used in conjunction with an IRA, is literally throwing away money.

For financial advisors, especially, making sure clients know the importance of setting up a successful IUL is the first step in creating a strong portfolio that can withstand stock market fluctuations and taxes. For example:

If Mark is a 30-year-old professional looking to save toward retirement, starting up an IRA would be a great first step. An annual IRA contribution of $5,500 is completely tax deductible, with the amount rising to $6,500 at 50 years and older. At age 70, taxable money must be taken out of the IRA. In all actuality, after age 59 ½ money can be taken out of the IRA but waiting until 70 years brings the biggest benefit. By 70 years old, with the average yearly contribution, Mark’s usable yearly withdrawal is roughly $45,000 in spendable cash. This seems like a great amount until Mark realizes that this money is taxable meaning a good portion will go to the government.

Now, If Mark starts a IUL life insurance policy alongside his IRA he would have comparable if not more spendable cash without the taxes. IUL premiums are set to the after-tax cost of IRA contributions, meaning that the cost is the same for an IRA and a IUL. Once an IUL is set up, it collects cash value, while also preserving death benefits. As an IRA grows, so too does the IUL. Once retirement age is reached, cashflow from an IUL is distributed without the required taxes. Investing in both an IRA and an IUL would be a wise move for Mark.

The perks and caveats of having an IUL are only mentioned above. In part two, we will go into more of how an IUL can really help toward retirement.

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