https://www.forbes.com/councils/forbesbusinessdevelopmentcouncil/2022/10/03/why-indexed-universal-life-insurance-might-be-new-401k/
https://time.com/archive/6689740/why-its-time-to-retire-the-401k/
Let’s take a deeper look why IUL’s are replacing 401k’s.
Safety: With an IUL, ZERO is your HERO. Being Index’d on the market you will have a floor of Zero and the luxury of the gains when the market goes up. 401k’s can take BRUTAL beatings and lose funds right before retirement.
Liquidity: With an IUL, you’ll be liquid within days. There are no penalties for accessing funds before age 59 1/2. (401k’s fined a 10% penalty for withdrawals prior to age 59 1/2 plus ordinary tax.)
Distribution: With an IUL, you can access the funds TAX FREE (via a personal loan) or let the principal continue to grow at anytime. With a 401k there are Minimum Required Distribution requirements at age 72.
Predictability: With an IUL, you will index to the S&P500 or Us Pacesetters. The carrier that I prefer has various ways to index with return’s averaging from from 8%-14% over the last 20 years.
Contribution: 401K, there are limits on contributions and company match. With an IUL there is more flexibility with how much you can fund.
Tax Favored: 401k’s are grow tax deferred now but you will pay higher taxes later when you liquidate. IUL’s are post-tax money that grow tax-free, distributes tax-free (via Loan) and transfers tax-free at death.
Living Benefits: Your IUL will give you Critical, Chronic and Terminal Illness benefits on day 1. You’ll be able to access the policy death benefit while living. 401k’s do not offer this option.
Death Benefits: On day 1 you will have a death benefit established. Talk about peace of mind knowing there is a plan in-place for your loved ones. With an IUL, your death benefit passes-on Tax-free unlike a 401k which is taxed. 401k’s do not offer this option.
Fee’s: An IUL is an insurance policy that offers living & death benefits once the first premium is paid. There is an annual fee to keep your insurance policy in-force. Your accumulated cash value could off-set this fee as your cash value grows. There are management fees with 401k’s of usually .05-2% for financial advisors to manage and invest your funds.
See the power of indexing an IUL vs investing in the market!
IUL vs S&P 500
Why an IUL Might Be Better Than a 401(k) - RE-POST of BLOG article, IUL VS 401k
While both an Indexed Universal Life (IUL) insurance policy and a 401(k) serve as important tools for long-term financial planning, there are distinct advantages that make an IUL a better choice for some people. Here’s why an IUL might outperform a 401(k) in certain scenarios:
Flexible Contributions and Adjustments
Unlike a 401(k), where contributions are typically set by the employer or a fixed amount, an IUL offers flexibility. You can adjust your premiums, change your death benefit, and even skip payments (as long as there’s enough cash value to cover costs). This flexibility allows you to align your policy with your changing financial situation.No Contribution Limits
A 401(k) has annual contribution limits. In contrast, while there are limits to how much you can pay into an IUL, these limits tend to be much higher than the 401(k), especially if you’re funding the cash value component. This means more money can grow in a tax-advantaged way.Tax-Free Death Benefit
With an IUL, your beneficiaries receive a tax-free death benefit, whereas the funds in a 401(k) may be subject to estate taxes and income tax when inherited. This makes an IUL a great wealth transfer tool.Tax-Deferred Growth + Tax-Free Loans
Both IULs and 401(k)s offer tax-deferred growth, but an IUL provides an additional benefit: you can take tax-free loans against the cash value. With a 401(k), withdrawals are subject to income tax, and early withdrawals before age 59½ may incur penalties.Protection from Market Losses
The cash value in an IUL is linked to stock market indexes, but it has a floor, meaning you won’t lose money if the market declines. A 401(k), however, is directly affected by market fluctuations, and there’s no protection against market downturns.No Required Minimum Distributions (RMDs)
401(k)s require you to start taking Required Minimum Distributions (RMDs) at age 73, which are taxable. An IUL doesn’t have RMDs, allowing you to control when and how you access your funds.Living Benefit Riders
You’ll have a safety net of protection for your loved ones with critical, chronic & terminal illness riders.
In conclusion, while both an IUL and a 401(k) are valuable tools, an IUL offers more flexibility, tax advantages, and protection from market volatility. It’s especially beneficial for those looking for a long-term life insurance policy with the added benefit of cash value accumulation and wealth transfer capabilities.