Index Universal Life vs the Roth IRA. Which one is better for retirement planning? In today’s video, we’re going to discuss these two retirement vehicles to find out which one makes the most sense for your financial portfolio.
We’re going to break it down by looking at the contribution limits, income limitations, liquidity, protection, and expenses of each of these options. While there are a lot of different ways to plan for retirement, choosing the right places to invest your money can provide you a tax-free future and life-long benefits.
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IUL and whole life or similar should only be utilized for wealth building AFTER you've funded every other avenue, for specific use cases, and applies to maybe 1% of the population.
Emergency fund
401k match
HSA
ESPP
Traditional/Roth IRA
Traditional/Roth 401k/403b/457b
Taxable brokerage
Ask yourself what incentives the salesman has to sell you a product. 'It is difficult to get a man to understand something, when his salary depends on his not understanding it.' — Upton Sinclair
Roth has only two benefits compared to IUL or LIRP….
Both: after-tax funding, and money accumulates tax-free, and you can access it tax-free. But the Roth gains restricted to 59 1/2, and a 5-year rule.
Limits: I can design an IUL to accommodate the dollar amount you wish. Not with Roth. If you don't use a Roth in a given year, you lose it. With an IUL, you can make that up later if you wish.
Money in Roth has strings attached (5-year rule). No IRS penalty on IUL.
Access to capital – one the major benefits.
Money not at risk in the market. Indexing keeps your money safe in a multibillion account, wherein you can link your cash value to indices, and diversify how you wish. By rebalancing you can improve your potential returns.
You do not lose when the market goes down.
Blossoms when you die. If I die with $1M in a Roth, I'll leave $1M. In IUL, I will leave about double, tax-free.
Why mess around with a Roth?
Like this one!
I go ROTH IRA for stocks and Whole Life to simulate bonds
PLUS the ability to access the capital using it as collateral is a win for the IUL
Can't you get the same general features and benefits of an IUL but with using whole life? There won't be as much potential for growth in cash value, but there is more guarantee and certainty to how cash value will grow with whole life. Just like it's not fair or safe to assume future returns of traditional investment products will be like those of the past, it's also not fair or safe to assume interest crediting of IUL cash value will be like that of the past. With higher interest rates, lower expected stock returns and potentially higher stock volatility going forward, that combination of market factors doesn't bode well for how most equity-based IUL indices will credit interest going forward. The last decade was kind of the optimal set of market conditions for IULs to have performed well. The next decade and beyond??? Who knows.
It's also not fair to call it a draw with regards to fees. You're assuming fees of around 1% per year for Roth IRA investments. There are plenty of mutual funds and ETFs that have annual expense ratios well under 0.10% per year. And if people want to do their own individual stock picking, there are no explicit fees to buy individual stocks (since all of the major brokerages got rid of stock trading commission a couple years ago). For these reasons, Roth IRA wins when it comes to fees.
How is liquidity of an IUL better? If I pay $1k/month of premiums into a new IUL policy, I will have paid in $12k by the end of the first year. If I want or need to withdraw or take a loan from the policy, the amount I can take out after that first year will be much smaller than $12k, no? And even in years 2, 3, etc…I won't be able to take out or borrow as much as my cumulative premium payments until years down the road when the cash value has eventually grown enough to have exceeded my cumulative premium payments into the policy, correct?
Thanks David for the nuggets, see you in August!
PoZ QoD: this is a trick question / false binary! The correct answer is both: everyone can benefit from a Roth IRA (unless you are very high income), everyone can also benefit from a permanent LI policy (even with no family beneficiaries) as a supplement to the Roth IRA
great job Dave!
IUL, liquidity, tax free income, generational wealth, no capital gains tax, leverage potential.
Great video
Bendiciones hermosa Celina que Dios te cuidex donde quiera que Kayantanii.UNO encantan tus videos.
Well done Dave! Great comparison