If your insurance advisor tells you not to use your 401k or a ROTH IRA find a new one!

When I first got in to the life insurance business I heard some crazy advice from fellow insurance sales people (advisors). Many of them said that life insurance was an investment. Not only did they say it was an investment they told people to use it instead of getting a match form your 401k or using a Roth IRA. Insurance as you know is a transference of risk. Life Insurance is primarily a tool to ensure your loved ones are taken care of when you pass.

Lets talk about the standard 401k options. You have a choice between a Roth or a standard 401k. A Roth gives you the ability to with draw your money from it at retirement tax free, while giving you no tax deduction today. A standard 401k but allows you a tax deduction today and allows the money to grow without taxation but you will pay taxes on your deferred gains. Most CPA’s will push for you to get the tax deduction today. We will push you (and so will many financial advisors and planners) to use a Roth to avoid those taxes in the future. We and many financial advisors only see taxes going up in the future.

Beyond the taxation portion of the the main reason to take advantage of your 401k is your company match. Most companies give somewhere between a 1 to 6 percent match for your 401k. This is all free money, of course the one negative is it usually requires a vesting period of 1 to 5 years. So when taking advantage of your 401k ask your self how long you plan to be at that job. Usually most jobs require 5 years to be fully vested.

A Roth 401k has no income limit participation this is what makes this such a great tool. A Roth IRA however is capped at 2020 – modified AGI married $206,000/single $139,000. Given how expensive things are its easy to hit this limit. How can you protect your retirement from the upcoming tax raises we all know are coming. That one tool could be an IUL (Indexed Universal Life Insurance) , IUL's do have their place, in retirement and estate planning. In retirement planning, if you enough money you cannot qualify for a Roth IRA or need your tax deduction today from your 401k IUL's can be a tax-free investment product that can assist you with retirement. Not all IUL’s are structured the same. Ensure your insurance advisor structures yours for growth, not a death benefit.

Discuss 401k and IRA alternatives with an Advisor!


Indexed Universal Life Insurance (IUL’s) are also a GREAT wealth transference vehicle if you need market gains along with a way to transfer cash value to your dependents (or beneficiaries). Passing on an IRA or 401k to your dependents sets them up for a higher tax bracket thanks to the changes in the SECURE act forcing them to use the IRA in less than 10 years. Remember there are no taxes on Life Insurance for your beneficiaries. Using this vehicle will protect them from unnecessary taxation.

Both Whole Life Insurance and Indexed Universal Life (IUL’s) give you the ability to take loans and pay them back. Your 401k can do this also but most times it is a limited amount and very dangerous if you leave your place of employment before paying off the loan as this makes the part of loan not paid back taxable. Remember loans also have limits of 50% of a vested account balance and a maximum of $50,000. You do not have these restrictions with Whole Life Insurance and Indexed Universal Life.

We have our doubts about many Whole Life Insurance policies, we have been told it has to be structured right. The people that push Whole Life policies say the policies pay a great dividend even when the market is down. It appears the best deals for whole life are from mutual insurance companies. However, there is a debt management strategy called Infinite Banking Concept using Whole Life Insurance policies that help people pay off debt by taking loans from the policy.

We feel that if that an Indexed Universal Life Insurance (IUL) will outpace most Whole Life Insurance Policies. Many financial entertainment personalities rail against them and they have a point in the fact that not all whole life is created equally. Also with whole life insurance if you can’t keep paying the account you will lose it. With an IUL you can stop paying it and return to paying it later without losing your investment.

At Wasatch Smart Finance we will always ask you if you are getting your match from your workplace 401k and putting money into a Roth before advising you to buy an IUL or whole life insurance. We want to make sure you are getting your company match and creating a tax-free vehicle for the future. We also want to make sure that you are setting up your assets to be easily inheritable by your family.

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