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Do you have the 21st century super retirement plan?

Alin David Lozada, RICP®, CSA

For years, Americans have been told that the best way to save for retirement is by contributing to accounts like 401(k)s, IRAs, SEPs, and Tax-Sheltered Annuities (TSAs). These have two things in common: You receive a tax deduction based on your tax rate, and you must pay a tax when you withdraw the money.

Most accountants and CPAs are more concerned with saving taxes today than in the future, so they will advise you to maximize your retirement plan to receive the greatest tax deduction. Also, these accounts have contribution limits, and you must wait until 59 ½ to take out money to avoid paying a penalty.

Over the last few years, Roth IRAs have become popular because of one reason: A Roth is tax-free! I ask people, “If you could contribute more to a Roth IRA, would you?” and all of them say “Yes!” Taxes play a huge part in retirement planning, but the contribution limit for a Roth is $5,500, or $6,500 if over 50.

So, imagine if you could have a retirement plan that was tax-free and had the following benefits:

  • Unlimited contributions
  • Liquidity so you don’t have to wait until 59 ½ to take out money
  • A guarantee not to lose money due to stock market downturns
  • Tax-free income if you had an illness or an injury

Sounds like a Roth on steroids or a super Roth, right? You’ve probably never heard of this type of product because most advisors, including CPAs and accountants, don’t know about it. This product has existed for over 20 years, and it is called Index Universal Life (IUL) insurance. In order to properly advise people about this product, you need to specialize in tax-free planning and totally understand how this special life insurance really works.

Unlike your typical life insurance policy, IUL works best when you minimize the death benefit and maximize the contribution. You can receive tax-free income from any cash value policy. What makes IUL different is that the cash value comes from indexes like the S&P 500 but your money is never invested in the stock market. This is because the insurance company invests your contribution in their general account and then buys options on the S&P 500.

If the index goes up, the insurance company exercises their option to buy. They then take the profits, giving you some and taking some. If the index goes down, the insurance company declines the option to buy with a small deposit, which can help protect your money from the risk of market downturn. Some of these policies have living benefits that can give you income for an illness or injury, so it works similarly to a disability policy and an extended care policy all in one plan.

The reason this plan fits so well in today’s economic environment is that it overcomes the three main causes of retirement plan derailment: taxes, stock market volatility, and health care costs.

With every plan, except a Roth IRA, you must pay taxes (Required Minimum Distributions, or RMDs) and you have contribution limits, liquidity constraints, and stock market volatility. With a Roth IRA, you receive tax-free income, but you also have contribution limits and stock market volatility, and the money isn’t tax-free unless you are at least 59 ½ and have had the Roth for at least five years.

Similar to a Roth IRA, you do not receive any upfront tax deductions with an IUL, you must pay for the cost of insurance, and you must medically qualify. When you consider that the cost of insurance is usually much lower than the tax liability you have with most retirement accounts, that you won’t lose money due to stock market downturns, and that you have income for illness and injury, an Index Universal Life policy makes sense for some of your retirement contributions.

If you are interested in more information on this type of account, find an advisor that specializes in Index Universal Life policies, because your typical insurance agent or financial advisor either will not have heard of this or have limited knowledge of how it works. The difference between excellent advice and average advice is knowledge!

Advisory services through Retirement Wealth Advisors, Inc., an SEC-Registered Investment Advisor.

About the Author:

Alin’s advice has appeared on and in Wall Street Select, Fox Business News, ABC, NBC, CBS News, CNN, Fortune, Money, Worth, The Boston Globe, the Chicago Tribune, the Miami Herald, and the Sarasota Herald Tribune. Alin is a member of the Million Dollar Round Table. He received the prestigious Retirement Income Certified Professional designation from The American College, identifying him as a specialist in income retirement planning strategies, and also belongs to the Society of Certified Senior Advisors (SCSA).


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