IUL - a Better Way to Play Catch-up for Retirement
With Indexed Universal Life (IUL), the government places cumulative, rather than annual, limits on the maximum contributions one can make and still retain the same favorable tax treatment. With most retirement plans, such as 401(k), SEP, IRA, and other defined contribution plans, if you fail to maximize your legal contribution in a given year, there is no opportunity to play catch-up the next year, and the opportunity is lost forever. ( Similarly, you can't skip premiums on whole life and catch up later. ) IUL, on the other hand, is allowed to be funded with extra contributions to make up for any difference between actual payments in past years, and the total premiums allowable by the IRS to date. With an IRA, 401(k), SEP, or Simple IRA, the only thing the government does to address a need to catch up for past years, is to allow you to increase your current year's contribution by $6,000 after the age of 50. The restrictions on a Roth IRA are even worse. If you earn more than a certain amount, you are completely unable to contribute to a Roth IRA.
Many people - especially business owners and those in sales - may rotate between feast and famine from year to year. The ability to catch up during the good years is priceless to them. The ability to play catch-up with IUL may be one of its biggest advantages as compared to other retirement plans. Funding retirement through IUL may result in vastly more money available to such people at retirement, and IUL is taxed like a Roth. If properly structured, there are no taxes on distributions.
In addition to the catch-up provisions, IUL has no specific annual limit on contributions either. One is only limited by the amount the participant can qualify for, based on health and financial underwriting. It is possible for some people to contribute many hundreds of thousands of dollars per year to IUL. And since contributions are flexible, the catch-up capability is icing on the cake!(Back to IUL Table of Contents)