IUL vs. 401(k): Which is Better for Your Retirement?

When planning for retirement, most people default to the traditional 401(k). While a 401(k) offers a company match and tax-deferred growth, it also comes with significant market risk and future tax liabilities.

The Problem with Traditional 401(k)s

With a 401(k), your money is tied directly to the stock market. If the market crashes right before you retire, your nest egg shrinks. Furthermore, when you withdraw the money in retirement, you will pay ordinary income taxes on every dollar. If tax rates go up in the future, you could be losing a massive portion of your savings.

What is an Indexed Universal Life (IUL) Policy?

An IUL is a permanent life insurance policy that includes a cash value component. The cash value grows based on the performance of a market index (like the S&P 500), but it is not directly invested in the market.

• 0% Floor: A floor may prevent a negative index credit for an applicable crediting period, but policy charges and other costs continue to apply and cash value can decrease.
• Tax-Advantaged Access: Policy loans and withdrawals may receive favorable federal income-tax treatment when properly structured and maintained. Tax consequences may occur under certain circumstances, including policy lapse, surrender, or Modified Endowment Contract status.
• Living Benefits: Access your death benefit early if you suffer a critical, chronic, or terminal illness.

Which Should You Choose?

For many, a balanced approach works best. Contribute to your 401(k) up to the employer match, then fund an IUL to build a tax-advantaged bucket with downside protection for the future.