There are many ways to build up assets you can use in the future. Roth IRA plans are popular in part because of their tax benefits. Assets inside a Roth IRA generally grow tax-free if the Roth has been established for at least five years and the money is taken out after you reach the age of 59 ½.1 What’s not to like?
There’s another option that provides similar tax advantages and a few other benefits as well1: indexed whole life insurance (IWL). An IWL policy can grow assets on a tax-deferred basis2 while also providing a few benefits you may not have considered.
Life insurance provides a tax-free death benefit many times the size of the annual premium. While it can’t replace you, the benefit can provide the funding to ensure that your plans come to fruition and deliver the benefits to your loved ones just as you would have done.
When you own an IWL policy, your premiums ultimately wind up in accounts linked to market indices with a floor of 0% asset performance to protect you from steep market downturns.3 In order to provide this floor there is also a cap to the amount that can be earned inside the account. You might think of this as downside protection with upside potential.
Eligibility and contributions
Roth IRAs do have some limits based upon income, as well as limits on how much can be contributed annually. A life insurance policy can be purchased, provided you’re healthy, irrespective of how much you earn. And the only limiting factor on your premium size is the amount of death benefit purchased. Please note, that unlike a Roth IRA, your life insurance policy is a long-term commitment with premium requirements for ten years.1
IWL policies provide you with a variety of ways to access the money inside the policy. Working with your financial professional you can determine which one makes the most sense for you. You may even have the option to change the mode of distribution depending on your risk tolerances or the economic environment. What you get is flexibility in how you access your asset, and that’s a good thing.
When planning your future you should weigh multiple options for how you save money. A Roth IRA can be a fine asset to own, but an IWL may suit your needs more. Or perhaps owning both can make sense for you. Discuss this with your financial professional.
1 Constellation Insurance, Inc. and its affiliates do not provide tax or financial planning advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for tax or financial planning advice. You should consult your own tax or financial planning advisor before engaging in any insurance transaction.
2 Life insurance cash values grow without being subject to current taxation. Cash values can be accessed by way of policy loans without being subject to taxation. Loans and withdrawals, if taken, will reduce the death benefit. Withdrawals (partial surrenders) and loans from life insurance policies that are classified as modified endowment contracts may be subject to tax at the time that the withdrawal or loan is taken and, if taken prior to age 59½, a 10% federal tax penalty may apply. Always consult with a tax advisor regarding your particular situation.
3 The deduction of any applicable policy fees may result in a loss of account value when market performance is poor.
Roth IRA contribution and eligibility requirements as of 1/1/2022.
The purchase of an indexed whole life insurance policy is a long-term commitment and is subject to underwriting approval. Life insurance policies contain exclusions, limitations, reduction of benefits and terms under which the policy may be continued in force or discontinued. For complete details of coverage, contact the company for additional information. Before purchasing any indexed whole life insurance policy, you should request a policy illustration and carefully compare both the guaranteed and non-guaranteed elements.
Indexed whole life policies are issued as Policy Forms ICC22-IWL-1/U and any state variations.
Indexed whole life insurance is issued by Augustar Life Assurance Corporation. Product, product features and rider availability vary by state. Issuer not licensed to conduct business in NY.