Both Indexed Universal Life Insurance (IUL) and annuities offer compelling benefits for safe, long-term income. But which one is right for your retirement goals?
What Is an Annuity? An annuity provides guaranteed lifetime income, usually starting at retirement. You contribute money, and in exchange, you receive predictable payouts regardless of market performance.
How IULs Differ:
- IULs focus more on growth and tax-free access
- Annuities are more about security and guaranteed income
- IULs allow more flexibility and potential higher returns
Which Should You Choose? If you’re younger and want flexibility, IULs may be better. If you’re older and want stable, predictable income, annuities might be the way to go. But in many cases, a combination strategy is ideal.
Book your free strategy session to compare IULs and annuities tailored to your needs.
2 Responses
This really helped me understand two different retirement strategies. One seems focused on building a legacy while the other is more about steady income. Your explanation made the comparison easier to grasp without getting too technical.
I once considered an IUL because of the life insurance feature and growth potential but I got unsure after seeing the fees. Annuities seem safer for someone closer to retirement.
If someone already has a 401k or pension, what would be the main reason to still add either an IUL or an annuity to their plan?
Thank you for your questions. The biggest advantage would be the benefit of your hard earned money being “tax free” rather than “tax deferred” I would recommend rolling over the 401k into an IUL, however a 401(k) cannot be rolled over directly into an Indexed Universal Life (IUL) insurance policy — but there is a strategy to move funds in a compliant and strategic way:
???? Why It Can’t Be Rolled Over Directly
A 401(k) is a qualified retirement plan under IRS rules. It’s tax-deferred, meaning taxes are paid upon withdrawal. An IUL is a non-qualified insurance product, funded with after-tax dollars. Because of this difference in tax status, a direct rollover is not allowed.
✅ The Workaround: Indirect Rollover Strategy
Here’s how you can legally and strategically move 401(k) funds into an IUL:
1. Roll Over 401(k) into an IRA
This step is straightforward and tax-free. Most people do this when they leave a job or retire.
2. Take Controlled Distributions from the IRA
You can then take partial withdrawals (not lump sums) from the IRA. These will be taxable events, since traditional IRA funds are tax-deferred.
3. Use After-Tax Money to Fund the IUL
Once the taxes are paid on the distributions, you can use the remaining funds to pay premiums into an IUL.
???? Important Considerations
Tax planning is critical. Taking large withdrawals all at once could push you into a higher tax bracket.
Age matters: If you’re under 59½, you could face a 10% penalty on early IRA withdrawals.
Work with a financial professional to structure the premium schedule for the IUL and avoid creating a MEC (Modified Endowment Contract) which can reduce the tax advantages.
???? Strategy Insight
Many high-net-worth individuals use this method to:
Convert taxable assets into tax-free vehicles
Create legacy wealth and tax-free income
Add living benefits (critical illness, terminal illness, chronic illness riders)