IUL vs Roth IRA (What Makes the Most Sense for You?)

Index Universal Life vs the Roth IRA. Which one is better for retirement planning? In today’s video, we’re going to discuss these two retirement vehicles to find out which one makes the most sense for your financial portfolio.

We’re going to break it down by looking at the contribution limits, income limitations, liquidity, protection, and expenses of each of these options. While there are a lot of different ways to plan for retirement, choosing the right places to invest your money can provide you a tax-free future and life-long benefits.

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[Beatricegove]

Several of the biggest market experts have been voicing their opinions on exactly how awful they think the next downturn would be, and how far equities may have to go, as recession draws closer and inflation continues.. well above the Fed's 2% objective. I'm trying to build a portfolio of at least $850k by the time I'm 60. I need suggestions on what investments to make..

[noahzimmerman-ygqt]

I am 53 years old and consider myself to be a high earner. My job provides me the option to contribute the employer contributions to my Roth 401k. Should I do that or should I continue to direct that to my Traditional 401k ahead of retirement?

[Riggsnic_co]

With Roth IRA, the money you are contributing has already been taxed. At any time for any reason, you can withdraw your contributions tax-free and penalty-free. Additionally, any earnings on investments can also be withdrawn tax-free and penalty-free, Not sure how much to contribute, I'm still at a crossroads deciding if to liquidate my $338k stock portfolio.

[BransonGomezOfficial]

Happy to see your channel start to catch traction! You do very well educating everyday people and financial professionals!

[jeffblosil]

IUL, liquidity, tax free income, generational wealth, no capital gains tax, leverage potential.

[bluecollarbullionballer]

Yes both is the correct.I love managing my Roth I investin divden companies so no expenses.I use IUL for holding cash to buy investments then pay it back.I use a large amount of my IUL to buy silver at 17 a ounce.Will be selling my silver next couple of weeks.Take principle and capitol gains back into my IUL.Then wait for my next opportumity.Happy investing/stacking.

[kf]

Depends on the individual. High fees low return IUL. Low fees high return Roth. Generally speaking, salesmen gravitate to a product (the IUL) for the commissions so people who don’t want to do their own research will probably lean towards the IUL because of the pitch.

[kirkampofo]

Dave, I appreciate you so much. I am 33 and considering beginning to invest into an IUL account. But I was hesitant about how long it takes to build cash value. Your videos have helped me know what questions to ask, and how to structure mine for maximum gains. Thanks so much*

[vchap]

IUL has growth limits on index funds typically around 6-7%. That can be a huge problem in years where the market goes up 15+%. The losses are also capped to 0% but historically an IRA/brokerage account is going to come out significantly ahead if you keep the investments for 10+ years. Every IUL I have seen also adds low growth, high cost funds into the mix lowering the gains. It is also top heavy meaning the first couple of years are going to the insurance salesmen instead of the cash value.

Today ETFs like VOO, VTI and VT have an expense ratio of 0.04-0.06% which is way lower than the screenshot from some 401k in the video. Fidelity even has 0% ETFs. And there are no other premiums that can grow every year unlike insurance policies.

Long term care coverage in an IUL typically requires an additional rider. And good luck getting any significant amount of money out of it when you need it.

IUL has 2 purposes - a hedge against market drops (but so are bonds, fixed income, treasuries, etc) and a way to pass money without taxes to children for the ultra wealthy who maxed out trust limits. But it is not something that makes sense in a money growth phase of life.

[JoelPastor]

Thanks David for the nuggets, see you in August!

[garthmorris]

Can I take out IUL for my kids have everyone death benefits to the trust? Can they borrow against iul for college if they want to do that?

[RetirementPlanningEducation]

Can't you get the same general features and benefits of an IUL but with using whole life? There won't be as much potential for growth in cash value, but there is more guarantee and certainty to how cash value will grow with whole life. Just like it's not fair or safe to assume future returns of traditional investment products will be like those of the past, it's also not fair or safe to assume interest crediting of IUL cash value will be like that of the past. With higher interest rates, lower expected stock returns and potentially higher stock volatility going forward, that combination of market factors doesn't bode well for how most equity-based IUL indices will credit interest going forward. The last decade was kind of the optimal set of market conditions for IULs to have performed well. The next decade and beyond??? Who knows.

[RetirementPlanningEducation]

How is liquidity of an IUL better? If I pay $1k/month of premiums into a new IUL policy, I will have paid in $12k by the end of the first year. If I want or need to withdraw or take a loan from the policy, the amount I can take out after that first year will be much smaller than $12k, no? And even in years 2, 3, etc...I won't be able to take out or borrow as much as my cumulative premium payments until years down the road when the cash value has eventually grown enough to have exceeded my cumulative premium payments into the policy, correct?

[rhonda]

Hi David, can an LLC, thats inside an irrovocable trust, own a IUL?

[RetirementPlanningEducation]

It's also not fair to call it a draw with regards to fees. You're assuming fees of around 1% per year for Roth IRA investments. There are plenty of mutual funds and ETFs that have annual expense ratios well under 0.10% per year. And if people want to do their own individual stock picking, there are no explicit fees to buy individual stocks (since all of the major brokerages got rid of stock trading commission a couple years ago). For these reasons, Roth IRA wins when it comes to fees.

[fredgrau]

Here's a simple solution: Instead of IULs, after max-funding your Roth IRA and Roth 401K, invest additional after-tax $$$ on Growth Indexed ETFs such as VUG. Long-term performance of IULs match bonds, not stocks. Compound the improved performnce of VUG over any IUL over 20 and 30 years and you will be MUCH better off with VUG. FYI, the expense ratio of VUG is .04% with a .56% yield. The 10-year return of VUG is 13.9% - find ONE IUL that can come close to that! If you want to treat an IUL as a bond to reduce volaitility, that's ok. However, don't claim that an IUL will match or beat the stock market.

[deserethomestead]

David did you sell for SL Williams 30 years ago in CA?

[snewcomer]

Hello, is a IUL the same as FIUL? Aside from the type of index rate? I’ve invested in one about 3 years ago am extremely unclear on and based on what I’ve heard and pretty nervous if it’s going to be a waste of my savings.

[rickaylabrown]

I know I’m late to the party but I have been going back and forth between an IUL for 1&4 yr old vs custodial Roth IRA. Even though that’s not what the video was about, but it can kind of works due to it transitioning to the child when they reach mature age becoming a Roth IRA. I am not sure which is better for my children. Any help ? I know IUL is great for them having build cash value when they are a certain age but what if they have expenses or emergencies which would be tax free yet low interest when borrowing in the event they don’t/can’t pay it back ? We’re not high earning but if I start now I can get SOMEWHERE.

[rhonda]

at 57 years old, which one is better to start? wont my premiums be very high for an IUL? healthy 57 yr old male