Joe Tanner, age 35, is making an annual contribution of $17,500 to his company’s 401(k) plan, and his employer matches the first $2,500. ?Can you make a case for diverting the after tax cost of the $15,000 beyond the employer’s?match into a personal retirement plan?

In Joe’s 30% marginal tax bracket, the after tax cost of putting that last $15,000 into his 401(k) plan is $10,500.  Let’s see if we can enhance retirement cash flow by contributing the $10,500 to an increasing death benefit Indexed Universal Life (IUL) policy with an initial face amount of $315,000.  We’ll then compare it to keeping the $15,000 directed to the 401(k).  The results may surprise you -- and Joe even more. A level death benefit of $900,000 using the same premium of $10,500 could also work.  It develops slightly lower retirement cash flow, but the increased death benefit could be well worth it.

Check out the two graphics below:

Click here to view the full illustration.

The IUL has the same $10,500 premium as the after tax deposit to the 401(k) in excess of the employer?s match.  Beyond that, the differences are significant:

• Unlike the 401(k), the IUL provides a significant death benefit for Joe’s family.
• Unlike the 401(k), a waiver of premium can be attached to the IUL in the event of disability.
• Unlike the 401(k), tax free cash flow (loans) from the IUL can be accessed prior to age 59 1/2 with no 10% premature distribution tax.
• Unlike the 401(k), the IUL is illustrated to maintain its values through age 95. At the end of the analysis, the IUL illustrates 283% more after tax cash flow plus remaining cash value in excess of $645,000 wrapped up in over $736,000 of death benefit.

The 401(k) doesn’t stand a chance of competing once you evaluate two issues:

• 30% of the money in Joe’s 401(k) belongs to the IRS;
• IUL with participating loans is a very powerful financial instrument.

Conclusion:

Every client with a 401(k) contribution in excess of the company match should consider the IUL alternative.

Further, it does not just apply to a 401(k).  Anyone with an IRA, a Keogh, or a 403(b) plan is a candidate for the life insurance alternative.  In addition, any employer with a classic profit sharing plan should consider personally-owned IUL as an alternative.

Important Note: ?Many of you are rightly concerned about the potential tax bomb in life insurance that can accidentally be triggered by a careless policyowner.  Click here to read Blog #51: Avoiding the Tax Bomb in Life Insurance.

Licensing

To license Wealthy and Wise and/or the InsMark Illustration System, contact Julie Nayeri at julien@insmark.com or 888-InsMark (467-6275).  Institutional inquiries should be directed to David Grant, Senior Vice President ? Sales, at dag@insmark.com or 925-543-0513.

InsMark’s Digital Workbook Files

If you would like some help creating customized versions of the presentations in this Blog for your clients, watch the video below on how to download and use InsMark’s Digital Workbook Files.

Digital Workbook Files For This Blog

Blog61.zip

Download all workbook files for all blogs

Note:  If you are viewing this on a cell phone or tablet, the downloaded Workbook file won’t launch in your InsMark System.  Please forward the Workbook where you can launch it on your PC where your InsMark System(s) are installed.

 

Testimonials

"InsMark is the Picasso of the financial services world ? their marketing savvy never fails to amaze me."
Doug Peete (Past President, Top of the Table), InsMark Power Producer,?Overland Park, KS

"As a top national brokerage firm representing many insurance companies, the InsMark Illustration System has everything we need in an advanced marketing presentation system."
Gary M. Baker, President/CEO, Bloom-Baker/Asensus of New England, Boston, MA

"I really thought I knew all the sales techniques that affect my business, but I do now, thanks to InsMark."
Sam Keck, MBA, CLU, CFP, LUTCF, InsMark Power Producer, Financial Planner, Denver, CO