Scott Worthington, CEO Redrock Wealth Strategies
Are you looking for ways to retire and pay no taxes on your income? Indexed universal life (IUL) insurance policies offer a powerful tax-advantaged solution. With an IUL, you can accumulate cash value that grows tax-deferred, and then take tax-free retirement income later in life.
An indexed universal life insurance policy is a permanent life insurance product that builds cash value. The cash value growth is tied to a stock market index like the S&P 500, allowing for market-linked returns. However, IULs also have a floor that protects against negative returns when the market is down.The cash value grows tax-deferred over time. Once sufficient cash value has accumulated, you can take out loans against the policy's cash value. These policy loans are not considered taxable income.
By taking loans from your IUL's cash value instead of withdrawals, the income is not taxed. This allows you to enjoy a tax-free retirement income stream. The loans don't have to be paid back during your lifetime either. The key is to overfund the IUL by maximizing premium payments when you are younger. This supercharges the cash value growth over decades. With proper planning, you can accumulate enough cash value to support your desired retirement income level completely tax-free.
Avoiding Federal Taxes in Retirement
In addition to tax-free policy loans, IULs provide other ways to avoid federal taxes in retirement:
Tax-free death benefit for heirs
Tax-deferred growth of cash value
No required minimum distributions
Unlike 401(k)s and IRAs, you don't have to take required minimum distributions (RMDs) from an IUL at age 72. This allows the full cash value to continue growing tax-deferred.
Types of Tax-Free Retirement Income
Policy loans from an indexed universal life insurance policy are one of the few sources of tax-free retirement income available. Other examples include:
Roth IRA withdrawals
Municipal bond interest
Health Savings Account distributions for qualified medical expenses
However, IULs offer more flexibility and control over accessing large tax-free income compared to other options. If you want to retire and pay no taxes, indexed universal life insurance deserves serious consideration as part of your retirement strategy. Work with a financial professional to analyze if an IUL fits your needs.