Business Owner Making Out 401-K - what About IUL,Whole Life or Roth 401-K

Jan 3, 2016

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  1. Freddie
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    Freddie Guru

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    Has anyone ever run across this and any suggestion. Business owner with a small business 401-K plan. They are maxing out their contribution.

    If you had the opportunity to suggest more ways to save for retirement would you do IUL with lower death benefit, whole life to protect spouse and family and business income or a ROTH 401-K? Thanks for any suggestions.
     
    Freddie, Jan 3, 2016
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  2. DHK
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    DHK "YOU CAN'T HANDLE THE TRUTH!"

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    DHK, Jan 3, 2016
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  3. Freddie
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    Freddie Guru

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    Freddie, Jan 3, 2016
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  4. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    Depending on the size of the business (smaller is better) look at adding Profit Sharing to the existing 401k Plan. After that look at adding a Cash Balance Plan.


    A Roth 401k would just be part of the existing 401k (by amending the Plan Documents) and subject to (combined with) the same contribution limit. Essentially it would just be an extra option within the Plan. If he is interested in adding Roth to the Plan it would be the perfect opportunity to get AOR on the Plan.


    He could do an IRA, even Roth IRA if he qualifies, but that is just $5,500 per year.


    Then there are life insurance options. But really it is all about priorities and his situation. Lots more info needed to give a decent recommendation. Need to figure out current situation and what is most important. If he needs tax deductions (most business owners do) look at the qualified plans.
     
  5. REI_Velocity
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    REI_Velocity Expert

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    I'm a WL consumer and business owner. I've wrestled with these same thoughts. Here is how I look at it:

    If you want to take advantage of the 401K, first I'd do self-directed (just like I have a Self Directed Roth IRA), but the self-directed account needs a place to park the cash. Since I'm in real estate that's easy, but again, that's a different topic. I'm not anti-market, I just don't have any money in the market for obvious reasons.

    Since WL you can touch today, I call it "today money," that is a huge selling point. A 401K you can touch half of your account value up to 50K max (e.g., you'd need 100K in the account to access a 50K loan), and then you have to repay it back on a schedule. This is a great benefit for business owners. The 50K is yours without underwriting. So why not get 100K in your 401K for that benefit, if you have an affinity toward the 401K, and then fund an aggressive high cash value WL policy. Remember, any loans you take in a WL policy still make money since the loan is from the life insurance company, not your Cash Value (CV), so your CV is working in two places at the same time.

    When I started down the PLI path, I decided to fund the WL policies first. I even cashed out some of a 401K to get it going. I also have a SD Roth IRA that gets over 30% a year returns in it (or much higher)... of course, the catch is I can't touch that money until I'm 59 1/2 as it's "tomorrow money." Since I need cash today but want to benefit from the tax build up, protections, etc, WL is a top player in my strategy. If I just had too much cash sitting around, then I'd probably fund the Self Directed Solo Roth 401K as well. I can see the 401K being a higher priority than an IRA due to the ability to grab a loan, but for me it's WL and the Roth IRA... but the 401K is still a viable option. The only problem is if I have more cash sitting around it will probably continue in the WL model of family banking. 401K's and IRA's have much more gov scrutiny too and may count as assets on financial statements (think student loans, etc)...
     
  6. eersfan
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    eersfan Super Genius

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    Kudos to you scagnt83. Spot-on advice!
     
    eersfan, Apr 14, 2018
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  7. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    Just curious. Does this part mean that you are buying real estate through your self-directed 401k?
     
    scagnt83, Apr 14, 2018
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  8. REI_Velocity
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    REI_Velocity Expert

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    Not through the 401k, but through the SD Roth IRA, yes. Real estate, notes, etc. I'm not funding the 401K right now.
     
  9. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    Good to hear (although you might be undervaluing the benefits of a 401k and the tax benefits it provides, but Im not here to convince you of that).

    There are some shady outfits that have been promoting that through 401Ks over the past few years. Generally speaking, you cant. There are some financing companies that specialize in using the 401k as leverage for a RE Loan. But investing directly in most RE is risking a 40% penalty if I remember right.
     
    scagnt83, Apr 14, 2018
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  10. scagnt83
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    scagnt83 Worldwide Expert of Everything

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    Thanks! Qualified Plans for small businesses are an area Ive had lots of experience with over the years.