IUL or investment accounts for my kids?
- Thread starter Mdeleon1
- Start date
- 4,576
Purpose & intent for the money along with timeframe?
23 year old if they have earned wages you could put the money in a Roth IRA. 5k now for 2022(as long as they will earn 5k in wages), then other 5k on 1/1/23 tax year. With a Roth, all goes directly to savings & doesn't go through an insurance policy to get to the savings component.
Note. I believe in permanent life & IUL, I just don't believe in it as the 1st step in where to save money.
- Thread starter
- #3
- 4,576
For the 13 & 5 year old, have you looked into your States 529 college plans? Most let you deposit into & deduct on your state tax return. So, let's do basic initial math on 529 plans compared to IUL initially
529- put $10k in, get back $400-$600 in tax refund depending on state. Almost no load fees on the deposit on most states 529 plans. Very low annual expense charges in most 529 plans. If used for college, all tax free. If not used for college, transfer to another relative or their kids someday. Or if they need the money & not used for college, merely taxed on the gains like almost Amy other investment would be
IUL insurance. Instead of tax deduction, $600 will be deducted as a load fee when deposit goes in. Because $10k can't fit into an IUL in 1 deposit under preferential tax treatment, it will be a MEC & will mean future withdrawals & loans will be treated as owing tax on gains & 10% penalty under age 59 1/2 & no special tax free if used for college. Because it is life insurance, charges will be deducted annually for the cost of insurance & the costs get higher each year as IUL use Annually Increasing Term costs rather than level term costs or permanent fixed costs. When you go to take money out & borrow by loans, you are not taking your own money out. You are borrowing the insurance companies money & being charged interest that compounds as the loan balance grows.
Don't misread that I am only stating negative of IUL, I am not. I am merely disclaiming factual components.
I own sizeable permanent life policies on myself, my wife, my kids. But most of those were after I had tons of term protection on myself & wife, had emergency funds, disability insurance, good to maxing retirement plans, using 529 plans
Some will try to tell you IUL can do all of this & it really isn't honestly the case, especially if life happens & you need to stop or postpone making contributions. Retirement plans & 529 plans don't have consequences of stopping contributions, but failing to make IUL premiums or repay loans, especially in early years will implode the plan withe fees & surrender charges eating up all the early years contributions. iUL or WL should be long term supplemental retirement or emergency funds, not plans where the money may be needed in 5-15 years for college, house purchase etc. It needs time to overcome the early years costs (ie cover costs to pay agent the front loaded compensation) & sit & build for maximum performance
- 10,330
If you purchase an IUL, use the Premium Deposit Account to put the $10k in. Then have it pay premiums over 7-10 years. That way you have no premium risk in the future.
The main difference is commitment, along with potential returns. An investment account allows you to reallocate and choose from a wide variety of investments. It also offers greater liquidity vs. IUL.
IUL is a long-term commitment that limits liquidity (availability of all the funds) over the first 10-15 years. Generally speaking IUL has a lower risk vs. most traditional market allocations. But it carries its own unique risks... such as Caps being reduced more than expected.... or internal expenses being increased more than expected.... or not being able to fund premiums for as long as expected, etc. Choosing a quality carriers is of the utmost importance when purchasing an IUL. Ask about Cap renewals, if they cant give renewal histories, dont buy it.
But IUL offers advantages the investment account doesnt offer. Death Benefit for their future family. Access to funds on an income tax-free basis. A higher risk-adjusted return than most retail investments. And the ability to create an income stream at a higher % vs. a traditional investment option.
But the IUL is more complex and harder to understand than most investment options. There is a lot of conflicting info out there about the product in general, with a lot of self proclaimed gurus telling you its the worst thing ever.... and the other self proclaimed gurus telling you its the best thing ever. Truth, is its just another financial tool that can be used appropriately or inappropriately depending on the circumstances. But if you get IUL for them, be sure to educate them on how to use it moving forward.
The main difference is commitment, along with potential returns. An investment account allows you to reallocate and choose from a wide variety of investments. It also offers greater liquidity vs. IUL.
IUL is a long-term commitment that limits liquidity (availability of all the funds) over the first 10-15 years. Generally speaking IUL has a lower risk vs. most traditional market allocations. But it carries its own unique risks... such as Caps being reduced more than expected.... or internal expenses being increased more than expected.... or not being able to fund premiums for as long as expected, etc. Choosing a quality carriers is of the utmost importance when purchasing an IUL. Ask about Cap renewals, if they cant give renewal histories, dont buy it.
But IUL offers advantages the investment account doesnt offer. Death Benefit for their future family. Access to funds on an income tax-free basis. A higher risk-adjusted return than most retail investments. And the ability to create an income stream at a higher % vs. a traditional investment option.
But the IUL is more complex and harder to understand than most investment options. There is a lot of conflicting info out there about the product in general, with a lot of self proclaimed gurus telling you its the worst thing ever.... and the other self proclaimed gurus telling you its the best thing ever. Truth, is its just another financial tool that can be used appropriately or inappropriately depending on the circumstances. But if you get IUL for them, be sure to educate them on how to use it moving forward.
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