Whole Life Funded Through Solo 401k

Discussion in 'Life Insurance Forum' started by Brokerguy21, Feb 16, 2016.

  1. Brokerguy21
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    Brokerguy21 New Member

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    Ran into a pretty big prospect recently, we have has a few meetings. He is a CEO of a company, he wants to fund a 5 year custom whole life from a 401k, not a 72t. He is claiming he could put up to 56,000 a year from a 401k into whole life?
    He wants to do the same for his wife and two kids

    He said there is tax advantages to doing it this way. Any knowledge on this?
     
  2. scagnt83
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    scagnt83 Guru

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    If you have never done this before you need to reach out to one of the advanced planning teams at a carrier such as LFG, Mass Mutual, Penn, ON, etc.

    If you are not a registered rep or RIA then you need to check your state laws to make sure that Qualified Plans are not classified as a Registered Product.


    If it is just a 401k then he will not be able to put the full $56k into life premiums... and actually the Qualified Plan limit for 2016 including catch up contributions is $59k, not $56k.

    If he uses WL he can put up to 50% of contributions into premiums.
    If he uses UL he can put up to 25% of contributions into premiums.
    There are exceptions for aged money within the plan.

    That means at most he can use $29,500 of his yearly contributions to purchase WL or $14,750 into a UL/IUL/VUL.

    Even though you can get more WL premiums into the plan via yearly contributions, UL actually gives a much better tax advantage due to the IRS regulations. Without getting real deep into it, only the COI is taxable for UL which is much less than what will be taxed with WL.


    There are different strategies for using life insurance within a qualified plan, so you need to pin down on what he wants to accomplish with this.

    If he wants to put in more than those limits then he needs to add on a Defined Benefit Plan like a Cash Balance Plan.
     
  3. coachd
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    coachd Guru

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    Talk with Adv, planning at home offices. Many things he can do. It depends on what he wants to accomplish.
     
  4. Brokerguy21
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    Brokerguy21 New Member

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    Yes i have been in the business awhile I just have never heard sold anything like this I want to be sure its the best for him. We have a very good advanced planning group so I think they will guide him right.

    Will the death benefit be taxable if he funds it with the 401k?
     
  5. dahonored1
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    dahonored1 Expert

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    I'm new to insurance, but I've tried best to keep up with tax advantage strategies. How can I fund a WL or UL with a 401k? Is it something like taking distributions and overfunding a WL policy?
     
  6. scagnt83
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    scagnt83 Guru

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    Read the thread.
     
  7. dahonored1
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    dahonored1 Expert

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    I thought 401k only restricts you to mutual funds..how can I make it so I can fund a WL policy.
     
  8. DHK
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    DHK Guru

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    Here's the resource to look up regarding life insurance within qualified plans:

    https://www.irs.gov/publications/p560/ch04.html

    This isn't something that you can choose as a participant within your 401(k) plan. This is something that can only be done on the plan management and installation level.

    If you happen to already be selling 401(k) and other executive compensation plans in the business arena, then go for it. If not, I wouldn't spend much time on this at all.
     
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