# Financial Literacy Group Releases A Study That Shows An IUL is Superior as a Retirement Instrument When Compared to a 401K or IRA, After the Cares Act 2020 A recent study conducted by the Financial Literacy Group has revealed that an Indexed Universal Life (IUL) insurance policy is a more advantageous retirement instrument compared to a 401K or an Individual Retirement Account (IRA). The study highlights key points of the Internal Revenue Service (IRS) codes that define the tax benefits of life insurance contracts. Specifically, IRS Code 7702 establishes the minimum death benefit and cash value requirements for a policy to qualify for tax advantages such as tax-free death benefits and deferred cash value growth. Additionally, IRS Code 101(a) states that death benefits paid by a life insurance policy are not subject to income tax. An IUL insurance policy is a type of permanent life insurance that incorporates a cash value component, enabling investment in index-linked options. These policies provide both a death benefit and a cash value that grows on a tax-deferred basis. Policyholders can access the cash value through policy loans or withdrawals, with policy loans being non-taxable as they are considered debts rather than distributions. However, if the policy lapses or is surrendered while there is an outstanding loan, the loan balance becomes taxable. The study compares the impact of recent changes, particularly the CARES Act 2020, on 401Ks, IRAs, and IUL policies. 401Ks and IRAs are tax-advantaged retirement accounts, where contributions are made with pre-tax dollars, investments grow tax-free, and taxes are paid during retirement when withdrawing the funds. The CARES Act introduced increased borrowing limits from 401K plans, waived the 10% early withdrawal penalty on distributions up to $100,000 for individuals under 59 1/2, and allowed the deferment of Required Minimum Distributions (RMDs) for 2020. On the other hand, an IUL policy offers unique advantages as a retirement instrument. With no legal investment limit, policyholders can invest any amount in an IUL policy, subject to the boundaries set by IRS Code 7702. The cash value in an IUL policy grows on a tax-deferred basis, and loans against the cash value are generally not taxable. Unlike 401Ks and IRAs, IUL policies also provide a death benefit and can last a lifetime if premiums are paid. The study further highlights the benefits of using a Hybrid Arbitrage IUL, which can be likened to Bank Owned Life Insurance (BOLI). In this scenario, the policyholder can borrow against the cash value used to overfund the IUL policy, allowing for a liquid policy without surrender charges or caps. To summarize the key advantages of an IUL policy over a 401K or an IRA: 1. **Purpose:** An IUL policy provides a death benefit and can be used for any purpose, including debt elimination and cash value accumulation. Debt elimination involves using the cash value of the IUL policy to pay down debt while earning interest on the borrowed amount, optimizing cash flow, reducing interest paid, and increasing wealth accumulation. 2. **Investment Limit:** There is no legal limit on the amount that can be invested in an IUL policy, while 401Ks and IRAs have annual contribution limits. 3. **Tax Advantages:** The cash value in an IUL policy grows on a tax-deferred basis, and loans are generally not taxable. 401Ks and IRAs offer tax-deductible contributions and tax-deferred growth, but withdrawals during retirement are subject to income tax. 4. **Longevity:** IUL policies are permanent life insurance policies that last the policyholder’s entire lifetime, as long as premiums are paid. On the other hand, 401Ks and IRAs do not offer a life insurance component and can be depleted if withdrawals exceed investment growth. Comparing the three options, it is important to consider the risks, taxation, investment options, and wealth accumulation potential. While 401Ks and IRAs carry market risk, IUL policies offer a guaranteed minimum interest rate. IRAs provide the most investment options, followed by 401Ks, while IUL policies generally have limited investment options linked to a stock market index. Additionally, IUL policies can provide tax-free withdrawals up to a certain amount, while 401Ks and Traditional IRAs require taxes to be paid upon withdrawal. It is essential to seek guidance from a knowledgeable financial advisor who understands your financial situation and goals, as well as the intricacies of various financial products. The Financial Literacy Group aims to educate individuals on financial wellness and provide solutions that empower middle-class Americans in managing their finances effectively. They encourage downloading the Bank Like a Bank App for further assistance. For media inquiries, please contact Ronald Harris at Financial Literacy Group via email: [email protected] or visit their website: [https://financialliteracy.group](https://financialliteracy.group/) Sources: [PR Newswire](https://www.prweb.com/releases/financial-literacy-group-releases-a-study-that-shows-an-iul-is-superior-as-a-retirement-instrument-when-compared-to-a-401k-or-ira-after-the-cares-act-2020-301930821.html)

By James TaylorSeptember 19, 2023Updated:September 19, 2023No Comments1 Min Read