So we’ve been enjoying tax season about as much as anyone else in this country does.  We’re trying not to procrastinate it to the very end, but it’s so tempting.  In talking with our CPA, we asked her point of view on investing in life insurance.  We were surprised by her response.  She actually prefers Indexed Universal Life to mutual funds.  Who knew! 

I’ve taken the notes from our conversation and simplified it down to 3 reasons that your accountant, and ours, chooses indexed universal life.

Reason 1: Taxation at retirement…or not.

Mutual funds can cause retirees to exceed the allowable limits on total income, causing the taxation of up to 85% of their social security income.  Growth within IUL’s are tax-deferred and also have the ability to be taken out as tax-free income through policy loans.  The policy holder gets to control his or her income that is reportable to the IRS.  Not the case for mutual fund owners.

Reason 2: The KISS method

We’ve all heard of the Keep It Simple, Stupid analogy of how to make it through life.  It applies to retirement income planning too!  Mutual fund management requires the fund manager to reallocate the fund regularly, keeping most of us average Joe’s in the dark as to how they really function.  Little tricks like selling long-held stocks to reduce a fund’s loss at the end of the year skews numbers and makes it hard keep track of how you’re actually doing; not to mention the tax consequences of such sales.  Mix that in with the required record keeping of owners of mutual funds, and things aren’t so simple anymore.  Redemptions, values, commissions, etc., need to be kept copiously to combat IRS audits.

An IUL has an annual statement with all of the information needed for the IRS.  This information is maintained for you by the insurance company and available for you at any time. 

Reason 3:  Accessibility

Sorry, no funny title for the third reason, but this is perhaps the best reason of all.  Most of us experience times in our lives when finances are a bit, shall we say, snug. Yeah; snug like sumo wrestler trying to fit on a roller-coaster ride.  When these times occur, accessing funds in an IUL can be penalty free and tax free.  Funds held within a mutual fund can be reduced by as much as 30%(20% withholding and 10% early withdrawal, if in a qualified account).  Funds within an IUL can be accessed, via policy loans, without taxes and without penalties.  These loans don’t even need to be repaid. 

Maybe it’s time you talked to someone about the benefits of IUL’s.  I mean, if we can’t trust our accountant, who can we trust? 


By: Ed Kinsey



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