retirement plan IRA, 401K plans witch is best
Member since 2022 · 28 posts · 8 votes
retirement plan IRA, 401K plans witch is best
Most Popular Reply
Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes
3yWhole life insurance is NOT a retirement plan. It is a life insurance with forced savings component, bunch of fees and high commissions paid to the sales person selling it. For most people whole life insurance is a rip off, it is almost never a good idea to bundle life insurance and savings. You will be better off buying cheap term life insurance to protect your loved ones and invest separately, you won't have to pay any fees and will have 100% of your savings to invest.
IRA vs 401k - depends on your situation. IRA contribution limit is $6,500 per year. Solo 401k contribution limit on the other hand is 10 times higher, $66,000 for 2023. You don't have to have a custodian for the 401k (unlike an IRA) and can have "checkbook control" and ability to invest in alternative assets such as real estate or private lending. However, to qualify for a Solo 401k you must be self-employed.
43 Replies
- Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes4y
I know investing strategies for life insurance exist, but I don't know anything about it.
The general strategy is to contribute at least as much into your 401k to get your company matching, if any. The matching is basically "free money" into your account. Find out what is the vesting period to make sure you get to keep it.
Take a look at what sort of funds / returns you can get in the 401k. Assuming you are limited on how much you can afford to save, then depending on income limits put the rest into the IRA and learn how to invest it.
Obviously, if you could afford it you would max out your contributions to the 401k and IRA. Don't forget about Roth options.
Does this help?
- Member since 2022 · 28 posts · 8 votes4y
yes David this helps a lot , thanks for your input
- Real Estate Consultant · Seattle, WA · Member since 2022 · 1k+ posts · 784 votes4y
A life insurance is not a retirement plan (an annuity, maybe). IRA vs 401k has some differences (contribution limits, employer matches, etc). Both are investments. An IRA can be invested into a set of funds that is identical to that of a 401k. Same with your typical post tax investment account- you choose what to invest into whether you make those decisions on your own or with the help of a professional financial advisor (I am not).
The opinions on maxing your contributions (beyond the employer match which should be an absolute must) vary. Some say minimize your contributions to where you only take advantage of the employer match but nothing more and put the rest into real estate (or something else).
A lot of it obviously driven by your personal financial situation. If you are thinking 401k you must work for an employer where offers a 401k. Every 401k comes with a financial advisor attached to that plan. As an employee, you have access to that professional (they will work with you and not share the info with your employer). Call them unless you have your own advisor
- Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes4y
Quote from @Sergey A. Petrov:
A life insurance is not a retirement plan (an annuity, maybe). IRA vs 401k has some differences (contribution limits, employer matches, etc). Both are investments. An IRA can be invested into a set of funds that is identical to that of a 401k. Same with your typical post tax investment account- you choose what to invest into whether you make those decisions on your own or with the help of a professional financial advisor (I am not).
The opinions on maxing your contributions (beyond the employer match which should be an absolute must) vary. Some say minimize your contributions to where you only take advantage of the employer match but nothing more and put the rest into real estate (or something else).
A lot of it obviously driven by your personal financial situation. If you are thinking 401k you must work for an employer where offers a 401k. Every 401k comes with a financial advisor attached to that plan. As an employee, you have access to that professional (they will work with you and not share the info with your employer). Call them unless you have your own advisor
@Sergey A. Petrov I don't think every 401k comes with a financial advisor with whom you can consult. Mine didn't...
@John L Daly Oh, I didn't mention before, but as always you should consult with a qualified professional or two... Good luck.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes4y
@John L Daly
If you have a business a solo 401k is the best because you as a person can contribute up to approx $20k per year and if you have business profits they can contribute up to 20-25% of profits depending on type of entity and you can max it out at $50k+ per year.
Ira had much lower limits.
Wholesale life you will see people discuss infinite banking of using it as a bank. Lots of
Mixed feelings on that.
7e investments53 Reviews - Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes4yPermanent life insurance is a great product for long term goal. It is however a complex product and you need to learn how to use it properly to maximize its benefit. The front loaded commission make is usually less appealing in the first few years, but after five to seven years, it should start performing better than some other options. Also, you can easily use the cash value of your life insurance as collateral for a loan that you can reinvest in other investments, basically making your money work at two places at the same time.
While you may get better return with a 401k/IRA stock investment, with a wholelife you will get steady moderate return with no negative years, with an Index Universal Life you with get variable return with a long term IRR in the 7-9% range, and also no negative years. Like a Roth IRA/401k, the life insurance is tax free if used properly. And during retirement you can draw approximately 8% per year for the rest of your life while with a IRA/401k it is recommended not to draw more than 4% to make it last 30 years. - Member since 2022 · 28 posts · 8 votes4y
Quote from @Mike S.:
Permanent life insurance is a great product for long term goal. It is however a complex product and you need to learn how to use it properly to maximize its benefit. The front loaded commission make is usually less appealing in the first few years, but after five to seven years, it should start performing better than some other options. Also, you can easily use the cash value of your life insurance as collateral for a loan that you can reinvest in other investments, basically making your money work at two places at the same time.
While you may get better return with a 401k/IRA stock investment, with a wholelife you will get steady moderate return with no negative years, with an Index Universal Life you with get variable return with a long term IRR in the 7-9% range, and also no negative years. Like a Roth IRA/401k, the life insurance is tax free if used properly. And during retirement you can draw approximately 8% per year for the rest of your life while with a IRA/401k it is recommended not to draw more than 4% to make it last 30 years.I recently pulled out of 401k and started putting into my whole life insurance and just wondering if that's the right move
- Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes4yUnless very special circumstances, I would not withdraw from a 401k to put the money into a properly designed permanent life insurance. I may not put anything anymore in a 401k or IRA, or continue to put some in addition to the life insurance. It all depend on each specific situation.
Quote from @John L Daly:
I recently pulled out of 401k and started putting into my whole life insurance and just wondering if that's the right move
However, what is most of the time discouraged is to surrender or cancel your life insurance policy as you have paid upfront the fee for a life insurance that was supposed to last for your whole life. If you surrender it before that, you have wasted the fee and it was a very bad financial decision. - Scranton, PA · Member since 2017 · 168 posts · 137 votes4y
Quote from @John L Daly:
Quote from @Mike S.:
Permanent life insurance is a great product for long term goal. It is however a complex product and you need to learn how to use it properly to maximize its benefit. The front loaded commission make is usually less appealing in the first few years, but after five to seven years, it should start performing better than some other options. Also, you can easily use the cash value of your life insurance as collateral for a loan that you can reinvest in other investments, basically making your money work at two places at the same time.
While you may get better return with a 401k/IRA stock investment, with a wholelife you will get steady moderate return with no negative years, with an Index Universal Life you with get variable return with a long term IRR in the 7-9% range, and also no negative years. Like a Roth IRA/401k, the life insurance is tax free if used properly. And during retirement you can draw approximately 8% per year for the rest of your life while with a IRA/401k it is recommended not to draw more than 4% to make it last 30 years.I recently pulled out of 401k and started putting into my whole life insurance and just wondering if that's the right move
@Mike S. is absolutely right. I’m always cautious about pulling out of a 401K especially if you’re younger. You have to watch what you’re putting it into. I never call life insurance an investment. It’s a hedge against investments turning south. Any life insurance product that is meant to be a hedge against inflation must be carefully funded to avoid fees and many agents don’t try to do it right because that lowers their commissions.
Annuities and life insurance can be a hedge against market volatility, but they should be part of your plan, not all of it.A lot of times clients are sold on the lie of “market participation” of indexed products. It is true an indexed product had limited downside and goes up if the market goes up, but you do give up on some market upside. Many policies “illustrate” the product using the past 10 years as an example (illegal in some states). That can be dangerous because the last 10 years is unlikely to be like the next 10 years. My personal opinion is that indexed insurance products will out preform the market the next 10 years, but not the next 20. That’s my personal opinion. Don’t make financial choices based on the financial ramblings of a stranger online. Take the premise, do your own research and act accordingly.
That said the ball is in your court, if you feel safer with slower, safer growth that’s where you’ll find it. Often my clients will move a chunk of money from volatile retirement strategies to an annuity as they approach retirement to remove some risk from staple income needed in retirement.Anytime you’re looking to buy an insurance product (including an annuity) you need to ask if the underlying promise from the company matches your goals. When you buy an insurance product you’re purchasing a promise. That company is contractually obligated to fulfill their end. Make sure the goal they promise matches your goal.
None of this is financial advice. As providing directed financial advice to a stranger online is a no-no.
- 4yThomas RutkowskiPro MemberFinancial Advisor · Boynton Beach, FL · Member since 2015 · 834 posts · 798 votes
Quote from @John L Daly:
Quote from @Mike S.:
Permanent life insurance is a great product for long term goal. It is however a complex product and you need to learn how to use it properly to maximize its benefit. The front loaded commission make is usually less appealing in the first few years, but after five to seven years, it should start performing better than some other options. Also, you can easily use the cash value of your life insurance as collateral for a loan that you can reinvest in other investments, basically making your money work at two places at the same time.
While you may get better return with a 401k/IRA stock investment, with a wholelife you will get steady moderate return with no negative years, with an Index Universal Life you with get variable return with a long term IRR in the 7-9% range, and also no negative years. Like a Roth IRA/401k, the life insurance is tax free if used properly. And during retirement you can draw approximately 8% per year for the rest of your life while with a IRA/401k it is recommended not to draw more than 4% to make it last 30 years.I recently pulled out of 401k and started putting into my whole life insurance and just wondering if that's the right move
It really depends on your tax bracket. As @Mike S. correctly states, the cash value of a life insurance policy can provide income at a rate of 8% relative to the cash value at the time you retire. This is twice as much income as you can get from traditional retirement planning assets. Just google "4%-rule". That 8% is contingent upon the policy being perfectly designed though. Most are not. There is a difference between "over-funded" and "Maximum over-funded". Your cash value to premium ratio needs to be about 85-90% in year 1. If its less, its not an optimal design.
So that said, it would make sense to take the money from an IRA/401K, put it into premium, and pay the taxes with a policy loan. This would still provide more income at retirement age as long as your tax bracket is less than 50% (including the penalty). And there is value to the Death Benefit protection, of course.
- 4yThomas RutkowskiPro MemberFinancial Advisor · Boynton Beach, FL · Member since 2015 · 834 posts · 798 votes
Quote from @Zachary Paschke:
Quote from @John L Daly:
Quote from @Mike S.:
Permanent life insurance is a great product for long term goal. It is however a complex product and you need to learn how to use it properly to maximize its benefit. The front loaded commission make is usually less appealing in the first few years, but after five to seven years, it should start performing better than some other options. Also, you can easily use the cash value of your life insurance as collateral for a loan that you can reinvest in other investments, basically making your money work at two places at the same time.
While you may get better return with a 401k/IRA stock investment, with a wholelife you will get steady moderate return with no negative years, with an Index Universal Life you with get variable return with a long term IRR in the 7-9% range, and also no negative years. Like a Roth IRA/401k, the life insurance is tax free if used properly. And during retirement you can draw approximately 8% per year for the rest of your life while with a IRA/401k it is recommended not to draw more than 4% to make it last 30 years.I recently pulled out of 401k and started putting into my whole life insurance and just wondering if that's the right move
@Mike S. is absolutely right. I’m always cautious about pulling out of a 401K especially if you’re younger. You have to watch what you’re putting it into. I never call life insurance an investment. It’s a hedge against investments turning south. Any life insurance product that is meant to be a hedge against inflation must be carefully funded to avoid fees and many agents don’t try to do it right because that lowers their commissions.
Annuities and life insurance can be a hedge against market volatility, but they should be part of your plan, not all of it.A lot of times clients are sold on the lie of “market participation” of indexed products. It is true an indexed product had limited downside and goes up if the market goes up, but you do give up on some market upside. Many policies “illustrate” the product using the past 10 years as an example (illegal in some states). That can be dangerous because the last 10 years is unlikely to be like the next 10 years. My personal opinion is that indexed insurance products will out preform the market the next 10 years, but not the next 20. That’s my personal opinion. Don’t make financial choices based on the financial ramblings of a stranger online. Take the premise, do your own research and act accordingly.
That said the ball is in your court, if you feel safer with slower, safer growth that’s where you’ll find it. Often my clients will move a chunk of money from volatile retirement strategies to an annuity as they approach retirement to remove some risk from staple income needed in retirement.Anytime you’re looking to buy an insurance product (including an annuity) you need to ask if the underlying promise from the company matches your goals. When you buy an insurance product you’re purchasing a promise. That company is contractually obligated to fulfill their end. Make sure the goal they promise matches your goal.
None of this is financial advice. As providing directed financial advice to a stranger online is a no-no.
Your statements show a lack of understanding of Indexed Life Products. Indexed Life insurance products DO NOT participate IN THE MARKET. The insurance company is essentially spending the dividend on hedging activities to buy as much movement in the market index as they can get with the money they have to spend. The goal of an IUL is not to beat the market index, it is to simply capture a premium over the debt market rate of return that they are earning on their reserves. Typically this premium is about 1.5 to 2%. So for two identically designed policies, one a whole life and one and indexed universal life, the index universal life should outperform the whole life over a long period of time.
When you know you can earn a premium, one neat thing that some companies do is invest their reserves in safer asset classes. They do this because they know that the hedging activities will still provide a competitive return even with a lower, but safer asset base. You can see this when you look at the financial statements of companies that focus on index universal life. They have a higher percent of their assets in higher quality debt.
- Scranton, PA · Member since 2017 · 168 posts · 137 votes4y
Quote from @Thomas Rutkowski:
Quote from @Zachary Paschke:
Quote from @John L Daly:
Quote from @Mike S.:
Permanent life insurance is a great product for long term goal. It is however a complex product and you need to learn how to use it properly to maximize its benefit. The front loaded commission make is usually less appealing in the first few years, but after five to seven years, it should start performing better than some other options. Also, you can easily use the cash value of your life insurance as collateral for a loan that you can reinvest in other investments, basically making your money work at two places at the same time.
While you may get better return with a 401k/IRA stock investment, with a wholelife you will get steady moderate return with no negative years, with an Index Universal Life you with get variable return with a long term IRR in the 7-9% range, and also no negative years. Like a Roth IRA/401k, the life insurance is tax free if used properly. And during retirement you can draw approximately 8% per year for the rest of your life while with a IRA/401k it is recommended not to draw more than 4% to make it last 30 years.I recently pulled out of 401k and started putting into my whole life insurance and just wondering if that's the right move
@Mike S. is absolutely right. I’m always cautious about pulling out of a 401K especially if you’re younger. You have to watch what you’re putting it into. I never call life insurance an investment. It’s a hedge against investments turning south. Any life insurance product that is meant to be a hedge against inflation must be carefully funded to avoid fees and many agents don’t try to do it right because that lowers their commissions.
Annuities and life insurance can be a hedge against market volatility, but they should be part of your plan, not all of it.A lot of times clients are sold on the lie of “market participation” of indexed products. It is true an indexed product had limited downside and goes up if the market goes up, but you do give up on some market upside. Many policies “illustrate” the product using the past 10 years as an example (illegal in some states). That can be dangerous because the last 10 years is unlikely to be like the next 10 years. My personal opinion is that indexed insurance products will out preform the market the next 10 years, but not the next 20. That’s my personal opinion. Don’t make financial choices based on the financial ramblings of a stranger online. Take the premise, do your own research and act accordingly.
That said the ball is in your court, if you feel safer with slower, safer growth that’s where you’ll find it. Often my clients will move a chunk of money from volatile retirement strategies to an annuity as they approach retirement to remove some risk from staple income needed in retirement.Anytime you’re looking to buy an insurance product (including an annuity) you need to ask if the underlying promise from the company matches your goals. When you buy an insurance product you’re purchasing a promise. That company is contractually obligated to fulfill their end. Make sure the goal they promise matches your goal.
None of this is financial advice. As providing directed financial advice to a stranger online is a no-no.
Your statements show a lack of understanding of Indexed Life Products. Indexed Life insurance products DO NOT participate IN THE MARKET. The insurance company is essentially spending the dividend on hedging activities to buy as much movement in the market index as they can get with the money they have to spend. The goal of an IUL is not to beat the market index, it is to simply capture a premium over the debt market rate of return that they are earning on their reserves. Typically this premium is about 1.5 to 2%. So for two identically designed policies, one a whole life and one and indexed universal life, the index universal life should outperform the whole life over a long period of time.
When you know you can earn a premium, one neat thing that some companies do is invest their reserves in safer asset classes. They do this because they know that the hedging activities will still provide a competitive return even with a lower, but safer asset base. You can see this when you look at the financial statements of companies that focus on index universal life. They have a higher percent of their assets in higher quality debt.
Thomas, my statement of “market participation is a lie” and your statement “life insurance products DO NOT participate IN THE MARKET” might seem to same as the same statement. My inclination is that you misread the statement and continued on because you couldn’t help but act a fool.
There’s nothing incorrect in my post. If you really want to play word games no IUL company “is essentially spending the dividend on hedging activities.” Because it’s not a dividend. Is it? Could be? Most often is not. Strange mistake by a person who is a tax expert.
Do you like being this person? Do you like showcasing your winning demeanor and lack of common sense? If you want to educate people, feel free. Trying to argue with people that agree with you is just dumb.
- Contractor · Sheboygan, WI · Member since 2016 · 921 posts · 266 votes4y
@John L Daly who told you to pull money out of your 401k, the life insurance salesperson who benefits from the commissions on your contributions?
You can get 20% annual ROI with RE in your self directed IRA or Solo 401k. You can t come near that with life insurance no matter how the insurance salesmen spin it.
- Contractor · Sheboygan, WI · Member since 2016 · 921 posts · 266 votes4y
@Zachary Paschke you must be an insurance salesman to give such a biased view of life insurance.
I can beat your life insurance policy (guaranteed) with cash flow alone with RE leased to a property manager with STVRs, averaging better than 20% ROI yearly.
No matter how you spin it your highly commissioned insurance policy will never consistently average double digit returns.As proof in my 25 years in the securities and insurance business not once did a sophisticated investor show or tell me how they were making a lot of money off their life insurance policy. Only the life insurance salesman was smiling.
- Investor · Broward County, FL · Member since 2018 · 1k+ posts · 938 votes4y
@Todd Goedeke
If you can guarantee me a 20% return with no risk I will give you money to invest…
I made some 500% return in the stock market in some commodity stocks. But it is risky and I lost money on other bets.
I still have a permanent life insurance policy as foundation where all my cash flows in first… It acts as a multiplier of the returns I am making in real estate, and also add a layer of safety.
- Solo 401k Expert · Anaheim Hills, CA · Member since 2012 · 18k+ posts · 6k+ votes4y
Quote from @Thomas Rutkowski:
Quote from @John L Daly:
Quote from @Mike S.:
"...So that said, it would make sense to take the money from an IRA/401K, put it into premium, and pay the taxes with a policy loan. This would still provide more income at retirement age as long as your tax bracket is less than 50% (including the penalty).What a horrible advice!!! Pull money our of an IRA, pay taxes/penalties, whatever is left use to pay "cash value" life insurance premium. Most of the premium used to pay fees and big fat commission check to the insurance agent who sold you the policy, and you are left with very little "cash value". Sounds like a scam of a century, why some many people don't see it!
- 4yWale LawalBusiness MemberReal Estate Broker · Houston | Dallas | Austin, TX · Member since 2018 · 5k+ posts · 2k+ votes
I think you should consult with an experienced financial advisor, who will look into your financials and share his findings that will be based on facts shared by you.
Its always a good a idea to consult professionals when certain special skills are needed for any task.
Good Luck!
NETWORTH BUILDERS5236 Reviews - 4yThomas RutkowskiPro MemberFinancial Advisor · Boynton Beach, FL · Member since 2015 · 834 posts · 798 votes
Quote from @Dmitriy Fomichenko:
Quote from @Thomas Rutkowski:
Quote from @John L Daly:
Quote from @Mike S.:
"...So that said, it would make sense to take the money from an IRA/401K, put it into premium, and pay the taxes with a policy loan. This would still provide more income at retirement age as long as your tax bracket is less than 50% (including the penalty).What a horrible advice!!! Pull money our of an IRA, pay taxes/penalties, whatever is left use to pay "cash value" life insurance premium. Most of the premium used to pay fees and big fat commission check to the insurance agent who sold you the policy, and you are left with very little "cash value". Sounds like a scam of a century, why some many people don't see it!
For one thing, had you read the thread you would realize he's already done this and wants to know if he made a good decision. Second, you don't know what you are talking about. We are talking about Maximum Over-funded Policies. These are not the typical policy designs sold by most agents. Most of the premium goes directly to the cash value. I've only told you this about a dozen times here on BP, yet you continue to spread your misinformation. A properly-designed policy will have about 85% of the premium going straight to the cash value. So obviously MOST of the premium IS NOT going toward commissions!
I liquidated my own IRA in a similar manner and it works exactly as I described. I WILL get more retirement income than I would have had I left my money in the IRA. That 85% can also be leveraged to put the money to work in two places at one time. This will result in a higher combined growth rate.
- 4yThomas RutkowskiPro MemberFinancial Advisor · Boynton Beach, FL · Member since 2015 · 834 posts · 798 votes
Quote from @Zachary Paschke:
Quote from @Thomas Rutkowski:
Quote from @Zachary Paschke:
Quote from @John L Daly:
Quote from @Mike S.:
Permanent life insurance is a great product for long term goal. It is however a complex product and you need to learn how to use it properly to maximize its benefit. The front loaded commission make is usually less appealing in the first few years, but after five to seven years, it should start performing better than some other options. Also, you can easily use the cash value of your life insurance as collateral for a loan that you can reinvest in other investments, basically making your money work at two places at the same time.
While you may get better return with a 401k/IRA stock investment, with a wholelife you will get steady moderate return with no negative years, with an Index Universal Life you with get variable return with a long term IRR in the 7-9% range, and also no negative years. Like a Roth IRA/401k, the life insurance is tax free if used properly. And during retirement you can draw approximately 8% per year for the rest of your life while with a IRA/401k it is recommended not to draw more than 4% to make it last 30 years.I recently pulled out of 401k and started putting into my whole life insurance and just wondering if that's the right move
@Mike S. is absolutely right. I’m always cautious about pulling out of a 401K especially if you’re younger. You have to watch what you’re putting it into. I never call life insurance an investment. It’s a hedge against investments turning south. Any life insurance product that is meant to be a hedge against inflation must be carefully funded to avoid fees and many agents don’t try to do it right because that lowers their commissions.
Annuities and life insurance can be a hedge against market volatility, but they should be part of your plan, not all of it.A lot of times clients are sold on the lie of “market participation” of indexed products. It is true an indexed product had limited downside and goes up if the market goes up, but you do give up on some market upside. Many policies “illustrate” the product using the past 10 years as an example (illegal in some states). That can be dangerous because the last 10 years is unlikely to be like the next 10 years. My personal opinion is that indexed insurance products will out preform the market the next 10 years, but not the next 20. That’s my personal opinion. Don’t make financial choices based on the financial ramblings of a stranger online. Take the premise, do your own research and act accordingly.
That said the ball is in your court, if you feel safer with slower, safer growth that’s where you’ll find it. Often my clients will move a chunk of money from volatile retirement strategies to an annuity as they approach retirement to remove some risk from staple income needed in retirement.Anytime you’re looking to buy an insurance product (including an annuity) you need to ask if the underlying promise from the company matches your goals. When you buy an insurance product you’re purchasing a promise. That company is contractually obligated to fulfill their end. Make sure the goal they promise matches your goal.
None of this is financial advice. As providing directed financial advice to a stranger online is a no-no.
Your statements show a lack of understanding of Indexed Life Products. Indexed Life insurance products DO NOT participate IN THE MARKET. The insurance company is essentially spending the dividend on hedging activities to buy as much movement in the market index as they can get with the money they have to spend. The goal of an IUL is not to beat the market index, it is to simply capture a premium over the debt market rate of return that they are earning on their reserves. Typically this premium is about 1.5 to 2%. So for two identically designed policies, one a whole life and one and indexed universal life, the index universal life should outperform the whole life over a long period of time.
When you know you can earn a premium, one neat thing that some companies do is invest their reserves in safer asset classes. They do this because they know that the hedging activities will still provide a competitive return even with a lower, but safer asset base. You can see this when you look at the financial statements of companies that focus on index universal life. They have a higher percent of their assets in higher quality debt.
Thomas, my statement of “market participation is a lie” and your statement “life insurance products DO NOT participate IN THE MARKET” might seem to same as the same statement. My inclination is that you misread the statement and continued on because you couldn’t help but act a fool.
There’s nothing incorrect in my post. If you really want to play word games no IUL company “is essentially spending the dividend on hedging activities.” Because it’s not a dividend. Is it? Could be? Most often is not. Strange mistake by a person who is a tax expert.
Do you like being this person? Do you like showcasing your winning demeanor and lack of common sense? If you want to educate people, feel free. Trying to argue with people that agree with you is just dumb.
The company offering an IUL is absolutely spending the surplus that what would have been the dividend, had it been a whole life product, on hedging activities. Hence the use of the word "essentially" to avoid over-complicating the issue. But you knew what I meant and chose to act the fool anyway, didn't you? Stay in your lane.
- Contractor · Sheboygan, WI · Member since 2016 · 921 posts · 266 votes4y
@Mike S.I consider leasing RE via triple net /master lease at a fixed rate with contractural increases over 30 years to be a guaranteed ROI. All depends on credit worthiness of property manager/leasee. The going lease rate for short term vacation rental leases is 10% of RE value. Add in leverage at 20% down for 30 years = 20%+ ROI yearly from cash flow, lease income.
- Contractor · Sheboygan, WI · Member since 2016 · 921 posts · 266 votes4y
@Thomas Rutkowskispoken like a true insurance salesman living off of misinformation and high commission( greater than 3%) life insurance.
You probably don t even have a Series 7 securities license and yet you call yourself a financial advisor biased towards insurance products because you can t offer securities.
Anyone who recommends paying penalties by moving money out of IRAs and other retirement accounts into life insurance should be open to a lawsuit should a person hire an atty. Life insurance cannot be sold as a retirement plan.
- 4yThomas RutkowskiPro MemberFinancial Advisor · Boynton Beach, FL · Member since 2015 · 834 posts · 798 votes
Quote from @Todd Goedeke:
@Thomas Rutkowskispoken like a true insurance salesman living off of misinformation and high commission( greater than 3%) life insurance.
You probably don t even have a Series 7 securities license and yet you call yourself a financial advisor biased towards insurance products because you can t offer securities.
Anyone who recommends paying penalties by moving money out of IRAs and other retirement accounts into life insurance should be open to a lawsuit should a person hire an atty. Life insurance cannot be sold as a retirement plan.
The original poster asked the community if he made a good decision. That sounds like past tense to me. YOU don't understand how life insurance works, so you really can't understand why that decision will result in more retirement income for himself. He did make a good decision. One that will result in greater retirement income than he would have had he kept his money in the 401(k) IRA.
Before you step out of your lane and comment on maximum over-funded life insurance policies, you should really take the time and effort to actually understand what they are and how they work. These policies ARE NOT high commission and high fee because the death benefit is held to the absolute legal minimum. This minimizes the fees and commissions.
- Property Manager · Charlotte, NC · Member since 2022 · 269 posts · 135 votes4y
Roth 401K is the best in my opinion. If your company has a 401K that matches then I would do that. Whole life insurance to me isn't a long-term strategy. If anything I'd get term life insurance instead of whole but that's a different story. I hope you're able to get some sound advice, that works to your benefit.
- Investor · Member since 2022 · 234 posts · 144 votes4y
I would go with a 401k.
- Rental Property Investor · Honolulu, HAWAII (HI) · Member since 2011 · 4k+ posts · 2k+ votes3y
You might think that saving on taxes now and paying later through a government-labeled "retirement" plan is a smart move, but let's think again.
There are various retirement vehicles out there, such as 401ks, self-directed IRAs, ROTHs, DB plans, HSAs, and 529 plans. Collectively, these are called Qualified Retirement Plans (QRPs). The challenge with QRPs is that they don't eliminate taxes; they only defer them. In fact, the government has created a system where you're forced to pay taxes at the highest tax bracket to maximize their revenue.
When you invest in real estate, you can benefit from passive losses (PALs) through asset depreciation. However, if you're investing through a QRP, these tax benefits don't help you personally because they remain trapped in your retirement account. So why do smart investors take money out of their QRPs to invest in alternatives and invest personally? Because using QRP money negates the great tax benefits of real estate investments.
Unfortunately, many people waste their time with inferior tax mitigation strategies because they believe QRPs are the best option. This is not surprising considering that large Wall Street companies unofficially lobbied the government to create these plans, primarily the 401K, as a way for average Americans to funnel money into their traditional investments. This benefits Wall Street brokerages but diminishes your returns.
Now let's talk about the myth of QRPs. I don't like qualified retirement plans, at least not until you're on the Third Floor or higher, and here are four reasons why:
- Rising tax brackets: With QRPs, you're not eliminating your tax burden; you're just deferring it. Conventional thinking assumes that in old age, you'll be in a lower tax bracket with little to no income. But for those of us on the Wealth Elevator, that's not the case. Many people end up with a significant amount of money in their QRP by retirement age, and due to cash flowing investments, their Adjusted Gross Income (AGI) remains high, potentially even higher than their peak earning years. As a result, they end up in the highest tax bracket, paying higher taxes than they would have if they had withdrawn the money earlier.
- Always rising taxes: It's no secret that taxes are constantly increasing to fund government programs and bailouts. Although I don't believe the US will turn into a socialist state in our lifetime, taxes are definitely on the rise. That's why it's better to pay your taxes now rather than waiting for the government to squeeze more revenue out of you in the future. Don't hand them a blank check by relying solely on 401k/retirement plans!
- Middlemen fees: When you use QRPs, you're limited to the investment options offered within the plan. It's like being stuck in a high school cafeteria during lunchtime, where the food is overpriced and often unappetizing. But as an upperclassman, you have the freedom to go off-campus and enjoy better-tasting food at lower prices. The same applies to investments. QRPs come with high commissions and hidden fees, eating into your returns. In the alternative investment world, you have access to higher returns, a wider range of options, and lower fees by cutting out the middlemen.
- No passive losses: This is the most important point. Most investments, especially traditional ones, don't allow you to lower your income and pay fewer taxes. However, real estate is different. You can claim passive losses from depreciation to offset your passive income. Real estate lets you pay less taxes on both your passive income and ordinary income which can be a significant advantage, especially for those with a net worth under $5 million. Unfortunately, if you invest through a QRP retirement account, these passive losses remain trapped and cannot be used to benefit you today when you need the most tax relief. By using these losses strategically, you can increase your net income and invest it to achieve compound gains.
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