3 4 5 6 7 8 9 10 11 12 13 14 15

IUL vs. 401(k)s

IUL vs. 401(k)s

IUL2021IULv401K [email protected] • indexeduniversal.life • 800-743-9221 2 IUL vs. 401(k)s Saving for Retirement with a 401(k) Plan Types of 401(k) Plans Traditional vs. Roth 401(k) Top Federal Income Tax Rates 1913 – 2021 Generating Retirement Income with 401(k) Funds How Does Indexed Universal Life (IUL) Insurance Work? Why Consider IUL for Your Retirement Saving and Income Needs? IUL vs. 401(k)s Comparison of 401(k) vs. IUL Does IUL Make Sense for Your Retirement Plan? TABLE OF CONTENTS 03 08 04 09 05 11 06 12 07 13 14

IUL2021IULv401K [email protected] • indexeduniversal.life • 800-743-9221 3 A successful and worry-free retirement typically has more to do with generating an ongoing income stream than having a large net worth. Many companies offered defined-benefit pension plans to their employees in the past. Often, the retired worker could count on a fixed income throughout their remaining life. In some instances, that income would even continue for the surviving spouse. Unfortunately, due to the expense of keeping these plans going, few businesses provide defined-benefit pensions and have instead replaced them with defined-contribution plans, where the employee is responsible for contributing and ensuring that they’ll have income in the future. The most popular of these plans is the 401(k). Yet, while some excellent incentives come with participating in a 401(k) plan, such as pretax contributions and tax-deferred growth, there can also be some significant drawbacks. Therefore, it is vital to understand what you can and cannot expect if you are counting on the money from a 401(k) plan in retirement. It is also beneficial to closely look at various other financial vehicles that could be substituted for or used in conjunction with your 401(k) plan. One such option is Indexed Universal Life (IUL) insurance. IUL vs. 401(k)s

IUL2021IULv401K [email protected] • indexeduniversal.life • 800-743-9221 4 A 401(k) plan is a tax-advantaged, defined-contribution account offered by many employers to help their workers save for retirement, named after a section of the United States Internal Revenue Code (or IRC). A participant may add a set amount of contribution to their 401(k) account. Each year, the IRS dictates the maximum amount of money that employees may contribute to employer-sponsored retirement savings plans like the 401(k). As of 2021, the maximum 401(k) contribution is $19,500 for ages 49 and younger. Employee participants who are age 50 and older may contribute an additional $6,500 in “catch up” contribution for a total deposit of $26,000. Additional funds may also be contributed to an employee’s 401(k) plan, such as funds through an employer’s “match”. This is typically based on a certain percentage of the employee/participant’s contribution amount. Saving for Retirement with a 401(k) Plan

IUL2021IULv401K [email protected] • indexeduniversal.life • 800-743-9221 5 Currently, there are two types of 401(k) plans available: the traditional 401(k), and the Roth 401(k). With a traditional 401(k) plan, the contributions into the account are typically pre-tax. This can allow the employee participant to have less taxable income (and lower income taxes as a result) in the year(s) they contribute. In a traditional 401(k) plan, the funds are allowed to grow tax-deferred. This means that there is no tax due on the gain until the time of withdrawal. However, when the traditional 401(k) plan participant accesses the funds, 100% of the withdrawal will be taxable as none of the money has yet been subject to taxation. Based on the required minimum distribution (RMD) rules of the IRS, traditional 401(k) plan participants are required to start withdrawing at least a minimum amount from this type of plan starting at age 72. If no required withdrawals are made, the account holder will incur a penalty. This penalty is 50% of Types of 401(k) Plans the dollar amount that should have been withdrawn that year. Roth 401(k)s differ from traditional 401(k) plans. These accounts are funded with after-tax money. Therefore, the Roth 401(k) participants do not get an up-front tax break when making contributions. However, the money in a Roth 401(k) is allowed to grow tax-free. In addition to that, withdrawals are tax-free, regardless of the then-current income tax rates. Also, there are no required minimum distribution (RMD) rules with Roth 401(k) plans. The tax-free withdrawal aspect of the Roth 401(k) can be a substantial benefit for the participants. One reason for this is that future income tax rates are unknown, but it is far more likely that rates will go up rather than down in the future. So, if retirement income generates from a taxable account, higher tax rates equate to less net spendable income.

IUL2021IULv401K [email protected] • indexeduniversal.life • 800-743-9221 6 Traditional vs. Roth 401(k) Tax treatment of contributions Tax treatment of withdrawals Withdrawal rules Traditional 401(k) Contributions are made pretax, which reduces your gross income in the year(s) that deposits are made. Distributions in retirement are taxed as ordinary income. Withdrawals of contributions and earnings are taxed. Distributions may be penalized an additional 10% by the IRS if taken before age 59 ½ (unless you meet certain exceptions). Must begin taking required minimum distributions at age 72 (or you will otherwise incur an IRS penalty). Roth 401(k) Contributions are made after-tax, with no effect on then-current adjusted gross income. Employer matching dollars must go into a pre-tax account and are taxed when distributed. No taxes on qualified distributions in retirement. Withdrawals of contributions and earnings are not taxed as long as: - The distribution is considered qualified by the IRS. - The account has been held for five years or longer. - The distribution is being made because of disability or death or is being taken after age 59 ½. Unlike a Roth IRA, contributions to a Roth 401(k) may not be withdrawn at any time. Also, there are no IRS-required minimum distribution (RMD) rules that mandate accessing funds at age 72. Looking back over the past century, the top federal income tax rate has been as high as 94% - so being able to access funds from the account tax-free can make a big difference in how much net spendable income there is to purchase goods and services needed in retirement.

IUL2021IULv401K [email protected] • indexeduniversal.life • 800-743-9221 7 Top Federal Income Tax Rates 1913 – 2021 Source: Inside Gov (http://federal-tax-rates.insidegov.com/) Year Rate (%) Year Rate (%) 2018-2021 37% 1950 84.36% 2013-2017 39.6% 1948-1949 82.13% 2003-2012 35% 1946-1947 86.45% 2002 38.6% 1944-1945 94% 2001 39.1% 1942-1943 88% 1993-2000 39.6% 1941 81% 1991-1992 31% 1940 81.1% 1988-1990 28% 1936-1939 79% 1987 38.5% 1932-1935 63% 1982-1986 50% 1930-1931 25% 1981 69.125% 1929 24% 1971-1980 70% 1925-1928 25% 1970 71.75% 1924 46% 1969 77% 1923 43.5% 1968 75.25% 1922 58% 1965-1967 70% 1919-1921 73% 1964 77% 1918 77% 1954-1963 91% 1917 67% 1952-1953 92% 1916 15% 1951 91% 1913-1915 7%

IUL2021IULv401K [email protected] • indexeduniversal.life • 800-743-9221 8 When the time comes to retire, many 401(k) participants will “roll” funds from their account over to an income-generating vehicle, such as an annuity. The transaction won't be considered taxable if the money goes directly into the new qualified account. Afterward, the investor/retiree can decide how to start generating income. Many annuities offer several different payout options, such as for a set period of time (like 10 or 20 years), or a lifetime income stream that will continue for the remainder of the individual’s lifetime. Generating Retirement Income with 401(k) Funds Upon withdrawal, funds from a traditional 401(k) plan become fully taxable. It is important to keep that in mind because it can impact your net spendable income. Conversely, funds that come out of a Roth IRA are tax-free. However, other options also provide retirement income that is not taxable. One of these is Indexed Universal Life (IUL) insurance.

IUL2021IULv401K [email protected] • indexeduniversal.life • 800-743-9221 9 An Indexed Universal Life (IUL) is a type of permanent life insurance policy. This means it includes an insurance component and a cash value component, where the funds inside the account build up on a tax-deferred basis. While term life insurance is purchased for a set number of years (such as 10 or 20), permanent life insurance is meant to last throughout the insured’s lifetime (provided that the premiums are paid). Unlike whole life (another type of permanent insurance), IUL offers the ability to earn a higher return based on the performance of underlying market indexes, like the S&P 500. For instance, if the index performs well during a given period, a positive return is credited to the IUL’s cash account, usually up to a set maximum, or “cap.” However, if the market falls and the return on the tracked index(es) is negative, the principal is still protected in an IUL policy, even if the underlying index falls by 20% or more. In some ways, Indexed Universal Life insurance provides a “best of both worlds” scenario. Unlike a 401(k) plan, IUL is considered to be “self-completing.” This means that if the insured passes away, a death benefit is paid out to their beneficiary(ies). The death benefit is free of income tax, and because it is paid directly to the named individual(s), it will also bypass the costly and time-consuming probate process. In addition, IUL does not impose a maximum annual contribution like 401(k)s and most other types of qualified retirement plans. So, even if you have “maxed out” your yearly contribution to a 401(k), IRA, or other retirement plans, you can continue adding to an Indexed Universal Life (IUL) insurance policy where your money will grow tax-deferred. How Does Indexed Universal Life (IUL) Insurance Work?

IUL2021IULv401K [email protected] • indexeduniversal.life • 800-743-9221 10 Pros and Cons of Indexed Universal Life (IUL) Insurance Advantages Drawbacks Death benefit protection Premium/cost of insurance could increase Flexibility Withdrawals may be taxable Opportunity for higher cash value growth (plus a guaranteed “floor” return) Limited upside potential Tax-deferred growth Surrender charges in early policy years Some penalty-free liquidity May be charged interest on policy loan(s) Protection of principal in any market environment May be able to “customize” the policy using riders No income limits No maximum contribution limits No required minimum distribution (RMD) rules May take tax-free policy loans Protection from creditors (in some states)

IUL2021IULv401K [email protected] • indexeduniversal.life • 800-743-9221 11 Funds from an IUL policy’s cash value can be withdrawn, but these can come with taxation. It is also possible that the policyholder could incur an additional surrender charge if withdrawals take place in the early years of the policy (i.e., during the surrender period). One way around this is to take a tax-free policy loan instead. Although many people do not like to take on debt, a loan from an IUL policy could be quite enticing. One reason is that you’ll have use of 100% of the money you access, as there is no tax due on the borrowed funds. Additionally, you are technically borrowing from the insurance company and not directly from your policy’s cash value. Therefore, interest will continue to generate on the total amount of the cash in your plan. For instance, if your IUL policy has a cash value of $80,000 and you borrow $40,000, the return on your cash component is still determined based on $80,000. As an additional bonus, even though interest will accrue on the loan’s outstanding balance if the loan has not been paid back in full by the time the insured passes away, the balance will simply be paid off using the proceeds from the death benefit. Afterward, the remaining death benefit funds will be paid to the beneficiary(ies) named in the policy. You could also have the opportunity to receive the money cost-free and tax-free. Even though the insurance company will charge you an interest rate on the borrowed funds, it could be offset by the interest that your money is continuing to earn. As an example, if the insurance carrier charges you 2% (which is quite possible, as life insurance policy loans will often have a lower interest rate than traditional loans from banks and other lenders), and the money in your cash value is also earning a 2% rate of interest, then you have just secured a no-cost distribution. It is highly recommended that before you take any type of cash from an IUL policy, you work with a specialist to structure the loan provision to fit all the required parameters and obtain the best rate possible. By accessing tax-free loans from your life insurance retirement plan, you gain another excellent benefit: these funds will not negatively affect the taxation of your Social Security income. Many people don’t realize that these benefits could be taxable. The amount of your Social Security benefit that may be subject to taxation will depend on several factors. These include your age when you file for Social Security and whether you have other income sources (including wages, self-employment income, dividends, interest, and/or other taxable income required to be reported on your annual tax return). Why Consider IUL for Your Retirement Saving and Income Needs?

IUL2021IULv401K [email protected] • indexeduniversal.life • 800-743-9221 12 Based on its flexibility and positive tax treatment, Indexed Universal Life (IUL) insurance is often used to supplement retirement income. As previously stated, one can accomplish this by taking a tax-free loan from the policy’s cash value (as opposed to a taxable withdrawal). While many people don’t want to “borrow” money, particularly in their retirement years, a loan from an IUL policy does not necessarily have to be repaid—at least not during your lifetime. In the case of an IUL loan, the insurance company will charge interest on the borrowed funds. However, the loan can be paid back upon death, using the policy’s death benefit proceeds. The remaining death benefit funds can then be distributed to the policy’s beneficiary(ies). IUL vs. 401(k)s

IUL2021IULv401K [email protected] • indexeduniversal.life • 800-743-9221 13 Comparison of 401(k) vs. IUL 401(k) IUL Plan Funding Pre-tax dollars (usually) After-tax dollars Contribution Limit Annual maximum contribution No annual maximum contribution Growth in the Account Tax-deferred growth Tax-deferred growth Risk Subject to market risk Offers a “floor” in times of poor market/index performance, as well as the opportunity to generate higher returns when the tracked index(es) performs well Distribution Requirements Required Minimum Distribution (RMD) at age 72 No required distributions at any age Taxability of Withdrawals 100% taxable (with a traditional plan) Tax-free loan (which may not have to be repaid during the insured’s lifetime)

IUL2021IULv401K [email protected] • indexeduniversal.life • 800-743-9221 14 There can be many moving parts that go into creating a retirement income plan and the tax treatment of the funds that are received. Not taking the proper steps to access your withdrawals could result in taxation - and possibly even further penalties from the IRS. With that in mind, you must work with a well-versed retirement income specialist in life insurance strategies who can go over all of your potential options and narrow down which may be best for you based on your specific financial goals. Does IUL Make Sense for Your Retirement Plan? Disclosure: By contacting us, you may be offered information regarding the purchase of insurance products. Insurance products and services are offered and sold through individually licensed and appointed agents in all appropriate jurisdictions. Guarantees provided by insurance products are backed by the claims-paying ability of the issuing carrier. Be sure to first consult with a qualified tax professional before implementing any strategy discussed herein. If you would like to request a no-cost, no-obligation retirement savings and income session with a planning specialist, you can call us at 800-743-9221 or send an email to us at [email protected]. We look forward to assisting you.

IUL2021IULv401K [email protected] • indexeduniversal.life • 800-743-9221 15 Indexed Universal Life [email protected] indexeduniversal.life

RkJQdWJsaXNoZXIy MjEyMTc2MA==