IUL vs. Roth IRA: Tax-Free Retirement Showdown 🥊

Both offer tax-free retirement income, but one has no contribution limits, no income restrictions, and provides immediate death benefit protection. Let's compare.

🛡️ Maximum Funded IUL

Life insurance + tax-free retirement income

Annual Contribution Limit

No Limit
Fund $50K, $100K, $500K+ per year
  • ✓ No income restrictions
  • ✓ 0% floor protection
  • ✓ Tax-free income at ANY age
  • ✓ Includes death benefit

💰 Roth IRA

Traditional tax-free retirement account

Annual Contribution Limit (2024)

$7,000
$8,000 if age 50+
  • ✓ Income limits apply
  • ✓ Full market exposure
  • ✓ Tax-free after 59½ + 5 years
  • ✓ No death benefit

Side-by-Side Comparison

Compare every feature to make an informed decision

Feature Maximum Funded IUL Roth IRA
Contribution Type After-tax After-tax
Annual Contribution Limit No Limit $7,000 ($8,000 age 50+)
Income Restrictions None Phase-out starts $146K-$161K (single)
Market Downside Protection 0% Floor None - Full market risk
Growth Potential Market-linked with cap Unlimited market growth
Tax-Free Access Any Age After 59½ + 5-year rule
Early Withdrawal Penalty None 10% penalty on earnings before 59½
Required Minimum Distributions None None
Death Benefit Tax-free life insurance benefit Account balance only
Living Benefits (Critical/Chronic Illness) Included None
Best For High earners wanting unlimited contributions + protection Those under income limits wanting simple tax-free account

Who Should Choose Which?

Choose IUL If You:

  • ✓ Earn over $161,000 (disqualified from Roth IRA)
  • ✓ Want to contribute more than $7,000/year
  • ✓ Need access before age 59½ without penalties
  • ✓ Want market downside protection (0% floor)
  • ✓ Need life insurance death benefit protection
  • ✓ Want living benefits for critical/chronic illness

Choose Roth IRA If You:

  • ✓ Earn under $161,000 (eligible for Roth IRA)
  • ✓ $7,000/year is sufficient for your goals
  • ✓ Won't need funds until after age 59½
  • ✓ Comfortable with market volatility
  • ✓ Don't need life insurance protection
  • ✓ Want simplest possible solution

💡 Pro Strategy: Do BOTH

Maximum tax diversification comes from funding both. Max out your Roth IRA ($7,000/year), then fund an IUL with $20K, $50K, or $100K+ annually for unlimited tax-free retirement income plus protection.

Real Example: 35-Year-Old Professional

Same person, same 30-year time horizon, different strategies

Roth IRA Strategy

Annual Contribution
$7,000/year
Total Contributed (30 years)
$210,000
Account Value at 65 (7% avg)
$700,000

Retirement Income:

$35,000/year
Tax-free for 20 years (ages 65-85)
Death Benefit:
Account balance only
No life insurance protection

Maximum Funded IUL Strategy

Annual Contribution
$25,000/year
Total Contributed (30 years)
$750,000
Cash Value at 65
$2,500,000

Retirement Income:

$230,000/year
Tax-free for 20 years (ages 65-85)
Death Benefit:
$3,500,000+
Tax-free life insurance from day one

The Difference:

IUL provides 6.5X more annual retirement income ($230K vs $35K), plus $3.5M immediate life insurance protection the Roth IRA never provides.

See Your Personalized IUL vs. Roth IRA Comparison

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