IUL Versus 401k for retirement

Money jar growing to represent IUL or 401k

You may be wondering which investment strategy is better – an IUL or 401k. While both vehicles will help you grow investments toward retirement, they are structured very differently and offer different benefits. Which you choose depends on your goals, personality, employment scenario and where you are in your investment journey.

What is an IUL

An IUL is, at its heart, a life insurance policy that provides a death benefit when you pass. But an IUL offers other advantages as well. The cash value, derived from a portion of your premium, can follow a market index such as the S&P 500, typically growing at 6-7% a year. As that cash grows, you can borrow against it for a loan, typically at reasonably low-interest. These loans are not considered income, so they are not taxed. Furthermore, repayment on a loan against an IUL is not required; instead, the value will be deducted from your death benefit when you pass. And the amount you borrow is still considered part of the loan principal, so the policy can continue to grow as if the cash were still there. Because of this, IULs can be used for real estate investing.

An IUL, however, requires that you pay taxes prior to investing the money.

What is a 401k

A 401k is an investment option provided by employers. When you invest in a 401k, that money is not taxed prior to being invested. A 401k has a wide array investments such as mutual funds, stocks, and bonds. Some employers offer matching contributions to a 401k. A 401k is subject to limits; for 2024 that limit is $23,500 (or $30,500 for those aged 50 and older)

IUL vs 401k for Retirement – How Do They Compare?

Because of the variety of investment options, a 401k can be structured much more aggressively than an IUL. And a 401k, unlike an IUL, pays dividends that are reinvested for further growth. These factors make the growth potential very aggressive for a 401k, making them a good tool to build wealth more quickly than an IUL.

However, because a 401k does not have a floor, it’s growth is subject to market swings in both directions – including down. An IUL, conversely, has a floor of zero, but growth on most policies is also subject to caps.

No retirement strategies are mutually exclusive, so you can of course leverage both, and a blend of the two offers great stability in retirement. If you’d like to learn more, please call 512-922-1273 or schedule a time to speak.

The investing information provided on this page is for educational purposes only. Gallant Life Insurance does not offer advisory or brokerage services, nor does it recommend or advise investors to buy or sell particular stocks, securities or other investments.