The Difference Between an I UL and a Roth IRA
The number one benefit of owning an Iul policy is that you can borrow money against your premiums without having to pay interest on it. This is known as premium credit or universal life insurance. Premium credit insurance increases your savings, which are tax-deductible deductions on your taxes. By paying a higher premium, you can make larger deductions on your taxes and save more money each month.
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One of the main benefits of owning Iul policies is that you will never need to change your IRA custodian. A traditional IRA custodian can be a costly option, especially if you need assistance with tax planning or other issues. Your insurance company will do this for you as well. If you ever decide to sell your assets, your IRA will be safe and your investments will gain value.
Another benefit of owning an Iul policy is that you will never see any increase in the death benefits. This is referred to as a non-taxable cash value policy. Your death benefits remain constant during your lifetime. Once you reach the age of 100, your death benefits will cease and your investment in your principal will be withdrawn. This benefit is not available with a traditional IRA and must be financed through your IRA.
You can borrow against your Iul policy's death benefit and borrow against the cash value of your account as well. A tax-free investment account allows you to borrow against the cash value of your account, tax-free. However, you are limited to the amount you can borrow. There are no tax-free bonds available with a traditional IRA and you cannot contribute to a tax-free education trust.
In addition to cash value and non-taxable cash values, there are also premium bonds available with an IRA. With an IRA premium bond, you pay tax-deferred dividends every month until the bonds mature and the returns become tax-free. These are called tax-deferred annuities and are not taxable. The proceeds from premium bonds are treated as ordinary income for the year they are invested in, thus reducing your taxable income. Premium bonds also offer the convenience of having your dividends paid automatically via your IRA check in the case of a retirement or disability.
Traditional IRAs have a fixed, tax-deferred crediting rate, which is also known as the Annual Percentage Yield (APY). With a traditional IRA, you cannot withdraw funds before the account maturity date without incurring penalties or fees. Unlike a Roth, in which you may withdraw funds tax-free at anytime, traditional IRAs have a limited credit. If you are considering an I UL, it is best to consult with a professional who can explain the differences between IRAs and whether you would be better served by a traditional or Roth I UL.
A Roth IRA has advantages over an I UL when it comes to investing in stocks and bonds. Traditional IRAs have much less flexibility because they require that you have a traditional tax deferred balance in order to take money out. With a Roth IRA, you may access the money you need immediately as long as you meet the qualifications. The Roth IRA has no death benefit; however, if you die before your retirement benefits become tax free, your heirs will receive a significant amount of money, which may be more than enough to eliminate most taxes on the estate.
Both an I UL and a Roth IRA have advantages and disadvantages
When deciding between these two options, you should carefully consider your goals and financial situation. In general, an I UL offers more flexibility, but the main drawback is the cost of maintaining the policy and potential tax-deferred growth. On the other hand, a Roth IRA's combination of tax-deferred growth with a cash value growth component makes it a more attractive investment option.