Retirement
Retirement income
the IRS doesn't share.
Your 401(k) will be taxed when you take it out. A properly structured cash value policy can create income that's generally income-tax-free, with no contribution cap, no income limits and no required minimum distributions.
Tax diversification
Three buckets. Most people only fill two.
Taxable
Brokerage accounts, savings. Taxed on growth every year.
Tax nowTax-deferred
401(k), 403(b), traditional IRA. Taxed as income when you take it out, with required minimum distributions.
Tax laterTax-advantaged
Roth IRA and properly structured cash value life insurance. Access generally income-tax-free.
Tax-free access**For life insurance: assumes a non-MEC policy that remains in force. Withdrawals to basis and policy loans; loans accrue interest and reduce cash value and death benefit.
The design
How a retirement policy is built
- Max-fund as much as IRS §7702 allows without creating a MEC.
- Buy the minimum death benefit the IRS allows, so more of each dollar builds cash value.
- Increasing death benefit while funding, then switch to level at retirement to lower charges.
- Take income through withdrawals to basis, then policy loans.
- Review every year so the policy never lapses with loans outstanding.
401(k) vs Roth vs max-funded IUL
| 401(k) | Roth IRA | Max-funded IUL | |
|---|---|---|---|
| 2026 contribution limit | $24,500 (+$8,000 at 50+; +$11,250 at 60–63) | $7,500 | No IRS dollar cap (§7702 limits) |
| Income limits | None | Phase-out $153k–$168k single; $242k–$252k joint | None |
| Taxes on access | Ordinary income | Tax-free (qualified) | Generally tax-free (loans/withdrawals to basis) |
| RMDs | Yes | No | No |
| Access before 59½ | Generally 10% penalty | Earnings penalized | No penalty on non-MEC loans |
| Market losses | Yes | Yes | 0% floor on credits |
| Costs | Fund fees | Fund fees | Insurance charges; surrender charges early |
2026 limits per IRS. Comparison is general; your situation may differ.
Why it can work
Income that doesn't move your tax bracket
Because policy loans aren't income, they generally don't raise your tax bracket and aren't counted the way 401(k) withdrawals are. Drawing from both a 401(k) and a policy can help you manage your bracket and RMDs.
And if markets fall in your first years of retirement, cash value can be the bucket you draw from, so you're not forced to sell investments low. That's the volatility buffer.
The watch-outs
- Needs 10–15+ years of funding to shine
- Underfunding or overborrowing can cause a lapse and a tax bill
- Caps and charges can change
- Indexed loans can carry negative spread in 0% years
We design with a margin of safety and review every policy every year.
Retirement questions
Is retirement income from life insurance really tax-free?
Withdrawals up to your cost basis and policy loans are generally not taxable income as long as the policy is properly structured, is not a modified endowment contract, and stays in force. If a policy lapses with loans outstanding, the gain can become taxable. Consult your tax professional.
How much can I put into an IUL for retirement?
There's no IRS dollar cap like a 401(k) or Roth. The limit is set by IRS §7702 and MEC rules relative to the policy's death benefit. A max-funded design puts in as much as those rules allow.
Should I stop contributing to my 401(k)?
Usually not. An employer match is hard to beat. A max-funded IUL often makes the most sense after you've captured your match, or when income limits keep you out of a Roth.
When can I start taking income?
Many people start after 10–15+ years of funding. Starting earlier is possible but reduces how long the policy can support income.
Your next step
See your numbers before you decide anything.
A free, no-pressure strategy session. We'll design IUL and whole life options from top-rated carriers side by side, and show you the guaranteed column too.