If you've read my blog in the past, you know I think life insurance is a great way to get a "tax-free" retirement. The easiest and most effective way to do this is through an Indexed Universal Life policy (IUL). This policy builds its cash value by using an index, which yields returns that mirror the market, without having the actual risk of investing.
Without getting into the weeds, you can overfund a policy, which means that you put more into the policy than the required premium. The IRS, knowing that the cash value in a policy is tax-deferred, limits the amount you can pay over the premium. Otherwise, your policy becomes a Modified Endowment Contract (MEC), which is subject to taxes, and no one wants that.
Most policies have a floor, or minimum, which is usually around zero. In other words, the markets goes negative, you lose nothing. However, there's also a cap, which can be anywhere between 10-15%, depending on the policy. So, as the market goes up, so does your growth, but to a limit.
In essence, you have life insurance with potential for growth in the good times, no losses in the bad times, and it's all tax-deferred. But wait, there's more!
When you're ready to retire, you can pull that money out of the policy as a loan, thus avoiding taxes altogether. Tax-free retirement.
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