Alternatives to the 401K

By Jacob Stern on July 2nd, 2012


Many Americans rely on the 401K as a means, and often the only means, to save for retirement. While there are some advantages to the 401K, mainly the tax deferral aspect and the automatic nature of the deposits, there are many hidden issues. Many do not realize two important items: the fees on 401K plans and the alternative options.

US News and World Report published a very interesting article on the fees of 401K plans:

Once people understand the fees, people also need to understand the alternatives or additional ways to save for retirement.

One invaluable vehicle can be the index universal life policy (IUL). With the IUL, there are many advantages given to the person looking for supplemental ways to save for retirement:

  1. Remove market volatility from part, or all, of a person’s portfolio because IUL products can never lose money to market fluctuations.
  2. Provide tax-free income via loans on the policy. One important aspect many do not understand is that with regular 401K distributions, all of those distributions are taxable. With loans against IUL policies, they are income tax free (no 1099).
  3. If a person passes early, there can be tax consequences and issues with 401K plans because it is qualified money. With a properly structured IUL plan, if a person passes early, there will be leveraged, income tax free death benefit paid to the beneficiaries.

Therefore, IUL policies should be discussed as an addition or alternative to traditional 401K planning.

Add new comment

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.


The information contained herein is for general information purposes only. Imeriti, Inc. is not to be held responsible for the accuracy of this information. Neither Imeriti, Inc. nor its employees provide tax or legal advice. As with all matters of a tax or legal nature, your clients should consult their own tax or legal counsel for advice. Any taxpayer should seek advice based on the taxpayer's particular circumstances from an independent tax adviser.