A popular planning dilemma is that of choosing between a traditional or Roth IRA. There is no one-size-fits-all approach to investing but, proper structuring and over-funding of a whole or universal life policy can serve a dual purpose. It can enable your family to sustain their standard of living if something happened to you while you are still working. But these policies also accumulate cash value that can be turned into a tax-free income in retirement through systematic policy loans. Again, when structured properly, they would receive the same tax treatment as a Roth IRA with some added benefits.
- There are no income limits that prohibit you from contributing if you make too much money.
- There are no contribution limits as there are with a Roth IRA.
- You maintain the death benefit for as long as your family needs it.
- You can still participate and even max out your contributions to a traditional IRA to receive immediate tax savings.
Back to the question of which to choose. Everyone says to go with a traditional IRA if you think you'll likely be in a lower tax bracket when you retire. That is good advice if your investments earn a mediocre return but, what if they do really well? The money that you eventually withraw will be 100% taxable and could result in you being taxed on a portion of your Social Security income as well. Think about that for a second. Look at your most recent paystub. The lion's share of the FICA tax that you see listed is supposed to fund your Social Security. Yet, if you do too well investing on your own, they can tax that income again. Personally, I would prefer a Roth IRA or alternative to this anyday.
Be sure to consult somewhat who understands how to structure these policies properly if that is what you decide to do.
