IUL vs. 401(k): Which Wins for Retirement?

For decades, the 401(k) has been the default retirement vehicle. But for high-income earners and those concerned about future tax rates, the Indexed Universal Life (IUL) policy is emerging as a superior alternative. Let's break down the battle.

Taxes: Pay Now or Pay Later?

With a traditional 401(k), you get a tax break now, but you pay taxes on the harvest. If tax rates go up in the future (which many experts predict), you could lose a huge chunk of your nest egg. With an IUL, you invest post-tax dollars, but your growth and distributions are tax-free.

Market Risk: The Zero Floor

In a 401(k), if the market drops 30%, your account drops 30%. In an IUL, if the market crashes, your interest credit is simply 0%. You lose nothing. Your principal is locked in. This "zero floor" is a game-changer for preserving wealth near retirement.

Liquidity and Access

Try accessing your 401(k) before age 59½. You'll face a 10% penalty plus taxes. With an IUL, you can access your cash value at any age, for any reason, penalty-free.

The Verdict: Unless you have a 401(k) match (which is free money), an IUL often provides better tax benefits, safety, and flexibility for long-term wealth building.