The 3 Legal Ways to Build a Tax Free Retirement (Part 2)

The 3rd option is found within IRS Code 7702. It provides tax deferred growth and tax free access to cash value built up inside a life insurance contract. You have to be careful with this because if not done correctly you can lose your tax benefits, and your money.

There are 3 different types of life insurance contracts that can provide tax advantage retirement cash flow…

All life insurance contracts are backed by the strength of the underwriting company and historically there hasn’t been a stronger industry for security and guarantee’s than the life insurance industry. So one positive for these contracts is they are typically very safe.

The 1st is Whole Life: Whole life is great for people looking for guaranteed growth every year. Plus it gives you almost immediate access to your cash value from the start of the policy. These are two nice benefits. The downside is the growth in the cash value is relatively low, usually 3-6%.

The 2nd is Variable Life: these were really popular in the 90’s. In these plans money goes into sub-accounts invested in the stock market so you’ve got the potential of growth higher than whole life, but you have total exposure to loss. Over the last 10-15 years, because of the 2001 & 2008 downturns in the market, these have been problematic for many policy owners.

The 3rd is a new option called Indexed Universal Life (IUL): with an IUL you can grow your money potentially double digits in good years because the interest credited to your cash value is linked to the performance of major indices like the S&P 500. You earn this growth up to a cap, for example 15% but the contract is guaranteed to never go negative. So you have the possibility of double-digit interest on the good years and simultaneously protected from any losses in the bad years.

You also can win the tax battle because your money is growing tax deferred and you can pull money out without a taxable event using a loan provision. It also gives you the life insurance for your family’s piece of mind. One last benefit is because you’re pulling money out through a loan provision the IRS does not consider it as income so typically you can still qualify for lower health care costs and higher social security benefits.