In 2011, Ted Benna, the inventor of the 401(k) second guessed his creation, wondering if he "created a monster" that should be blown up. Ted's reasoning was reportedly due to his concern that the plans had grown so overcomplicated and so fraught with hidden fees and opportunities for bad decisions that they were better at enriching the financial industry than the actual savers.
Whether you agree with Mr. Benna or not, looking at your retirement strategy with a critical eye is an important part of taking back control of your money and life.
Consider the Following (IBC) Life Insurance Retirement Plan Benefits:
1. No Penalties Pre-59 ½: Unlike retirement accounts like 401(k)s or IRAs, there is no 10% penalty if you take money out of your LIRP before you reach age 59 ½.
2. No 1099s: The money within your LIRP doesn’t get taxed. Mutual funds and CDs do get taxed on their yearly growth.
3. Distributions Are Not Reportable Income: Remember, if you take money out of your LIRP in the right way (policy loans and FIFO withdrawals), it doesn’t show up on the IRS’s radar as reportable income. This is why it is considered tax-free.
4. No Contribution Limits: Unlike the Roth IRA, the LIRP has no contribution limits. The IRS only stipulates that the amount of your contributions be tied to your death benefit. You can contribute $100 a year, or $500,000 a year.
5. No Income Limits: If your modified adjusted gross income is greater than $194,000 you can no longer contribute to a Roth IRA. No such rules apply to the LIRP.
6. No Legislative Risk: Although the government has changed the rules regarding LIRPs on occasion, whenever they have done so, those with existing policies were able to retain the benefits they currently had. This history of “grandfather clauses” bodes well for the continued protection of LIRPs.