Roth IRA vs. Universal Life Insurance (as an account)

[kyrie]

Ok, I've gone over this 100 times and 100 ways with my investment agent and a tax attorney. Both make valid points. The agent (obviously) wants to sell me a universal life insurance account that he wants to 'superload' to make it an investment (Variable Annuity I believe) that is tax free. Seems to me the Roth is a better way to go (which I am very familiar with), but he makes a lot of good points too.

Anyone know about this kind of stuff? Is there a reason why we shouldn't do the universal life VA thing that maybe we've missed??!? Anyone out there with experience here?
Thanks.!!!!!!!!!

[sweeps]

Re: Roth IRA vs. Universal Life Insurance (as an account)

Universal life insurance is good for your agent, a Roth IRA is good for you. My $.02, dump your agent.

[kyrie]

Re: Roth IRA vs. Universal Life Insurance (as an account)

Ok (this is what my tax atty says too), but why? Its not clear to me just yet..........
thanks.

[sweeps]

Re: Roth IRA vs. Universal Life Insurance (as an account)

Universal life policies are notoriously high on fees and poor on performance. Your agent gets a nice commission by selling it to you, while the insurance company makes a lot of money off your premiums. Plus if you want or need to cancel the policy within the first 5-10 years, you're out a lot of money.

On the other hand, a Roth IRA at a company like Vanguard or Fidelity is transparent, flexible and low on fees. You're in control and there's no hidden tricks or gimmicks. You're free to increase or decrease your contributions, withdraw your contributions in an emergency, and switch companies if necessary whenever you like.

[poundwise]

Re: Roth IRA vs. Universal Life Insurance (as an account)


Very good explanation.

Ditto the advice.

[creditcardfree]

Re: Roth IRA vs. Universal Life Insurance (as an account)

I third the advice. High fees on variable annuities. Ask to see a prospectus.

Many times on VA the fees yearly are higher...like $35 a year compared to $0-$10 for your roth at a mutual fund company. Stay far away from VA's until you've maxed out all your other retirement options...401k and roth. VA's have a surrender charge that is on a sliding 6-8 year scale that you must pay to get out of the annuity if you change your mind...like if the annuity isn't performing well.

[Ima saver]

Re: Roth IRA vs. Universal Life Insurance (as an account)

I agree, stick to the roth ira!

[Jaynen]

Re: Roth IRA vs. Universal Life Insurance (as an account)

I agree with the other posters. Now, keep in mind I know absolutely nothing about the LI, but what I do know is that if you choose your retirement plan custodian wisely with your ROTH IRA the fees are low, access to those monies is great, and you are in complete control. I'm not sure whether or not that's the case with LI, but I'm guessing not.

[WellManicuredMan]

Re: Roth IRA vs. Universal Life Insurance (as an account)

You're in control and there's no hidden tricks or gimmicks.

The best reason PERIOD! I HATE tricks and gimmicks, LOL

[greedy4chips]

Re: Roth IRA vs. Universal Life Insurance (as an account)

I purchased one of these back in 1995 when I was younger and dumber! We paid $80 each month for each of us into a VA for 6+ yrs. Yes we had an insurance policy of just under $200k for each of us, but at a very high premium to a term life policy and a cash balance that grew very slowly! The agent sold us on the tax advantages, but neglected to tell us how poor we would be by the time we could take advantage of the tax benefit.

We were investing $960 each in hopes of getting around $200k each tax free in retirement. Roth IRA's did not exist back then and it seemed like a good idea, but I was very stupid to invest in that junk.

I agree that you should dump this investment guy and move on to a better idea...either a 10 or 20 yr term life policy and a Roth IRA will put you much further ahead and give you more flexibility than the trash this guy is pushing!

[parachutestplifeinsurance]

start with the Roth IRA, then get universal life

My two cents are to stick with the tax advantaged retirement plans, like Roth and Universal Life.
Like earlier posters say, stay away from variable plans. I'd decrease A LOT the 401k. That's big fat gimmicks for your employer! (not you). You basically don't want to be paying any taxes on money coming out when you are 70 1/2. Read Ed Slott's books from the library. Like he says, don't buy low (save money) on parachutes, toilet paper, or life insurance. Save your money elsewhere. Don't worry what your agent makes as long as you are doing well. Get a mutual life insurance company with solid financial marks that's been around a century or so so you get the dividends. Make that 6% tax free over many years. If you want to play in markets, then use the Roth IRA if you are so smart and can realistically beat that 6% year over year. Challenge yourself--beat your universal life policy. Whip it good! You'll see it ain't so easy. Whole life is okay too but not as good as UL because you can get flexible premiums so you don't get burned if you can't make the payment !!! Read Ed--he'll straighten ya out. again, my two cents.

[BuckyBadger]

My two cents are to stick with the tax advantaged retirement plans, like Roth and Universal Life.
Like earlier posters say, stay away from variable plans. I'd decrease A LOT the 401k. That's big fat gimmicks for your employer! (not you). You basically don't want to be paying any taxes on money coming out when you are 70 1/2. Read Ed Slott's books from the library. Like he says, don't buy low (save money) on parachutes, toilet paper, or life insurance. Save your money elsewhere. Don't worry what your agent makes as long as you are doing well. Get a mutual life insurance company with solid financial marks that's been around a century or so so you get the dividends. Make that 6% tax free over many years. If you want to play in markets, then use the Roth IRA if you are so smart and can realistically beat that 6% year over year. Challenge yourself--beat your universal life policy. Whip it good! You'll see it ain't so easy. Whole life is okay too but not as good as UL because you can get flexible premiums so you don't get burned if you can't make the payment !!! Read Ed--he'll straighten ya out. again, my two cents.

spam. reported.

[disneysteve]

My two cents are to stick with the tax advantaged retirement plans, like Roth and Universal Life.
Like earlier posters say, stay away from variable plans. I'd decrease A LOT the 401k. That's big fat gimmicks for your employer! (not you). You basically don't want to be paying any taxes on money coming out when you are 70 1/2. Read Ed Slott's books from the library. Like he says, don't buy low (save money) on parachutes, toilet paper, or life insurance. Save your money elsewhere. Don't worry what your agent makes as long as you are doing well. Get a mutual life insurance company with solid financial marks that's been around a century or so so you get the dividends. Make that 6% tax free over many years. If you want to play in markets, then use the Roth IRA if you are so smart and can realistically beat that 6% year over year. Challenge yourself--beat your universal life policy. Whip it good! You'll see it ain't so easy. Whole life is okay too but not as good as UL because you can get flexible premiums so you don't get burned if you can't make the payment !!! Read Ed--he'll straighten ya out. again, my two cents.

spam. reported.

Bucky, although I totally disagree with the post, I don't really think it qualifies as spam. It isn't selling anything specific. It doesn't have any inappropriate links. It is, however, filled with lousy information so let's focus on that.

stick with the tax advantaged retirement plans, like Roth and Universal Life.

Universal Live IS NOT a tax-advantaged retirement plan. It is a life insurance policy and a damn expensive one at that.

Life insurance is not an investment. Never has been. Never will be. Shouldn't be promoted as such. There are plenty of other threads that shoot down every argument the sleazy insurance salespeople make so I won't elaborate here. Just search the forum for "whole life" or something like that if you want more info.

[dczech09]

In regards to the supposed "tax advantages" to universal life-

The tax rule is such that your money inside the cash value of the policy will grow TAX-DEFERRED. Then, you pull the money out TAX-FREE as long as the amount you pull out does not exceed what was paid in premiums. Basically your tax basis is the premiums paid; as long as you do not get back more than that basis, there will be no taxes applied. Pretty straight forward and you don't even have to take a class to figure this out!

Wel1, life insurance salespeople like to sell this as a benefit because the overwhelming majority (almost all) of these policies never result in a tax bill. That is because the money pulled out ALMOST NEVER exceeds the premiums paid. So how is this a good investment? How is this a tax advantage?

If you buy stock at $100 and sell out at $90, you have no tax bill because you did not make anything. The same goes with these universal life policies.

The word "insurance" should make it a dead-giveway that these things are not investments. It is illegal for salespeople to sell as such too. So no universal life policies are not investments.

To parachutestplifeinsurance-

You stated that the OP should decrease their 401k because of big gimmicks to the employer. What on Earth do you mean by this? You do realize that 401k is a completely separate system in which your employer never takes any sort of legal ownership. These are not pensions- these are employer-sponsored plans. In fact, your employer reaps virtually no benefit other than being able to be competitive with offering jobs. So please tell me where these "gimmicks" are. And I expect cold hard facts- not some opinion Thanks!

Ed Stott is a big advocate of IRA products, particularly the Roth IRA.

Quite frankly, I do not think you can go wrong with a 401k or IRA. Max those things out, then go for the variably annuity once all other options have been exhausted.

Universal Life is never a good investment. Insurance is just that- insurance. And do not get me started on sleazy insurance salespeople and their huge commissions.

kyrie- fire your agent!