Whole Life Insurance as a Roth IRA Alternative for Wealthy Individuals

Roth IRAs offer sizable advantages—most notably, tax-free withdrawals after retirement. That said, the income limits on Roths prevent many high-net-worth individuals from contributing to them once they have made the maximum-allowable contribution amount.

That’s a problem for wealthy individuals who desire tax-efficient investments during retirement. Adding to the challenge, annuities, stocks and many other investments (with the exception of municipal bonds) also generate taxable income when money is harvested, which greatly limits tax-planning opportunities in retirement.

Certain limited-availability whole life insurance are available through selected independent insurance services firms like American Business that provide many of the same tax advantages as Roth IRAs for wealthy clients who likely will remain in the highest tax brackets even during retirement. For these individuals, the potential for tax-free earnings delivered by these products, combined with other key advantages we’ll explain below, can significantly benefit wealthy individuals during retirement and should be strongly considered as a Roth alternative.


Limited-Pay Whole Life Insurance as a Roth IRA Alternative – Understanding the Benefits

For high-net-worth individuals who are relatively young (20s, 30s, 40s and early 50s) and are in good health, selected whole life insurance products are long-term investments structured to accomplish specific tax-advantageous goals for retirement. These products permit payments between 10 and 20 years, and typically, it takes 12 to 14 years for the cash in the policy to become positive, so a long time horizon is necessary. That said, the benefits are significant:

  • They offer a combination of life insurance protection (e.g., death benefit).
  • The also offer cash value accumulation that provides a tax-free income stream for retirement.
  • They offer a combination of life insurance protection with strong guarantees. People need insurance, and in turbulent market conditions, they covet stable financial products. Whole life insurance has existed for more than 100 years.
  • They provide a tax-free income stream for retirement – premiums are paid during earning years.
  • The products are asset-protected like all life insurance policies that are structured properly.
  • Non-correlation with financial markets – these investments and their values remain independent of market swings. Likewise, tangential events that indirectly affect market performance (e.g., real estate values and conditions) aren’t impactful either.
  • The products, when properly structured, are predator- and creditor-proof, which provides valuable protection in a number of adverse scenarios.
  • They allow you to monetize young age and good health like no other investment.

Individuals who are considering limited-pay whole life insurance products must qualify medically and should accept the reality that the product will have a low cash value during the early years of the policy term. Accordingly, they should maintain a strong income flow during the years in which premium payments are made. It’s also worth noting that products like these often are complementary to other insurance policies and products in a high-net-worth individual’s portfolio.


Trusted Insurance Partners Are Best Suited to Help CPA Clients Navigate Non-Traditional Uses of Life Insurance

At American Business, our independence allows us to work with trusted advisors and their clients to recommend the right products to accomplish specific goals. We also work daily with clients’ financial advisors to help ensure that these and all other products we offer fit within a larger investment framework and accomplish stated goals.

We believe the path to pursue tax savings and other retirement benefits through limited-pay whole life insurance is one best traveled alongside an experienced and trusted advisor. We hope this article helped you understand the basics behind selected whole life insurance products as tax-saving alternatives to Roth IRAs, and how this strategy can potentially help your clients in numerous ways. We appreciate the opportunity to highlight this topic and help you and those close to you navigate the complex and evolving life, long-term care and disability insurance landscape. 

Do you have questions about using whole life insurance products as tax-saving alternatives to Roth IRAs, or other life, disability and long-term care insurance matters? Please contact American Business at 212-359-4400 or email cpainfo@amerianbusiness.com.