IUL vs Stocks, 401(k) & Roth: what taxes really cost
Other accounts usually grow faster — but the IRS takes a cut. A properly structured IUL grows and pays out tax-free. Pick what to compare against, change the numbers, and see the real tradeoff in your saving years and retirement.
Your plan
📈 Stock / alt account
🛡️ IUL
💵 Tax
📊 Reality check on returns: the S&P 500 has averaged ~10%/yr over 100 years — but closer to 6–7% after fees, taxes & inflation, and the typical investor earns just ~4–6% (buying high, selling low). Even Warren Buffett averaged ~20% — and says you won't match it. No 30-year period has ever averaged 20%+. A great year isn't a 30-year average — enter a rate you'd bet your retirement on.
The bottom line
* The brokerage/401(k)/Roth figure is your account value passing to heirs — your own money, not a death benefit (brokerage & Roth get a step-up in basis, generally income-tax-free; a 401(k)/IRA is taxable to heirs). The IUL pays a true tax-free death benefit that — especially in the early years — far exceeds what you've paid in; that's the protection. After decades of loans it converges toward the cash value shown.
Comparison of Values — year by year
Watch the red Tax paid column — the alt account leaks tax every year (a drag while saving, then on every withdrawal), so account grows → you withdraw → pay tax → keep the net. The IUL's income comes out as tax-free policy loans — $0 tax — while the full account keeps compounding.
💡 Policy loans let your full account keep earning — you borrow against it, not from it. As long as crediting beats the loan rate, that arbitrage sustains tax-free income. 🧪 Set "Market crash yr 1" to 30 for the sequence-risk test. (Over-borrowing can lapse a policy — exact numbers come from a carrier or InsMark illustration.)
Educational illustration only — not a policy projection, and not tax, legal, or investment advice.
Figures are hypothetical and depend entirely on the assumptions you enter; actual results will differ. Returns are not guaranteed and can be negative.
Indexed Universal Life (IUL) is life insurance, not an investment; crediting is subject to caps/participation rates and policy costs, values are not guaranteed, and tax-free access is via
policy loans on a properly funded, non-MEC policy kept in force (loans reduce the death benefit and cash value). Not FDIC insured. For real policy numbers, request a carrier illustration.
401(k)/IRA withdrawals are generally taxed as ordinary income; Roth and step-up-basis treatment depend on your situation. Consult a licensed professional.