Multi Index Universal Life Insurance

[COcheesehead]

I've been putting the money in my ROTH (50% Wellesley and 50% VTSAX) since 2000. I have a nice amount now that I can tap penalty free before 55 and obviously after 59.5 it's all available with no tax at all and no worries about interest on loans.

I couldn't do that. I would have liked to have done that, but my income was too high for Roth contributions for probably the last 20 years. So I needed to look to other alternatives to stash cash and try and create tax free income. For me WL made sense. As I have said, it is not for most, but for folks like me who have maxed out every other tax deferred or tax free vehicle it makes sense. Adding the LTC rider was just an added bonus, for me.
Also the "interest" on a WL loan comes off your death benefit. So it is not an out of pocket expense.

 

[nun]

I couldn't do that. I would have liked to have done that, but my income was too high for Roth contributions for probably the last 20 years. So I needed to look to other alternatives to stash cash and try and create tax free income. For me WL made sense. As I have said, it is not for most, but for folks like me who have maxed out every other tax deferred or tax free vehicle it makes sense. Adding the LTC rider was just an added bonus, for me.
Also the "interest" on a WL loan comes off your death benefit. So it is not an out of pocket expense.

What about just a deferred annuity?

 

[Big_Hitter]

What about just a deferred annuity?

very limited death benefit, plus high sales load

once you are "deep" into WL, I think the best move is to max out the paid up additions as long as you avoid turning it into a mec, especially with a mutual lic

which reminds me, I need to call nyl and see how much i can buy this year

 

[nun]

I max out my 401k every year so I can't do a Roth - however, I can purchase paid up additions (up to a limit) on my whole life policy that accumulate tax free. I maxed those out last year too.

I'm not saying whole LI is a panacea, it works for me though.

Why would maxing out 401k limit your ROTH.

I maxed out 401a, 403b and 457 accounts and still contributed to my ROTH

 

[Big_Hitter]

Why would maxing out 401k limit your ROTH.

I maxed out 401a, 403b and 457 accounts and still contributed to my ROTH

I do a backdoor roth each year too - I guess I should have said I can't do a regular roth

 

[nun]

I do a backdoor roth each year too - I guess I should have said I can't do a regular roth

Ok, I think that most of us are in agreement here. Once conventional tax deferred saving accounts are maxed out, then WL might be useful to some people. Of course if WL was only bought by people fully funding 401ks and ROTHs then there would be a lot of unemployed insurance salesmen. This isn't directly about insurance but it is about selling stuff that people don't need.

 

[Big_Hitter]

LI is definitely something that is sold, not bought

 

[COcheesehead]

What about just a deferred annuity?

Got one of those too.

 

[COcheesehead]

very limited death benefit, plus high sales load

once you are "deep" into WL, I think the best move is to max out the paid up additions as long as you avoid turning it into a mec, especially with a mutual lic

which reminds me, I need to call nyl and see how much i can buy this year

.25% fee at Fidelity for a deferred annuity. About as cheap as it gets.

 

[nun]

.25% fee at Fidelity for a deferred annuity. About as cheap as it gets.

Yep, my deferred annuity is TIAA-Traditional.....they don't publish costs and there was no fee to open it up back in 1987. My account is currently growing at 4.8%.

 

[brewer12345]

So you won't listen anyway? I get my audience here.

So far you have offered no specifics, so I am not sure anyone can dispute your fairy dust. Have you spreadsheeted this product? Nailed down all the moving parts? Do you understand what you are paying for each piece? Done credit due diligence on KC Life?

 

[Big_Hitter]

.25% fee at Fidelity for a deferred annuity. About as cheap as it gets.

don't those have pretty low rates of return or is this a variable product?

 

[brewer12345]

don't those have pretty low rates of return or is this a variable product?

Variable, as I understand it. You can get similar from Vanguard.

 

[COcheesehead]

don't those have pretty low rates of return or is this a variable product?

The rates of return are dependent upon what you put it in. The deferred annuity is just a wrapper. The investment options are everything from target date funds to bond funds to international, etc. I have mine split into a balanced fund and an S&P index fund, all keeping in line with my overall AA. Both are 5 star Morningstar funds managed by Fidelity. I am very happy with it. But again, may not be right for everyone, but for folks needing to maximize tax deferred investments, it might make sense.

 

[COcheesehead]

The rates of return are dependent upon what you put it in. The deferred annuity is just a wrapper. The investment options are everything from target date funds to bond funds to international, etc. I have mine split into a balanced fund and an S&P index fund, all keeping in line with my overall AA. Both are 5 star Morningstar funds managed by Fidelity. I am very happy with it. But again, may not be right for everyone, but for folks needing to maximize tax deferred investments, it might make sense.

Oh and one of the best parts, no minimum required distributions at 70.5 years old.

 

[nun]

don't those have pretty low rates of return or is this a variable product?

TIAA-Traditional has a guaranteed minimum annual return of 3% and mine is currently returning 4.8% a year because I put money into it back in the late 1980s when interest rates were high.

If people have maxed out 401ks and ROTHs etc and want more tax deferral then a I'd use a deferred annuity before WL because it is simpler and the fees are easily visible.

 

[Big_Hitter]

TIAA-Traditional has a guaranteed minimum annual return of 3% and mine is currently returning 4.8% a year because I put money into it back in the late 1980s when interest rates were high.

If people have maxed out 401ks and ROTHs etc and want more tax deferral then a I'd use a deferred annuity before WL because it is simpler and the fees are easily visible.

I put it into WL because I have a 17 year old policy and it cranks up the death benefit and the paid up additions accumulate with a 5% guaranteed rate. Is the death benefit under the "annuity" just the account balance? Doesn't really sound like an annuity, per se.

 

[brewer12345]

I put it into WL because I have a 17 year old policy and it cranks up the death benefit and the paid up additions accumulate with a 5% guaranteed rate. Is the death benefit under the "annuity" just the account balance? Doesn't really sound like an annuity, per se.

There is no death benefit to speak of. The people buying these sorts of annuities are not buying insurance benefits. Instead, they are effectively buying something that resembles a mutual fund that has the bare minimum insurance aspects required to qualify for the favorable tax treatment.

 

[COcheesehead]

There is no death benefit to speak of. The people buying these sorts of annuities are not buying insurance benefits. Instead, they are effectively buying something that resembles a mutual fund that has the bare minimum insurance aspects required to qualify for the favorable tax treatment.

You are correct, but if there is a balance in the account at the time of owner's death, that doesn't disappear like a paid up annuity, it passes to the designated beneficiary.

 

[pb4uski]

Many VAs are basically a mutual fund account with higher fees, an annuitization option, and tax deferral benefits.

 

[COcheesehead]

Many VAs are basically a mutual fund account with higher fees, an annuitization option, and tax deferral benefits.

That is also what a deferred annuity is as well except the annuitization is deferred so that the asset can growth as opposed to being used for current income.

 

[pb4uski]

But they're numerous flavors of deferred annuities with different return profiles... Interest based on the insurers general account investment returns, equity indexed and variable, where returns are based on mutual fund-raising sub-accounts. You were describing the VA flavor. They will all have an anniuitization option, which is rarely invoked, but required by law to qualify to defer taxes on their growth.

 

[COcheesehead]

But they're numerous flavors of deferred annuities with different return profiles... Interest based on the insurers general account investment returns, equity indexed and variable, where returns are based on mutual fund-raising sub-accounts. You were describing the VA flavor. They will all have an anniuitization option, which is rarely invoked, but required by law to qualify to defer taxes on their growth.

We're talking about the same thing.

 

[nun]

Many VAs are basically a mutual fund account with higher fees, an annuitization option, and tax deferral benefits.

Exactly. People with TIAA-CREF retirement accounts actually have variable annuity accounts and fees in the 0.5% range. It's one of the drawbacks of having TIAA-CREF as your retirement administrator, but they do give good annuity rates....if that matters to you.

If you have maxed out 401k etc and want some more tax deferred growth then you can open a deferred fixed or variate annuity with someone like Vanguard or TIAA-CREF and invest in mutual funds with fees in the 0.5% range. There are lots of withdrawal options, you don't have to annuitize if you don't want to so you can leave the account balance to heirs.


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[nun]

Hey, if we have whole life insurance.....why not whole car insurance. I spend all that money to insure my car what about building up some cash value as well?