Which is the better tax hedge: Individual retirement accounts or life insurance policies?

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by Heidi Christian Rockwell

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There are a lot of reasons why you should invest in an insurance policy

versus an IRA (Individual Retirement Account), the first reason being

that if you need to access your money you will be given a ten percent

penalty for early withdrawal and you will have to pay income tax on the

income, both federal and state will give you this penalty in most cases,

if you withdrawal from an IRA.

With an insurance policy you will earn more interest and if you with-

drawal any money it is considered a loan, not income. So there is no

penalty for early withdrawal or income tax. The insurance companies

are paying more interest on your money than the banks. Insurance

companies are regulated more than the banks , they are required to

have the funds available, they are not borrowing from the Federal

Reserve. An insurance company is safer than a bank. Most insurance

companies do not do mortgages.

Another drawback of an IRA is that if you do not roll over your

regular IRA into a Roth IRA at age 70 the IRS will assess a 50%

penalty. If your bank isn't paying attention and you are not notified

to roll over your IRA, the bank will not pay the penalty. You will

pay your hard earned money to the IRS. This is not the case with an

insurance policy.

The best type of insurance policy is a policy that gives you both

term and whole life. It will cover your estate in case of death

while funding your retirement. If you use Einstein's rule 72 , using

basic math, divide your interest rate into 72, to arrive at how long

it will take you to double your money, then compare the difference

between how much the bank is paying you interest and how much interest

an insurance policy is paying, You will see that that little two

percent on your money makes a big difference.

Historica lly speaking insurance companies have a much better proven

track record than banks. Banks interest rates fluctuate with the market

and the federal reserve, while the U.S dollar seems to be losing its

value. The insurance industry remains more stable and consistent.

In conclusion the best place to put retirement funds is in an

insurance policy, not an IRA. Your money is safer with an insurance

company. It will make you more money and if you need to access your

money there is no penalty or income tax to pay on the income.

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