Beating 401k, IRA Contribution Limits With Life Insurance


Both 401k plans and IRAs have contribution limits which set a cap on how much you can save using these retirement plans. If you have the income to save large amounts, or if you’re behind in your retirement planning and are trying to catch up, these limits can be a burden.


If you’re using a 401k plan to save for retirement and you’re under 50, your yearly contribution for 2012 is capped at $17,000. If you’re over the age of 50, your contribution is limited to $22,500. For savers using IRA accounts to save for retirement, your contribution limit is based on your overall earned income. For most people, the contribution limit is $5,000. Savers over the age of 50 can contribute $6,000.


While 401ks and IRAs allow savers to deduct their contribution from their federal income tax liability, in the long-run this may not be the wisest course as you will have to pay taxes on the eventual withdrawals you make once you retire. Often, people who have carefully saved for retirement for decades using IRAs or 401ks find that the savings they realized from taking tax deductions while they contributed to their retirement plans are wiped away within a few years once they retire and their withdrawals become taxable.


For workers who are late getting into the game of saving for retirement, the limits on contributions to IRAs and 401ks can pose a challenge to ensuring that they have sufficient retirement savings to maintain their lifestyles. There are alternatives that can be used to help supplement these plans, however.
If you’re saving for retirement, one way you can supplement your existing 401k plan or IRA is by purchasing life insurance products as retirement savings alternatives. There are a number of benefits to adding a life insurance retirement option to your existing retirement savings plans.
For starters, contributions are unlimited, and you can save as much as you like. Also, insurance savings plans have far more liberal early withdrawal rules than IRAs or 401k plan, making it easy for you to withdraw money from your plan or borrow against it to handle unexpected expenses during your working years.


Another key benefit of life insurance retirement vehicles is that they can be set up in a way that reduces your tax liability when you retire and begin making withdrawals from the plan. Properly used, the withdrawals can be tax free and some companies even guarantee the income for life.
Also, should you happen to die before you reach retirement age, the life insurance portion of the policy will ensure that your family is taken care of, and they’ll also have the retirement savings for themselves.


Any investor will tell you that diversification is a key to success. This same concept holds true for retirement investing. Why put all your eggs in just one basket? By diversifying your retirement savings vehicles, you can maximize the amount you have set aside for your golden years and have a good financial firewall against calamities during your working years.


To take advantage of cutting edge insurance products like equity-indexed policies, contact a financial advisor with experience in life insurance products and retirement planning. These experts can help you define savings goals, set monthly contributions and work to shelter your savings from tax liabilities.