About a quarter of all U.S. adults say they have no retirement savings, according to one 2022 survey, and many more feel they’re not on track to reach their financial goals.
If this sounds familiar, it’s time to start learning about different retirement vehicles! No matter when you plan to retire, the right tools can help you save – as long as you do it wisely.
That’s where two crucial tools come in: a Roth IRA vs life insurance policies. If you’re not sure when to choose these tools, here’s what to know.
Roth IRA vs Life Insurance: The Basics
A Roth IRA is a crucial tool when planning for retirement. These accounts let your money grow tax-free, with no income or withdrawal taxes. You can only fund these up to a certain limit set by the IRS.
When you use a life insurance policy for retirement, it’s best used to supplement other retirement savings accounts, including a Roth IRA.
Under normal circumstances, buying life insurance won’t help you fund your retirement. These policies are paid out to your beneficiaries upon your death.
However, you can also use these policies as an investment tool. This doesn’t work with all types of life insurance, but you can do it with some permanent life insurance policies.
To use the policy for retirement savings, you’ll overpay your life insurance premiums. This sends the surplus into the policy’s cash value account, allowing for tax-deferred growth.
Roth IRAs vs Life Insurance: Pros and Cons
Both Roth IRAs and a life insurance cash value account have unique benefits. There’s no “one-size-fits-all” retirement solution, so it’s crucial to weigh the pros and cons.
Roth IRAs have one clear benefit: you’re likely to get higher returns from them than a life insurance policy. In addition, there are no health checks for opening a Roth IRA.
One disadvantage to a Roth IRA, however, is the contribution limits. You can only put as much into this account as the IRS allows. There is no designated death benefit for these policies, though your loved ones can inherit the balance when you die.
Life insurance cash accounts have many benefits and are a great option if you’re also looking for a death benefit for your loved ones. You can overpay your premiums by as little or as much as you want, depending on the policy. Where you must be 59 1/2 when you withdraw from a Roth IRA, you can withdraw from your life insurance cash account at any age.
These policies have a few drawbacks. Unlike a Roth IRA, which you can choose to fund or not fund each year as desired, you will always have to pay at least your monthly insurance premiums. The policy provider will evaluate your health upon your purchase, so you may have higher premiums if you have certain health conditions.
Get More Out of Your Retirement
If you’re choosing between a Roth IRA vs life insurance policy, why not consider both? Using multiple funds ensures that you don’t keep all your eggs in one basket, and each of the choices has unique benefits.
As you’re weighing your options, RBP Insurance is here to help. Our full-service insurance agency has been proudly providing life insurance with great rates and no hidden fees since 1960. Contact us today for a free quote.