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I.R.A. Insured Retirement Advantage

insured retirement advantage
Insurance Quotes 2 Day Team

Written By Doug Mitchell

Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA.  Doug has spent close to 30 years in the insurance and financial planning industry and has held licenses to sell securities, long-term care insurance, health.  Doug is also a financial blogger addressing the topics of life insurance, annuities and retirement income planning.

Holly Mitchell  &

Holly Mitchell’s background in life insurance insurance goes back to 1985 when she worked for her father who was a New York Life agent. Holly has a marketing degree from Auburn University and has had a life insurance license since 2008. In addition to advising life insurance for customers all around the country, Holly is our website fact checker.

Rob Pinner   &

Rob Pinner is the founder and CEO of Pinner Financial Services servicing all 50 states. Rob started his insurance career in 2002.

Louis LaBash

Results-driven and innovative life insurance professional with 30 plus years of life insurance industry sales and marketing experience. Recognized as a pioneer in the field, leveraging phone and internet channels to exceed personal sales of over $100 million during the first decade of the 21st century. Creator of a highly effective intuitive IUL life insurance sales software that facilitated the sale of millions of dollars of indexed universal policies by numerous life insurance agents. Proven track record as a Managing General Agent (MGA), Life Agent, IUL Life Insurance Sales Software developer, and leading-edge creator of insurance marketing tools, educational content, and delivery systems.

 3 minute read

The rise of federal debt and the likelihood of a high future tax bracket means that people need to take advantage of tax-free income for retirement as soon as possible. 

The Insured Retirement Advantage (I.R.A.) strategy is an efficient method to do so. It enables lending funds using third-party lender money so you can leverage your taxes in the future.

Government programs are not there to completely protect you from the changes you’ll face in retirement. Individuals have to work harder on their own, or get help from options like self-directed strategies and personal empowerment.

In this article, we’ll discuss the Insured Retirement Advantage (I.R.A) where investors set up a life insurance retirement plan (LIRP) using permanent insurance like Indexed Universal Life insurance. This allows them to dramatically mitigate their income tax liability during retirement so they can keep more of what they’ve saved.

How Does an Insured Retirement Advantage Plan Work?

An I.R.A. plan is not an insurance product but rather a concept. Typically, the products used to implement the plan is Indexed Universal life insurance. This type of policy is used because of its unique tax advantages and the ability to earn interest based on what certain stock markets perform.  Although the market drives growth in the IUL policy, a down market doesn’t decrease cash value in the policy. 

A typical plan is designed with the client contributing to the policy along side the bank.  These I.R.A. plans are designed to meet the clients objectives.  

An insured retirement plan targets a policyholder’s ability to leverage their permanent life insurance policy’s cash value account to provide tax-free income during retirement. Since the insured takes loans from the insurance company using the  cash value account as collateral for loans, the cash account continues to earn interest while being collateralized and the loan is not taxed as income.

Upon the death of the insured, the insured’s beneficiary(s) will receive the death benefit minus any outstanding loans and interest.

Critical Benefits Provided by the I.R.A. Plan

When investors use the I.R.A., they automatically gain four primary benefits not typically found in traditional retirement products:

insured retirement advantage

Other Tactical Uses of an Insured Retirement Advantage Plan

Not only can participants take advantage of the death benefit, living benefits, wealth accumulation, and tax-free retirement income, the I.R.A. plan can play a key role in other funding needs:

  • Key Person Insurance Policy Funding
  • Establish and fund a Buy/Sell agreement between business stakeholders
  • Funding an Executive Bonus arrangement
  • Personal and business cash flow needs

Who Should Consider an Insured Retirement Advantage Plan?

Although an I.R.A. plan is a solid choice for purchasing life insurance for use as tax-free income at retirement, there is a particular subset of people who should consider it for retirement planning. 

First off, a minimum net income of $100,000 is a requirement.  Age of 60 is the cap for this concept and the insured must be healthy.

There are several situations when an I.R.A. plan will outperform traditional retirement plans. For example, your permanent insurance policy is not subject to government constraints like those that apply to a 401(k) or traditional IRA.

  • The cash that is accumulated in your Indexed Universal Life policy can be accessed when you need it and is not subject to early withdrawal taxes and penalties.
  • Your I.R.A. plan is not subject to required distributions like other plans. You take your funds whenever you prefer instead of when the IRS says you can.
  • There are no contribution limits on your indexed universal life policy like the $20,500 limit on your 401(k). Yes, you can invest a little more when you’re over 50, but there are federal government constraints on your investments nonetheless.

Additionally, if you are expecting to be in a much lower tax bracket at retirement, your expectations may be unfounded when you consider the enormous debt our free-spending legislators have created over the last 10 years. 

This debt can only be reduced by budget cuts and that appears highly unlikely. It’s more likely that all Americans will be taxed at a greater rate to reduce this debt sooner rather than later.

Finally, most of us have been told that “it’s not how much you earn but how much you keep.” If you believe that to be true (and you should), isn’t it smarter to invest in a retirement product where your withdrawals are taxed on the way in rather than the way out when you’ll need that money to support yourself for the rest of your life.

Questions You Should Consider

No. Your indexed universal life policy will typically have a floor rate of zero. This means if the indexes your cash account is linked to have a loss during the year, your account will not be impacted because the minimum interest credit will be zero.

Yes. Once you have repaid the bank loan, you can access the available funds in your cash account anytime and for any reason.

Since term life insurance does not build cash value and is not permanent life insurance, it is not a choice for an I.R.A.

Both of these plans can accomplish the same thing. The I.R.A. however uses bank financing to jump start the policy growth.

author avatar
Doug Mitchell, CLU Independant Advisor
Doug Mitchell, CLU holds a BA degree in Finance from Auburn University as well as having obtained a Chartered Life Underwriter (CLU) designation from The American College in Bryn Mahr, PA. Doug has spent almost 30 years in the life insurance industry and has also held licenses to sell securities, long-term care insurance and home and auto insurance. Doug is a Top of the Table Million Dollar Round Table member (MDRT).  MDRT is a global, independent association of the world's leading life insurance advisors.  For two years, Doug served as President of the Auburn Opelika Association of Financial Advisors and has been a member of the Million Dollar Round Table. He obtained Life Millionaire status at Horace Mann Insurance Company and was awarded the Life Agent of the Year Award. Later in his career with New York Life he was an Executive Council Member. Doug currently serves as President of Ogletree Financial, a managing general agency serving life insurance agents and clients in all parts of the United States. Today, Doug’s main focus is servicing 1000s of policyholders and growing the agency through the reach of