Diversified Insurance Brokers has decades of experience helping clients maximize the benefits of life insurance inside and outside of retirement strategies. One option that often comes up in advanced planning is the use of an IUL in qualified plans. An IUL policy can provide permanent life insurance protection, the potential for tax-advantaged growth, and retirement income planning advantages. When integrated with a qualified retirement plan, it can help business owners and high-income professionals enhance savings flexibility and balance taxable versus tax-free retirement income sources.

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An IUL is a permanent life insurance policy that combines death benefit protection with cash value accumulation. Unlike traditional universal life, the cash value in an IUL grows based on the performance of a stock market index such as the S&P 500. The funds are not directly invested in the market but receive credited interest tied to index movement, subject to caps and participation rates. This provides the opportunity to benefit from positive market performance while avoiding losses during negative years, since most contracts include a minimum interest guarantee floor.

In the context of a qualified retirement plan, such as a 401(k), profit-sharing plan, or defined benefit plan, IUL can be used as part of a strategy to provide selective benefits to owners and key executives. Employers can contribute to the plan, fund the IUL premiums, and in turn create a permanent insurance benefit that also accumulates cash value for supplemental retirement income. Unlike traditional retirement accounts with strict contribution limits, an IUL funded through a qualified plan can potentially allow higher levels of savings, creating another vehicle for wealth accumulation.

One of the primary advantages of IUL in qualified plans is the ability to diversify income sources in retirement. While distributions from qualified accounts are taxable, the cash value from an IUL can often be accessed through loans and withdrawals that are structured to be tax-free. This creates an important balance: a portion of retirement income remains taxable, while another portion can be tax-advantaged. This flexibility can help retirees manage tax brackets, reduce the impact of required minimum distributions, and create more control over retirement income planning.

However, there are important considerations. Because IUL premiums in a qualified plan are paid with pre-tax dollars, any death benefit proceeds may become taxable unless carefully structured. Additionally, the policy must be designed correctly to avoid becoming a Modified Endowment Contract (MEC), which would change the tax treatment of withdrawals and loans. Administrative rules must also be followed closely to remain compliant with IRS regulations. This makes professional guidance essential when implementing this strategy.

Who typically benefits from IUL in qualified plans? This strategy may be most suitable for:

• Business owners who want to increase retirement savings beyond IRS limits
• Executives seeking permanent life insurance as part of a compensation package
• High-income earners looking to diversify retirement income sources
• Individuals focused on tax diversification and estate planning

For some, an IUL inside a qualified plan can provide powerful benefits, while for others, a stand-alone policy outside the plan may offer greater flexibility. The decision depends on your overall goals, tax situation, and long-term retirement planning needs.

At Diversified Insurance Brokers, our advisors help clients compare both approaches and determine the right fit. With access to over 100 carriers and deep expertise in advanced planning, we ensure each IUL strategy is designed for maximum efficiency, compliance, and long-term benefit. By carefully structuring contributions, policy design, and distribution planning, we help clients unlock the full potential of using IUL as part of a qualified retirement plan.

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