Index Universal Life Insurance vs 401k

The main difference between IUL and 401k is their primary purpose and tax benefits. IUL is a life insurance policy with a cash value component that grows tax-deferred, offering the potential for supplemental retirement income. This cash value can be accessed flexibly, but withdrawals can have tax implications, IUL loans are usually tax-free. A 401k is a dedicated retirement savings plan providing tax advantages on contributions and growth. While withdrawals before retirement age typically face taxes and penalties, they can be tax-free in retirement. 401ks also often benefit from employer matching contributions, a feature missing in IUL.

Additionally, IUL's cash value is tied to stock market performance like the S&P 500, offering the potential for higher growth but also carrying market risk. In comparison, 401ks provide various investment options with varying investment risk levels.