The main difference between an IUL and a Roth IRA is their primary function and tax benefits. An IUL is a life insurance policy with a cash value component that grows tax-deferred, offering a potential source of tax-free income in retirement and an income-tax-free death benefit to beneficiaries. A Roth IRA, on the other hand, is designed solely for retirement savings, providing tax-free growth and qualified withdrawals in retirement.
IUL offers flexibility in contributions and potential access to cash value through loans or withdrawals, but these may have tax implications or affect the death benefit. Roth IRA contributions are limited to $6,500 annually (or $7,500 if you're age 50 or older in 2023), but it offers penalty-free early withdrawals for certain qualified expenses like a first-time home purchase or education.
IUL's cash value growth is tied to stock market performance like the S&P 500. It offers the potential for higher returns with a market cap of typically 11% per year but with zero downside stock market risk. A Roth IRA allows for a wider range of investment choices with varying risk levels.
Remember, your best option depends on your financial goals and risk tolerance.
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