[USER]

My friend moved all her 401k into a UIL. She says it’s the best financial move. What am I missing?

She’s very proud of her decision.

I understand that UILs offer life insurance along with a cash value component that can grow based on stock market indexes.

Some people say this strategy offers tax advantages and more flexible access to funds, while others caution against high fees and complex terms.

I’m not a financial expert, so I’m hoping to get input from others who have either made this move or considered it. What are the main benefits of rolling a 401(k) into a UIL, and what potential drawbacks should I be aware of?

Is this a smart move for someone looking for long-term financial security, or are there better alternatives?

I’d appreciate hearing your experiences, opinions, or any advice—especially if you’ve worked with a financial advisor on this type of decision.

Thanks in advance!

[Dillon]

Not missing anything.
She got conned.

Right now people are fearful and people will prey on that fear.

[Alison]

Selling now means she lost everything she earned in the last year or so.

You don’t lose anything till you sell.

[Christina]

Let her be proud. Everyone has their reasons and if she feels that is the best decision for her, then so be it.

It is not for anyone to say that she made a mistake.

[Caroline]

I don’t even know what a UIL is. I do wish I had rebalanced when the stock market was on a Trump high.

But I was juggling a lot the last 4 months and we all know the dangers of trying to time the market.

But rebalancing I should have done.

[Zac]

Indexed Universal Life (IUL) Insurance. Has a floor and a ceiling on the market, balanced so that the “house” wins the majority of the time.

The cost to open and everything over the ceiling is what the expenses are.

It offers another way to pull funds prior to 59.5 but is complicated and takes away from the total life benefit.

It is a vehicle for some people, but not all people.

[Joel]

UIL? I assume you mean IUL?
If so, she liquidated the entire balance since she cannot hold insurance in a qualified retirement account.

Is she at least 59 1/2? A 401k plan has a minimum withholding of 20% on any taxable distribution. But that’s not the tax rate.

My guess is that she thinks she’s paid the taxes and will be surprised at tax time by a big fat tax bill she doesn’t have the money for…

That’s not to mention that the IUL itself is probably a great deal for the salesperson, but not her…

Ask her how much it cost her to make that move…

[Frank]

Nothing, except the taxes and penalties she would have paid for disgorging a 401k plan all at once.

You need smarter friends, especially once that know its called “IUL” not “UIL”.

You shouldn’t buy things if you don’t even know what they are called or how they work.

[Brandon]

Ouch. Insurance products like to sell you on the “no downside”, but they fail to mention many times that they cap your upside (amongst many other tactics).

We learned our lessons from whole life, VUL and IUL’s…..we were young and naive.

Once we got out of them, we looked at those lessons as an investment into our financial education and committed to this philosophy:

NEVER mix investing with insurance. Keep them separate.

[Pam]

We don’t know your friend’s situation, so we don’t know if it is a good idea or not. But IUL can be good and is not for everyone.

It is not one of the first things that people should get in place, but once you get to the point that you get into more complex financial planning then you may want to consider it.

There are specific use cases and that’s why for the majority of people, it is not a good idea.

For those that already have different investments types, this is a way to borrow money (if your IUL allows it) from your cash value while still being able to have that money participate in the “market”.

If you are a business owner you can borrow the cash value — that’s how we purchased real estate and invested in businesses.

There is a long time of 6-7 years to build the cash value and all the while you are paying the monthly premium and still committed to pay for a very long time— not everyone can do this and should do this.

So, the long time to build cash value and commitment already eliminates a lot of people, and not everyone is a business owner or wants to be a business owner, or has a need to leverage the cash value.

Then not everyone has the complex investments, layered advanced tax planning, and retirement planning— so you see, 99% of the people you likely talk to will say IUL are not a good idea because for most people they aren’t in a situation that needs it.

My husband is a tax strategist CPA, we have a couple of IULs for a reason (as well an other types of investments) and it benefits us during working years and retirement years.

The rich get richer because they (or the person they hire) know how and when to use everything available to them.

[David]

I’d like to give her the benefit of the doubt. Sometimes circumstances and personal goals affect our investment plans. Because of a change in the law, I had to do something some inherited money and take complete distributions in 10 years.

We ended up, buying an annuity.

I hate annuities. But, under the circumstances, it made the most sense. It made me change my real estate divestment plan and gave me unplanned cash for equities.

In the end, isn’t investing not only about growing money, but feeling good about how you do it?

[Author]

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