Is Whole Life Insurance a Good Investment?

The primary difference between whole life insurance and traditional investments is that the government does not place constraints on your investment.

Traditional IRA

For example, in 2023 the total annual contributions you could make in a traditional IRA cannot exceed $6,500 ($7,500 if you are age 50 or older) and you cannot continue investing once you’ve reached age 70 ½ years old.

Additionally, if you withdraw funds from your IRA before age 59 ½ you’ll generally be penalized 10% on the withdrawal. To make things worse, the government requires IRA account holders to begin taking required minimum distributions (RMDs) after reaching age 72.

401(k)

401(k)s are employer-sponsored retirement plans that allow employees to contribute pre-tax income towards their retirement savings. 401(k)s offer various investment options, which can help accelerate account growth. For self-employed individuals with no employees, there is also the solo 401(k), which functions in much the same way.

Additionally, most employers will match a percentage of the amount their employees contribute to their 401(k) account.

However, similar to an IRA, your government places constraints on investing in a 401(k):

If you tap into your 401(k) before age 59 ½ you will be penalized 10% for your early withdrawal and you generally cannot withdraw YOUR money unless you have a “qualifying hardship.”Contributions are limited to $22,500 or $30,000 if you are age 50 or older.Since your contributions are made with pre-tax dollars, your withdrawals are considered ordinary income and are taxable.

Roth IRA

Roth IRAs are individual retirement accounts that are funded with after-tax dollars. This means that the money you contribute to a Roth IRA has already been taxed. The advantage of a Roth IRA is that your money can grow tax-free, and you can make tax-free withdrawals during retirement.

However, like other traditional investment products, your government wants to decide how you use it:

You cannot contribute to a Roth IRA if your adjusted gross income is more than $144,000 for single tax filers or $214,000 for those who file married filing jointly.Although you’re allowed to withdraw contributions, you cannot withdraw your earnings on those contributions before age 59 ½.