Qualified plans certainly have a lot of value, but they certainly have their limitations. Permanent life insurance cash value can be a fantastic supplement to a qualified plan for retirement. A qualified plan such as a 401k is loaded with limitations and penalties imposed by the government. For example, money inside the plan is not accessible until 59 and a half without a penalty. Once a person, hits 59 and a half there are limitations with how much can be taken out. On top of that, the government determines the tax rate that you will pay when the money is taken out of the plan at retirement. While the tax rate might be one thing today, it could certainly change and be higher when you retire. The whole concept of compound interest is great, but it also builds compound tax that you must pay.
It is great if you are contributing to your qualified plan as that means that you are saving. Most americans do not have a high enough savings rate. We suggest to our clients to make sure and take advantage of any company match. If your company will match you up to 3% or 5%, try to contribute that amount and get the free money. After you reach the match, we suggest putting additional savings in things like cash value life insurance. The cash value grows tax deferred and can be access on a tax-free basis. On top of that, the government doesn’t put as many constraints on the money. There is no compound tax to be paid on the policy if you keep the policy in force. Also, life insurance cash value is liquid and you can get to it at any point. Certain types of cash value policy’s like whole life and universal life have guarantees in the cash value. You cannot lose money, like you can in the stock market. The cash value will get better no matter what.