How to Get Money Out of Your 401(k) and into an IUL

In this video, we're going to answer the question, can I roll my 401k into an IUL? Now, if you don't know what an IUL is, please just pause this video and check out the video that's linked above, because if you continue on, you'll be super confused. Come back after. Now, the short answer to your question is no. You cannot roll from a 401k into an IUL. And here's why. A 401k is considered an employer sponsored employee benefit plan, basically meaning it's a retirement account and it has to follow a retirement account plan rules. And rule number one, you can only roll from one retirement plan to another without creating a taxable event. An IUL is not considered a retirement plan, even though it can become one, depending on how we design it and how we fund it. It still isn't one. An IUL is classified by the IRS as a permanent life insurance policy. Therefore, it falls into a completely different bucket and classification of types of accounts separate from a 401k. A 401k can be rolled into another qualified retirement plan, such as a current 401k with your current employer or 4-3-B or even an IRA or anything that is labeled as an IRA, like an IRA annuity. Any of those would work. So now knowing that, the question then becomes, well, how can I get money out of my 401k and into an IUL? The only way to get money out of a 401k is to actually withdraw it, actually remove it from the 401k, take the cash, then go and put that into an IUL. Now, this may or may not make sense, depending on a few things, which is where rule number two with a 401k comes in. And rule number two, if you would draw money out of a 401k before you turn the age 59 and a half, generally you owe taxes and penalties. Now, before I dive into this, it's important to know that there are some exceptions to this rule. There is something called a 72T, which does allow you to take out substantially equal periodic payments out of your 401k for a minimum of five years or a turn you turn the age of 59 and a half, whichever is longer. So there are a lot of rules to this strategy. And to be honest, it's very rare to find a 401k provider that will actually allow you to do it. A lot of times you have to transition the money into an IRA in order to do a 72T and you can't do that while you're still working and you're still employed. So honestly, the strategy is really best for people that are getting closer to retirement. There is also something that you can take advantage of called the rule of 55. If you happen to leave your job completely separate from service in or after the year you turn age 55, this rule allows you to take penalty free withdrawals in any amount that you want, actually, so there's a lot of flexibility from your workplace retirement plan. But there are a lot of rules to this as well. This only applies to the employer plan from the job that you just left and you have to leave your money in that account. You can't go rolling it into an IRA once you remove it from the workplace retirement plan. The rule of 55 is no longer an option. Other than those two options, which are really best for people that are getting much closer to retirement. If you haven't experienced a medical or a financial hardship, there really isn't any way you can get to the money inside your 401K before turning age 59 and a half without paying taxes and penalties. Does this mean if neither one of these rules apply to you that you shouldn't consider withdrawing money out of your 401K to go and put into an IUL? No, that's not what I'm saying. There could be times where action might make sense. If you're younger, maybe in your 20s or 30s and you've got time, a lot of time until retirement and you don't have a lot of money saved up or you're OK with taking out smaller amounts and increments throughout the years, then possibly doing withdrawals out of a 401K, paying the taxes and penalties and front loading that into an IUL might make sense. But you need to be mindful of where you're at in a tax bracket because any withdrawals coming out of an IUL are going to be counted as earned income in the year you do the withdrawal. It could make sense. Now, I want to be very clear on one thing. I'm not recommending it. No life insurance or life license agent is allowed to make this recommendation. You as the client need to decide whether this does or doesn't make sense based on your financial situation. I just want you to know that it is an option. But realistically, the older you get, once you start to get into your late 40s and your 50s, withdrawing money out of the 401K to put into an IUL probably won't make sense because you're within five, maybe 10, maybe 15 years of not having to pay the additional taxes and penalties that you would owe touching it before the age of 59 and a half. Either way, as you can tell, there really isn't a simple way to get money out of the 401K plan and do anything with it, let alone put it into an IUL. So a lot of times what I recommend to my clients is if you have money in these accounts, let's leave it. And maybe we just stop contributing into those plans or we reduce our contributions down to whatever the employer matches. If you get a good match and then take the rest of that money in as earned income, pay the taxes on it and take it from there. And go and put it into your IUL after taxes have already been paid. Now, of course, all of this is assuming that the client you write can actually get approved for an IUL at a good health rating that it matches your income and your budget and ultimately what your goals are for your money. But if it does and we check off all these boxes, then these are just some ways to get money out of the 401K and into the IUL. But please, before you do anything, please make sure you consult with either your tax professional or your financial professional that can help guide you through these decisions. If you'd like to work with me or my team, you're welcome to click the link in my bio or in the description below this video to get access to our calendar and schedule a complimentary client consultation. And if you simply just want to continue to learn, YouTube is recommending that you take a look at these two videos next. They're going to definitely give you some ideas when it comes to retirement planning. Make sure you subscribe because you don't want to miss another video teaching you everything you need to know about your money. And I'll get you back here next week on YouTube.