Comparison Last reviewed: 2026-10-03 Part of Comparisons

IUL vs Roth IRA: Which Should Come First?

Written and reviewed by Hans Goldstein, licensed insurance producer, NPN 20602398 · CA Insurance License #4273294
Last reviewed October 3, 2026 · Published October 3, 2026

Short answer: for most people, the Roth comes first. Take the 401(k) match, fund a Roth IRA, then the rest of the 401(k), and use Roth conversions in low-income years. A max-funded IUL comes after those, for people who also need permanent life insurance and want tax diversification and access to cash before 59½. An IUL is life insurance; it does not replace a Roth, and its tax benefits depend on keeping the policy in force and out of MEC status.

Hans's order of operations

The order most people should follow

Employer 401(k) match. Free money beats every other option.
HSA, if you are eligible. Its tax treatment is hard to beat for health costs.
Roth IRA (or a backdoor Roth if your income is over the limit).
The rest of your 401(k) or Roth 401(k), up to $24,500 in 2026 plus catch-ups.
Roth conversions in low-income years, such as the gap between retirement and Social Security or RMDs.
Then a max-funded IUL, if you also need permanent life insurance and want tax diversification and access before 59½.

This ordering matches mainstream retirement planning. The IUL is last not because it is bad, but because the earlier steps are cheaper per dollar and simpler. An IUL carries the cost of insurance and policy charges every month; a Roth IRA does not.

Listen for "will"

An honest presentation of anything non-guaranteed uses words like "up to", "could" or "illustrated at". If you hear "will" about cash value, index credits, loan income or a living-benefit payout ("this policy will pay you 80%", "you will have $1 million at 65"), treat it as a red flag. Only the guaranteed column and the contract's stated guarantees are promises; ask the person to show you where the word "guaranteed" appears.

Why the midpoint column matters

No policy performs exactly as illustrated. Real results usually land somewhere between the guaranteed column and the illustrated (current) column: some years credit less than assumed, charges can move within their limits, and premiums are rarely paid exactly on schedule. That is why the midpoint column, halfway between the two, is the most useful planning number, and why Hans shows guaranteed, midpoint and current side by side.

The 2026 limits

Qualified plan and IRA limits for 2026

Account	2026 limit	Notes
401(k) / 403(b) / Roth 401(k) deferral	$24,500	Catch-up 50+: $8,000; ages 60 to 63: $11,250
Total 401(k) contributions (415(c))	$72,000	Employee plus employer
IRA / Roth IRA	$7,500	Plus $1,100 catch-up at 50+
Roth IRA income phase-out	$153,000 to $168,000 single; $242,000 to $252,000 married filing jointly	Above the range, a backdoor Roth is the usual route
Roth catch-up rule	Catch-ups must be Roth if prior-year FICA wages exceeded $150,000	Final regulations 9/16/2025; good-faith compliance for 2026
IUL premium	No dollar cap	Limited by tax law relative to the death benefit (IRC §7702 and §7702A)

Sources: IRS, 2026 limits; Federal Register, Roth catch-up regulations; IRC §7702A.

Your order of operations

401(k), Roth, conversions, then IUL?

Send your email and I'll send a plain-English read on where an IUL fits in your order, if at all, and what loans cost right now.

We’ll email it to you. Hans Goldstein · NPN 20602398.

Rather talk it through? Or book 15 minutes on Hans’s calendar.

Roth vs IUL, side by side

Roth IRA vs IUL

	Roth IRA	Max-funded IUL (non-MEC)
Contributions	$7,500 in 2026, income limits apply	No dollar cap or income limit; tax law caps premium relative to death benefit
Growth	Whatever you invest in; no insurance charges	Index-linked credits with a floor and a cap; COI and charges come out monthly
Access before 59½	Contributions anytime; earnings generally taxed and penalized unless an exception applies	Withdrawals to basis and policy loans, with no age rule
Taxes on access	Qualified distributions are not taxed	Not taxed if the policy is not a MEC and stays in force; a lapse with a loan can create taxable income
Death benefit	Account balance	Life insurance death benefit, generally income-tax-free to beneficiaries under §101(a)
Required distributions	None for the original owner	None
Early years	Full value from day one	Low cash value for years (surrender charges); plan on 10 to 20 years

Policy loans and withdrawals up to your basis are generally not taxed if the policy is not a modified endowment contract (IRC §7702A) and stays in force; a lapse or surrender with a loan outstanding can create taxable income. Policy loans and basis withdrawals also do not show up in adjusted gross income, so in Roth conversion years they do not push up IRMAA Medicare surcharges or Social Security taxation. That benefit holds only while the policy stays in force.

Pitch tax diversification, not "taxes will go up"

The One Big Beautiful Bill Act made the current federal brackets (10% through 37%) permanent (CRS). Future Congresses, deficits and state taxes can still change things, but higher rates are a possibility, not a scheduled event. The honest case for an IUL is diversification: some money taxed now (Roth), some later (401(k)), and some accessible through a policy, so you can choose where each year's income comes from.

Policy loans in late 2026: not favorable

Loan rates matter because loans are how most IUL owners access cash. Right now they are not attractive. Variable and indexed loans track corporate bond yields: the NAIC's statutory policy loan benchmark, the Moody's corporate average, was 6.25% in September 2026 (NAIC). Many variable and indexed loans now cost about 5 to 6.5% or more. Regulators cap the spread an illustration may assume between the index credit and the loan rate at 0.5% (AG 49-A), and a 0% index year on a participating loan is roughly a negative 5 to 6% year on the borrowed amount. Fixed and "wash" loans remain a reasonable way to access cash: Lincoln's published WealthBuilder fixed loan is 4% in years 1 to 10 and 3% after (fact sheet dated 3/10/2025, Lincoln fact sheet), and Nationwide's declared loan is 3.90% then 3.00% after year 10. A policy loan is not the cheapest money everywhere: some brokerage margin rates are lower. There is no arbitrage story; anyone selling one is selling the illustration, not the contract.

Your decision path: 5 questions

Are you getting the full employer 401(k) match? If not, start there.
Are you eligible for a Roth IRA directly or through a backdoor Roth? If so, fund it next.
Do you have low-income years ahead (early retirement before Social Security or RMDs) where Roth conversions make sense?
After the match, the Roth and the 401(k), do you still have money to save for 10 to 20+ years?
Do you also need permanent life insurance, for a family, a business or an estate? If yes to 4 and 5, a max-funded IUL may fit. If no, keep investing.

Term makes sense when...

You are a disciplined saver who really does invest the difference, every month, for decades.
The premium is small enough that you will not miss it (around $100 a month), so it will not lapse.
The need is temporary: a mortgage payoff, kids until they are independent, income replacement through your working years, a business loan or a key person for a set term.
You need a big death benefit on a tight budget right now, as with a young family.
You want to lock in your health now with convertible term and convert part of it to permanent later (how term conversion works).

Permanent makes sense when...

Forced savings helps you: a premium you pay like a bill builds cash value you would not have saved on your own.
You want coverage that lasts your whole life, not just 20 or 30 years.
There is an estate or ILIT purpose: liquidity for estate tax, equalizing heirs, or a trust (ILIT guide).
Cash value is a goal and you can fund it properly for 15+ years (max-funded IUL).
You are healthy and under about 55, so the cost of insurance has decades to stay low while cash value builds.

If an IUL fits, fund it right

An IUL used for cash value should be designed with the smallest death benefit that legally holds your planned premium, usually with an increasing death benefit (Option B) while you pay and a level one (Option A) after. Underfunded policies are the ones that lapse late in life. Read max-funded IUL and IUL vs 401(k). Also see Hans's LIRP guide.

General education, not tax or legal advice. Tax treatment depends on your facts and on current law, which can change. Talk to your CPA or estate attorney.

The 1% fee that works like a tax

A 1% assets-under-management fee sounds small. Compounded, it is not. The fee comes out every year whether the account rose or fell, and it is charged on the whole balance, including the growth it is shrinking.

Hypothetical: $1,000,000 invested once, no withdrawals, no taxes

Time	At 6% a year	At 5% (6% minus a 1% fee)	Cost of the 1% fee	Share of the ending balance
20 years	$3,207,135	$2,653,298	$553,838	17%
30 years	$5,743,491	$4,321,942	$1,421,549	25%

A 1% annual advisory fee charged on the account is modeled as a 1-point lower net return (a close simplification). Hypothetical, not a projection of any account. Fees and returns vary.

Over 30 years the 1% fee costs more than the original $1,000,000. That is the comparison Hans finds striking: Norway taxes net wealth at 1.0% a year above NOK 1.9 million, and 1.1% above NOK 21.5 million, in 2026 (Skatteetaten, 2026 rates); it is one of the most debated taxes in the country, and some wealthy Norwegians have moved abroad over it (The Guardian, 4/10/2023). Many Americans pay about the same 1% a year voluntarily, as an advisory fee: the median advisory fee is about 1.00% on a $1 million account (Kitces Research, 6/16/2025). Sometimes the advice is worth it. Just know the price, and ask any advisor exactly how they are paid. Tax-diversified tools with no ongoing account fee (a Roth IRA you manage at low cost, a MYGA, or a properly funded policy for people who also need the coverage) are worth comparing.

Educational, not investment or tax advice. Hans is an insurance producer and does not sell securities or advisory services.

Done with the match and the Roth? See if an IUL fits

Send your situation. Within one business day you get a written read: your order of operations, whether a max-funded IUL fits, and the guaranteed, midpoint and current columns on your numbers.

Rather talk it through? Or book 15 minutes on Hans’s calendar, or call 213-414-2808.

Hans Goldstein · 213-414-2808 · NPN 20602398, independent licensed insurance producer

Frequently asked questions

Is an IUL better than a Roth IRA?

For most people, no: fund the employer match, a Roth IRA and the rest of the 401(k) first, and consider Roth conversions in low-income years. A max-funded IUL can make sense after those steps for people who also need permanent life insurance and want tax diversification and pre-59½ access.

What are the 2026 Roth IRA and 401(k) limits?

The IRA and Roth IRA limit is $7,500 (plus $1,100 catch-up at 50+). The 401(k) deferral limit is $24,500, with an $8,000 catch-up at 50+ and $11,250 for ages 60 to 63. Roth IRA eligibility phases out from $153,000 to $168,000 single and $242,000 to $252,000 married filing jointly.

Are IUL withdrawals and loans taxed like a Roth?

Only under conditions. Withdrawals up to basis and policy loans are generally not taxed if the policy is not a modified endowment contract and stays in force. A lapse or surrender with a loan outstanding can create taxable income. The death benefit is generally income-tax-free to beneficiaries under IRC §101(a).

Are IUL policy loans a good deal right now?

Not in late 2026. Variable and indexed loans cost about 5 to 6.5% or more, tracking corporate bond yields (the NAIC Moody's corporate average benchmark was 6.25% in September 2026), and regulators cap the illustrated loan spread at 0.5%. Fixed or wash loans after year 10 are a safer way to access cash.

Will taxes go up, making an IUL more valuable?

The 2025 tax law made today's brackets permanent, so higher rates are possible but not scheduled. The stronger reason for an IUL is tax diversification alongside pre-tax and Roth accounts.

Sources

Hans Goldstein, CA Insurance License #4273294 · NPN 20602398 · Goldstein & Co. LLC dba Goldstein Insurance Services, CA License #6016830

Contact: hans@hansgoldstein.com · 213-414-2808

General education, not tax or legal advice. Tax treatment depends on your facts and on current law, which can change. Talk to your CPA or estate attorney. Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. Guarantees apply only to the contractual terms of the policy. Caps, participation rates, loan rates, charges and dividends are not guaranteed and can change. Hans is paid a commission by the insurer if you buy a policy through him. For life insurance, ask and he will tell you what he earns on your specific policy. Product and company names are trademarks of their owners. Goldstein Insurance Services is an independent agency, not affiliated with or endorsed by any insurer named here. Life insurance requires underwriting; not everyone qualifies. This page describes products in general terms; read the policy and the insurer's disclosures before you buy.