I came across an online article by an anonymous blogger who claimed that the only good purpose for whole life insurance was as a rich man’s Roth. He was certain whole life insurance was only for individuals whose high incomes made them ineligible for the tax-saving advantages of a Roth IRA.
That’s actually pretty funny. Why restrict the incredible advantages of whole life insurance—including the tax advantages—only to the wealthy?
How Does a Roth IRA Work?
A Roth Individual Retirement Arrangement (Roth IRA) is an IRS-approved strategy that allows you to invest money you have earned by making contributions to a Roth IRA plan you have set up. You are not allowed to take a tax deduction for your contribution as you are with a traditional IRA. However, none of the money you take from your plan in the future is taxable. As far as the money in your Roth IRA is concerned, you will not be affected by future changes in the tax rate.
How a Roth IRA differs from a traditional IRA
Roth IRAs are quite different from traditional IRAs.
With a traditional IRA, your contributions are tax-deductible. However, when you withdraw money from your traditional IRA—and you must withdraw specific percentages annually, beginning soon after your seventieth birthday—you must pay taxes on everything you withdraw—at whatever the tax rate happens to be at the time.
See the table for a summary of the key differences between a Traditional IRA and a Roth IRA. [Read more…] “The Truth About Whole Life Insurance and Why It’s More Than a “Rich Man’s Roth””