Owning Life Insurance In a 401k: What You Need to Know

An employer may offer life insurance inside a qualified retirement plan for a variety of reasons, For example, some participants may not be able to afford and/or qualify for insurance outside the plan, pretax dollars can be used to purchase insurance, and beneficiaries may receive potential tax-free death benefits, There are a few reasons why an employer may not offer life insurance as an

401k vs, Life Insurance

Certainty

Life Insurance in the 401k

“Wrapping up insurance inside a 401k plan makes little sense, especially when the expense charges are considerably more than similar investments,” “If you need life insurance, buy pure life insurance coverage insurance that is only insurance and builds no cash value, Buy term life insurance outside your 401k, and invest inside your 401k,” The Complete Idiot’s Guide to 401k Plans, By

How to Use 401k Funds to Buy Life Insurance

The limits on 401 k contributions might restrict how much life insurance you can buy in the plan, As of 2014, you can contribute up to $17,500 a year of your pre-tax compensation to a 401 k

How to Move a 401k to Life Insurance

For example, 401k plans have contribution limits, In exchange for accepting these contribution limits, you get the benefit of tax-deferred growth inside of the 401k account, If you no longer want to use a 401k plan to accumulate money for your retirement, however, you can take the money out of your 401k and buy a cash value life insurance policy,