Roth IRAs are a popular savings tool for retirement for those wanting to make after-tax contributions with tax-free withdrawals at retirement, but they definitely aren’t perfect or without their problems and challenges. 

Roth IRAs are particularly popular if you feel future tax rates might be higher. 

Contributions are limited to $5,500 per year, or $6,500 per year for those of you who are age 50 and up, and even then, that phases out with the more money you make. If you really want to sock it away, or play serious catch up in your retirement and are fortunate enough to do so, this may not be nearly enough. You may want to save a lot more than that.

Also, traditional plans like IRAs and Roth IRAs and Simplified Employee Pension plans have a “use it or lose it” rule.  Make your contribution by April 15, or it’s too late. There are no carry-overs. You also can’t play catch-up or do a big, one-time dump-in when you sell your business.

Volatility and risk can be a real part of Roth IRAs, just as it is with any other stocks, bonds, and mutual funds. You might not be comfortable with this, and want more certainty and guarantees in your life. 

Something serious to consider in retirement planning—but which is often overlooked—is the possibility of becoming totally disabled in your working years. In addition to having no income now, you stop saving and you can end up having no retirement; your retirement plan can get derailed. 

If you have an emergency or opportunity and want to access your funds prior to the age of 59 1/2, or within five years of opening your Roth IRA, you will have to pay IRS taxes and an early withdrawal penalty of 10 percent on the gain portion, so this can get really expensive. 

If you die prematurely, your spouse might only get whatever was in the Roth account at the time of death and it may not be nearly enough. No one has a lease on life. A savings plan without a death benefit component is just a savings plan that dies when you do. 

What’s the alternative? The answer may surprise you. It is a little-known but highly successful strategy that comes from leveraging the features of a special type of permanent cash-value life insurance policy called indexed universal life, or IUL for short.

It’s important to note IUL plans are offered only through legal reserve insurance companies, and because they offer a lot of guarantees, they are required by law to maintain adequate statutory reserves to back up all their guarantees and features, of which there are many. For even more added security and consumer confidence, some insurance companies try to secure high ratings for financial strength through third-party rating companies such as AM Best or Standard & Poor’s.

Indexed universal life policies are designed to combine the need for a long-term, tax-free death benefit with tax-advantaged savings that also can provide tax-free income. 

When it comes to return, the goal of an IUL policy is to bring the best of both worlds by combining safety and guarantees against stock market losses and volatility in down years, while still capturing the attractive upside gains of a stock index like the S&P 500 in good years. 

Your policy is not in the market directly. The insurance company is only using a stock index as a benchmark indicator, a measuring stick, to determine if gains were made over a period of time, typically a year.

IULs let you collect a positive gain in an index up to a competitive cap or ceiling, such as 12 percent. That would mean, for example, if the S&P 500 made 15 percent over a year, you would earn 12 percent and the issuing life insurance company would keep the remaining 3 percent. What you get in exchange is guaranteed zero market losses, or in some cases, at least 2 percent, and your gains are locked in annually, using something called an annual reset, so your policy can’t go down again even if the market goes south.

IULs often have disability riders that can make your payments for you, if you become disabled. This can keep your life insurance death benefit in force and your retirement savings goals intact.

Using either withdrawals of your after-tax basis or what are called “zero-interest wash loans,” against the cash value, IULs can provide tax-free retirement income, or money for emergencies and opportunities at any age without IRS penalties. 

Contribution limits can allow for large contributions provided they fit within the guidelines of the IRS definition for life insurance. This enables you to really put it away if you want to and can. The rule of thumb is, the larger the life insurance death benefit, the more money you can put in and the higher the ceiling is. 

Conversely, if times are tough and money is tight, premium payments can be reduced severely or even stopped for a period of time, and the policies’ own costs simply come out of your cash value reserve, keeping your precious tax-free death benefit, your loved one’s safety net, from lapsing in what can be a critical time. 

If you are in a real spot of trouble, this alone can be worth the price of admission for a lot of people. In contrast, if you had a term-life insurance policy with no cash value in this same situation and you failed to make the monthly payment, your policy would automatically lapse after 30 days. 

Well, so much for the supposed financial “expert” TV and radio celebrity hosts that always seem to endorse term insurance only and bash permanent cash value insurance. There is no one-size-fits-all. Everyone’s needs are unique and different. 

You may be thinking that IULs sound too good to be true and wonder why you haven’t heard of them before, It’s because this is a highly specialized field and not a lot of people, including advisers, really know much about it. Insurance people are busy with home, auto and term insurance. Investment folks are often busy with stocks and bonds, and mutual funds and assets under management. 

One downside, disadvantage to IULs, unlike with other plans such as IRAs, is that because they are a type of life insurance policy, you do have to apply for one and undergo medical underwriting, so depending on your health, you can get declined.

What about costs? It’s pretty safe to say the younger and healthier you are when you start an IUL, the lower your cost of insurance will be. There are some who may say the costs of permanent cash value insurance are too expensive, but there is a cost to everything. 

For example, what is the cost of not having any guarantees and having your retirement implode like the S&P 500 did in 2008, losing nearly 40 percent of its value? Was that a cost? What are the costs of taxes and IRS penalties on a withdrawal before the age of 59 1/2? 

What’s the cost of a retirement plan derailed by a total disability? What’s the cost of looking your spouse in the eye and explaining that you are dying, and as a couple you’re losing everything and no longer have any retirement? 

It depends on what you feel has value and whether you are willing to pay for it. Unlike whole life policies where everything is built in and it’s more difficult to extrapolate costs, IUL policy proposals do have a page that show virtually all the costs, year by year, so you can ask to see it if you want to compare policies. It’s like anything—find the one you like, with the right expert and company you are comfortable with that has the features you like most, at what you think is at the best cost. 

Todd Radwick, president of Radwick Financial Group LLC, of Winthrop, Wash., is an insurance and financial adviser and 21-year industry veteran. He can be reached at 

509-996-3425 or through his website at www.radwickfinancial.com.