Dave Ramsey Says Don’t Do an IUL Because of Its Surrender Charges (Is He Right?)

Dave Ramsey contends that the IUL is a ripoff primarily because of two reasons: high fees and surrender charges

He also recommends that if you have an IUL to surrender it immediately, thereby incurring those surrender charges immediately.

The reason companies have surrender charges is to cover the costs of getting the program off the ground. They start off high and reduce gradually over the first fifteen years or so.

The question is, ‘Is the surrender schedule something that should weigh on your decision to do an IUL?’ The answer in most cases is no, as long as you plan on keeping the plan until death do you part.

An IUL is like getting married. You have to investigate the alternatives before choosing the one that’s right for you.

If Dave Ramsey adopted the same approach with the taxes and penalties in your 401(k), he would be singing a different tune.

If you were to take $100,000 out of your 401(k) at the age of 40, you’d end up paying the penalty and taxes at your current tax bracket, likely resulting in $40,000 in penalties.

The penalty schedule also doesn’t reduce over time when you consider that you’re likely to bump up into higher tax brackets.

The first fifteen years of your IUL, 401(k), or IRA are the years you should least want to access that money.

Like traditional retirement plans, IULs are generally long-term propositions. Don’t start an IUL if your plan is to take the money out in the first ten to twenty years.

If Dave Ramsey has a problem with the IUL surrender charges, he should likewise have a problem with all the taxes and penalties you will pay on your traditional retirement accounts over a much longer period of time.

The IUL only really works as part of a comprehensive approach to retirement and getting to the zero-percent tax bracket.



Mentioned in this episode:

David’s books: Power of Zero, Look Before You LIRP, The Volatility Shield, Tax-Free Income for Life and The Infinity Code



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