IUL vs 401(k): run your own numbers.
Same monthly dollars. Two completely different tax structures. Below: an interactive projection, the full side-by-side, the IRS citations, and — because nobody else will say it — exactly when the 401(k) wins.
Your employer matches to a cap. What about the rest?
Your employer matches your first $417/mo. The other $417/mo is unmatched — that’s the overage this comparison reallocates into a max-funded IUL.
Both 401(k) legs ride the actual S&P 500 total-return sequence (trailing 30 years, 1995–2024) minus 1% plan fees, taxed at 22% at withdrawal — the full employer match is captured in both paths. IUL at 11.48% carrier-illustrated crediting with a 0% floor. Hypothetical illustration — not a quote.
Market loss years en route: 6 (worst -38.0%) — the IUL’s 0% floor skips every one. Total employer match captured either way: $150.0K.
The full side-by-side.
When the 401(k) wins.
- The employer match, every time. A 50–100% instant return is unbeatable. Never route a dollar to an IUL that could have captured a match.
- Short horizons. IUL policy charges are front-loaded. If you can't commit 10–15 years of funding, the math usually doesn't work.
- Raw accumulation in low brackets. If you'll retire in a much lower tax bracket than today, tax-deferral's discount is real.
When the structure wins.
- Dollars beyond the match and the cap. High earners exhaust the $24,500 limit; a max-funded IUL has no IRS ceiling — only the MEC design line.
- Tax-rate risk. A 401(k) is a bet that future tax rates will be lower. Policy-loan access doesn't show up as taxable income, doesn't trigger RMDs, and doesn't drag Social Security into taxation.
- Sequence-of-returns protection. The 0% floor means a 2008-style year can't force you to sell low or delay retirement.
- Protection built in. The death benefit and living benefits ride along — a 401(k) has neither.
Don't take our word for it.
Every claim on this page traces to the tax code. Read the primary sources:
IRC §7702 — what legally makes a policy "life insurance"
The definition that grants cash value its tax-deferred status, and the corridor rules a max-funded design is built against.
IRC §7702A — the 7-pay test and MEC line
Fund a policy faster than the 7-pay limit and it becomes a Modified Endowment Contract — loans become taxable. This is the line a proper design rides without crossing.
IRS — 401(k) contribution limits
The annually adjusted employee deferral cap ($24,500 for 2026) plus catch-up rules — the ceiling an IUL doesn’t have.
IRS — required minimum distributions
Forced 401(k)/IRA withdrawals from age 73, taxed as ordinary income. Life insurance cash value has no RMD.
IRS Topic 558 — the 10% early-distribution penalty
Touch a 401(k) before 59½ and the IRS adds 10% on top of income tax. Policy loans have no age gate.
IRC §72(e) — how distributions from a policy are taxed
The basis-first (FIFO) treatment and loan rules that make correctly designed policy access non-taxable under current law.
IUL vs 401(k) — the honest answers.
The calculator shows the concept.
A designed illustration shows your reality.
A licensed CentraLife advisor runs your actual carrier illustration — real caps, real charges, real numbers — and compares it against your current plan. No cost, no obligation.
Projections on this page are illustrative, based on user-selected assumptions and historical index behavior — not a quote, illustration, or guarantee. IUL policies involve costs, caps, participation rates, and surrender charges that affect results. Tax treatment described reflects current federal law and can change; discussion of tax concepts is educational, not tax advice — CentraLife does not provide tax preparation or legal services. Consult your own tax and legal professionals. CentraLife LLC · NPN 21105331.