I have a client age 54 who wants to take early distributions from an IRA to fund a index universal life policy. Ed’s statement about “moving from accounts that are forever taxed to accounts that are never taxed”.

Client’s objective is to grow the cash value inside the policy for tax free loan withdrawals at age 70 or later. In addition, this specific policy provides for an “accelerated death benefit” the client can use to fund for long term care costs. He is single, no beneficiaries and has no existing traditional long term care insurance. He is concerned about paying taxes later in life and the possibility of depleting his estate by the costs of providing long term care.

His CPA has questioned the viability of taking early distributions thereby incurring a penalty by doing so.

This position seems to conflict with Ed’s presentations. In addition, assuming a conservative rate of return in the IUL the distributions at retirement tax free far outperform leaving the money in a traditional IRA and paying much larger taxes on the future growth of the IRA.

Any thoughts on this?