Retirement and estate planning takes into account your financial assets which commonly include Individual Retirement Accounts (IRA) and life insurance policies. IRAs are typically set up for your personal financial security during retirement, while a life insurance policy is intended to take care of the financial needs of your loved ones when you die. Although insurance and retirement funds are fundamentally different, they may both be accessible to some degree in times of financial need.
Life Insurance Living Benefits
While life insurance is primarily intended as a death benefit to help your family cover the cost of your funeral and other expenses, it can also have so-called living benefits. For example, New York Life Insurance says whole life policies allow you to borrow against your accumulated cash value to help fund your retirement or to finance a child's education. It takes an average of five years before policy contributions would have any substantive worth. Term life, on the other hand, has no cash value.
Repayment
A life insurance loan must be repaid with interest. If the loan amount has not been paid in full at the time of your death, the outstanding amount, including unpaid interest, will be taken out of the sum of the death benefits.
Retirement Account Loans
The Internal Revenue Service says loans are not permitted from IRAs or from IRA-based plans. Some employer-sponsored retirement plans allow you to take out a loan from a 401(k) or 403(b). Under federal law, you can borrow up to 50 percent of the vested account balance or $50,000, whichever is less. In addition to paying interest on the loan, you may be charged a set-up and quarterly loan fee.
Qualifying IRA Distributions
When you withdraw money from an IRA prior to age 59½, it is defined by the IRS as a premature distributions. This means you are charged a 10 percent penalty on the amount you take out. There are however, certain circumstances when the IRS will waive the early withdrawal penalty. These include certain medical expenses, college tuition, a physical or mental disability as determined by your doctor, and to assist funding the purchase of your first home.
Nonqualifying Distributions
If you decide to withdraw money from an IRA that isn't qualified distribution, it will be taxed as regular income. This means you will be charged a 10 percent early withdrawal penalty.
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