A Whole Life Insurance Description:

This is a life insurance policy that can cover you for your entire life and not just for a specific period such as term life insurance. Your death benefit and premium will generally remain the same.

A whole life policy also builds cash value. This is a return on the portion of your premiums that the insurance company invests. Your cash value is tax-deferred until you withdraw it. You may also borrow against it.

Who Needs Whole Life Insurance?

If you are in need of life insurance the tax benefits and cash value of a whole life policy can be a bonus. A whole life policy will earn you tax-deferred interest near the market rate and will pay your beneficiaries a death benefit.

You may also consider purchasing a whole life policy if you require more tax-deferred savings than you have available. You can also get the life coverage you need if you can afford to pay the higher premiums.

Cash Value in a Whole Life Policy.

The cash value is what you could get if you cashed in your policy. If you decide to surrender your policy, your cash surrender value can be paid in paid-up insurance or cash.

The earnings on the cash value of a whole life insurance policy can be borrowed against the policy in the form of a policy loan. The death benefit is reduced by the amount of the loan if the loan is not repaid.

Cashing Out A Whole Life Insurance Policy.

Cashing out a whole life insurance policy may be difficult owing to the surrender charge. The surrender charge is a charge which insurers remove out of the cash savings amount you have developed. This charge can be as high as 10% of the payoff value of the life insurance policy. It may stay in force for up to 20 years after you purchased the policy.

Borrowing Against Whole Life Insurance.

You may borrow against the guaranteed cash value of a whole life insurance policy in the form of a policy loan as long as the policy is valid. Just remember that borrowed amounts diminish the death benefit and cash surrender value of your policy.

The Best Whole Life Insurance Benefit.

There may be many different opinions regarding the best whole life insurance benefit. This can also be influenced by personal needs and circumstances.

The following are three possible whole life insurance benefits:

Premiums are normally level and payable for life.

A quantity of the money you pay into your whole life policy collect as a guaranteed cash value.

A part of your life insurance premium may be returned to you as a dividend if real life insurance costs turn out to be less than was believed in setting the premiums.

Amidst the hassles of moving, finding the kids a new school, and settling in to your new position and community, it’s easy to lose sight of the finish lineretirement. Your 401(k) is probably your most important investment in regards to retirement savings. Don’t let it get lost in the shuffle when a change in your professional life comes along.

When switching jobs, there are three things you can do with your existing 401(k): leave it where it is, roll it over into an account with your new employer, or move the money into an IRA. Cashing out the plan is not an option. We repeat: DO NOT CASH OUT YOUR 401(K)! It’ll badly set back your retirement savings plan. You’ll be hit with income taxes plus a penalty of 10 percent if you’re under age 59½. What’s more, you’ll miss out on tax-deferred savings.

Leave It Where It Is

There’s nothing wrong with keeping the cash where it is if you’re happy with the plan at your old job. If you’re confident you can keep track of it, if you’ve got a nice chunk of change in there, or if the plan your new employer is offering is less than appetizing – leave it be. Just make sure you tell your old HR department about your plan to leave it behind. If there is less than $5,000 in the account, they have the right to dump you.

Roll It Over

Most financial professionals agree it’s a good idea to have all of your 401(k) dollars under one roof. It’ll work harder for you as one asset and you can dip into it (as a loan) if a financial emergency arises. If you do decide to rollover, make sure to jump through all of the (relatively minor) hoops and fill out the appropriate paperwork with both your old company and your new employer.

Drop It Into An IRA

If your new gig doesn’t offer a 401(k) program, or if you dig the investment freedom that comes with an IRA, go this route. You’ll have much more of a choice when it comes to investing your retirement dollars, as thousands of mutual funds will be at your behest instead of a dozen or so 401(k) options. Be cautious when going this road, though. 401(k)s are generally a smidgen more protected from those evil creditors than are IRAs. It’s a minor detail now, but if you ever declare bankruptcy or get sued, it could become a much bigger issue.

Whichever route you choose, know the rules. Way back when, details were cloudy on the IRS-friendly way to transfer funds from one 401(k) to another account. Investors had to put 401(k) funds into a “conduit” IRA if they believed they would move the funds into another 401(k) account in the future. The money couldn’t be mixed with other retirement savings and new contributions were also verboten. Sound confusing? It was.

But no longer. Mix all you want. You can transfer an old 401(k) account into an IRA while still making payments, move it from a new IRA into a Roth IRA, or shift the funds directly into a new 401(k) account. The choice is yours.

However, make certain to complete a “trustee-to-trustee transfer” when you relocate your funds. This basically means you’re directing your new employer to schedule the details of the transaction with your old company. This way, you can avoid your old job writing you a check for your existing 401(k) balance, wherein you have 60 days to drop it into a new account. This is not a headache you want. When you go this direction, your previous company will hold back 20 percent of your money for income tax purposes.

The next time you file your taxes, you’ll get the money back, but meanwhile you’ll have to make up the difference yourself within the 60 days. No thanks. Even more frightening: if you don’t roll over the entire balance within 60 days, the taxman cometh. The IRS sees that deficit as a taxable withdrawal and enforces regular income taxes along with a 10 percent penalty.

There’s a new kind of defined retirement plan on the market, but you may have to ask your employer to add it to your current plan.

In 2001, Congress passed the Economic Growth and Tax Relief Reconciliation Act (EGTRAA), which provided a variety of changes, adjustments and extensions to rules for retirement plans to be phased in during the ensuing 10 years. Among those provisions was the creation of the Roth 401(k), a hybrid that allowed contributions of after-tax dollars (like a Roth IRA) through salary deferral up to $15,000 (2006 limit) with a $5,000 catch-up allowed for people over age 50 (like a 401(k) plan.)

Roth 401(k) plans haven’t received much attention in the intervening years because that particular part of EGTRRA didn’t take effect until January 2006. Most employers, according to a survey by Hewitt Associates, have not yet added the Roth 401(k) to their retirement offerings, and only one-third of companies say they are “very” or “somewhat” likely to add it. Those who do, however, find the most Roth 401(k) fans among workers in their 20s, 14% of whom select the new plans when offered, the highest rate for all age groups.

That’s not surprising. Roth 401(k)s operate on the same assumption as Roth IRAs: that those who use them will be in a higher tax bracket after retirement than they are now. Both Roth products are funded with after tax dollars, making withdrawals of contributions and earnings tax free. Traditional 401(k)s and traditional IRAs work the opposite way: dollars are contributed pre-tax or with an attached tax deduction now, and contributions and earnings are taxed upon withdrawal, when the employee expects to be in a lower tax bracket.

In May 2006, Congress eliminated income restrictions, which were $110,000 for individuals and $160,000 for married couples, on conversions from traditional IRAs to their Roth counterparts. This provision, however, doesn’t kick in until 2010—the year the new Roth 401(k)s end. Individuals who earn more than $110,000 cannot open a Roth IRA, although many tax and investment professionals expect the IRS to allow those over the income limit to open Roth IRAs to receive rollovers from the Roth 401(k)s.

If Congress makes no effort to extend the lifespan of the Roth 401(k), those funds will be eligible to roll into a Roth IRA. A rollover may also be beneficial to someone turning 70½. At that age, Roth 401(k) accounts, traditional 401(k) accounts and traditional IRA accounts begin minimum required distributions. A Roth IRA has no mandatory distribution, so the money in them can continue to grow tax-free for as long as you wish—even for the beneficiary of your Roth IRA account.

Like Roth IRAs, Roth 401(k) contributions are subject to a five-year investment requirement, meaning that to receive distributions without penalty, the account holder must be age 59 ½ and have held the account for five years. When rolling funds from a Roth 401(k) to a Roth IRA (or in any other conversion) keep careful records to verify the date you made the contributions so you can establish the base for that five year holding period.

Many factors can affect your personal decisions about traditional versus Roth, and 401(k) versus IRA, including your age, your tax bracket now, your expected tax bracket in retirement, the amount you are contributing, and your ability and desire to pass funds to future generations. An investment professional can help you weigh the pros and cons of each account and contribution type to determine which best meets your needs.

If you are an employer, your investment and tax professionals can help you decide whether adding the Roth 401(k) contribution provision to your plan (a relatively simple and low-cost change) makes sense for you and your employees.