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Question for the Money Doctors

Question submitted on Oct 6, 2011.

Question

Is whole life insurance a good idea if one's income is too much for a roth IRA? If not, what is a better tax efficient way to save aside from one's 401k?

Answer

Like most of these questions, I really need more facts to give you the best answer.  What is your income level?  What is your marginal tax rate?  Are you saving for retirement?  Are you saving to fund a child's college education?  Are estate taxes a concern?  Do you have adequate life insurance now?

As a general rule, I am not a big fan of whole life insurance; however, depending on your particular situation it might be a good fit.  If you are young and healthy but have some bad family health history, you might want to buy whole life or permanent insurance while you can.  If you are older and life insurance is needed to help meet liquidity needs in your estate, perhaps it makes sense.  If your primary concern is for retirement planning, municipal bonds might be a good choice, depending on your age and your tax bracket.  If you are younger, a balanced portfolio of mutual funds or ETFs would be a better fit.  If you are saving for a child's college  education, a 529 Plan should be considered.  Please contact your CPA or an investment professional to get some help in making your decision.


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