Non-MEC, in force — the two conditions
Every favorable outcome depends on both holding for life.
By profession · Accounting
IUL for accountants and CPAs: the numbers-first version, from an agency that expects you to check them
CPAs are the one audience that already knows what a MEC is — and the one most likely to catch a sloppy IUL pitch. Here’s the version written to be checked: the tax mechanics stated precisely, the costs itemized, and the honest place a max-funded IUL holds after firm plans are full.
Who this is for: CPAs, controllers, and accounting partners — often advising clients on this product while deciding about it themselves.
The tax mechanics, stated precisely
Death benefit: generally excludable from the beneficiary’s gross income under current federal law. Cash-value growth: tax-deferred inside the contract. Withdrawals from a non-MEC policy: recovered basis-first (FIFO), then gain. Loans from a non-MEC policy: not distributions, not income, while the policy remains in force. MEC status (7-pay test failure): loans and withdrawals taxed LIFO as ordinary income, plus a 10% additional tax before 59½. Lapse or surrender with gain: gain recognized as ordinary income in that year, including gain used to repay loans. Employer-owned policies: notice-and-consent and reporting requirements apply for the death benefit to keep its exclusion. You know the citations; we’ll say plainly that this is general information, not tax advice.
The costs, itemized — and where it fits
Cost of insurance on net amount at risk, rising annually; premium loads; flat administrative charges; rider charges; surrender charges on a declining schedule; asset charges on some strategies. All deducted monthly from cash value regardless of crediting. Where it fits: after the firm 401(k) and, for partners, a cash-balance plan; after backdoor Roth and HSA; for surplus with a permanent need. The accumulation design — minimum non-MEC death benefit, funding to the guideline limits, increasing-then-level benefit option — is the whole game, and you’re equipped to audit it.
The essentials
What actually matters here
Cash-balance plans first for partners
Deductible sheltering beats after-tax insurance funding as the next bucket.
Audit the design, not the pitch
Guaranteed column, cost pages, MEC premium, loan assumptions.
IUL can genuinely fit when…
- Firm plans full with surplus remaining
- A permanent need — legacy, estate, buy-sell at a small firm
- You’ve audited the illustration at guaranteed values
- Funding near the maximum for many years is realistic
Slow down when…
- A cash-balance plan would shelter more, deductibly
- The proposal only works at the illustrated rate
- Busy-season cash flow would push funding to the minimum
Straight answers
Questions people actually ask
How is an IUL taxed, precisely?
Death benefit generally excludable from income; growth tax-deferred; non-MEC withdrawals basis-first; non-MEC loans not income while in force; MEC distributions LIFO plus 10% before 59½; lapse or surrender with gain taxable as ordinary income that year. Employer-owned policies need notice, consent, and reporting to preserve the exclusion. General information, not tax advice.
Is IUL worthwhile for a CPA firm partner?
After the firm 401(k), a cash-balance plan if available, backdoor Roth, and HSA — for a partner with surplus and a permanent need — a max-funded IUL adds a no-ceiling, differently-taxed bucket with a death benefit. Late in the sequence, audited at guaranteed values, or not at all.
What should a CPA tell clients about IUL?
That it’s life insurance with a cash-value feature, not an investment; that its favorable tax treatment depends on non-MEC status and the policy staying in force; that funding level and design decide outcomes more than caps; and that it belongs after the match and qualified plans, for clients with a permanent need. We’d welcome the scrutiny.
Honest, or not at all
See whether IUL actually fits your situation
Tell us a little about your goals and we'll show you the honest picture — including the guaranteed column, the real costs, and whether term or whole life does the job better. We're paid the same either way, which is why we can tell you the truth.
- We compare IUL against the simpler options first
- Illustrations explained line by line, guaranteed column first
- Your information is never sold