Roth vs IUL, Part 3: Withdrawals

Both plans: Roth (IRA/401k) and IUL allow tax-free withdrawals, but the constrains are based on different tax-codes.

Roth IRA/401k have much more complicated rules, in general retiree should wait till the age 59.5 in order to be able to withdraw tax and penalty free from IRA/401k. This being said, there are exceptions, for example, direct contributions into Roth IRA could be withdrawn any time.

For IUL the rules are very different: the standard withdrawals or policy termination are, typically, taxable events. In order to access the money tax-free, loans must be taken against the cash balance of IUL account.

Roth

Different types of money could be withdrawn from Roth IRA in a special ordering: first out the direct contributions, next are Roth conversions (from oldest to newest), and finally the earnings.

The direct contributions could be withdrawn anytime tax and penalty free.
Conversions require to satisfy the 5-year rule (must wait for 5 years starting from the year of particular conversion), otherwise 10% penalty applies.
Earning could be withdrawn tax and penalty free if the account owner reached age 59.5 and the first contribution to (any) Roth IRA occurred at least 5 years ago (i.e., the aggregated Roth IRA must satisfy the 5-year rule).

Roth 401k have similar rules, but usually, the account must be inactive, meaning, you must separate from the service. Though, some 401k plans allow in-service distributions. Also note that the 5-year rule applies to each 401k plans individually (401k plans are not aggregated, as in the case of IRA).

There are some exceptions which allow withdrawals from Roth IRA/401k penalty (and maybe tax) free.

The 72t rule allows withdrawals from IRA/401k at any age penalty (but not tax) free through SEPP (Substantially Equal Period Payments).
The rule of age 55 allows early withdrawals from the last 401k (but not from IRA), if the retiree separated from the service (departed from the employer who sponsored the 401k) after reaching the age 55.
401k plans usually allow borrowing money against 50% of the account balance (but not more than $50,000). The loan term is usually not more than for 5 years (unless used for purchasing the main home). The interest is paid back to the 401k account. The loans against 401k are nonparticipating, meaning that the taken funds are excluded from investments.
60-day IRA/401k Rollovers could be used as short-term "loans".
The CARES Act of 2020 allows retirement investors (who was affected by the COVID-19) to gain penalty free access up to $100,000 of their retirement savings. The money could be returned back (rollover) within 3 years.

IUL

Note that there could me various surrender charges for withdrawing money or terminating the policy. Higher surrender fees may be charged for young policies (up to 10 years).

The policy termination is considered as taxable event. The growth is taxed as ordinary income.
The partial withdrawals from the policy are also taxable events. First the after-tax contributions could be taken (tax-free), the next is earnings, which are taxed as ordinary income.

The recommended way to access saved inside IUL money tax-free is by taking loans. There are different types of loans, the main two are participating and nonparticipating.

Participating loans (could be fixed, variable, or variable rate with a cap) do not really "touch" the money, so they keep growing inside the IUL account. For example, if the loan interest is 6%, and the account annual growth was 7%, we basically have Leverage (1% profit). If the annual gains were low, e.g., 0%, we basically have the lose of 6% (which is added to the borrowed money).
Nonparticipating loans take the money out from the policy cash-account, but such loans, typically, have lower interest rates. Actually, the reality is more complicated, the cash is placed in a special collateral account where it would earn a fixed interest, while against this account a (fixed or variable) loan could be taken.

Usually, the loan interest for young policies (during first 10 years) is higher. Also note that in some cases, the insurance company may discretionally change the parameters of policies, including conditions for taking/returning loans (caps, interest, etc). This topic is so complicated that requires a dedicated long article.

Note that in the case of bad structuring of the policy and poor market performance, assuming the loan interest is higher than investment gains by only 1% (annually) and assuming that such the bad conditions repeat multiple years, compounded over long run, the losses actually could be huge. For example, in this bad scenario, within 10 or 20 years, the combined losses could be 10% or 20%, correspondingly. Not really "tax-free" in this horrible scenario.