Roth vs IUL, Part 2: Contributions

For both Roth (IRA/401k) and IUL, only after-tax contributions are allowed (no tax-deductions could be received).

Roth

The annual contributions into Roth IRA are limited by $6,000. Roth 401k plan limits the annual contributions from employee side by $19,500. An employer is also allowed to put money into 401k (through matching, profit-sharing, Mega-Backdoor), so the total contribution is limited by $57,000.

For 50+ years old, the catch-up for IRA and 401k is $1,000 and $6,500, correspondingly.

Contributions into Roth IRA are subject to income constrains. For example, high earners may not be allowed to make direct contributions into Roth IRA, but in most cases, Backdoor Conversion to Roth IRA may be a good alternative to bypass this limitation.

Unused contribution room from one year cannot be carried forward to the next year.

All types of conversions from IRA/401k to Roth: Roth Conversion as well as (Mega) Backdoor Conversion do not have constrains on the converted amount or income. Which allows to perform tax-optimization or overcome the lack of Roth in some retirement accounts (e.g. SEP IRA, also no all 401k offer Roth).

IUL

Practically, IUL does no have upper bound limits on annual contributions. However, IRS requires that the accumulated cash-value may not exceed the Death Benefit. UL (any Universal Life, including VUL) polices have the flexibility to change the Death Benefit. There still could be a requirement for annual minimum premiums.

Usually, unused contribution room from one year can be carried forward to the next year.