Section 7702 vs Roth IRA

Tax-Free Retirement Compared

Roth IRAs are the most well-known tax-free retirement vehicle. But Section 7702 offers another path that most Americans have never heard of. For high earners, it's often called the 'Roth IRA without limits.'

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$7K

Roth IRA Limit

Unlimited

Section 7702

More Tax-Free Income

Contribution Income Limits (7702)

Quick Comparison

Feature	Section 7702 (IUL)	Roth IRA
Tax Treatment	Tax-free growth and access	Tax-free growth and withdrawal
Income Limits	None	$161K single / $240K married
Contribution Limits	None (based on death benefit)	$7,000/year ($8,000 if 50+)
Early Access	Yes (loans anytime)	Penalties before 59½
Required Distributions	None	None (as of SECURE 2.0)
Death Benefit	Yes (tax-free, multiplied)	Inherited by heirs (10-yr rule)
Creditor Protection	Strong (varies by state)	Limited
5-Year Rule	None	Yes (for earnings)

Roth IRA Excludes High Earners

The Income Limit Problem

For 2024, Roth IRA contributions phase out at:

Single filers: $146,000 - $161,000

Married filing jointly: $230,000 - $240,000

If you earn above these limits, you CANNOT contribute directly to a Roth IRA.

Backdoor Roth conversions exist but add complexity, face potential elimination by Congress, and create pro-rata tax issues if you have traditional IRA balances.

Section 7702: No Income Limits

There are zero income restrictions on Section 7702 compliant life insurance:

$250,000 earner✅ Eligible

$500,000 earner✅ Eligible

$1,000,000+ earner✅ Eligible

"The Roth IRA for high earners"

Contribution Limits: The Real Difference

Roth IRA: $7,000/Year Maximum

$7,000/year × 25 years = $175,000 contributed

At 7% growth: ~$475,000

Tax-free income: ~$19,000/year (4%)

Section 7702: No Contribution Limits

$50,000/year × 25 years = $1,250,000 contributed

At 6% net: ~$2,800,000 cash value

Tax-free income: ~$140,000/year (via loans)

That's 7x more tax-free income than the Roth IRA.

Access to Your Money

Roth IRA: Rules and Penalties

Contributions: Withdraw anytime tax/penalty free
Earnings before 59½: 10% penalty + taxes
5-Year Rule: Account must be open 5 years
Qualified distributions: After 59½ AND 5-year rule met

Section 7702: Flexible Access

Policy loans: Available anytime after cash value builds
No age restrictions: Access at 40, 50, 60—whenever
No penalties: Loans are not taxable events
No repayment required: Loans reduce death benefit if unpaid

This flexibility is critical for:

• Business owners needing capital

• Real estate investors seeking financing

• Anyone facing unexpected expenses before 59½

What You Leave Behind

Death Benefit: The Multiplier Effect

Roth IRA: Balance passes to heirs. Non-spouse beneficiaries must withdraw within 10 years (SECURE Act). Creates potential tax issues.

Section 7702: Death benefit typically 2-3x cash value. Passes income-tax-free to beneficiaries. No 10-year withdrawal requirement. Creates instant estate for heirs.

Scenario	Roth IRA	Section 7702
Account/Cash Value	$500,000	$500,000
Death Benefit	$500,000	$1,200,000+
To Heirs	$500,000	$1,200,000
Tax to Heirs	$0 (but 10-yr rule)	$0

Best Use Cases

Choose Roth IRA When:

✅You're under the income limits
✅You want simplicity
✅You're only saving $7,000/year anyway
✅You have access to a Roth 401(k) with match
✅You want to invest in specific stocks/funds

Choose Section 7702 When:

✅You exceed Roth income limits
✅You can contribute $25,000+/year
✅You want tax-free income before 59½
✅You value death benefit protection
✅You want creditor protection
✅You have a 15+ year time horizon

Use BOTH When:

✅You're approaching income limits (maximize Roth while you can)
✅You want tax diversification
✅You can fund both adequately
✅You want different access rules for different purposes

Matt Nye's Recommendation

20+ Years in Financial Services

"I love Roth IRAs. I recommend them to anyone who qualifies. But here's the reality:

If you're a high earner, Roth isn't enough.

$7,000/year in a Roth will not generate significant tax-free retirement income. It's a supplement, not a solution.

Section 7702 isn't a Roth replacement—it's a Roth AMPLIFIER. It gives you 10-20x more tax-free capacity, no income restrictions, death benefit your Roth doesn't have, and access before 59½.

My recommendation: Max your Roth if you qualify (it's simple and cheap), THEN use Section 7702 for the serious wealth building."

Frequently Asked Questions

No. They're different vehicles and can't be directly converted. But you can use Roth withdrawals to fund insurance premiums if desired.

Great! Keep it. Section 7702 supplements your Roth—it doesn't replace it. Tax diversification is valuable.

If you're in a very low tax bracket now and expect much higher taxes later, Roth contributions give you an immediate benefit. But most high earners are already in high brackets.

Key qualifications: Income above Roth limits (or approaching them), can commit $25,000+/year for 10+ years, want tax-free income in retirement, value death benefit and living benefits.

Compare for Your Situation

Want to see how Section 7702 compares to your current Roth strategy? Let's analyze your income, contribution capacity, and goals to determine the best tax-free strategy for YOU.

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