Pilot Strategy

401(k) to IUL Rollover for Pilots

From Volatile 401(k) to Tax-Free Certainty

Many pilots retire with $1M+ in their 401(k) but face 30+ years of RMDs and market risk. Learn how strategic Roth conversions and Section 7702 strategies create tax-free, guaranteed income.

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Tax-Free

Policy Loans & Living Benefits

No Wait

Living Benefits Pay Immediately

No Age Limit

Protection Continues Past 60-62

No Cap

Contribution Limits Like 401(k)

Quick Answer

Section 7702 fills every gap disability and Loss of License leave: no waiting periods, no age limits, no disability definition to meet, tax-free benefits
Critical Illness Rider pays immediate lump sum (50-100% of death benefit) for heart attack, stroke, cancer - the exact conditions that ground pilots
Chronic Illness Rider pays 2%/month of death benefit tax-free if you cannot perform 2 of 6 Activities of Daily Living
Tax-free policy loans: no income verification, no credit check, available at any age for any reason - even after FAA medical denial
Unlike LOL premiums (gone if not claimed), Section 7702 premiums build cash value you keep regardless of whether you ever get sick

The Opportunity

Why This Matters for Pilots

FAA Medical Backup Plan

Living Benefit Riders pay immediately for heart attack, stroke, cancer - the exact conditions that ground pilots. No waiting periods unlike Loss of License. No "disability" definition to meet - pays for the condition, not your ability to work.

No 6-Month Waiting Period Gap

Policy cash value accessible via tax-free loans immediately once built. Bridge the gap before LOL kicks in, supplement income during partial disability, cover expenses while awaiting Special Issuance - without depleting retirement savings.

Protection Beyond Age 60-62

No age limits on living benefits, no expiration on cash value access. Many LOL policies end at 60-62, ALPA LTD shifts to "any occupation" - but Section 7702 protection continues for life.

Tax-Free By Design

ALPA LTD (employer-paid) is fully taxable. LOL is often taxable. Section 7702 policy loans and living benefits are tax-free. $100K from Section 7702 = $100K vs $70K after tax from ALPA. You keep 30%+ more.

Implementation

Proven Strategies

Critical Illness Rider

Covers heart attack, stroke, invasive cancer, major organ transplant, kidney failure, coronary bypass, ALS and more. Pays lump sum upon diagnosis (typically 50-100% of death benefit), tax-free, with no waiting period. You decide how to use the funds.

Best for: Pilots who want immediate protection for the exact conditions that cause FAA medical denial, without waiting periods or proving "disability."

Example:

$1.5M death benefit with 100% Critical Illness Rider: Heart attack diagnosis = $1.5M available immediately, tax-free. Use for income replacement, medical costs, debt payoff - anything.

Chronic Illness Rider

Triggers when unable to perform 2 of 6 Activities of Daily Living (bathing, dressing, eating, toileting, transferring, continence) OR cognitive impairment requiring substantial supervision. Pays monthly or lump sum access to death benefit.

Best for: Long-term disability scenarios where you need ongoing income replacement, not just a lump sum for acute conditions.

Example:

$1.5M death benefit with Chronic Illness Rider at 2%/month = $30,000/month tax-free, indefinitely, until death benefit exhausted or condition improves.

Tax-Free Cash Value Strategy

Build cash value through consistent premium payments, accessible via tax-free policy loans at any age, for any reason. No income verification, no credit check, no explanation required. Available regardless of FAA medical status.

Best for: Pilots wanting flexibility to access funds for any purpose - medical gap bridging, supplement partial disability, early retirement income.

Example:

Grounded at 55: Access $50K-$100K+ immediately to bridge 6-month LOL waiting period. Repay on your schedule or let loan reduce death benefit.

Avoid These Pitfalls

Common Mistakes

Waiting Until After Health Issues

Pre-existing conditions increase premiums significantly or prevent coverage entirely. The best time to establish Section 7702 was 10 years ago. The second best time is now while you are healthy and flying. Every clean FAA medical is an opportunity.

Under-Funding the Policy

Section 7702 works best with consistent, substantial funding over 10+ years. Takes 5-7 years to build substantial cash value. Starting with minimal premiums hoping to increase later often results in suboptimal policy structure and performance.

Thinking It Replaces Loss of License

Section 7702 complements LOL insurance, it does not replace it. LOL covers FAA medical denial even without critical illness. Layer both for complete protection - LOL for any grounding, Section 7702 for critical conditions and long-term access.

Questions

Common Questions

Here are the most common questions we receive about this topic.

Ask Your Question

For a healthy 40-year-old pilot, a $1.5M policy structured for maximum cash value might cost $40,000-$60,000/year. But most of that builds cash value you can access - it is not an expense that disappears. Compare to LOL at $5,000-$8,000/year (gone if you do not claim).

You still win: cash value accessible tax-free in retirement, death benefit protects your family, no wasted premiums. Unlike Loss of License where premiums are gone if you do not claim, Section 7702 premiums build an asset you keep regardless.

Yes - and you should. They serve different purposes: LOL covers any FAA medical denial (even without critical illness), Section 7702 provides critical illness protection + cash value + retirement income. Layer them for complete protection.

Still valuable but with adjustments: premiums higher due to age, less time to build substantial cash value. Consider higher death benefit for immediate living benefit protection. The best time was 10 years ago, but now is better than waiting longer.

Considerations include: commitment required (works best with consistent funding 10+ years), complexity (requires proper policy design with specialists), timing (5-7 years to build substantial cash value), and surrender charges for early termination. Best for high-income earners with long time horizons.

Ready to Optimize Your 401(k) to IUL Rollover for Pilots?

Every pilots has unique circumstances. Let's create a personalized strategy that maximizes your benefits while minimizing taxes and risks.

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