TAMRA compliant IUL

Discover how a high-income professional structured an IUL under TAMRA rules to generate tax-free retirement income without triggering a MEC. (How to Use TAMRA-Compliant IUL to Create a Tax-Free Retirement Income Plan)

High Income, High Taxes, and a Retirement Income Problem

If you’re earning six figures or more, you’ve probably heard it before: “Max out your 401(k), invest aggressively, and hope for the best.” But that advice comes with a catch—especially when your income puts you in the top tax brackets.

That was the dilemma facing Lauren, a 42-year-old tech executive earning over $300,000 a year. She was contributing to her 401(k), but she knew two things for sure:

1. Her taxes would still be high in retirement.
2. She wanted a predictable, tax-advantaged source of income she could control.

We introduced Lauren to an Indexed Universal Life (IUL) policy from The Policy Shop—custom-built using TAMRA-compliant design—to create a tax-free retirement income stream and protect her family at the same time.

Why Indexed Universal Life (IUL) for Retirement?

Flexibility, Protection, and Growth

An IUL is a type of permanent life insurance that offers:

• A death benefit for your loved ones
• A cash value account that grows based on a market index (like the S&P 500)
• The ability to take tax-free loans or withdrawals in retirement (if structured properly)

Learn more in our guide: How IULs Can Grow Your Wealth Without Market Risk

Avoiding the Tax Trap: The TAMRA 7-Pay Rule

What Is TAMRA?

TAMRA stands for the Technical and Miscellaneous Revenue Act of 1988, and it introduced the 7-pay test. This test limits how much money can be paid into a life insurance policy over a 7-year period.

If you pay too much too fast, the policy becomes a Modified Endowment Contract (MEC)—and that changes everything:

• Withdrawals become taxable
• Loans may be taxed
• 10% IRS penalty if taken before age 59½

By following the 7-pay rule, Lauren’s IUL stayed TAMRA-compliant, allowing her to access cash tax-free in the future.

Why Not a Roth IRA?

Lauren was income-ineligible for a Roth IRA and wanted to save far more than the current $7,000 annual limit. An IUL offered no contribution cap, plus:

• Market-linked growth with 0% floor protection
• Tax-free distributions via policy loans
• Flexible premium schedules and death benefit options

Policy Design for a High-Income Earner

Strategy in Action

We structured Lauren’s IUL with:

• Level premium payments over 10 years to avoid MEC status
• A minimum death benefit to maximize early cash value growth
• Index allocations tied to the S&P 500 with cap and floor protections
• A projected retirement income stream starting at age 60

By year 15, the policy is expected to generate $45,000/year in tax-free retirement income for 20+ years—while still maintaining a death benefit for her heirs.

Top Benefits of This TAMRA-Compliant IUL Strategy

• ✅ Tax-free income stream in retirement
• ✅ Asset protection from market downturns
• ✅ Flexible premium contributions
• ✅ Legacy benefit for family
• ✅ Avoids the contribution limits and phase-outs of Roth accounts

FAQs

Q: Can I have an IUL if I already have a 401(k) or IRA?

A: Absolutely. An IUL complements those plans and offers benefits they can’t—like tax-free distributions with no required minimum distributions (RMDs).

Q: What happens if I miss a premium payment?

A: IULs are flexible. As long as there’s enough cash value, the policy stays in force. We design each plan to accommodate life’s ups and downs.

Q: How do policy loans work?

A: You borrow against the cash value without triggering taxes. The loan isn’t taxable as long as the policy stays in force and avoids MEC status.

Q: Is this only for high-income earners?

A: No, but high-income professionals benefit most from the tax deferral and contribution flexibility.

A Smarter Way to Prepare for Retirement

Lauren’s IUL gives her control, protection, and tax-free income—all while creating a financial legacy for her family. With proper design, IULs are a powerful tool to reduce tax risk and build wealth with confidence.

Want to explore a TAMRA-compliant IUL strategy? Schedule a free consultation with one of our licensed professionals today.