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The Right Choice

Is IRA Rescue Using IUL the Next Big Class Action Lawsuit?

If you didn’t read last week’s newsletter titled: Pac Life Sued in Class Action Over Deceptive IUL Sales, click on the following link:

I had two massively abusive IRA rescue cases come across my desk last week which compelled me to write this newsletter.

I’ve been warning about IRA rescue for years but yet it’s still out there. Why? Greedy and ignorant IMOs push this concept on the same type of agents. It’s got to stop!

What is IRA Rescue? It’s the concept of “rescuing” “tax-hostile” money (tax-deferred money in an IRA) and moving it to a “tax-free” environment. The sales pitch sort of makes sense:

Agent: Client, do you think income taxes are going up?
Client: Yes.

Agent: Most of your money is tied up in a tax-deferred IRA. Would you like me to show you how to move that money to an environment where it can grow tax-free and come out tax-free?
Client: Sure that sounds great.

How does IRA Rescue work?

1) Take money out of the IRA over a three-to-five-year period.
2) Pay taxes (and penalties if under 59.5 years old) on the distributed money from the IRA.
3) Take the remaining money each year and fund an Indexed Universal Life (IUL) policy.
4) Let the money grow in the IULpolicy tax-free.
5) Remove money tax-free from the policy when needed for retirement income.

Sounds great right, so what’s the problem?

It’s a mathematical loser 100% of the time (yes I said 100% of the time).  And there are several IMOs peddling this garbage and hundreds of agents selling it to clients.

Real Example

Here’s one I learned about last week. 68-year old with $375,000 in an IRA. $75,000 premium payments for five years and tax-free borrowing from age 78-100.

How much borrowing was illustrated? $31,149 tax-free each year. Sound great? Wrong!

1) The policy was illustrated using the maximum illustrated rate which has a 50% chance of coming to fruition. What if I reduce the illustrated rate by only 10%? How much could the client borrow? NONE! The policy will LAPSE. But the agent would have made a $42,000 commission.

2) If the client simply used a guarantee income for life FIA, the numbers would look as follows:

a) “Guaranteed” income at age 78 = $40,500.
b) Using my favorite FIA with ‘what if’ income rider = $45k-$55k depending on how the VCI does.

Which is better?

A 50% chance of getting $31,149 a year tax-free with a 50% chance of getting ZERO; or
A guarantee of $40,500 (taxable) or $45,000-$55,000 (taxable) with the ‘what if’ FIA?

If the retired client is in the 25% tax bracket, the net left over from the guaranteed for life income rider would be $30,375 to $41,250 depending on the product and VCI return (and there isn’t a 50% chance the client will end up with NO cash flow).

NO DISCLOSURE—Agents selling this garbage are NOT disclosing to clients the risk or the much better alternative of a guaranteed retirement income.

Does the age matter? Won’t it look a lot better for a 59-year old or even a 55-year old? Not really. I’ve NEVER seen an IRA illustration I couldn’t beat using reasonable and much more conservative alternatives.

I challenge ANY agent or the idiotic IMO they work with to forward me an illustration they think works. I will pick it apart in a matter of minutes and show why this is the most abusive sale in the industry today.


You should take a close look in the mirror to see if you like what you see you have sold one of these structures (and you better make sure your E&O is paid up). If you are working with an IMO that is pitching these structures, you should immediately CEASE working with them. The IMO is going to get you sued and is doing you and your clients a tremendous disservice.

Finally, if you are using a “Section 79 Plan” policy for IRA rescue, you should also make sure your E&O is paid up. I’ve found a group of advisors doing this and I’m going to try to get the law firm that filed the class action suit against Pac Life to look at a class action for IRA rescue using this policy.

Roccy DeFrancesco, JD, CAPP, CMP
Founder, The Wealth Preservation Institute
Co-Founder, The Asset Protection Society