If you’re near or in retirement, you may be concerned about the inevitable tax increases in the future. Taxable retirement income that you planned on covering you through a certain number of years may run out sooner than you expected.

Many people of retirement age are asking what they can do to convert taxable retirement income to tax-free. Fox Business recently ran a story on the website featuring IRA Rescue, a concept that utilizes high-grade indexed Universal Life (IUL) policies.

There are two ways retirees can use IULs. The first is when the individual has excess IRA assets that aren’t needed for income. The IRA would be distributed over a 5-year period and fed into an IUL. The strategy involves minimizing cash build-up and maximizing the death benefit, so that money is available tax-free to heirs. 

If an individual wants to maximize tax-free retirement income, there’s a second strategy that can be used. It works similarly, distributing the IRA over a short period of time and feeding it into the IUL. The primary difference is that the death benefit is minimized, while the cash build-up is maximized, enabling the individual to use that money as income while he or she is still living.

Two caveats of using IULs are high commission rates and surrender fees if you decide to take the money out of the IUL policy. Before you move forward with an IRA Rescue, you’ll want to carefully calculate the total cost of the particular IUL you’re considering and your own individual situation to ensure the commission rates are worth the benefits. Also take into consideration that in order for an IUL to make sense, you can’t cancel or take more money out of the policy than is allowed, and you must comply with the IUL’s guidelines or you’ll face steep fees.

High-grade indexed Universal Life policies are good option for some retirees. IRA Rescue is worth looking into if your current accounts are subject to taxes and you’re unsure if you’ll have enough to last through your retirement years.