What is a 26(f) Retirement Program? Should You Use It?

Article Summary:

A 26(f) retirement program is designed to build wealth by investing in a life insurance policy. If done properly, these plans utilize tax advantages and build cash value. Note that unlike a 401(k), a 26(f) program is not backed by an employer. However, the consensus among financial advisors is you can obtain similar benefits without the expense of investing in a whole life insurance policy.

According to the U.S. Bureau of Labor Statistics, only 68% of private-sector workers had access to retirement benefits through their employers in 2021. (Only 51% actually participated.) This means that about a third of people working in private industry have to take care of their retirement themselves, assuming they don’t want to rely entirely on Social Security.

When you start researching how to build your retirement savings, you’ll see a few different options pop up. Employer-backed retirement accounts, such as 401(k)s, are common ways people save up for retirement, but they’re not the only option. One program you may run across in your research is a 26(f) retirement program.

The purpose and potential of 26(f)

Essentially, a 26(f) retirement program lets you build cash by investing in a whole life insurance policy and taking advantage of tax benefits. The idea is that you’ll accumulate enough wealth from the investment that, when retirement comes, you will be able to access some of the cash value.

If done properly, 26(f) retirement programs can bring you tax-deferred growth, and your beneficiaries tax-exempt benefits. 26(f) programs may also seem appealing because they don’t require employer backing, meaning they could be easier for you to access.

While these are definitely appealing aspects of this program, it may not be the right one for you. Keep reading to learn what a 26(f) retirement program is, the pros and cons of each, and what some alternative options are.

What is a 26(f) program?

The 26(f) program is a retirement vehicle built for those who do not have access to retirement plans through their employer, such as a 401(k) or 403(b). A 26(f) retirement program is an investment in a life insurance policy.

Ideally, with the 26(f) retirement program, the cash value will grow enough so it can be used for retirement later in life. These programs also offer certain tax benefits that make them appealing.

The 26f program gets its name from Title 26, Subtitle F of the U.S. Tax Code, which allows retirement plans to be an investment vehicle.

Pro tip: If you feel like you’re behind on your retirement savings, there are a few easy steps you can take to build wealth. Check out SuperMoney’s list of six ways to reboot your retirement plan.

Another way to help ensure you’re ready for retirement could be to talk to an investment advisor.

How 26(f) retirement programs work

Here’s a basic rundown of how 26(f) retirement programs work:

  1. You fund a life insurance policy with either one lump sum payment, or multiple large premium payments.
  2. You do this in the hope that the cash value and cash flow will grow, allowing you to take money from the account later in life.
  3. If all works out as planned, you enjoy a comfortable retirement.

Loans taken from retirement programs are not taxable, so long as the policyholder makes premium payments and follows the contract guidelines. This is a serious tax benefit and can make a 26(f) program appealing. Sometimes, the cash value of the loan continues to grow. Earnings from cash value can be used to make loan payments.

Mutual funds and cash value in life insurance policies experience tax-deferred growth. Depending on the policy, beneficiaries could also receive tax-free death benefits.

Benefits of 26(f) programs

Most people are drawn to a 26(f) program for the tax advantages and cash value. If you do a 26(f) program properly, you can build wealth on a tax-deferred basis, and beneficiaries experience tax-free death benefits. Keep in mind, however, that these benefits are subject to the guidelines of the insurance policy and contract. Different insurance programs have different policies, so be sure to review them thoroughly before making any commitments.

Downsides of 26(f) retirement programs

Many experts in personal finance point out that the benefits you can receive from a 26f retirement program can be achieved in other ways. For example, you can acquire tax-deferred wealth through a 401(k), Roth IRA, and Traditional IRA plan.

There may be better ways to build cash and accumulate wealth. Opening your own investment account and diversifying your investments with a mutual fund, could be a better way to build wealth.

Alternatives to a 26(f) retirement program

Instead of investing in a whole life insurance policy, many personal finance experts recommend buying a term life insurance policy instead. Purchasing a term life policy is generally cheaper, and it can build wealth more efficiently than purchasing a whole life policy.

Other retirement account options include 401(k) plans and IRA plans. These plans may be the better choice for you if the option is available.

Depending on your financial situation, you may also be eligible for social security. Having a retirement plan is preferred, but this is always a good thing to be aware of.

In the end, personal finance experts recommend looking for a financial product that groups retirement savings, investing, and insurance together in purchasing.

Helpful tip: To learn more about Roth IRAs, including how they differ from traditional IRAs and why you might prefer one over the other, read SuperMoney’s Ultimate Guide to Roth IRAs.


How does a life insurance retirement plan work?

A life insurance retirement plan (LIRP) basically uses the cash value of your life insurance to fund your retirement.

What happens to my life insurance when I retire?

So long as you meet certain requirements, you can keep existing life insurance coverage after you retire.

Can life insurance be used for retirement?

Yes. You can use life insurance for retirement by borrowing against the cash value.

Key takeaways

  • With a 26(f) retirement program, you invest in a whole life insurance policy in order to access the wealth later for retirement.
  • If done right, a 26(f) program provides you with certain tax benefits.
  • A 26(f) retirement program is not backed by your employer.
  • Investing in a term life policy may be cheaper and more efficient.

Retirement planning is never premature

It’s never too early to plan for retirement. If you’re overwhelmed and don’t know where to start, check out SuperMoney’s 10 Simple Steps to Planning a Comfortable Retirement. This can give you a good starting point and help you achieve a relaxing retirement.

View Article Sources
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  2. 68 percent of private industry workers had access to retirement plans in 2021 — U.S. Bureau of Labor Statistics
  3. Background articles on personal finance and retirement planning — Various
  4. Retirement — USA.gov
  5. United States Code, 2020 Edition, Title 26 – Internal Revenue Code, Subtitle F – Procedure and Administration — U.S. Government Publishing Office
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  10. How to Protect Your Retirement Income: Tax Diversification Strategies — SuperMoney
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  12. The Differences Between Whole and Term Life Insurance — SuperMoney
  13. Ultimate Guide to Roth IRAs — SuperMoney
  14. Guide to 401(k) Withdrawals — SuperMoney
  15. Ultimate Retirement Guide — SuperMoney