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Cancel whole life and put it in a ROTH: Good idea?

peace_rose
17 years ago

My husband, who is 39, has a whole life policy that his parents opened for him when he was 23. They paid into it for about 14 years, then handed it over to us. We paid into it for a year or so, but couldnÂt afford to keep up the quarterly premiums ($109). The last payment we made was in August 2005. So it has declined in value by about $550 in the past year.

The Policy face amount is $74,500.

The accumulation value is $4,800

The surrender charge is $405

The cash surrender value is $3,300

In the meantime we did the responsible thing and took out a 20 year term-life policy for each of us. So having enough life insurance now is not a big priority. I just want to figure out the best way to go about investing this money. HereÂs what IÂm considering:

1. IÂve been told that for people in our income bracket the ROTH is the way to go. Should I cancel the whole life policy and plop the $3,300 into a Roth?

2. Will we be taxed heavily if we cancel the policy? (The surrender paperwork says we could be taxed, but the company representative told me that we wonÂt be taxed because the surrender value is less than the accumulation value).

3. Is there any good reason to maintain the whole life policy and keep contributing to it? (It earns a 4.5% interest rate).

4. Should we make this move in 2006 or wait until after January 1?

We donÂt really have a lot of debt, other than our mortgage.

Thank you!

Mary

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