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First of all, make sure you have figured how much life insurance you really need to cover your family in the event of yours and your wife's death.

IMHO, most people should use level term insurance to cover their survivor needs assuming that the needs are to the most extent temporary, but you are heading into the realm of possibly qualifying for a VUL policy.

Let me tell you what I decided to do in my own situation. I have a wife who is a stay at home mom. We have a 5 month old and a 3 year old. I have about $1.25 Million in insurance on myself and about $250K on my wife. $1 Million of my total is in level term insurance that is convertible to permanent if need be. The other $250K is in Variable Universal Life Insurance. This policy is being used not only as life insurance but as a tax-deferred wealth accumulator. I too will probably not qualify for the Roth IRA many years, so I maximum fund my SIMPLE, get the employer match then dump the remainder in the VUL policies. These policies do work well when you buy small face values and over fund the daylights out of them. I can easily put about $10K per year in mine and my wife's policies without incurring any punitive tax consequences.

It's hard for me to tell you exactly what to do, but I would have a tendency to put you maximum into your 401(k) plan. The contributions reduce your current tax burden approximately by your marginal income tax bracket, and the money does grow tax-deferred. Then if you have enough to properly set up and fund a VUL, I would consider it. Term is so inexpensive now, and you can get great coverage from A rated companies so make sure you don't buy from a captive agent. Your agent should be able to shop the market through Compulife and get you some very competitive rates.

Remember, a VUL policy is not only a long-term commitment but a life long commitment. Many people forget this fact and get screwed. The tax goodies are only good as long as the policy stays in-force your ENTIRE lifetime!

Good Luck!

Alan McKnight, CFP
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