A little over 10 years ago now Time Magazine said right on its front cover that it might be time to retire the 401k plan and one of the reasons was due to the way it is taxed.
By the way, if you would like to learn more about why this article was warning us about the 401k plan please check out my FREE video, Why Time Magazine Said Its Time To Retire Your 401k And What You Can Do Instead!
In reality, it’s not just your 401k that you need to think about if you have any of these accounts you need to think seriously about future taxes:
- Deferred Comp
In all of the above accounts you get a front-end tax break as an incentive to contribute and then your money receives favorable tax treatment the whole time it is growing called tax-deferral.
So far this sounds great, right?
But hold on, not so fast.
When the Government gives you something, they also usually take something away too right?
Let me ask you a question.
If we were to go into business together as partners, would you be okay letting ME decide what share of the profits YOU will get to keep?
Would you be my partner on that basis?
Well if you own any of the above retirement plans you have entered into a similar arrangement with the US government.
How much do you trust them?
Let us say you have $500,000 in your 401k plan right now. How much of that money is really yours?
The correct answer is you do not know.
The amount you get to keep will depend largely on where tax rates are at, at the time that you plan to take that money out.
Let me ask you another important question.
With the National Debt where it is today (in the double-digit trillion range) where is the government going to get the money to pay back all of that debt?
As if that is not bad enough did you know the government does not add in all of its unfunded obligations like Medicare and Medicaid benefits into the national debt figure?
If you want to see how fast the national debt is growing and how big it really is when unfunded obligations of the US Government are added in check out this website. https://www.usdebtclock.org/index.html?taxpayer
So, what is the government’s number one source of income to pay back that quickly growing national debt? You guessed it, their only source of income are the taxes you pay.
Are you really sure that deferring the paying of the taxes on your retirement plan until the government’s debt gets more and more out of control is such a good idea?
Or do you think it might be a good idea to start looking at how you can tax-diversify your retirement holdings?
Just like you know it’s not wise to put all of your eggs into just one investment, it’s also not wise to put all of your money into one tax status called tax-deferred.
What Can Be Done To Fix This?
You might want to start looking at diversifying some of your retirement assets into a tax-free status to protect yourself from future tax rates.
To learn more about how to do this please check out my FREE video, Why Time Magazine Said Its Time To Retire Your 401k And What You Can Do Instead!
In the video, I discuss not only why tax diversification is so important, but I also go into several strategies on how this can be done.
Most people are surprised to learn that right now taxes are actually on sale and there are some great opportunities to start moving assets away from just deferring taxes and into a tax-free status.
Even if a large portion of your assets is sitting at risk of future tax rate hikes there is still plenty you can do to better your situation, yet many people are not even aware of the danger they are in.
Still, others do not realize that large amounts of tax-deferred money can be converted into tax-free money and there are perfectly legal IRS-approved strategies that you can use to do this.
Also, if you are currently heavily investing in a 401k program over and above the match you may very well just be adding fuel to your ticking tax time bomb.
Most people I talk to seem to agree that taxes are almost certain to be much, much higher 10, 15, or 20 years from now. It is not unreasonable to assume that tax rates could double in that time to meet the demand for government spending.
The CARES act used to bail out the economy due to COVID-19 has just exacerbated an already troubling situation for the future of tax rates.
If you don’t have a strategy on how to best deal with this I urge you to take a few minutes out now and watch my FREE video, Why Time Magazine Said Its Time To Retire Your 401k And What You Can Do Instead!
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