Almost all people believe that the IRA and 401(k) are the ideal strategies to save money for retirement. This is not entirely TRUE. There are pros and cons.
- The 401(k) strategies can grow the assets tax deferred, however as the assets growth compounds, the taxes also compound. Then the 401(k)’s are taxed as ordinary income when you withdrawal it.
- Actuaries have mathematical models providing alternate investments producing yields that will outperform the 401(k)/IRA’s.
- When taxes are part of the equation, the 401(k)’s are seriously outperformed by both a Roth or alternative vehicles.
- I always ask, “If everything you thought to be true about IRA’s/401(k)’s were untrue, when would you want to know? ”
Most people believe they will retire at a lower rate than they are in.
- That is only true if they have not saved any qualified money, IRA/401(k).
- However, when they have large 401(k)s or IRAs and desire to maintain their life style, their tax rate will be comparable to when working and may be higher due to RMDS from qualified accounts or tax increases.
- This is a large nut to swallow after their CPAs and advisors have told them for years that they should have lower tax rates when they retire.
Most people believe taxes will be increased sometime in the future.
- However, few do anything to mitigate or reduce the taxes. Believing taxes will increase but doing nothing is the ninth wonder if the world.
- Future taxation is important and most CPAs and financial advisors do not address it.
- The nearly 22 trillion dollar US debt has to be paid and the 33 trillion of qualified money makes a perfect target.
- What you think you have today after the current taxes are paid, may shrink significantly when taxes are increased.
- Congress can do this overnight if they ever talk to each other. They have increased taxes in the past over night and can do it again.
- There have been proposals to eliminate any new Roth IRA’s.
- There are books and articles published by authorities there substantiate the proposed tax increases.
- Ed Slott, CPA, on the PBS channel, is a great source of information.
Most people want to maximize their social security. However, this is not feasible for many people.
- If they do not have adequate qualified money or assets, they will need to optimize their social security benefits. The operative word is assets.
- This is accomplished by balancing your assets and spending down your IRA money first. This allows your social security to grow 8% tax free.
- This may not be the situation for everyone but we have specially designed software that determines several scenarios and the timing.
- The solution is education and then see how the numbers unfold in the illustrations.