There are so many examples to share here, but I'll focus on one that really seems to shake people up. When I share this one, people actually get mad! I've even had someone walk out of the room - and that was a person I knew! Why? Because it goes against what they have based their financial future on.
So what is this rule the IRS won't tell you? Let me first start with a question:
Do You Want to Retire Wealthy or Do You Want to Retire Poor? Seems like a no brainer, right? Of course, everyone answers that they want to retire wealthy. If you want to retire wealthy, then you need to know this rule the IRS won't tell you. Here it is:
The Truth Behind IRAs and 401k's and Why They Make No Sense The truth behind IRAs and 401k's is that they are designed to work best for those who retire poor.
Let me clarify that, right now, I'm referring to traditional IRAs and 401k's.
In these types of retirement plans, you contribute money and get a tax deduction for your contribution. Then, the earnings inside your IRA or 401k are not currently taxed.
Sounds great, right? I agree. Up to this point, the result is great tax savings. But, let's look at what happens when you retire and want to take that money out. To do that, I'll ask another question:
Why Do You Contribute to an IRA or 401k? When I ask this question to people who currently contribute to an IRA or 401k, the answer is almost always the same:
Get the deduction now and pay the tax later.
In other words, take a deduction now, when your earnings and tax rate are higher, and defer the tax until later when your earnings and tax rate are lower.
Odds are you've heard this advice before. It's the standard answer. But this thinking makes no sense!
In order to be in a lower tax bracket when you retire, it means you will be making less money when you retire!
Why base your financial future around a plan that counts on you retiring poor?
Does This Make You Mad? I wasn't kidding when I said people get mad when I share this rule the IRS won't tell you. I usually have a line of people waiting for me after I get off stage. Most are trying to justify why they contribute to a 401k or IRA - their employer matches or they use the Roth version and not the traditional version. I can tell they are beginning to look at their finances and tax planning a little differently, which can be an upsetting process.
If you read through this email again, you'll see that no where in it did I say, "You should not contribute to an IRA or 401k." Rather, I pointed out that the reason we are typically encouraged to contribute to an IRA or 401k doesn't make sense. It's never shared that you get the best results if your retire poor.
IRAs and 401k's can have a place in a wealth or tax strategy. I want to make sure that people are aware of how these plans truly impact their tax and wealth - it may be different than what they thought.
More Rules the IRS Won't Tell You About IRAs and 401k's As a CPA, I have the advantage of seeing hundreds, if not thousands, of IRAs and 401k's in real-life situations. The questions I get from clients illustrate the trouble that can arise with IRAs and 401k's when clients begin to focus on using these plans in their wealth strategy.
Here are some very common questions I get:
I have a great investment opportunity but the investment is not allowed in my IRA/401k. How can I get the money out of my IRA/401k to make this investment? I have a substantial amount of money in my IRA/401k but I'm terrified to take it out because of all of the tax I'll have to pay. Is it even worth it to take it out? I want to use leverage (debt) in my investing but the only loans I can get in my IRA/401k have high interest rates and low loan to value ratios. Am I better off taking the money out, paying the penalties and investing outside of my IRA where I can get much better terms?
The common theme in all of these questions is the lack of flexibility. Again, I'm not saying don't use an IRA or 401k, I'm saying be aware of your options in those plans and how they will impact your wealth and tax goals.
Behind Every Secret Remember, behind every one of my secrets is knowledge - the type of knowledge that makes you aware of what creates massive tax savings so you begin to see your daily routine a little differently...like how your IRA or 401k works in your tax strategy.
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There are so many examples to share here, but I'll focus on one that really seems to shake people up. When I share this one, people actually get mad! I've even had someone walk out of the room - and that was a person I knew! Why? Because it goes against what they have based their financial future on.
http://www.ProVisionWealth.com
