I have said this before, but I want to make sure all are aware: There is no Tax Savings when you invest in a 401K, IRA, Sep Simple, or another qualified plan.
Taxes are deferred & there is no guarantee they will be less in the future when you take money out of the plan.
First of all, when you fund a qualified plan, you’re relinquishing control of cash and you’re putting it into a financial tool where you are choosing not to pay the tax on now, but you will pay it at a later date.
You’re taking pretax dollars, you’re saving them in an account where most of the time your cash is allocating in the stock market.
There may be some self-directed IRAs where you’re allocating in real estate or some other investment areas, but I bet over 90% of you, maybe even as high as 95%, from what I’ve seen, have money in qualified plans: 401(K)s, IRAs, SEPs, Simples where you’re relinquishing control of that cash and it’s in the stock market.
As you know, I am NOT a tax planner so I advise you check all of this with your CPA (I am happy to refer you to someone if you do not have anyone or want someone new) but I want you to know you are the one taking all the risks and it only benefits the IRS
- You’ll owe income tax on your contributions AND on your gains. So if you have a bigger income when you retire than when you made contributions, you’ll be in a higher tax bracket and owe more than if you hadn’t deferred your taxes.
- Your plan likely has hidden fees or broker fees
- You cannot access your money without fees or penalties
- Taxes and laws change – we are seeing it happen in real time right now
- 401k have mandatory distributions at age 72, even if you are still working
Watch this 20-minute video I did a while ago explaining how “savings” with 401k’s, IRAs, and other qualified plans are just a myth – let me show you the facts.