If you are paying income tax on your cash flow that is too high in your opinion, then there are many strategies that could lighten that road not using an 401K investment strategy. The real issue is would you rather pay taxes on input or output? So you input $100,000 and have a $250,000 output. Which would you rather pay taxes on? Personally, I have learned there are many options to deal with the tax issue on my income/cash flow. But when you are retired and are FORCED to take cash flow from your 401K and incur income tax there are much fewer options. The popular one for most financial planners is to be so poor as to not have to pay a high income tax rate. There are some real reasons why I think most 401K plans are a fools paradise (low rate of returns, loss of control, penalties for access, more net tax obligations, etc.) but for most folks who are employees I think the biggest one is the con job Wall Street has done convincing them that this retirement strategy can become one’s primary retirement income. Nothing wrong with funding a 401K if your company is matching you up to the match, but if that is all you got you are in trouble. That is why I show people how to build real wealth in other vehicles and then suggest they have a EIUL to protect them from premature death and the tax man. I think that the 401K/EIUL comparision is a straw man argument because both are poor wealth creators. Better put that $15K/year into investment real estate and have some real time tax protection, build wealth, and then protect it with a EIUL. You see it is the plan that is important and how each strategy fits into the plan. I just don’t think buying mutual funds is much of a wealth building plan whether you get a tax break from it or not. You don’t think that the government designed the 401K to decrease tax revenue do you? –David Shafer, http://www.bloodhoundrealty.com/BloodhoundBlog/?p=3203
That comment is one big nugget of wisdom when it comes to investing for the future.
You especially can’t escape the simplicity of David’s closing sentence, “You don’t think the government designed the 401k to decrease tax revenue do you?” We BOTH know the answer to that!
UPDATE: Cross posted at http://www.turnquistwealthbuilders.com/2012/05/your-401k-wont-create-wealth.html, the site where I now post all wealth building opinion.
I am not a licensed financial advisor nor an insurance agent, and cannot give out financial advice. This is strictly wealth building opinion and should be treated as such.