It doesn't matter they're both inferior.
In this episode, I'm going to address the question.
Traditional vs. Roth IRAs and 40ks.
Get ready, and you'll understand why they're okay but there is something far better than
a traditional IRA or 401k or even a Roth IRA 401k and why I never own any of them and I
never will.
So, my name is Doug Andrew and I've been a retirement planning specialist now for more
than 47 years and so I've helped thousands of Americans saved for future long-term goals
like retirement and when they would come to my educational sessions or they would read
one of my books.
I've been honored in my lifetime to have written 12 books this far.
Were gonna make 13th as I speak in all my various educational materials on this very
channel three-dimensional wealth.
Which by the way free subscribe I post an in-depth answer to financial questions almost
on a daily basis and I have over 500 educational videos on this very channel.
Now, I've helped a lot of people been able to prepare for retirement and I have to cure
their tax dis-ease.
Now, I just said the word dis-ease.
When we are not at ease physically we call that dis-ease.
Well, there are a lot of people that are not at ease financially when they began to approach
retirement because all of a sudden they have this huge awakening and they go, "Wait a minute,
I've been taught for 30 years to follow the herd everybody's doing it and put the money's
to 401k and maybe they offer a Roth and put it in with pre-tax dollars and I'm gonna save
taxes every year."
Well, yeah, in a given year maybe but later on when you retire you'll likely be in a lower
bracket.
Can I just share something with you?
Most Americans who accumulate any type of retirement nest egg they're not in lower tax
brackets when they retire.
They want people that are in the lower bracket to those who didn't save very much and if
you don't understand most people go in a high way with one foot on the gas spill and the
other foot on the brake pedal.
They don't even know they're doing it.
They're deferring tax of future perceive unknown advantage.
But when I ask people, "How many of you think that taxes in the future will likely be higher?",
most people go, "Yeah, I think they're gonna be higher."
Then why are you doing that?
You wanna pay tax on the front end and enjoy the harvest.
If you are a farmer and you bought your seed and you have to pay tax on the price of the
seed when you brought it in the springtime.
But you worked hard and you plant, you cultivate, you irrigate in the fall.
You harvest your crop and now you pay tax when you sell your harvest?
That's the traditional IRA 401k.
I've rather just pay tax on the seen money and on the harvest during my retirement years.
I'd rather sell my harvest with no tax and people say, "Well, you're talking about Roth",
well Roth is stepping in the right direction but I never owned an IRA 401k and I never
own a Roth.
You're gonna see why.
Let's go here to the qualified plans IRAs 401ks etc... and talk about the cons and the
pros first of all.
The pros are your tax-deductible funding, tax-deferred growth.
Maybe possible matching.
You put in a dollar your employer puts in 50 cents or 50% match on the first 6%.
So golly, you think you're getting the 50% rate of return.
No, you're not.
You're just starting out with 50% more.
With the cons, it's fully taxed when you're gonna use it.
You must use it based upon the government's required minimum distribution life expectancy
formula.
Because they've been using you as a partner.
It's the best savings bond they came up for themselves and the remainder potentially taxed
twice upon passing to non-spousal heirs.
Depending upon the state taxes at that time.
Now, because of this, I have never owned an IRA 401k and I never will.
I have obviously gone another direction that is not a Roth.
So, what happens is in 1997 Roth was introduced I'll share with you why.
Because a lot of people who would come to me at retirement or just prior to retiring
coz I'm a retirement planning specialist.
They would look at their IRA and 401ks like it was a subway sandwich the picture here
on the left and I would ask them to bring it after-tax IRA 401k statements.
I know they didn't have them but they go, what?
I have to calculate that.
I've got it calculating what really it looks like after tax and it was this unappetizing
sandwich over here in the right.
In other words, If they came to me and they have million dollars accumulated I would go,
"Only about 650-700 thousand is your money", if you pull out 90,000 you're gonna have to
pay a third 30,000 in tax and you're gonna net 60,000 to buy gas, groceries, prescription
and golf fees.
The sad fact is a lot of IRAs and 401ks invest in the market they only want you to pull out
4%.
Because of market volatility, the average American is only averaging 3 and a half percent.
So, they want you to pull out 4% so that even if the nest egg slowly depletes you won't
outlive your money.
That's pathetic because a million-dollar nest egg will only generate 40,000 a year of income.
You pay tax even in a 25% bracket you're only netting 30,000.
I can show you how to get more like 90,000.
How much more is 90 than 30?
300% more money on a million-dollar nest egg 90 grand a year tax-free income.
Versus 30,000 a year of after-tax IRA 401k income.
So, when people would come to me with their yet-to-be-taxed IRA's and 401ks I say, "Man,
are you planning your retirement or Uncle Sam's?", sometimes the 401ks is not the catch
me out we ought it was and it doesn't smell very good.
When we get to that point where we need the money.
So, what is better?
This is why in time magazine in 2008 the cover story why it's time to retire the 401k and
do something better instead.
Stefan Gandl was the author of that article and he said, 'The 401k. is a lousy idea.
A financial flop.
A rotten repository for retirement reserves."
Why did he say that?
Because Americans lost 40% in the value of their IRA and 401ks for the 2nd time in that
decade.
The market volatility.
But to me, he even missed the boat when he didn't realize most people are not in the
lower tax bracket when they retire.
So, a lot of times people will go, "Golly, so you're talking about a Roth?", no...
I helped a lot of people do what I call a strategic roll-out.
This is not a rollover.
This is a rollout.
A rollover is going from the frying pan to the fire as far as I'm concern.
So, a lot of retirees will roll the money over from a 401k into an IRA and continue
to delay the inevitable postponed procrastinate paying tax until their age 72, and then if
they don't need the money they have to start taking money out or else the government will
penalize them 50% on top of the tax.
And so, most tax strategists say take out the RMD required minimum distribution.
That's the worst advice I've ever heard for most Americans.
You will end up paying far more in tax if you do that.
I have episodes in this very channel that prove that.
But people say, "Well, then what about a Roth.
Are you talking about a rollout into a Roth?", no, that's a rollover.
It's stepping in the right direction but I would not do that.
So, let's talk about a Roth.
Roth basically has 2 benefits.
You're putting after-tax contributions and so if you rollover from a traditional IRA
401k it's gonna trigger tax but you're gonna pay taxes today's lower tax rate rather than
postponing thinking taxes are gonna be lower in the future and so, you wanna get the taxes
over sooner than later and use to do that strategically.
See, you fund the Roth with after-tax dollars, and what happens?
Your money accumulates tax-free and then you go access money out of your Roth is tax-free.
They do that in 1997 Senator Roth said people are getting smarter.
They realize they're not in the lower tax bracket.
So, let's dangle a carrot, and let's introduce Roth and name it after me is what he said
and so it was stepping in the right direction.
Because you know what?
It was good for people to get taxes over sooner than later and enjoy tax-free accumulation
and access for the rest of your life.
But why I don't own one of them?
Because I have 2 benefits of the Roth and 4 additional benefits without all the strings
attached with the Roth.
So let me explain your strings attached.
If you're liking what you're hearing here be sure to share this video, subscribe, click
on the bell so you get notified every time I post a new educational video.
Which I do almost on a daily basis.
But at the end of this video, I'm gonna gift you a copy of my most recent 300-page book
The Laser Fund.
How to diversify and create a foundation for a tax-free retirement.
Now, the laser fund is what many savvy CPAs and tax attorneys refer to as the rich person's
Roth and I sneak coz you don't have to be rich to have a laser fund.
You can set one up for 500 bucks a month.
You can put 100 grand, 500 grand, 1 million, 2 million, 10 million.
You don't have any strings attached like you do with a Roth.
But see, if you make too much money you can't participate in Roth.
Did you know that?
So, a laser fund has 6 advantages.
It has the 2 advantages of a Roth but here's the other four.
With your contribution, you can deposit larger sums.
I can set up a laser fund put in 30,000 a year, 50,000, 100,000.
300,000.
Do I need to put that much in?
No, I can put in 30,000 when I can put in 100 or 300 thousand and I can make up.
I can catch up anytime I want.
You can't do that with the Roth.
You can only put in the dollar or the percentage of your income allowed in a given year.
You cant play catch up.
Not only that but I can gran father myself to be able to set aside far more than what
I'm allowed to put into Roth.
If you need to access money for any reason with a laser fund you can.
With a Roth, you have to wait 5 years to [inaudible].
These is the strings attached.
I have clients who retire at the age 35 or 40.
They put in 200,000 4 days later they need to access 120,000 for business opportunities.
You can't do that with a Roth.
If you do that in q qualified time like an IRA 401k your gonna have to pay a penalty
if you're under the age of 59 and a half and on and on.
The lase fund I have all kinds of liquidity but using the indexing the firth advantage.
Indexing allows me in a laser fund to make money when the market is doing well.
When the market goes up I benefit and I can earn some years I've earned 16%, 25%, 61.33%.
Watch other episodes on this channel on how clients have locked in tax-free gain on an
annual basis of those percentages.
But if the market crashes like 2008, our clients [inaudible] go-go coz they're not losing a
dime and the first 90-days of 2009 they locked in gains of 16% tax-free.
After not losing a penny coz you don't lose money when the market goes down.
Coz your money is not at risk in the market.
This is called indexing.
The last and 6th advantages when you ultimately die.
Anything left in the laser fund blossoms and transfer-tax-free it increases in value.
Also this I'm 69 right now.
If I die in an accident tomorrow every million in my portfolio of laser fund will blossom
to 2 and a half million and transfer tax-free to my wife, my kids, my grandkids, a church
or charity, whoever I leave it to.
There's no Roth around that will do that.
People say, "How much does that cost?", well nothing free.
It doesn't cost me anything.
It's being paid for with a meniscus portion of money that will go otherwise go out the
window in unnecessary tax if I follow the herd.
Putting the money into traditional IRAs and 401ks.
So, the answer to the question is neither.
I have never owned an IRA or 401k or Roth and I never will.
Why would I do that I can have all the benefits of the Roth and 4 additional benefits?
Would you like to read and learn more?
I wanna gift you a copy of my most recent 300-page book called The Laser Fund.
How to diversify and create the foundation for a tax-free retirement.
If you go to laserfund.com click on the link below.
Contribute a nominal amount towards the shipping and handling I'll cover the rest of that cost.
I'll fire out a hard copy to you its 300-pages.
It's actually 2 books in one.
This side 14 chapters with all kinds of charts and graphs this is for the left-brain thinker.
This side is for the right-brain decision-maker.
This has 62 actual clients story about the laser fund can be used as a dream solution
for all kinds of financial goals just retirement.
So, claim your free copy and there's an option there to listen and learn watch and learn.
But here is to your brighter option so that you can set aside money far better than IRA
or 401k or a Roth IRA or 401k.