How congress is peddling IRA and 401(k) snake oil? In this episode, I'm going to address the question
"What is the truth about a 401(k) that no one tells you?" Get ready
because people are shocked when I share with them that it isn't what you thought it was.
I want you to understand that as a financial strategist and retirement planning specialist
for more than 4 and a half decades, I've helped people optimize their financial
assets prepare for a comfortable retirement but minimize unnecessary taxes. And so,
I have never owned an IRA or 401(k), I never will. I've never owned a Roth IRA or 401(k)
and I never will. You'll understand why as you continue here. But when people are going "Hmm,
should I really be putting money like this into a 401(k)?" They start to
second guess when they wake up. And so, they type into YouTube "What's the truth
about a 401(k) that no one tells you?" Well, I started out by saying that
congress I think is peddling IRA and 401(k) snake oil. In fact, that is the title of an editorial
article I wrote years ago. And people would think, "Whoa! That guy's anti-saving for retirement." Oh,
n,o no. No, no. I am against what most people are duped into doing. And that's putting money into
tax-deferred IRAs and 401(k)s thinking they're going to be in a lower tax bracket when they
retire. The only people who are in lower tax brackets are those who didn't save very much.
You know, Time Magazine came out in 2008 and the cover story said "Why it's time
to retire the 401(k) and do something better instead?" The author of that article was Stephen
Gandel and he said "The ugly truth is the 401(k) is a rotten repository, a financial flop for our
retirement reserves." It's because so many people in 2008 lost up to 40% in the value of their IRAs
and 401(k)s. Well, I've been telling people it's way deeper than just having market volatility
take away your hard-earned savings. It's the premise that you're going to be in a lower
bracket. Get ready, I'm going to share with you that the government actually (Uncle Sam) has a
permanent tax lien on your 401(k) and IRAs. He's your partner. So, I'm going to share with you
something that's better and the truth about 401(k) that most advisors don't tell you. Most advisors
unfortunately they simply sell you what they were told to sell you and keep it elementary. "Hey,
you know what? Just put your money in your IRAs and 401(k)s. Everybody's doing it".
It's like just follow the herd. What? Off a cliff? No. Because they do not tell you
that you're maybe headed for as high or higher tax bracket when you're going to retire. Because
the premise was, "Oh, you'll likely be in a lower bracket." But most advisors... Hello?
If they see that you're accumulating, you're a saver. And all of a sudden, you have a million,
2 million, 4 million dollars and they continue to be a fiduciary which is supposed to do what?
Look out for your best interest. See, they tout themselves as being a fiduciary --put in your
best interest first. Well, if they can see that you're a saver and you're not going to be
in a lower tax bracket for several reasons and they can tell the direction Congress is taking
taxes, then are they looking out for your best interest when you go to retire and all of a sudden
you get clobbered with taxes which erodes away 30, 35, 40 percent. There are people that I've
met with who accumulated 4 million, 10 million dollars in their yet-to-be taxed IRAs and 401(k)s.
They're in the highest tax bracket ever. We take 5 years and take them from the highest tax bracket
down to a zero percent bracket but their advisor usually says, "Oh, well...
Look, we made them so much money. They can afford to pay that much in tax." Why? Why don't we ask
them? Most people would prefer not to do that. They're flabbergasted when they realize they're
gonna have to pay so much in taxes on the back end because their advisor never told them where they
were headed. They just go, "Oh, come on. You can afford to pay the tax." Now, before I teach you
how to redirect otherwise payable tax the causes you support and get money out of IRAs and 401(k)s,
let me continue to share with you the truth what nobody probably told you. There are actually 4
phases of retirement planning and you can learn a lot about this in my various books. At the end of
this episode, I'm going to offer you a free gift. My most recent best-selling 300-page
book The Laser Fund. So, make sure you stay to the end. And I would invite you to subscribe to
this 3-dimensional wealth YouTube channel. I post an in-depth answer to a financial question almost
daily. If you click the notification bell, you'll be notified every time I post a new video. So,
4 phases. What are they? The contribution, accumulation, distribution, and transfer phase as
indicated here in these vertical columns. See, the contribution phase is where we are contributing
money into some type of savings vehicle for our future, usually a goal like retirement. And when
we do that we have the choice of using pre-tax dollars or after-tax dollars. When we put it into
a vehicle to accumulate, we can have tax-favored accumulation or tax-deserved accumulation. But
the accumulation phase overlaps while we're probably funding it and hopefully we're growing
our money. We're earning rates of return and getting interest in dividends or whatever.
Now, we do this usually because somewhere down the road we're going to take distributions. Now,
the sad thing is most Americans have money in IRAs and 401(k)s in the market. And Wall Street was
never built to create predictable income. If you ask any financial planner that has your
money in the market, if you ask them on Wall Street, "When's the best time to sell?", It's
"never". Never because they cannot create a predictable income stream when the market is doing
this. So, this is why I'm going to share with you how you can get your money out of the market,
get taxes over and done with sooner than later and create a more predictable income stream that
is double what the financial services industry generally advises you take out of your IRAs or
401(k)s especially if they're invested in the market. So, the distribution phase is what we're
doing this all for. And too many people as they withdraw money go into withdrawal when they hit
this phase because they're being collaborative of tax. And then at some point in time,
we're all going to check out, we're going to graduate out of this life. And we usually leave
behind something that would have sustained us had we lived longer. And so, if that's in an IRA,
401(k), it's actually the worst place to leave money. And many savvy CPAs will agree with me.
So, it's the transfer phase. How is this going to be treated when you transfer it? So, from a tax
standpoint, green would mean you're saving, red would mean you're paying. So, if you put money in
taxed as earned investments, it's actually the lowest down here. You're taking after-tax money,
you're you're paying tax on any interest or dividends every year.
You're paying tax on any gains as you realize them. And you're paying tax when you transfer.
Tax, tax, tax time. It's the worst way to save in the most common way Americans save.
Next up, the latter is you take after-tax money and put it into something like a deferred annuity.
You only tax defer as it accumulates but when you begin to take any money out, it's taxed now
LIFO, last in first out. If you put in a half a million bucks and it's earning 10%,
that's 50 grand a year. You have to pay tax on the entire 50,000 even though you've funded it with
after-tax dollars the rest of your life, okay? A lot of people are duped into putting pre-tax
dollars into IRAs and 401(k)s, you get a tax break on the contribution and during the accumulation
but you have to pay tax when you withdraw it. And when you leave it behind, most people thought
this was the smartest thing to do because, "Oh, you'll be in a lower bracket when you retire."
Well, that has not been true or axiomatic for most Americans for years. Because if you save any type
of a respectable retirement nest egg to provide the same amount of income you were used to when
you were earning money, you're not going to be in the lower bracket because congress keeps raising
taxes and you've been killing your deductions all along the way, okay? So, this is why in 1997
Roths were introduced because people were getting smarter and congress was hard up for the revenue.
You take after-tax money, you accumulate it tax-free and you can access it tax-free. But
I've never owned an IRA, 401(k). I've never owned a Roth because my favorite vehicle which savvy cpa
is called the Rich Man's Roth actually has the 2 benefits of a Roth but 4 additional benefits
Roth will never have. It's called a maximum-funded tax advantage (MFTA), section 101(A) alternative.
It's what I call The Laser Fund in my most recent best-selling book. It allows me to
accumulate and access my money tax-free. And when I die, it blossoms and transfers tax-free.
But it has benefits that Roths will never have. Now, in my book, you can learn how to
not only have 3 green circles but 4 green circles by combining strategies together.
Suffice it to say, if you choose 3 green circles the way I'm going to recommend next,
you will likely have 50 to 100 percent more net spendable income and retirement over the money
in a traditional IRA or 401(k) or even a Roth. Free yourself from the IRA, 401(k) tax trap.
How? Perform a strategic role out. Not a rollover. So, how do you do this?
This is actually up to a 3-part strategy that I came up with years ago. Part 1 is to strategically
schedule your withdrawals out of your IRAs and 401(k)s over let's say, a 5-year period, maybe
longer based upon your tax bracket any special circumstances during a given tax year. But
generally speaking my goal for most people is to get the taxes over and done with sooner than later
over a 5-year period. And we're trying to basically make sure that after 5 years,
you don't have to pay tax anymore because of where you reposition the after-tax money. So,
a strategic rollout, first of all, you're getting the taxes taken care of sooner than later
over a 5-year period strategically based upon the tax brackets, the levels, your income,
a lot of factors. Part number 2 in the strategy is to take the net after-tax
monies from the rollout each year and reposition that into something that's going to be tax-free
from now on. Now, most CPAs and tax attorneys go, "Well, what's tax-free?" And that's why they come
and enroll in advanced continuing education and learn about my favorite vehicle that I call The
Laser Fund that allows you to accumulate access and transfer your money totally income tax-free.
It actually will blossom at the end of the day. Thus, reimbursing you sometimes many fold for any
taxes that you did incur during the rollout process. So, you, your spouse, your kids are not
out anything at the end of the day. You actually come out ahead. So, you're taking the net after
tax money in phase 2 and you're repositioning that in accordance with IRS guidelines under
what is called the Tamra tax citation where you cannot fund a laser fund any faster than 5 years
or technically speaking, 4 years and 1 day if you put in a lump sum of the first day of
the first year, then the first day of the fifth year, which is actually 4 years and 1 day later,
you have complied with the tax citation Tamra (technical and miscellaneous revenue act of 1988)
so that from that point forward, any money you access sooner or later out of the laser fund is
totally income tax-free. And when you ultimately pass away, it will blossom and transfer income
tax-free. The third part of the strategy sometimes we can't apply. But in any situation that I can,
I will employ this. And it's to offset some or maybe all of the tax incurred during the
five-year or longer rollout process by creating or resurrecting new tax deductions that maybe
you were killing, okay? This may be in the form of real estate that maybe uh you were owning it
was rental income properties or whatever and you thought the best way to handle that is to
hurry and pay it off and you're killing your tax deductions. Or maybe it's your house. So,
I've had many people refinance and re-leverage or acquire new real estate properties, leverage them
and bring in new deductions because of the mortgages or resurrect deductions by refinancing
those properties. And I'm going to give you some examples of this. And I've helped many people
transfer a quarter of a million, 3-quarters of a million, 1.2 million out of their iras and 401(k)s
sometimes with no tax consequence because I offset the tax by creating new deductions
on their tax returns. The IRA, 401(k) rollout is showing up on the front of their 1040 tax return.
But under deductions, ofttimes on schedule A or schedule E of their real estate,
I'm creating all kinds of new deductions that they had been killing. Or I'm acquiring new properties
and people are able to get the money out with the least tax impact. So, in summary, why a strategic
rollout? Because you want to get the taxes over and done with sooner than later in today's lower
tax rates. Reposition it to something that's going to be tax-free from now on. The best place,
I feel is the laser fund to do that. A max-funded, indexed universal life insurance contract.
And then if you can offset some or all of the tax by resurrecting new deductions or creating
new deductions, I would strongly look at doing that. You can study examples of that in my book.
But the reason why I like a laser fund is because there's no strings attached. I can put in large
amounts of money. I don't have to. I can minimum fund it. I can maximum fund it. If I minimum fund,
I can always make up for the amount of room that I didn't use which you can't do with other types
of vehicles like roths and the like. You can roll the money out and put it into the laser
fund where it can just sit there and compound and grow. And many people do that and it doubles
every 7 to 10 years. But if they ever need to turn on income, every million can safely predictably
generate 80 to 100 thousand dollars a year of tax free cash flow without depleting principle. If
this is intriguing you and you want to see actual charts, graphs, examples of this and read stories,
I would recommend you study my most recent best-selling 300-page book The Laser Fund.
Here's how you can claim your free copy. You can claim your free copy by going to Laser Fund...
It's here on the bottom of the screen. Contribute a nominal amount towards the shipping and
handling. I'll cover the rest of that cost and then I will pay for the book and this will begin
to empower you and you can also be notified about our other educational events. And there's
additional resources to listen and learn and watch and learn. But here's to your brighter future.