Mistake number five out of ten on saving for retirement. In this episode, in this series I'm
going to address the question again. What mistakes do people make when saving for retirement?
This is the fifth mistake there's hundreds people can make but I have selected the top ten
and this is the fifth mistake in this series. Be sure and watch all the other
episodes but get ready. A lot of people don't think about this one until it's too late.
So my name's Doug Andrew and I've been a financial strategist, retirement planning specialist for
more than four and a half decades and so I've seen thousands of people as they prepare for retirement
and they would often come to me because they would hear me on the radio or they would read one
of my books or e-books or what have you or maybe they're watching these educational videos like you
are right now and all of a sudden they'd go, "Hmm... I need to check into this." Yeah, a lot of times people
make mistakes and I'm passionate about helping you avoid the mistake or at least correct the mistake
before it's too late. So this is mistake number five and it happens more often than you would
think but people ofttimes they sock away money into traditional accounts like IRAs and 401ks
403b, tax shielded annuities, 457 plans if you're a police officer. These are all qualified plans,
qualified with who? The government. Where you can put in pre-tax contributions like 401ks
and it grows tax-deferred and then when you go to retire you have to pay tax. Well, you do this
sort of with your head in the sand and you're following the herd as I've explained on some
of the other episodes in this series and you're just doing what you do best and you're trying
to enjoy life and you're being responsible and accountable sucking away money for retirement,
and so you hit age 59 and a half. Now, does that age ring a bell? What can you do at age 59 and a half
if you own accounts like IRAs and 401ks? You can access money out of them without a 10% penalty.
It's like an early withdrawal penalty, okay. In other words, if you need money out of a traditional IRA
or 401k before the age of 59 and a half or even out of a Roth. If you haven't had that Roth for at
least five years you have to wait till you're age 59 and a half or you will be assessed a 10% penalty.
So, if you were going to take money out 50,000 or 100,000 out of an IRA 401k and you're in a 25,
30, 35, tax bracket you have to pay another 10% on top of that. I've seen people go from 33%
up to 43% because they tap into money before the age of 59 and a half. Because they get laid off,
they get sick, they get disabled, and they need the money. Well, the government penalizes you
for tapping into that and I've seen many Americans pay more than 50% out in taxes and penalties. So age
59 and a half is this liberation day where you don't have a 10 penalty. So, sometimes people will
begin to access their money but most Americans think, "Oh okay, well I don't need the money yet.
I've still got another 10 years left in me teach school or to run this business", because they
understand that making themselves necessary is the secret to longevity and so if they
don't need the money out of their IRAs or 401ks they think the best place to leave it is there.
No, they're told by CPAs and tax attorneys, "Oh, keep deferring keep waiting until you need the
money. You don't want to take it out before you need it, you'll have to pay tax."
You're going to have to pay tax sooner or later and off times when I say this to CPAs and
tax attorneys, they go, "Well yeah, but where are you going to put the money?", I go, "You're going to pay
the tax at today's lower rates and reposition the after-tax monies into something that's going to be
tax-free from now on", and they go, "What's tax-free?", and so I have to educate CPAs and tax attorneys
on my favorite vehicle which is the title of my most recent best-selling book I want to gift you
at the end of this episode, it's called the laser fund. My money accumulates tax-free here under
a section of the internal revenue code section 72e that has been grandfathered in the internal
revenue code for over a century. I can access money tax-free out of here under section 7702.
These sections of the internal revenue code have been around in one form or another
a lot longer than IRAs and 401ks. It's been a sacred tax-free cash cow for years but I can
also when I pass away anything left in here will blossom. It will often double or triple
and transfer income tax-free to my heirs. There's not an IRA 401k or a Roth that will do that.
So why would I keep my money in an IRA 401k? So at age 59 and a half that is the time where I would
strongly recommend you consider repositioning the money. It doesn't mean you need to use the
money you're repositioning the money getting the taxes over and done with sooner at today's lower
rates rather than continuing to defer or postpone until later. A lot of times people think, "Oh, I'll
just leave it there for another 10 years I'm going to be working." No, I usually when I do an
analysis for people they are blown away. Before I share with you a simple look at this analysis
if this is intriguing you and you want to share this with someone be sure and share post a comment,
click like, subscribe to this three-dimensional wealth YouTube channel. Because I have over 500
educational videos like this on this channel and I have all 10 mistakes in this series
and I don't want you to miss out on watching any one of those and so subscribe and I post a
new in-depth answer to financial questions almost on a daily basis on this channel,
and then at the end of this episode, I want to gift you a copy of this 300-page best-selling book
the laser fund, to empower you to correct these mistakes before it's too late, okay. So, this mistake
is often made because well-intending CPAs, tax attorneys, financial advisors,
usually go, "Well, you don't need the money yet so continue to defer", thinking that is saving
tax because if you don't have to pull it out and report it on your tax return it's saving you tax.
That is a short vision, okay. It's not being far sided and so this is why that kind of advice is
what I call myopic. You're looking at it with just this short-range vision, "Oh, you'll have to pay tax",
well maybe it would be wise to pay the tax now rather than wait till later when tax rates will
likely be higher. Because most Americans believe that future tax rates will likely be higher. So
why do you want to keep postponing and deferring? They go, "Well, golly I don't want to pay the tax and
I would show school teachers", with my software the darkness of the night so to speak. If they
kept waiting from age 59 and a half to age 70 and a half used to be the age when they had to start
withdrawing and now it's age 72 and so they would say, "Oh no, my advisor told me to keep waiting", and
I remember this husband and wife couple both were school teachers and in 403b's and 401ks they had
about a quarter of a million dollars accumulated this was years ago and I went, "Well, way to go", and I
said, "I want you to start taking out sixty thousand a year for five years. Let's get this out and the
taxes over and done with", now sixty thousand times five years is three hundred thousand because
I was going to have them continue to earn interest on the 250,000 while we got it out.
Now, I felt like Sam I am in green eggs and ham. They would go, "Oh no, we don't want to pay the tax",
I go, "You will like this you will see", and they didn't want to pay the tax.
I go, "No, you're going to pay it sometime. Why not get it over and done with sooner than later?".
I showed them illustrated 250,000 doubling because they were earning about 7.2 percent
to 500,000 by age 70 and a half and then I took out the minimum distributions throughout their life
expectancy for the husband and the wife and then down to their children, they were shocked.
If congress didn't even raise taxes they were going to shell out over a quarter of a million
dollars in taxes by stretching it out. These were called stretch IRAs and 401ks. I said,
"Why do you want to do that?", they were going to pull out 60 thousand dollars a year pay
12,500 a year in taxes. But we would have all the taxes taken care of about 60,000 in tax
over five years instead of waiting and paying a quarter of a million in tax by stringing it out.
We took the net after-tax and we put it into a portfolio of laser funds
for the husband and the wife. We ended up at the end of five years getting their money
out of those IRAs and 401ks with 60,000 in tax instead of a quarter of a million in tax.
Now, in actuality I actually showed them how to offset the tax by resurrecting some deductions
that they had been killing on some of their rental properties, that's another strategy.
Even worst-case scenario, would you rather pay 60,000 in tax or wait and pay a quarter of a million
in tax? It reminds me of the old fram an autolite commercial where an automobile mechanic on tv
would hold up an oil filter and he would say, "Well, you can pay me now and I'll change your oil filter
or you can wait and pay me later and I'll replace your engine." So many people get duped
into thinking, "I'll just keep postponing", and then they're having to replace their entire retirement
engine because they keep putting it off. Get the taxes over and done with sooner than later
starting at age 59 and a half. That couple at age 64 and a half had all their taxes paid and
at a 70 we ended up with double the net spendable income out of a portfolio of laser funds of where
they would have had their money subject to all kinds of taxes if they left it in their 403 b's
the 401ks and even roll those over to IRAs which many times they're advised to do. That's the worst
advice I've ever heard other than RMDS which is another mistake in this series. So folks,
if you want to correct the mistake before it's too late, perform what I call a strategic
rollout. It's not a rollover, a rollover is going from the frying pan into the fire. That's taking
money out of 401ks and rolling it over to IRAs and continuing to delay the inevitable.
Don't do that. Perform a strategic rollout. Get the money out strategically. Get the taxes over
and done with and reposition the net after-tax money into something that's going to be tax
free. What's tax-free? The laser fund liquid assets safely earning returns
has been grandfathered in the internal revenue code for over a century under three sections
of the code 72e 7702 and 101a allows you to accumulate access and transfer your money totally
tax-free. It knocks the socks off of leaving money in IRAs and 401ks. Go to laserfund.com or click on
the link below contribute a nominal amount towards the shipping and handling. I'll fire out a copy for
you I'll pay for the book. You can also look at ways to listen and learn and watch and learn
but correct this mistake before it's too late. Do not get talked into leaving your money in those
accounts unnecessarily after age 59 and a half. Get the money out and the taxes over and done with
sooner than later. Because your current tax bracket is likely the lowest bracket you will ever be in.