Biden's plan hurts high-income earners. In this episode, I'm going to address
Biden-major changes to your 401k.
So, get ready. I'm going to explain what changes are in the works and what you should be doing.
Hi, I'm Doug Andrew. I've been a financial strategist and retirement planning specialist
now for more than 4 and a half decades. And so, I keep very close to a lot of the legislation things
that are in the works based upon congress. And sometimes congress is the opposite of
progress. Pro and Con are opposite, you know? And so, I wanted to alert you about some of the
things that are in the works under Biden's proposed plans with taxation. First of all,
let's go through and address what a qualified plan is, traditional IRAs and 401(k)s versus
the Roth IRAs and 401(k)s before I share with you what he's proposing to change. These are very
important concepts that you as an American taxpayer need to understand.
And so, as we proceed, I'm going to share with you some concepts that maybe you didn't even
understand before as it relates to traditional IRAs and 401(k)s versus Roths. So, in a nutshell,
the traditional IRA and 401(k)s type of a plan and this would include 457s, 403(b)s, tax-shielded
annuities, pensions, profit-sharing plans. These are qualified plans. Qualified with who? The
government, Uncle Sam. Uncle Sam is your partner, okay? Now, when you put money into a traditional
IRA, 401(k) the original premise was "Oh, put in pre-tax dollars or you get a tax deduction
for what you're contributing like an IRA. 401(k)s are funded with pre-tax dollars. And so, you get
a tax break on uh the seed money, the contribution money. I often use the metaphor of the farmer and
the seed. In other words, if you were a farmer and you had the choice in the springtime when
you bought your seed that you didn't have to pay tax on the price of the seed when you bought it.
But you planted this seed, you irrigated, you cultivated, you worked hard all through the summer
and then in the fall... I'm talking about the fall of life, retirement. When you go to harvest your
crops, now you agree to pay tax on what you sell your harvest for. That's a traditional
IRA or 401(k)s. You get a tax break on the seed money but you have to pay tax when you harvest
the money. That sounded good years ago because they would say, "You know, you're going to be in
a lower tax bracket", right? Well, that has not been true or axiomatic for more than 25-30 years
now. Most people who have a respectable retirement nesting at retirement find themselves in as high
or higher tax bracket as they were ever in during their earning years even if they have less income.
Why is that? The reason why people find themselves in his higher, higher tax brackets is because they
were sort of going down the highway of life trying to achieve financial independence as
the destination and they had one foot on the gas pedal but the other foot was on the brake pedal
so to speak. They were deferring, deferring to some future perceived unknown advantage.
And simultaneously and they were killing their tax deductions. See, most Americans pay off
their house. They don't have that deduction in retirement. They do not have children if they
moved back home as adults. You can't deduct them anymore as dependents. You're not contributing
money to IRAs and 401(k)s anymore. So, you don't have that deduction. If you're a business owner,
you don't have those deductions and congress keeps raising taxes. So, many people find themselves
paying back every dime they saved in tax during the first 2 and a half, 3 years of retirement
that they saved over the 30 years on the seed money the contribution money. And they do it
again and again and again. So, whose retirement were you planning? Yours or Uncle Sam's? Well,
a lot of people began to realize it would be far better to simply pay tax on the price of the seed
and enjoy the harvest without tax. And so in 1997, when the government was hard up for tax revenue,
they did this primarily for them not for us. But senator Roth said "I've got an idea. Smart
people are realizing if they have a respectable retirement nest egg, they're savers, it's far
better to pay tax on the seed money and enjoy the harvest without tax." And he wanted to trigger tax
revenue. So, he said, "We'll name this after me." The Roth IRA and then later, Roth 401(k)s. Now,
that's a step in the right direction but there's still a lot of strings attached that I'll explain.
But see that way you pay tax on the seed money and you enjoy the harvest without tax. And if
you think taxes in the future will likely be higher which most people do, that's going to be
far better than a traditional IRA and 401(k). What that did is it triggered tax revenue back in 1997.
When people rolled money over from a traditional IRA 401(k) to a Roth then they had to pay tax and
then they could accumulate the money tax-free from that point forward and access it tax-free.
So, Roths are a step in the right direction. But let me share with you the difference here
next. So, I'm going to simplify this. Let's say that we had a lump sum of $150,000
and we're earning 10%. 10% means your money will double every 7.2 years. This is called the rule
of 72. You divide 10 the interest rate you're earning into the number 72. And that tells you
how fast your money will double. So, let's say the earning 10%. Your money doubles in about 7
and a half years. So, 150,000 doubles to 300,000. If that's pre-tax dollars, 150,000 and now you've
tax-deferred it, it's grown to 300,000. Now, at 10%, 10% 300,000-dollar nest egg would be 30,000
a year. You withdraw the 30,000 a year of interest in retirement and now you have to pay tax.
Most Americans between federal and state income tax (41 out of 50 states has a state income tax)
pay about a third in tax. What's a third of 30,000? 10,000. You're only netting 20,000 to
buy gas, groceries, prescriptions and golf green fees, right? Well, what if you did a Roth? Now,
if you uh paid tax on the seed money, instead of 150,000 in a 33% bracket, you only have 100,000.
Are you with me? 100,000 earning 10% doubles in 7.2 years up to 200,000. And 10% of that is
20,000 a year tax-free. Did you figure out something there? It's exactly the same net
whether you put money in a traditional IRA, 401(k) or a Roth IRA 401(k) provided what? Taxes stay the
same. But most Americans, when I ask audiences "How many of you think taxes in the future will
likely be lower?" I get nothing but crickets. "How many think they're going to be the same?"
A few hands go up. But when I say, "How many think that taxes, in the long run, will be higher?" And
a sea of hands goes up. And I go, "So, why are you postponing and delaying, procrastinating
tax to some future-perceived unknown advantage? And then you withdraw your money when we all agree
taxes will likely be higher?" I can prove to you mathematically that if you chose a Roth and taxes
go up, you will likely have 33 to 50 percent more net spendable income when taxes go up.
So, Roths we're a step in the right direction. But my favorite vehicle is what many savvy CPAs
and tax attorneys call the Rich Man's Roth. So, let me share with you what Joe Biden wants to do.
So, President Biden, he's trying to raise a lot of tax revenue and so, he is proposing that they
get rid of pre-tax contributions to plans like 401(k)s. Did you hear that? In other words, if you
had a 100,000-dollar annual income and you wanted to allocate 15,000 to go into a 401(k) where
you worked, you only have to pay tax on 85,000 because you get to put in pre-tax contributions.
What he wants to do is get rid of that and so you will have to report the entire $100,000 of income
on your tax return but then he wants to give a credit, a tax credit. And so, he would maybe land
that around 26% is what it looks like. So, you will get a credit of 26% of your income. 26,000
a credit against that. Now, that may be good if you are earning less money because 26%...
If you're in a 33% bracket, that's not going to help you if you're a high-income earner. If you're
single or a married couple finally in a joint tax return making 80,000 or 100,000 or more a year,
this is not going to help you, it's going to hurt you. This is only going to benefit low-income
earners that are in less than a 28% maybe federal bracket or 24% federal bracket plus a lot of
states have about another 7% on top of that. So, if he goes this direction and you're a high income
earner uh this is going to hurt you as far as what you've been experiencing as far as tax benefits
on traditional IRAs and 401(k)s. Now, if this is intriguing you, I would invite you to share
it with someone who is also a little bit confused about what's going on and what's in the works. Or
comment or push like. But I would love for you to subscribe. And if you do push the bell so that you
can be notified, I post an in-depth answer to a financial question almost on a daily basis.
So, let me give you my advice on what I would recommend. If you're a little bit higher income
earner, a little bit higher than the average American, I would say, "Well a Roth is going to
be a better choice for you than a traditional IRA or 401(k)." But I've never owned an IRA or 401(k).
Never will. I've never owned a Roth IRA or 401(k). I never will. Why? Because my favorite vehicle
which I call the Laser Fund... LASER is an acronym that stands for Liquid Asset Safely Earning
Returns. It has the 2 benefits of a Roth and 4 additional benefits the Roths will never have.
So, why would I put money in a Roth when I can have 300% more benefits, 3 times the benefits
that a Roth has. See, again, a Roth is going to be better on the back end
if you have accumulated much of a retirement nest egg if you're going to be in a higher bracket.
The only time it made sense for people to choose traditional IRAs and 401(k)s is if they were not
savers, if they didn't save very much. Now, what's the difference between a normal Roth and what
CPAs and tax attorneys called the Rich Man's Roth, the Laser Fund? Let me share with you the
6 advantages. So, the laser fund is a vehicle that allows you to accumulate access and transfer your
money totally tax-free. It's been grandfathered in the internal revenue code for 107 years as of the
recording of this video. And folks, it is like a tax-free sacred cash cow for people who are saving
for retirement. So, I have earned average rates of return of 8.2%. Some years, 10%. Some years,
25%. But I'm talking about average rates of return where every million dollars that I save
can generate predictably about 80 to 100 thousand a year of tax-free income if I live to be 120.
Most IRA and 401(k)s and Roth cannot do that. The 2 benefits of a Roth, you contribute the money
with after-tax dollars, okay? It accumulates tax-free and you can access it tax-free. Well,
the Laser Fund has those 2 benefits but it has 4 additional benefits. The next 1, number 3 is that
with the Laser Fund, I can put in a large lump sums. If I'm a business owner, let's say and I
have a banner year, I'm not restricted see Roths. You could only put in a certain dollar amount or a
certain percent of your income. Do you know if you make too much money, you can't even participate in
a Roth? So, savvy cpas and tax attorneys say, "Oh, yeah. The laser fund that Doug Andrew talks about,
that's called the Rich Man's Roth." And I snicker. You don't have to be rich to own one. You can put
in 500 bucks a month. But see rich people can't even own a Roth. They make too much money. So, let
me give you an example. If I had a banner year, business was just crazy. I could put in 300,000
into a Laser Fund. You can't do that into a Roth. But I could have put in 300. I have 270,000
of room I didn't use. I can make up for that anytime I want. I don't have to use the room
in that single year with a Roth. If you don't use the room in a given tax year, you lose it. Here's
a big benefit: If I put in let's say 300,000, I don't have to put in that much. But if I did,
30 days later, if I had a business opportunity or investment opportunity, I can access 250,000
of that. There's no IRS penalties. If you touch a Roth. there's a penalty if you touch the money
within 5 years or age 59 and a half, there's all those strings attached. I don't want those.
The fifth benefit, you get to use indexing. Indexing is a strategy... You ought to search on
this channel. This allows me on my retirement nest egg to be able to participate when the market goes
up, the economy is going up. But when the market goes down, I don't lose.
Because my money is not in the market. It's not at risk in the market. But I get my returns that
are linked to whatever the market does. And the sixth and final benefit of the Laser Fund?
When you die, it blossoms in value and transfers totally tax-free. Now, you can learn about this
in a book I'm going to gift you here in a moment. But I'm 68. If I died next week in an accident,
every million that I would have let's say and a portfolio of Laser Funds would blossom immediately
to about 2 and a half million tax-free and transfer to my wife, my kids, my grandkids,
a church, a charity, whoever I want. People say, "Wow, how much does that cost?" I go, "Well,
nothing's free. But it doesn't cost me anything." It's coming along for the ride. It's being paid
for automatically with a minuscule amount of interest that most people with IRAs and 401(k)s
shell out in unnecessary income tax. So, let me show you how you can learn more about this amazing
Rich Man's Roth which I would recommend is the best way to go. So, with current events, President
Biden and his major tax plan changes can affect your 401(k), you need to be ready. You need to
reposition some or all of those contributions to something that's going to be tax-free. So, here's
how you can empower yourself. I would like to gift you a copy of my most recent 300-page best-selling
book the Laser Fund. These are flying off of the warehouse shelves. This is actually 2 books in 1.
This one is about 200 pages, 14 chapters, with all kinds of charts and graphs for the left-brain
thinker. If you're a right-brain thinker, you learn by stories and examples of metaphors,
you flip the book over and you read this one. This one is 12 chapters with uh 62 chicken soup for the
financial soul stories about how the Laser Fund knocks the socks off of an IRA, 401(k). But you
can use it not only for retirement but college funding, emergency funds, working capital for
business, real estate management, on and on and on. You simply go to Laser Fund (l-a-s-e-r),
Laserfund.com. You contribute a nominal amount towards the shipping and handling. I'll cover
the rest of that. I'll pay for the book and fire out a copy to you. Here's to your brighter future.