Convert your 401k during downturns. In this episode, I'm going to address what to do with a 401k
during a recession. Get ready, it's not what you think.
So, my name's Doug Andrew and I've been a financial strategist and a retirement planning
specialist now for more than 47 years helping people prepare for a comfortable retirement.
Most people save in traditional accounts like IRAs and 401ks and frankly, I think many of them get
duped into putting pre-tax contributions into 401ks or tax-deductible contributions to IRAs
thinking they're going to be in a lower tax bracket when they retire.
Folks, I have seen thousands of people come to me with their yet to be taxed IRAs and 401ks
and if they accumulated any type of a respectable retirement nest egg they're not going to be in a
lower tax bracket. The only people that are in lower tax brackets are those that didn't save
very much. So, if you're serious about making sure you maintain the same lifestyle during retirement
or even a better lifestyle and not out living your money. Hopefully, you're saving more like 10 to 20
of your income or even more. But sometimes people say, "Well, I'm contributing 6% to my employer's 401k.
They're matching 50 cents on the dollar isn't that enough?", probably not. Unless you're going
to be saving for 40-45 years. So, you ought to be sucking away 15, 20, 25, of your income learn to
live on less than what you earn and suck it away. Now, my favorite vehicle for retirement savings
is not in a tax-deferred account. Because when you think about it if you're not going to be
in a lower tax bracket why do you want to defer tax to some future perceived unknown advantage
and then withdraw your money later when most people are convinced taxes in the future will
likely be higher. So, let me explain why and then show you what you should do during a downturn in
the market or a recession to get your money out of those 401ks? So, to use a simple metaphor that I've
used for years. If you were a farmer and you had the choice of buying your seed in the springtime
and when you bought your seed you didn't have to pay tax on the price of the seed. You plant it.
You irrigate. You cultivate. You work hard and in the fall you're gonna harvest your crop and now
you agree to pay tax on what you sell your harvest for. That's a traditional ira 401k it's based on
the premise that you will likely be in a lower bracket when you retire because that used to
be true 30-35 years ago. That's no longer true. Most Americans they pay off their house they
don't have that deduction anymore the interest deduction. Their kids are gone or if they move
back in as adult children you can't deduct them anymore. If you're a business owner you don't have
those deductions anymore you're not contributing money to IRAs and 401ks in retirement. You don't
have those deductions anymore and congress keeps raising taxes. So, most Americans when
I ask 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 ask how many of you think
that taxes in the future will likely be higher? A sea of hands goes up and then I go, "So, why are
you postponing deferring procrastinating paying tax to some future perceived unknown advantage
to withdraw your money down the road when taxes are higher?", and they go yeah, "That doesn't make
sense. So, are you talking about a Roth?". Well, a Roth IRA 401k is a step in the right direction
but there's still too many strings attached. So, I've never owned an IRA or 401k I never will.
I've never owned a Roth IRA or 401k and I never will. My favorite vehicle is called
the laser fund it has the two benefits of a Roth and for additional benefits the Roth will never
have. So, why would I waste my time with a Roth IRA 401k? No,w if you're sitting here right now watching
this episode and you have money in a 401k. There are times that you want to seize opportunities to
get the money out get the taxes over and done with. Especially if you're over the age of 59 and a half.
But sometimes under the age of 59 and a half you might incur a 10% penalty but that penalty
on top of the tax might be less at certain times than if you wait and postpone until you don't have
the 10% penalty anymore. There is a friend of mine Richard Rossi that says, when there's anxiety
there's opportunity. When there's anxiety in the market when we have a recession or a market crash
that is an opportune time to analyze if you want to roll money out of a 401k or an ira
and get the taxes over and done with sooner than later and reposition the net after-tax money into
something that's going to be tax-free from now on and I prefer one that will reimburse you for
any taxes that you incurred during the rollout process. So this is called a strategic rollout
not a rollover. A rollover is like going from the frying pan into the fire as far as I'm concerned.
That's rolling money over from a 401k into an IRA you're continuing to delay the inevitable.
That does not save you tax. I can prove that to you mathematically. So, when we have a downturn
in the market and people ask, "What should I do with my 401k in a recession?", you want to look at
getting money out of that 401k strategically to pay taxes on the values when they're lower. Would
you rather pay taxes when your account values are high? You'll pay more in tax or when they're
low and then recapture the gain in the market safely tax-free. Instead of waiting around until
you retire and then having to pay tax at a higher rate. Is this making sense? So let me take you to
sort of an illustration to help you understand where most Americans accumulate their money for
retirement. Some have money in all four of these buckets some only use one or two. But I'm going
to show you the difference and what my favorite strategy is to provide tax-free income that will
last as long as you do. So, here we go. When we talk about retirement accumulation vehicles or buckets
there are generally four areas that most Americans draw from during retirement. Now, a lot of people
don't draw from all four but we'll cover these. The first one is the most common and that's where
most Americans accumulate money in tax deferred IRAs and 401ks thinking they're going to be in
a lower tax bracket when they retire and then they have this wake-up call and all of a sudden
they're paying taxes through the notice. You know that most American school teachers for example.
They will pay back every dime they save in taxes over 30-35 years on the contribution phase on the
seed phase during the first two and a half three years of retirement. During the harvest phase
and they pay it back again and again and again by the time they pass away in their 80s or 90s. Most
retirees have paid back 8 to 12 to 15 times the taxes that they saved over 35 years on the seed
money on the contributions. Whose retirement were you planning anyway yours or uncle sam's? So, a lot
of times people when they would come to me as a retirement planning specialist because I've done
this for 47 years. I would look at their statements and I would actually ask them to bring their
after-tax IRA and 401k statements and they go, "After-tax statements? I don't think we have those."
I knew they didn't have them and so I say, "Well, I'll calculate it for you", and they're shocked because
they think they have a million bucks in their IRAs or 401ks and I go, "That's not all your
money. About 300,000 of that belongs to uncle sam." Because the government has a permanent tax lien
on those IRAs and 401ks that's been the bargain all along. So, it's amazing how many people are way
too top heavy in this bucket. They have most of their retirement resources and yet to be taxed
IRAs 401ks in the market and I go, "Did you know wall street was never built or intended
to create predictable cash flow? If you ask wall street when is the best time to sell my stocks
they will always say never..." You have to change your strategy. So, this necessitates a
strategy what I call a strategic rollout. Now, some people accumulate money in real estate that's okay
I don't like to be a landlord and so a lot of people they have acquired properties they get
rental income. But I would recommend no more than 30 percent of your income come from real estate
and truth be known a lot of people are sick and tired of fixing toilets evicting tenants taking
out the trash but they don't want to sell because they'll have to pay a capital gain. It looks like
under the Biden administration capital gain taxes are going to double to ordinary income tax rates
up to 40% or so and they're going to do away with the step-up in basis on long-term capital gains.
So, this may not be so attractive anymore and I've helped a lot of people sell their real estate
pay the capital gain tax at today's lower rates for example rather than waiting until they go
up to ordinary income tax rates and reposition the net after-tax money into my favorite vehicle
the tax-free bucket. I'll show you that in just a moment. I would recommend that no more than
30% of your retirement income be in this purple bucket when you retire. At retirement planning is
something totally different than maybe what you did for your retirement. Now, some people like the
guaranteed bucket this would be social security pensions, if your school teacher, a police officer,
fireman or whatever. You have a pension. You have social security. Some people will buy an annuity
that will give them a guaranteed income. They don't care about being rich. They just want to be
guaranteed they will never be poor and so it may not be a very good rate of return but they will
buy an annuity. Now, I've never owned an annuity I doubt I ever will because I know I can outperform
an annuity with the green bucket. This is the tax-free bucket it could include Roth IRAs
or 401ks but I've never owned one of them. Because frankly, I can do better with a laser fund. I have
six benefits instead of just two. Municipal bonds are not near as attractive as they used to be.
They're low-yielding and a lot of municipalities are finally in bankruptcy. They're not as solid as
they used to be an MFTA max funded tax advantage insurance contract structured correctly and funded
properly qualifies to be called what I call a laser fund. Laser is an acronym that stands
for liquid asset safely earning returns. It is the only vehicle in the internal revenue code that I'm
aware of that allows you to accumulate your money tax-free under section 72e of the internal revenue
code. It's been that way as a sacred tax-free cash cow for over 107 years. It allows you to access
your money tax-free under section 7702 and when you ultimately die whatever is left in
their blossoms increases in value and transfers totally income-tax-free. I'm 69 if I die tomorrow
in an accident every million I would have in my green bucket would blossom to about two and
a half million and transfer tax-free to my heirs. There's not a Roth around that will do that. People
say, "How much does that cost?", well nothing's free. But it doesn't cost me anything. It's being paid
for with a minuscule portion of money that would otherwise go out the window in unnecessary tax
if I kept my money in a purple bucket. I can prove that all day long. So, when we look at all of these
I would recommend forty to sixty percent of your income be totally tax-free not even show
up on your 1040 tax return. When people would come to me and they'd have 200,000 of income
maybe 40,000 came from social security or their teacher pension. 160,000 was going to come
out of here and they would you know be so proud of themselves and let's go way to go you saved two or
three million bucks to be able to create 200,000 a year of income. But there's one problem it's all
showing up on your 1040 tax return. They would go, "You mean there's another way? I go", "Yeah", they've
go, "Where have you been?", I said, "I've been here all along", you've had your head in the sand following
the herd blinders on just following the herd putting money in traditional ira 401ks and now
you're in a tax track. I need to free you in five years performing what I call a strategic rollout.
We would get let's say 120,000 of that income move from here down to here. They still have the
same 200,000 income but only 80,000 is showing up on their 1040 tax return. The other 120,000 the
IRS knows they're receiving it but it's tax-free it's very cut and dried. I saved them over 30,000
a year of tax if they live 20-25 years. I save them eight hundred thousand dollars of unnecessary tax
by performing a roll out from the purple bucket with maybe sixty percent of their money down to
the green bucket. It's not that complicated but most financial advisors don't know how to do this.
So, how can you learn more about this strategy and what to do with your 401k during a recession? So, in
order to learn more about this. I would recommend that you subscribe to this channel. Why? Because I
have over 500 educational videos like this and you can search if you subscribe be sure and click the
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share this post a comment click like but let me show you how you can learn more by
receiving a free gift. Now, I've been doing this for 47 years, I've written 12 books.
This book number 11 has been flying off of our warehouse shelves it's called the laser fund and
it's how to diversify and create the foundation for tax-free retirement. It shows you how to do
a strategic rollout and put more of your money into the tax-free bucket. The IRS will know you're
receiving it but they know it's tax-free because it's been cut and dried in the internal revenue
code that way for over a century. So, you can claim your free copy by going to laserfundlaseerfund.com
or click on the link below contribute a nominal amount towards the shipping and handling and it's
actually two books in one this white covered side is 200 pages 14 chapters with all the charts and
graphs and we talk about strategic rollouts in here and these four buckets when you flip the
book over you can read 62 actual client stories and there's one entire chapter with five or six
explanations of clients who have done strategic rollouts and we saved a school teacher couple a
quarter of a million of unnecessary tax. We saved a real estate investment guru 750,000. We saved
a husband and wife both were physicians 1.2 million of unnecessary tax doing a strategic
rollout. We took one California couple from the highest tax bracket in five years down to a
zero percent tax bracket. Their 4 million doubled to 8 million and that 8 million is generating 600
to 800,000 a year of growth totally tax-free. They don't even need that much money. Claim your free
copy and there's options there to listen and learn watch and learn here is to your brighter future.