401k's are quickly losing appeal. In this episode,
I'm going to talk about what is better than saving in a 401k or an IRA.
My name's Doug Andrew and I've helped many many thousands of people save for their future usually
retirement and I do not recommend nor have I ever recommended people put money into
traditional IRA's and 401k's. In fact, I've never owned an IRA and 401k's. I never will.
I've never owned a Roth IRA or 401k and I never will and people say, "Wait a minute." Now before
we go too far. Let me just share with you. I've been helping people prepare for retirement
for 47 and a half years to be exact and I've noticed that a lot of people that came to me
when I would ask them to bring their after tax IRA and 401k statements,
they would go, "What? After taxed?" I knew they didn't have it. I said, "Okay, if you don't have the after
tax statement, I'll calculate it for you," and for some reason they had never thought about
the after tax amount in their IRA's or 401k's. They didn't realize that they had this silent partner,
this permanent tax lien on those tax deferred IRA's and 401k's. So, let's talk about sort of
the wrong premise that has been wrong for over 25 years but still, the majority of Americans
continue to be duped, in my opinion, putting money into tax deferred IRA's and 401k's thinking
they will be in a lower tax bracket when they retire. That's not going to be true for most of you.
So, when people would come to me and I would look at their IRA's and 401k's,
maybe they may have a million dollars accumulated and they would be going, "Yeah. We have a million
bucks there." I go, "Wait a minute, that's not all your money." "What do you mean?" I said, "Well, you've
had a silent partner in there, Uncle Sam, about 25 to 33% of that doesn't belong to you." "You mean I
have to pay tax on this?" You can't believe how many people don't realize that or if they did,
they were told for 20, 30 years or longer, "Oh, you want to defer it, you want to fund your IRA or 401k
with pre-tax dollars because when you pay tax in retirement you'll likely be in a lower bracket."
I'll just be honest with you, the only people that I have ever seen who are in lower tax brackets
when they retire are those that didn't save very much. Is that why you want to be in a low bracket?
Now, why are they in as high or higher tax bracket as they were during their earning years? They
didn't see it coming even school teachers who may teach school for 30 years and they knew they were
gonna get 2% for every year of service. 2% times 30 years is 60% of
whatever their average best paycheck was the last 5 years they taught school. That's a typical
school teacher pension. So, years ago, we had school teachers that maybe were making 5,000 bucks a
month and they knew that they would be going down to 3,000 a month. But they socked away money in
the state's 401k, 403b's, tax shielded annuities and so they had 250,000 or more dollars over here
and nowadays a lot of school teachers have a half a million or a million dollars accumulated
and you have to start taking that money out at a 72 or the government will penalize you 50%.
They want that money out and taxed before you die so they can tax you again when you do die.
So, your partner has sort of been Uncle Sam. Let me use this little analogy. Let's say you and I
we're gonna go into business together and I say, "Okay, here's the deal. This is a partnership
and right now I'll just take a third but I do reserve the right to change my percentage
higher if I deem myself more hard up than you and you'll do all the work, you'll make it successful
and at the end of the day if you happen to touch any of this before the age of 59 and a half, I'm
going to penalize you 10% if you touch any of the money that's accumulated in here
in this business. But you must start paying me my portion by age 72 or else I'm going to penalize
you 50% on top of what you owe me. Oh by the way, I get to call the shots. If I get hard up, I can
change my percentage from a third up to 40%, 50, 60 percent." Now, would you go into business with me?
People say, "Absolutely not." Well, I just described an IRA or 401k to you. Your partner is Uncle Sam. I will
never own an IRA or 401k for that reason. But see, the first premise is when people own a 401k, they
realize it's not the cat's meow they thought it was, okay? And they realized they're going to have
to pay tax. It doesn't have the flexibility and the amount of money they're going to pay on the back
end in taxes. They will pay back every dime they saved in tax over 30 years on the contributions
the first 2 and a half, 3 years of retirement and every 2 and a half, 3 years thereafter
they're going to pay back again and again and again. You know, the most people pay back
8 to 12 times the taxes they saved by the time they pass away on tax deferred IRA's and 401k's?
And so, Uncle Sam is just taking a bigger and bigger piece of the American tax payer's pie
and we're seeing this right now with the Biden administration. Biden is hard up for
tax revenuer and so he's taxing more and more ways and he's even changing 401k's.
He's saying, "You know what? I'm not going to raise taxes but I'll do it indirectly."
And there's all kinds of ways that he's hurting the little guys but for those people who own 401k's,
he's no longer going to allow you to fund it with pre-tax dollars
to where let's say if you made a 100,000 a year and you saved 15%, that would be 15 grand
up until now you've only had to put 85,000 on your tax return. No, he wants you to report the
whole 100,000 now and he'll give you a tax credit of maybe 26% if you contribute to a 401k.
But see, if you're in a higher bracket than that, which most middle to higher income Americans are,
you just had an indirect tax increase. He's taking away the benefits of 401k's
because he's spending like crazy. The government with the infrastructure packages, stimulus packages,
they're spending 4 times what they bring in in revenue. So, they've got to increase the revenue
by taxing people and they print money which causes inflation, which is what I call a hidden tax.
So, is postponing tax really a good idea? Sometimes people would come to me with IRA's
raise a 401k's like is this some sort of subway hoagie sandwich depicted here on the left and all
of a sudden they start taking out the money and it looks like this unappetizing sandwich on the right.
Whoa. So, when people would come to me with yet to be taxed IRA's or 401k's and I showed them
how much they're going to pay in tax during their golden years, I would say, "Are you planning
your retirement or Uncle Sam's?" and they were like shocked. And so, I had to sort of solve the problem
for them and in other episodes, I talked about how we would get money out of those IRA's and 401k's,
get the taxes over and done with sooner than later and reposition the money into something that's
going to be tax free from now on. My favorite vehicle to do that is called the laser fund.
Now, if you stay to the end of this episode, I'll gift you a copy of this 300 page book
and you'll learn that it knocks the socks off of any IRA or 401k that I've seen because it allows
you to accumulate your money tax free, access it tax free when your diet blossoms and transfers
tax free. I don't see IRA's and 401k's do that and I've averaged between 7 to 10% tax free rates of
return for the last 4 and a half decades. If this is resonating with you, be sure and click like,
comment, subscribe. Click the little bell so you'll be notified every time I post an in-depth answer
to a financial question on this channel, which is almost daily, but stay with me to the end, I'll show
you how you get a free copy of my most recent best-selling book. So, before I share with you
what I would do if I were in your shoes if you're tempted to put money into an IRA or 401k, let me make
sure you understand the pros and the cons, okay? An IRA or 401k, a 403b, a 457, they're all qualified plans.
IRA's or 401k's all of those they are qualified with who? The government, Uncle Sam. He is your partner.
What are the cons? Well, I'll show you what the downsides are but let's go ahead and talk about
the pros first. People do it because they get tax deductible funding. You get to deduct what you put
in or you get to put in pre-tax dollars, well it sounds like we're not going to have that now on
401ks' if Biden gets his way. You get tax deferred growth, that's good, and maybe you get possible
matching. You put in a dollar, your employer matches maybe 50 cents on the dollar and you think
you're making 50% rate of return. No, you're not. You're just starting out with 50% more.
If you put in a dollar, your match 50 cents, that's a buck 50 if you were immediately
vested, meaning you could take it out without a penalty, you pull out a $1.50 Now, you owe 50
cents to the government, a third of the government. So, the employer matching you sort of helped cover
your future tax liability, that's all they're doing. So, those are the pros. What are the cons? Well,
it's fully taxed as you use it and you must use it up based upon the government's life
expectancy formula. These are based upon at age 72 now, you must pull out a certain
amount every year and it's bigger and bigger every year if at age 72 your life expectancy
is 20 years, you have to pull out 120th. The next year you have to pull out 119th and then 118th,
you have to keep pulling out more and get it taxed. The government is planning on that tax revenue,
okay? And then the remainder is potentially taxed twice upon passing to non-spousal errors.
Most CPA's will agree with me that the worst place to leave your money when you die is in an IRA or 401k
especially after you and your spouse pass away. The money needs to get out of there, get the taxes over
and done with and reposition into something tax-free from now on. My favorite vehicle, the
laser fund, will blossom when you die. That's why I put money in there and every million that I
might accumulate if I died blossoms to about 2 and a half million and transfers tax-free
to my spouse, my kids, my grandkids. There's not a IRA or 401k around that'll do that.
So, I don't like qualified plans. They come with these strings attached.
If people are asked the question how many of you think taxes in the future will be lower,
I get nothing but crickets when I ask that question. How many think they're going to be
the same? A few hands go up but when I ask how many think taxes in the long run are going to be higher?
A sea of hands goes up. Then why are you continuing to postpone and delay, defer some future perceived
unknown advantage and then withdraw your money later when you're convinced taxes will be higher?
That doesn't make sense. So, they go, "What's better?" Sometimes they think a Roth is. A Roth is a step in
the right direction but I've mentioned I don't own a Roth either. The laser fund is what many savvy
CPA's and tax attorneys refer to as the rich man's wrath. You don't have to be rich to own one but if
you make too much money you can't even own a Roth. So, how can you learn more about this laser fund?
I'm so passionate about education that I've written 12 books so far. This is one of my
favorites. It's been flying out of our warehouse, 500 to a thousand of these a week. I want you to
claim your free copy. Here's how. You simply go to laserfund.com. L-A-S-E-R fund.com. Click below, you
contribute a nominal amount towards the shipping and handling, I'll cover the rest of that cost
and I'll pay for the book. Now, it's 300 pages. 200 pages are the left brain, charts, graphs and
illustrations. If you learn more by stories, you flip it over and this side is about 100 pages,
12 chapters that has 62 actual client stories of how the laser fund is used not only for retirement,
but emergency funds, college funding, working capital for business, real estate management
on and on and on. It's what I call the dream solution for almost every financial goal
that is 5 years or longer down the road, these are called long-term goals. Now, folks in this book,
you'll learn about how to accumulate, access and transfer your money totally tax-free. You'll see
historical rates of return between 7 to 10% how to make money when the market goes
up but not lose when the market goes down. This is so powerful to diversify and create the foundation
for a tax-free retirement. I would recommend that 40 to 60% of your retirement money is totally
tax-free. The IRS knows you'll be receiving it, but they know it's tax-free, it's been grandfathered
in the internal revenue code for 107 years. A lot longer than IRA's and 401k's have been around.