Most retirees pay 8 to 12 times the taxes in retirement
than they saved on their 401Ks. In this episode, I'm going to answer the
question, "Do you pay tax on 401K withdrawals after
retirement?" Yes, you do. But here's some insights that
you probably have never learned about or considered before.
So, I've been a financial strategist and retirement planning specialist for more
than 46 years. It's very common that people come to me
and as they approach retirement they go, "Hey,
wait a minute. You mean, I'm going to have to pay tax
on this money I take out of my 401K when I retire or these IRAs?"
I go, "Yeah." Where were you when they told you, "No, you get to put in
pre-tax dollars. It's tax deferred but you're going to
have to pay tax on it when you take it out."
And they go, "I don't know. I was just sort of following the herd.
I started working for this company, this company and they offered a 401K
and they said it was tax_advantaged. I didn't
realize i would have to pay the tax." Or if they
didn't know, guess what they were told? Oh, you'll be in a lower bracket when you
retire. So, it's better to defer, defer, defer.
Well folks, in this episode, I'm going to explain to you
most retirees who have saved any type of a respectable retirement nest egg
are not in lower tax brackets when they retire.
The last 20, 30 years, the only people that are in lower
tax brackets were those that didn't save very much. Is that why you want to be in
a lower bracket, because you don't have very much
money? See, the old premise, "Oh, you'll be in a lower bracket" has not been true or
axiomatic for more than 25 years. People are in as high or higher tax
brackets when they retire as they were ever in during their
working years even if they have less income. How come? Well,
I'm going to explain. It's because they were going down the highway so to speak
trying to achieve a destination of financial independence.
And they had one foot on the gas pedal but the other foot on the brake pedal.
Now, you know, maybe you know somebody who drives like that
but I wouldn't recommend it. So, what do I mean by that?
When I say one foot on the gas pedal and the other foot on the brake pedal, I mean,
a lot of Americans are putting the foot on the gas by putting pre-tax dollars or
tax-deductible contributions into IRAs or pre-tax dollars into 401Ks. They're
getting a tax break on the seed money, the contribution
money. And when I say seed, I use the metaphor
of a farmer, because if you were a farmer and you have the
choice of buying your seed in the springtime that
you were going to plant and you didn't have to pay tax on the price of the seed
and you planted it you cultivate it, you irrigate it, you worked hard. And later on
in the fall, when you harvest, now you agree to pay
tax. See that's a traditional IRA or 401K. You get a tax break on the
seed money, the contribution money. It is growing tax deferred. But then when
you go to harvest your money, you have to pay
tax. People had the other foot on the brake pedal during the entire time
period. Sort of killing or getting rid of the
tax deductions the only deductions they've had. What are some of those
deductions you lose? Well, if you pay off your house which most
people want to do, you don't have those deductions anymore
on your tax return. The children are grown up and gone or if
they're not gone, you can't deduct them anymore on
your tax return as dependents. Even if they are
living at home with you. You're not contributing money in retirement on IRAs
or 401Ks unless you're still earning some money and you
think you want to keep putting it there which I would not recommend. But
some people do that. But most people do not contribute to IRAs and 401Ks after
retirement because they don't qualify to do so. And so, you
don't have those deductions. If you're a business owner and you sold
your business, you don't have any of those deductions anymore.
Congress keeps raising taxes. They keep getting more and more greedy.
Irresponsible government spending the printing of money. The general
accountability office, the congressional budget office basically
says taxes will likely have to go to 50 60 and even
70 percent not just for the wealthy this is for even middle income Americans
to fund initiatives like medicare for all or
free college or student loan forgiveness. And so, the
writing's on the wall, taxes will likely be higher. Whenever I
ask audiences "How many of you think future taxes are going to be lower?"
Nobody raises their hands. "How many think they're going to be the same?" Very few.
But when I ask "How many of you think future
taxes will likely be higher?" A sea of hands goes up and in the
ballrooms at these hotels. And that's when I go, "Well then, why are
you continuing to postpone, defer, procrastinate paying the tax
to some future perceived unknown advantage
and then withdraw your money down the road when you're all convinced taxes
will be higher?' That doesn't make sense. Why not pay tax on the seed money and
enjoy the harvest later on tax-free. Now, sometimes people think I'm talking
about a Roth. Well a Roth is a step in the right direction but there's still
too many strings attached. You can only put in a certain dollar amount or
certain percent of your income and you can't touch it before age 59 ½
or for 5 years. I don't like any of those. And so,
in many of my episodes, I explain why I have never owned an iRA or 401K, I
never will. And I've never owned a Roth Ira, 401K, i
never will. Why would I? When my favorite vehicle is
referred to by savvy CPAs and tax attorneys as the Rich
Man's Roth. Now, I snicker because you don't have to
be rich to have my favorite vehicle which i call
the Laser Fund. The laser fund is the max funded tax advantage
index universal life insurance contract that has the least amount of insurance
the IRS will let you get away with and you put in the most money.
And I earn 11, I net 10. I earn 8, I net 7. I earned some years 25 and net
24. It is the best tax free
vehicle that I have ever seen where every
million dollars can generate 80 to 100 thousand a year of tax-free income based upon
actual history. And so, it knocks the socks off of money
in an IRA 401K invested in the market where most people
have their money. And the financial services industry says, "Oh, you should
only take out 4% a year because
you're only going to average 3.5% based upon
research and study done by people in retirement
who have their money in the market." And so this can give you
8% payouts instead of 4%. 100% more income. A
million dollars can give you 80,000 a year of
income instead of 40,000. But the 80,000 is tax free. The
40,000 coming out of an IRA, 401K is still taxed.
In a 25% bracket ,you're going to pay 10,000 in tax.
They're going to charge you another 1% on that million in fees.
After taxes and fees, you're not netting 40% you're netting about
20,000. So, how much better is 80,000
than 20,000? 4 times. It's 400% more.
And so, when people begin to realize this, they understand that,
"Golly, what was I thinking?" Because you will be taxed on your 401K
withdrawals. There's there's no way around it. So, for years,
I've helped people liberate themselves from the tax trap.
Solve their IRA-401K dilemma. And so their strategies, we call them
strategic rollouts. It's not a rollover. See, a rollover would
be taking money out of a 401K and rolling it over to an IRA and
continuing to delay the inevitable and compound the problem.
And the government is a permanent partner with you.
They will get a third or more forever of what that earns.
No. A strategic rollout is where you get your money out.
Maybe over a 5-year period and you get the taxes over and done with
sooner than later. But here's the key, you reposition
the after-tax money into something that's going to be tax-free from now
on. And so, what's the difference? So, this is why I've written 11 books
thus far. And I'll write a book every year the
rest of my life is my goal. My 11th book a national bestseller right
now is called The LASER Fund. It's a 300 page book.
It's actually two books in one. This one is about 200 pages
that comprises 12... Actually 14 chapters of charts and graphs and explanations of
my favorite vehicle which i call The LASER Fund. The laser is an acronym that
stands for liquid asset safely earning returns. This
is how to diversify and create the foundation for
a tax free retirement. Now, if you like to learn
by stories and examples, you flip the book over
and you read this. If you're more right brain. This has 12 chapters with
62 actual client stories in here. And on this side of the book, there's a chapter
that talks about actual examples of strategic
rollouts. In here, you'll read about 2 school teachers a husband and wife where
I saved them a quarter of a million dollars
of unnecessary tax on their IRAs and 401Ks by doing a strategic
rollout. There's another story in there of a gentleman who
lost his wife at age 70 and he was told to keep stringing out his
his IRA,401Ks taking RMDs, required minimum distributions. You'll learn why
that's the worst advice I've ever heard. He came
in and I showed him how he could dramatically increase his rate of return
net about 50,000 a year of tax free income
instead of the measly 16,000 a year of after tax income out of his IRAs or
401Ks invested in the market. I saved him $750,000
at the end of the day in unnecessary tax
over where his advisor wanted him to keep his money.
He also was able to take his real estate and optimize
that in conjunction to offset any of the taxes that he might
incur because i'm a tax strategist. There's another story in there of a
couple. They are both physicians and I saved
them 1.2 million of unnecessary tax. I couldn't save them all the tax.
But it was amazing when they had 4.6 million
and yet-to-be taxed IRAs of 401Ks. Their accountant and their advisor
said, "Well, you'll have to pay 2.6 million in tax by doing RMDs. But
you can afford that." I said, "Well, why don't you
ask their opinion if they can avoid it?" And they said, "Well, yeah. If we don't have
to." Well, I couldn't save them 2.6 million but I saved them 1.2 million of
unnecessary tax. And they took that money and put it in
what I call their family bank to educate their kids and grandkids into
perpetuity with scholarships providing over
$100,000 a year for as long as they lived and into the second
and third generation. With money that was otherwise going to
go down the drain and unnecessary tax. There's another story in there of a
couple in California. We took them from the highest tax bracket
to a zero-percent tax bracket in five years.
That couple now has 8 million dollars tax free
generating 800,000 a year of tax free earnings and growth.
They don't even need that much. They only take about 300 000 tax-free.
The rest just sits there and grows. They would have never
achieved that had they held on to their IRAs and 401Ks.
So, if you want to read about these, I want you to claim your free copy.
I will pay for the book. You just contribute $5.95 towards the shipping and
handling. I will fire out a free copy of this book
to you. You can read study and learn whether
your left brain or right brain. And become empowered on how
you can eliminate unnecessary tax on your IRAs and 401Ks.