The Best 401(k) or IRA Rescue

The Best 401(k) or IRA Rescue

This Time magazine article from October 2009 clearly explains why 401(K)’s are essentially a failure.  They stated, “The ugly truth, though, is that the 401(k) is a lousy idea, a financial flop, a rotten repository for our retirement reserves.”

Let’s do some simple tax math and the numbers make it clear that tax free is the only way to go. Roth IRAs have limitations on what you can contribute. Your AGI (Adjusted Gross Income) limitation for your maximum Roth IRA contribution are

  • $184,000 for a Married Individual Filing a Joint Return
  • $117,000 for all other Taxpayers.

If you are in California, you will pay 90% (total taxes and early withdrawal penalties) after 2022 if you need to access funds in your 401(k) before age 59 ½.   Click here to see the Math & Proof.

You can also see that in Florida, Texas, New York, Pennsylvania and Illinois the taxes and early withdrawal penalties are in excess of 72% if you earn and personal income (AGI) above $416,000.    Click here to see the Math & Proof.

The problem with a Roth IRA is you are still under the purview of Government and they have the power to change the rules of Qualified Plans anytime they like. The table below shows you what your funding limits are with a Roth IRA, whereas, the solutions we recommend is one in which the US Supreme Court has ruled on twice and made it clear that a private contract entered into in good faith that was legal at the time is NOT something government can amend or alter after the fact.

The graph above shows how $100,000 may have looked like in these different types of accounts over the years.  Folks, even if you hardly know much about investing, where would you rather have your money in — the green, red or blue line?  Most everyone would say the green line for obvious reasons — there’s way more money there, right?
Well, it gets better!  The money on the green line can be accessed any time, for any reason, and it’s TAX-FREE!  And did you notice that the green line never once lost money when the market (red line) dipped?  By the way, the money on the green line comes with several other awesome benefits that we can further explain when we chat but just knowing the above, most folks would quickly ask how they can switch over due to the fact that this type of account never loses money, and is accessible any time with NO penalties or taxes.
The red line is the Standard & Poor’s 500 index, 500 of the largest stocks in the USA.  And if you look at the $188,016 figure, about 95% of mutual funds do notoutperform the S&P 500 index, meaning most people who are in mutual funds, 401k’s, IRA’s, 403b’s and so on, actually have less money than this $188,016 figure.  And they would still have to deduct fees, which averages around 3% (this can be anywhere between 1.5% to 5%).  Many people aren’t even aware that they’re paying these fees because they are hidden in what looks like a phone book written by a lawyer and it’s called a prospectus.  With a $100,000 balance, that would be about $3,000 each year in fees whether you make money or lose money!  If we multiply this by 15 years, that’s $45,000 in fees alone!  But remember, we still have to take taxes out!  And if we’re looking at 10, 15 or 20% very conservatively in taxes, you’re about where you started 15 years earlier.  Sad.  Very sad indeed.  ?  You put in 100% of the money, took 100% of the risk and ended up about where you started 15 years earlier.  The mutual fund company put up 0% of the money, took 0% of the risk, and yet made $45,000 in fees in the process.
Sadly, about $17+ TRILLION dollars are on the red line today.  We would venture to say that most folks would prefer to have their money on the green line any day once they are aware of all of the fees and taxes that will impact their account balance heavily.
If a light bulb just went off in your head after seeing this illustration and reading the above, and you’re feeling some anger slowly bubbling up, don’t worry!  Put that energy to good use and Contact Us Today!  Let us chat and see how we can help “rescue” you from your current situation and get you on the right path!

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Disclaimer: The material presented on this site is included with the understanding and agreement that is not engaged in rendering legal or other professional services by posting said material. U.S. Treasury regulations require us to inform you that any U.S. federal tax advice contained herein is not intended or written to be used, and cannot be used, by any person or entity for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code. The services of a competent professional should be sought if legal, accounting, tax or other specific expert assistance is required.