I have to admit – the allure of tax-qualified plans like 401ks, IRAs, SEPs, 403bs, Keoghs, and others – is compelling.
· There’s the ability to contribute pre-tax dollars
· There’s the tax-deferred buildup
· And some such plans benefit from “free” money – in the form of company matching funds
So what’s not to love? A lot – let me give you a few highlights.
1 They’re no good for pre-retirement needs – Forget about qualified plan money for buying houses, cars, sending kids to college, buying a business, and other pre-retirement needs. To get money out, prepare to pay a huge tax bill, plus a 10% early withdrawal penalty.
2 Use-it-or-Lose-it Contribution Limits – Unused contribution capacity can’t be carried over to a future year.
3 False Sense of Who’s Money it is – 30-50% of that figure on your account statement belongs to Uncle Sam – and it did from the minute you put it in. What’s more, he can change his partnership share with a change in the tax code – and there’s nothing you can do about it.
4 You’re Paying Uncle Sam’s Fees – You pay 100% of the investment fees and commission, but only own 60-70% of the money – making qualified accounts the most expensive way to build wealth imaginable.
5 Limited Investment Choices – Most qualified plans limit investment choices to mutual funds. And since nearly 80% of mutual funds underperform the market (net of costs), it can be very hard to truly get ahead.
6 Ticking Time-Bomb – Uncle Sam won’t wait forever to collect his share. We have to start drawing taxable money out at 70-1/2; and whatever we pass on is fully taxed in the year it passes.
7 The $18 Trillion Slush Fund – With an estimated $18 trillion in tax qualified accounts – how long will it be until our government cooks up some scheme to get their hands on the money now in exchange for a promise tomorrow? There’s “chatter” about government confiscation of qualified plans already.
So while there appears to be a number of advantages to the qualified plan, there are at least as many disadvantages – some of which are severe and scary.
I believe there’s a better way – a way that – in all likelihood – will out-perform qualified plans even with taxed contributions, and no company matching funds.
Here’s a link https://oh101.infusionsoft.com/app/page/na45?_RCBRef=beattey4@yahoo.com that will take your inputs, and prepare a side-by-side report showing what your future might look like. Might be an interesting exercise.
