401(k)s haven’t always been around. It all started when Congress passed the Revenue Act of 1978, which include a provision in the tax code – section 401(k) that allowed taxpayers a break on deferred income. The code basically went unused until Ted Benna, a benefits consultant at the time, was trying to help a client redesign their retirement program. Through research and creativity, he pieced together a program that allowed, using IRS tax code 401(K), employees to make pretax contributions to a tax-deferred plan, and receive an employer match. The employer match would entice employees to participate in the program and would also save the employer taxes. Employers would no longer have the long term, financial responsibility of a defined benefit plan, their matching dollars would be tax-deductible, and the employees would have an easy way to save for retirement, and they would pay less taxes too. It seemed like a win-win.
Fast forward to what the 401k has become, and it is nothing like the creator imagined. It went from the employer paying all fees to everything getting bundled together and employees covering the costs. In the meantime, Plans have become complicated, offering confusing options, higher fees and forcing participates to make financial decisions that they are not fully equipped to make. 401k plans are full of risk to the participants because the accounts rise and fall with the market and do not offer the certainty that pension plans or defined benefit plans provided. Gerald Facciani, past president of The American Society of Pension Actuaries, stated, “The great lie is that the 401k was capable of replacing the old system of pensions.” They just have not proven to be what was originally intended. Instead of being a low-cost retirement savings solution for participants, it has become a moneymaker for financial advisors and has allowed employers to shift the burden of accountability to the employee.
We often hear “I love my 401(K)) “and the top reasons usually include: Payroll deduction makes it an easy, hassle-free way for me to save, I get a tax deduction for my contributions, and my employer gives me a match – it’s free money.
I hate to burst your bubble, but….
- as an adult, you should be disciplined enough to save for your retirement
- With a 401 (k) plan – you create an enormous tax liability. You save taxes on the seed, but you will owe taxes on the harvest! The taxes aren’t waived – they are just DEFERRED.
- Over 50% of employer matches require you to be vested. The average person changes jobs 12 times in their career, which means a significant portion of the money in your account isn’t really yours to keep unless you have met the vesting schedule.
Also, research has shown that for every dollar your employer contributes to your 401K match, they pay less in salary.
And let’s look at what tax-deferral really means. People are often surprised when they realize that If the tax rate stays the same (and do you really think that will happen?!), it doesn’t make any difference if you pay taxes now or later. It is still the same fraction of money this is left for you in retirement. We have no idea what taxes will be in retirement, but remember, whatever amount you have in your plan, a chunk of that belongs to the IRS, not you! And think about this – you have been paying the fees on that portion which was really never yours for all these years!
Do you think it is possible that taxes will go up? One thing we know for sure, the tax rate is constantly changing –because the tax laws, like most laws, are used by the government to raise revenue, use to stimulate the economy, pay for wars, etc. We currently have seen one of the most significant stimulus programs in history, and we don’t know if there is more coming, so I have a question for you – “Do you want to control your money, or do you want to leave that control up to the government, the IRS, and your Employer?”
Any of them can change the rules anytime they want without your input, permission, or approval!
Isn’t it time for you to take control? With Infinite Banking, you can:
- Have guaranteed, predictable, tax-deferred growth and tax-free income
- Lock in your principle and growth that is NOT at market risk
- Have access to your money – without any hassle-no questions asked
- Have continued growth on your money even when you are using it!
- Access your principal and growth with no taxes due (under current tax laws)
Give us a call today at 574-234-1980 and get your questions answered. We would love to show you how a plan designed specifically for you can help you achieve your financial dreams without taking on risk or working any harder.
