401(K)s & IRAs

Comparing a 401k or IRA to a Tax Free Account

  1. What will be the taxes on our retirement money?
  2. What if we are under 55 years of age
  3. What if we are close to 59 ½
  4. What’s Provisional Income
  5. What are the comparison benefits of a 401k vs. a Tax Free Account

#1 There are no answers to what tax bracket we will be in when we retire. Unless, we are broke or don’t have any retirement investment dollars remaining.

Why? Because the government has not told us yet.

The majority of people invest in a 401k or an IRA thinking we are getting a great tax break; when in fact we are postponing the taxes and the tax bracket. Remember, in a 401k or IRA we will pay taxes FOREVER as long as we are taking money from the account. By the way, taking money out of these accounts is mandatory starting at the age of 70 ½ or pay major taxes and penalties.

#2 If we are under 55 years old and saving in a 401k or IRA it might be beneficial for us to compare which is going to serve us better in retirement. Contact us to arrange for an on line assessment using our “Retirement Ready or Not” software.

#3 If you are close to 59 ½ years old with a 401k or IRA account it may be beneficial to compare if it makes sense to keep all our savings in the 401k/IRA or use a strategy to convert dollars to a tax free account without paying the taxes out of our wealth (like a Roth IRA). Contact us and we will gather some information about your plans and then run your plan into our “Retirement Ready or Not” software. You may be really surprised to see how much money slips away to taxes.
Without the taxes we would probably receive approximately 200% or more of income.

#4 Provisional Income – The IRS considers any form of income (earned or unearned) to be income. That means a married couple with income greater than $44,000 will have 85% of their Social Security added to their income and taxed at the then highest marginal tax rate. Unearned income is any income received from investments, savings etc.

#5 Comparing Five Major Benefits of a Tax Free Account:

Taxed AccountTax Free Account
1. SAFETY OF PRINCIPLE
Our money is NOT invested in the Stock Market Our money IS invested in the Stock Market
Our money is not subject to volatility Our money is exposed to investment risk
All annual growth is LOCKED-IN permanently and amount​ CANNOT depreciate in value Growth is not locked-in and account CAN depreciate in value.
2. TAX CONSEQUENCES
Our money grows Tax Free Your money grows tax deferred
There are NO taxes when we withdraw our money You pay taxes when you withdraw your money
There are no taxes when we die Taxes are paid when you die
There are no taxes when money passes to our families Taxes are paid when money passes to the family
3. ACCESS TO OUR MONEY
You can access our money whenever you need it. We have limited access to our money
There are NO early withdrawal penalties We pay early withdrawal fees
We don’t have to pay it back We have to pay it back
4. RESTRICTIONS
There are no IRS limits to how much we can contribute to our plan There are limits to how much we can contribute
There are no IRS limits to how much we can contribute to our plan There are limits to how much we can contribute
There is no age restriction for what we may withdrawal. There is an age restriction for withdrawals
5. FEES
Charges are a fraction of the fees within a qualified account (401k). Charge significant fees and expenses to cover investment expenses and administration costs even if the account depreciates in value.