Financial advisors commonly tell people to maximize contributions to tax-deferred retirement plans such as 401(k)s and IRAs, but does that make sense? Pamela Yellen, financial investigator and New York Times best-selling author, says this is a myth that may cost retirees big in their golden years, and offers a free online calculator to demonstrate why.
At the 2021 SALT New York conference, which was held earlier this week, one of the panels on the main stage discussed the best macro shifts coming out of the pandemic and investing in value amid distress. The panel featured: Todd Lemkin, the chief investment officer of Canyon Partners; Peter Wallach, the managing director and Read More
Tax Deferral Scam such As 401(k)s And IRAs Exposed
Conventional wisdom says maximizing contributions to tax-deferred retirement plans such as 401(k)s and IRAs allows your savings to grow without being reduced by taxes, giving you more money in retirement. But the Society of Actuaries says there is no difference in the amount of taxes people end up paying either way — provided tax rates stay the same.
In reality, tax deferral will end up being a tax trap for many people if tax rates rise, as they are expected to do in coming years, Pamela notes.
“Most people realize taxes ultimately must go up due to the aging demographics of our country and our unsustainable national debt, which now exceeds the size of our entire economy,” she says. “And if tax rates do go up, and you’re successful in growing your nest-egg, you’ll simply end up paying higher taxes on a bigger number.”
Run the Numbers & See for Yourself
Want proof? Plug in the numbers on this free calculator to find out just how much deferring taxes could cost you in the long run (spoiler alert — it’s much more than you think!)
It’s a very big deal when people realize they only have two-thirds of what they thought they had in their tax-deferred retirement account, the Center for Retirement research noted. That was before government spending fueled by the pandemic ballooned the national debt, with no end in sight.
“These plans give you no guarantees of how much money you’ll have when you’re ready to take withdrawals, and no way of knowing how much of those withdrawals you’ll have to fork over to the IRS,” Pamela warns.
Pamela is available to share legal ways to protect yourself from higher taxes. Contact me to speak with her.
About the Author:
Pamela Yellen is founder of Bank On Yourself, a financial investigator and the author of two New York Times best-selling books. Readers can get a free copy of her latest book, "Rescue Your Retirement: Five Wealth-Killing Traps of 401(k)s, IRAs and Roth Plans — and How to Avoid Them," here for a limited time.