How Much Should I Contribute To An IRA Or 401K? - YouTube

Hi again. In this episode. We're going to answer the question "How much should I

contribute to an IRA or 401K?" Well, the short answer is nothing. Now, actually I'm

not totally against putting money in an IRA or 401K. But you have to think about

the big picture. And I think too many people in America put far too much money

and yet to be taxed I raised a 401 case thinking they're gonna be in a lower tax

bracket when they retire. So, in this episode, I'm going to give you some

epiphanies "A-HAs" because I know what you're thinking and so many times we

just sort of follow the herd. "Well, that's what everybody else is doing. And that's

what they say on CNBC." So, when I show you better alternatives, sometimes people say,

"Well, why do they tell you to do that on CNBC?" And I go, "Who's funding CNBC?"

Government revenuers, okay? So, let's talk about why I feel so strongly about not

over funding an IRA or 401K.

My name is Doug Andrew and I've been a financial strategist and retirement

planning specialist for more than 45 years. And so, I've used this metaphor

many, many times. If you were a farmer and you had the choice to pay tax on the

seed or the harvest, okay? You could either save tax when you bought the seed

and you planted it. You cultivate it you irrigate it you worked hard but then in

the fall of life. When you go to harvest your IRA 401K money, now you agree to pay

tax on what you sell your harvest for. Or you could just pay tax on the seed and

later on, when you harvest the money you don't have to pay tax anymore. What would

you prefer? I would rather have the harvest be tax-free. Now, what I've done

with many many clients for years has helped them have their cake and eat it

too. I don't have time in this episode to do that. But if I have to choose between

a tax break on the seed money or the harvest, I'll take the harvest any day.

Because most people are not in a lower tax bracket. But I can show you how to

have tax free access to your money which is the most important. But if you want an

indirect deduction to have 100 cent dollars on the front end and hundred

cent tax-free dollars on the back end, watch some of my other educational

episodes and I'll give you some insights on how to do that to connect all these

dots. So, many times I'll ask people "You know, if you had an IRA or 401K, let's say

that you were starting a business and I go listen let's be partners. And when you

grow this business I get a third ownership in this. And so, at the end of

the day when you sell this business, when you cash in, I get a third, okay? Now,

you're gonna do all the work. And if you tap into that or you try to give me some

money or you take money out of this business before I say you can, I'm going to

penalize you 10%. You're going to owe me 10% more than the third. And if you don't

sell this business by the time you're 70 and a half, that's going to bugger up my

plans because I'm counting this revenue. I will charge you 50% and I

still get my portion. I want my money when I want it." Would you

go into business with a partner like that? And people go "Heavens! No! Rhat

sounds stupid." I go, "Well, I just described an IRA or 401K to you." They go,

"Huh?" Yeah. See, who's your partner? It's Uncle Sam. Watch. I'm going to go over here

and show you a graph that'll show you that helps you understand the difference

here. So, what I've done here is Illustrated the growth and tax of

deductible plans. When we sock away money and it accumulates in a tax

deferred IRA, 401K, Uncle Sam is your partner. They continue to get 1/3 of

whatever it grows to. And that's why I ask them "Were you planning your

retirement or Uncle Sam's?" Now, if I had my druthers, okay? I'd rather instead of

having deferring the tax which means increased taxes, you're just

procrastinating, you're postponing. I want to have no tax. So, I like to use my money

on the front end. But if I have to pay tax on the seed money, that's okay. But with

different strategies, I get my tax deductions indirectly. And then I

accumulate my money... And my favorite vehicle it's called the laser fund and

I'll show you how you can get a free copy of my most recent book called The

Laser Fund but I accumulate my money tax-free. See, there's no partner in there.

And it's been grandfathered in the Internal Revenue Code for over 100

years. It's a sacred cow as I explained in my books. And so, I can have 100

cent tax-free dollars on the back end. And that's far greater than having some

partner at the back end but sitting there with their hand out. It's like a

pizza and and Uncle Sam comes in and takes a few wedges out of your

retirement Pizza your pie. And that's just not fair especially when you need

money for health care, medical costs, prescriptions. And you want to go golfing

and do things. And so, instead of living on 67 cent after-tax dollars, I like to

live on 100% tax-free dollars when I retire. Let me show you mathematically

how this works. You're ready to be blown away? Let me show you

mathematically how this works. Now, compound interest is what Albert

Einstein says was the eighth wonder of the world. But it was Rothschild who said,

"No. Compound interest tax-free is the eighth wonder of the world." Do you know a

dollar doubling 20 times to 2, 4, 8,

16, 32? It only takes 20 periods for a dollar to

grow to a million forty eight thousand if it's tax-free. Now, if it's taxed as

earned the way most Americans save in banks, credit unions, mutual funds and so

forth. $1 doubles to 2 dollars in a 25% tax bracket, you have to pay tax on that

dollar increase. 25 cents. So, you only have a buck seventy-five is what it says

right here. And so, the next time a buck 75 doubles to 350, you pay tax on that.

Do you know you'll only have 72,000 instead of a million? 7.2% of what

you could have had. That's in the 25% tax bracket. Now, most Americans

41 out of 50 states has a state income tax. California is the highest. And so,

many times, you pay at least a third or more in tax. In a 33% bracket a

dollar doubling taxed as earned is only worth 27,000. Only 2.7

percent of what you could have had. And that's the way most Americans save.

Well, let's say you have a tax deferred IRA or 401K. You thump yourself on the

chest. "Look at me. I'm smart. My dollar doubles

tax deferred. I have my million forty eight thousand. Doug, your laser fund...

You're rich man's Roth, it has the same amount in it. What's the diff?" Here's the

diff: When you go to retire, it's like the back nine of an 18-hole golf course, okay?

When you are playing the game of life, you got to focus on the back 9 when

you need the money. So, if you have a tax deferred IRA or 401K with a million in

it. And I have my rich man's Roth, my laser fund with a million. And let's say

I need 100,000 a year to buy gas, groceries, prescriptions, golf green

fees. In order to net 100,000, I would need to pull out 150

thousand. Why? Because I have to pull out

150, pay tax of 1/3. 50,000 to net a 100(K). My IRA 401K

will be drained dry. That nest egg will be dried up in 11 years. Because you have

to pull out 50% more in a 33% bracket to have the same net spendable

income. Do you know that the way most Americans save, they wouldn't even make

it in a year. So, that's really poor. And IRA a 401k is out of money in 11 years.

The reason I like my laser fund is I pull out 100,000, it's not

deemed earned passive or portfolio income. The IRS knows I receive it. They

know it's tax-free. It's a sacred cow. I get to spend 100 when I withdrawn

100. It it's tax-free on the back end. And if I die, it blossoms. But watch. After

11 years, when the IRA or 401K is out of money, I still have my million ahead of

inflation. Let's say my wife or myself, okay? If either one of us lived to be 90,

94. Because the fastest-growing segment of American society they are those

people reaching over the age of 100. Out of a baby boomer couple, one of you will

make it to age 95, most likely. If I live another 20 years with a 100 grand,

that's an extra 2 million. And I still have my millionth. That's a 3 million

dollar better retirement savings nest egg than an IRA or 401K. How about you?

What would you rather have? A million dollars that depletes in 11 years or

would you like when that goes on into perpetuity if I live to be a

120. And when I finally die, it blossoms and transfers tax-free. Same amount but

see you choose investments based upon which ones generate the most at the time

in life you're going to need the money the most. That's why I will never own and IRA

or 401K. Other than that, I don't have any strong feelings on this subject.

So, the answer to the question "How much should I contribute to an IRA or 401K?" I

would say nothing unless you've got such an irresistible match from your employer.

But you're going to have to pay tax on it. And maybe their match is covering the

tax. But not one dime more than that I would put it into something that's going

to accumulate your money tax-free. Then be able to access it tax-free. And when

you die, it blossoms and transfers tax-free. And I have all kinds of

stories of this but let me just share one quick one. We had a fellow that came

in and he was in the highest tax bracket. The story is in my book The Laser Fund.

And in 5 years, we got his money out of his IRAs and 401Ks. He had 4

million in there. And we got it out and that was the net after tax. It hurt while

he was getting it out. But he was going to pay tax on it sooner or later anyway.

You're not saving anything by putting it off. After 5 years, we took him from

the highest tax bracket to a 0% tax bracket. Would you like to do

that? Now, we can't do that for everybody. But that four million and his laser fund

is now doubled to 8 million. And he's been earning 8 to 10 percent. He

could withdraw every year about 800,000 a year in tax-free

income forever. He likes that way better than an IRA or 401K. If you want

to learn more, I would recommend you watch this episode here and you'll have

the opportunity in that episode if you'd like to get a free copy of my book The

Laser Fund if you want to dive deep and learn how this all works.