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What is a 401k, 403b II How do they really work II Health, Wealth, and Real Estate - YouTube
Channel: Health, Wealth, and Real Estate
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what is a 401k 403b or ira
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do you understand what it is and have
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one let's break them down in today's
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lesson
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the 401k or the 403b is the same they're
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old products and everyone's doing it
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but it's not the place you want to park
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your money if you want a safe
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guaranteed growth tax-free retirement
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the 401k
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as i'll call it moving forward to save
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time are invested in mutual funds
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run by fund managers between a rating of
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1
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meaning you know nothing at all and 10
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meaning you know everything there is to
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know about your 401k
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how would you rate your knowledge i
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usually get a pretty low answer when i
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ask this question and rightfully so
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we are told this is a great retirement
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vehicle for the day we no longer want to
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or even worse can't earn income anymore
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because of health issues
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so the 401k goes in pre-tax dollars of
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your gross income
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from your paycheck net is the income
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after taxes right
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so your 401k is a taxed later fund
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ted bana created the 401k in 1978.
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he has been quoted on many occasions
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saying that he wishes he could blow the
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401k
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up and start the whole thing all over
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again and that is what
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all of your friends and family are
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invested into i'll add a link to his
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interview in the comments section here
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below
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the 401k grows and shrinks in variable
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accounts called mutual funds
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variable in the dictionary is defined as
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unreliable
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unstable and unpredictable mutual funds
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and stocks
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are variable accounts would you let your
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kids drive or would you buy a car that's
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unstable and reliable and unpredictable
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do you want to shoulder the burden of
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the risk if it's not necessary to do so
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to take a simple example let's say you
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have a hundred thousand dollars in your
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401k
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invested in these limited option mutual
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funds and the next year the mutual funds
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invested in
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go up 50 percent how much would you have
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you'd have 150 000
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correct how much would you have if
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the year after that the funds dropped
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fifty percent
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if you had one dollar and fifty cents
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and you had to split it with your friend
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you'd each get seventy five cents right
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so yes you would have seventy five
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thousand dollars after a fifty
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drop so that means after three years of
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investment you'd be down a significant
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amount
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after three years and we find those who
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are ready to retire
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end up losing way more than they can
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recover from i got into this business
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after learning of these benefits
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my own father at age 71 came to me upset
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that his 401k had gone from 278 000
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down to 235 000. he lost 43 000
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in a very short time and he said to me
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that he's too old to shoulder that
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financial
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burden and told me to find him a
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solution because he was bleeding money
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from his nest egg
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his only cash reserve there's nothing
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wrong with investing in stocks
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which is what a mutual fund is a whole
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bunch of stocks and a big bucket
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let's face it for most people invest
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with emotions it's a gamble
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feel free to gamble a portion of your
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money that you can afford to lose but
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don't gamble
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your money that you plan on retiring
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with living with surviving with in the
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future so returning back to the tax
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later portion of the 401k
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you have penalties to deal with if you
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have a life event and you need this
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money before you reach age
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59 and a half and that's a 10 penalty
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then on top of that you have a 30
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federal and 10
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state tax for total 50 of your
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retirement income
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gone what if you had the alternative to
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growing that same money but pay the tax
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when it's a small amount
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in the beginning during your making
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money or income generation phase
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i like to compare this to the seeds of
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farmer buys
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then to pay the taxes on the farmer's
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harvest after the seeds or money has
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grown
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statistics show that 92 percent of
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americans end up pulling some
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if not all of their 401k prior to the 59
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and a half
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age not because they want to because
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they had to
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life happens but let's say you forgot
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about the money
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or was a part of the eight percent who
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didn't touch it
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the new retirement age is 72 years old
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and if you don't take your distribution
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starting
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at the age of 72 then you can expect a
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penalty of 50 percent
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ouch on top of that you still have to
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pay
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the irs and the state the taxes of that
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which most people predict
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will go higher in the future not lower
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by the way the penalty is called
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an rmd or required minimum distribution
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but
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let's say you do everything right and
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you take the distributions out at age
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65.
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you still have to give uncle sam in the
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state between 40 and 50
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or more depending on how much taxes go
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up when the 401k was invented by mr
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benna
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as mentioned before in 1978 the tax rate
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was 70
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how does knowing all this make you feel
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about your 401k
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knowing whatever it is now you'll have
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to slice it in half
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because you can't avoid the taxman what
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i learned about all this
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i stopped contributing to my own 403 b
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because i worked for a non-profit
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and my head of the business office told
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me you're missing out on free money
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if they wanted to give me free money
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they would have put in my paycheck the
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reality is that every penny the company
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contributes
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to your 401k matching is 100 a tax
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write-off
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for your company that's why they'd like
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to make it sound like they're giving you
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free money
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the government knows they'll be
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collecting that money from you later
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when you're no longer earning it
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and need it to live off of it if you are
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contributing more than what the company
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matching amount is
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they'll be taking half of that amount as
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well and if all that i just shared with
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you
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isn't enough every single year the fund
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managers of your mutual funds take out a
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portion
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as a percentage of your retirement money
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as an additional fee
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so whatever funds that they stuck you
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with because you're limited in choices
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if they go up or if they go down it
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doesn't matter the fund managers take a
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piece of your hard-earned money
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would you pay someone to manage your
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money if they lost a whole bunch of it
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if you had a choice knowing this if you
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had a choice
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would you keep investing into your 401k
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if there was an alternative
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i do what i do as a licensed financial
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professional because i share the
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alternatives to this madness
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every person is different as are their
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situations
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and you must qualify for many of these
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fund options
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don't you owe it to yourself and your
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family to know how to secure their and
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your futures
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let's see if we can roll over the 401k
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403 eb or ira
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into something that doesn't have any of
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these negatives shared in this
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presentation
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when you meet with me you're under no
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obligations at all if i don't present
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you with an option that's better
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than what you currently have then the
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worst case scenario is you walk away
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learning something new
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let's schedule a 30 minute zoom call to
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see what we can do
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thank you for watching and please feel
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free to comment below or send me a
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message
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from the healthwealthandrealestate.com
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website on the get touch link at the top
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of the page
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and please like and subscribe to the
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channel so you don't miss any future
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educational videos
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i look forward to speaking with you very
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soon
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