401k Withdrawal Rules
401(k) plans are the most common option used by Americans to grow a nest-egg for retirement. Let’s look at how they compare with using Bank On Yourself for the same purpose:
1. Do you control your money in the plan?
Bank On Yourself
The Bank On Yourself concept gives you complete control over your equity in the policy. You can borrow your equity when you want, for whatever you want, and you don’t have to sell your assets to do so.
A very unique feature of this kind of policy is that when you borrow your equity, it could continue growing as though you never touched a dime of it. You receive the same guaranteed annual increase regardless of whether you have a policy loan, and any dividends you may receive are not affected by policy loans (if your policy is administered by a company that offers this feature). You determine your own loan repayment schedule
Using Bank On Yourself, one couple was able to have a total of $2.31 million over thirty-three years of retirement, primarily by redirecting money their employers weren’t matching from their 401(k) plans. That happened even though they used their policies over the years to finance new cars every four years and for foreign travel. All the details are revealed in Paul and Katie’s story, which is based on the experiences of real people, in chapters 3-6 of the best-selling book, Bank On Yourself.
401(k) or Qualified Plan
If you need access to your money in a 401(k), you may be able to borrow money from it up to certain limits. This typically involves liquidating assets, and you’ll stop earning interest and investment income on those funds
You’re typically required to pay your loans back within 5 years, or the outstanding balance becomes taxable and you also have to pay a 10% penalty
One study calculated that a 35-year-old with a $20,000 plan balance who takes out two loans in fifteen years ends up with about $38,000 less at age 65 than someone who never borrows, even if the loans are repaid without penalty (“Tempted to Borrow from a 401(k) Account” – New York Times July 5, 2008)
TRAP: If you lose your job or leave your company for any reason (and you haven’t reached age 59-1/2), in most cases you’re required to pay any loans back – in full – with interest in 30 to 60 days, or you’ll have to pay income taxes on it, plus a 10% penalty
2. Can you take income from the plan when and how you want?
Bank On Yourself
You can take income from a policy used for the Bank On Yourself method when and how you wish. There are no penalties for early, late or no withdrawals, and no minimum withdrawal requirement
401(k) or Qualified Plan
The 401k withdrawal rules are very restrictive: There are penalties for taking distributions before you’re a certain age, and you’re required to start taking distributions by the time you’re 70-1/2, whether you want or need to
3. Is your growth predictable?
Bank On Yourself
Your growth in a Bank On Yourself-type policy can be both predictable and guaranteed. You receive a guaranteed annual increase, plus you have the potential for dividends, which, while not guaranteed, have been paid every single year for more than 100 years by the companies used by Bank On Yourself Authorized Advisors
You can get a free analysis that will show you how much your financial picture could improve if you added Bank On Yourself to your financial plan, along with a referral to a Bank On Yourself Authorized Advisor, who is a life insurance agent with advanced training in this method.
401(k) or Qualified Plan
If your money is invested in the market, you could lose some or all of your money and have no way of predicting the value of your plan when you hope to tap into it
Here’s a more detailed comparison of how Bank On Yourself compares to a stock market timeline.
4. What are the tax consequences?
Bank On Yourself
It’s possible to take retirement income without taxes due, under current tax laws. This is accomplished through a combination of dividend withdrawals and loans against your cash value, and making sure the policy does not terminate
401(k) Withdrawal Rules
Withdrawals from traditional 401(k)’s and qualified plans (other than Roth-type plans) are taxable. If tax rates increase in the future, as most experts believe they will, and you are successful in growing your nest-egg, you could end up paying higher taxes on a larger number
MYTH: Many people believe they’ll come out ahead tax-wise by deferring taxes, however, deferring taxes could actually result in your paying a whopping 118% more tax – and that’s assuming the tax rates don’t increase at all
-
-
Bank on Yourself is on Facebook!
Do you like Bank on Yourself? Join us on Facebook by clicking on the like button below and anytime you're on Facebook, make sure to stop by the wall page.