Personal Finance Blog for Retirement and Investment Advice

Congress Considers Axing Your 401(k) Tax Deduction

Congress is considering proposals right now to take away the tax advantages of your 401(k).

To help finance the tax reforms being proposed, Congress is eyeing axing the up-front tax deduction for 401(k) contributions. And one proposal would also change the tax-deferred nature of 401(k)s by imposing a 15% tax on your annual gains.

Why would Congress consider tinkering with the tax benefits of such a popular program as the 401(k)?

For the same reason that notorious holdup man Willie Sutton gave for robbing banks:

Because that’s where the money is!”

The current taxation of 401(k) plans was estimated to have cost the federal government more than $90 billion in potential tax revenue last year alone, according to the Joint Committee on Taxation.

This is NOT the First Time Congress Has Tried to Make Radical Changes to the 401(k)

You see, the government created 401(k)s, IRAs and 403(b)s, which means they can (and do) change the rules any time they want.

This is only one of the reasons that the man credited with being the “Father of the 401(k),” Ted Benna, has been calling it a “monster” that “should be blown up.”

In fact, it caused quite a stir when Ted Benna recently announced that he’s put the lion’s share of his own money into what’s most commonly known as a Bank On Yourself-type plan.

You can learn why Benna believes Bank On Yourself plans avoid the dangers that traditional retirement accounts face in this article.

I’ve Been Sounding the Alarm About 401(k)s and IRAs for Even Longer Than Benna

And I’ve been attacked ruthlessly for that by the Wall Street fat cats who always get paid – whether you win or lose.

Here’s the uncomfortable truth: That whole tax-deferral “carrot” is a scam! (Read “6 Reasons Your 401(k) is a Scam.”)

Have you been told that deferring taxes is a good thing because you’ll probably retire in a lower tax bracket? That’s not what we’re hearing from many retirees who are complaining they’re actually in a higher tax bracket!

That’s happening for two reasons:

  1. The Required Minimum Distributions retirees have to start taking around age 70½ – whether they want to or not – are pushing them into a higher tax bracket.
  2. Many people are surprised to discover their income from various sources causes up to 85 cents of every Social Security dollar they receive to be taxed.

As a result, financial planners and CPAs are seeing retirees’ tax rates DOUBLE – or more!

In addition, what direction do you believe tax rates will go over the next 20 or 30 years? 94% of those we’ve surveyed believe they must go up, due to our country’s unsustainable debt and aging population.

Which means that if you’re deferring your taxes and you’re successful in growing your nest-egg, you’re only going to pay higher taxes on a bigger number!

Even if Congress doesn’t take away the tax benefits of saving in a government-sponsored retirement plan like a 401(k) or IRA this time, they could well be successful the next time they consider where to drum up the cash they desperately need to fund the government.

7 Reasons a Bank On Yourself Plan Is the Ultimate Retirement Plan Alternative

Here are 7 reasons why Bank On Yourself beats any 401(k) or IRA:

  1. A Bank On Yourself plan is a private, “unilateral” contract – that means the company can’t change the rules unless you agree to it. That’s the law.
  2. You control the money in a Bank On Yourself plan. There are no government limits on how much you can put in each year, and no restrictions or penalties for “early” withdrawal or for waiting “too long.”
  3. You can use the equity in your plan whenever and however you wish – no questions asked.
  4. Bank On Yourself plans are a supercharged variation of an asset that has increased in value every single year for more than 160 years – including during the Great Recession and the Great Depression.
  5. These plans are taxed like a Roth plan – you put in dollars on which you’ve already paid income tax, and you can access both your principal and gains with no taxes due. (See “5 Tax Advantages of a Bank On Yourself-Type Plan.”)
  6. There are no Required Minimum Distributions to push you into a higher tax bracket … and the income you take is not included when the IRS determines how much tax you’ll pay on your Social Security income.
  7. A Bank On Yourself plan and its growth are generally not reported to the IRS, which also gives you privacy.

Don’t Wait ’til Congress Changes the Rules for 401(k)s and IRAs!

Why not find out how adding Bank On Yourself to your financial plan can grow and protect your hard-earned savings and give you the 7 advantages listed above? Take that important next step TODAY and request your free Analysis here.

There’s no cost or obligation.

The Perils of Pamela Yellen

Dale Carnegie wrote,

If you want to conquer fear, don’t sit home and think about it. Go out and get busy.”

Vintage Movie poster, “The Perils of Pauline—The Abduction, 6th Episode in 2 parts”—from 1914Did your grandmother ever tell you about The Perils of Pauline? The Perils of Pauline was a 1914 series of feature films about an energetic and naive young woman who traveled the world, running into mayhem and misadventures.

Sounds kinda like the script of my life.

This is Chapter Three of my untold story. You can read Chapter 1, The Elephant and the Circus, here. And go here to read Chapter 2, about The Ugly Halloween Mask.

Launching My New Career

Where were we? Oh, yeah. So, I had hauled myself across the country and found a coach, Somers White, who helped me design a fabulous business plan. The teensy weensy problem was that this brilliant plan required me to do the one thing that terrified me the most. No, I’m not talking about parachuting out of an airplane while blindfolded. In my mind, this was something far worse.

My personal source of terror was speaking in public.

I was fine with one-on-one conversations. Even talking one-on-two or one-on-three was okay. But put me in front of a bunch of people staring at me waiting for pearls of wisdom to spew forth? I’d rather get a root canal with no Novocain, or go bungee jumping off the Golden Gate Bridge, or—okay, just about anything rather than speak in public.

But my brilliant new business plan demanded it. Ugh! Once I had settled on a career of consulting and speaking to the financial services industry, I realized I better get over my paralyzing stage fright very quickly!

Life has a way of taking interesting twists and turns. Often, it’s not clear where our paths are taking us until much later.

Don’t be afraid to shoot for the stars!

I started moving into my new career, making contacts and worrying about how to get through my public speaking phobia. The artist I’d been representing, Marlene McGoffin, told me I could use more self-esteem, and she invited me to attend a workshop about building self-esteem, led by several women from Los Angeles.

As Marlene told me about the workshop, I realized I didn’t know exactly what “self-esteem” meant. She said, “Well, if you’re going to go to the workshop, you better list three results you want to get from it. Otherwise, don’t go.”

So, I grabbed a pen and scribbled this down:

  1. I want to be able to speak without fear—to any size group.
  2. I want to be in a loving, harmonious relationship—with my soul mate.
  3. I want to be able to look in the mirror and like—if not love—what I see.

Honestly? As I wrote them down, all three of those goals seemed impossible!

Getting comfortable with public speaking seemed as far-fetched as learning to swim in a school of ravenous piranha. Finding a great relationship seemed as likely as winning the lottery. And liking what I see in the mirror? Only if I lost my eyesight completely. Like many women (and men) I know, all I could see in the mirror were what I perceived as flaws—and I was sick and tired of feeling yucky about myself!

But I attended the self-esteem workshop, and it was very powerful. I can’t explain exactly what happened, but shortly afterward I began experiencing dramatic shifts in all three of the areas I’d written down.

It was really amazing how several things started happening at once.

“Do the Thing You Fear and the Death of Fear Is Certain”—Ralph Waldo Emerson

Soon after that workshop, the Phoenix chapter of the American Cancer Society heard about my record-setting bachelor bid at the Sarasota, Florida, chapter—yes, my infamous open-the-circus-in a sequined-bodysuit-riding-an-elephant date. The committee asked if I would speak about my experience to help inspire the women who would be attending the upcoming Phoenix “Bid for Bachelors” event.

I said “Sure. I’d be happy to help. How long?”

“Five minutes.”

“No problem. How many people?”

“Five hundred.”

“Five hundred? Uh. …” My breathing stopped and my heart started doing the cha-cha.

But I wasn’t going to back out on this good cause. I jumped in with both very cold feet.

Later, they told me my talk went well. They told me I was fun and articulate. They told me I got a standing ovation. I honestly don’t remember a single thing about the experience, except that I was focused on not passing out.

But I had faced my dragon and survived! So I was off and running and ready to launch my business!

Life Beyond the Dragon

I started calling insurance agency managers in town, offering to do a three-hour seminar for their agents on how to find prospective clients. My proposal was to do the seminar for a discounted fee, with the understanding that if the agents got value from my session, the manager would write a letter of recommendation and refer me to other agency managers within their company across the country.

That simple strategy worked like gangbusters! The agents loved my presentation, and I soon had a dozen letters of recommendation—plus introductions to every agency manager in the country for those companies. My new business was launched out of thin air! Woo-hoo!

Within six months, I was invited to speak at the national meeting of my target market’s association. Over the next few years, I spoke three times at the Million Dollar Round Table, one of the most prestigious sales organizations in the world. Once, I even addressed them in my bathrobe! (What can I say? It was a 6:00 a.m. breakfast meeting!)

“I’m Looking for Love, But It’s Just Not There”—The Carpenters

The business side of my life was well on its way. And I had learned to be kinder to myself and more confident about my physical appearance. And my love life, which had been stuck in neutral with the parking brake on, began to move ever so slowly.

Years before, I had met—and later married—a brilliant man I met at the age of seventeen during my first week in college. Over time, his health deteriorated. He became addicted to pain killers, sedatives and alcohol. I eventually realized I couldn’t stay in that relationship. My husband was on a path of self-destruction and would have taken me down with him, except that I ended the marriage after 13 very trying years.

Having been with the same man since my first week of college, I had never really been on my own. So I naively jumped from the frying pan into the fire. I began a relationship with a man I later discovered was an alcoholic. Once I extricated myself from that unhappy relationship, I decided I would either be in a loving, harmonious relationship, or none at all. Besides, by then I was discovering that I truly enjoyed my own company. Yes, my self-esteem had grown that much!

“What the World Needs Now Is Love, Sweet Love”—Jackie DeShannon

I attended a number of singles events and did some dating. But no sparks flew. And honestly, dating is a lot of work! I was getting tired of getting all dolled up to meet guys who I would discover were not the least bit interesting to me. I decided to take a break.

Around that time, I started receiving mailers about a dating service. (This was before Internet dating took hold.) The dating service followed a model much like eHarmony does today: You fill out a profile about your personality and values, then the service matches you with people whose profiles match yours.

The pitch I got in the mail invited me to complete and mail in the profile. The letter promised I would find it interesting to see “what it revealed” about me. (That alone was a good enough reason to send in my profile, right?) I filled out the profile just for a lark, curious to see the report. I assumed it would come in the mail. But it didn’t.

Instead, I got a telephone call from the service, telling me they really needed women my age, living in that part of Phoenix, to meet the demand from the men in the area. Could they come out to my home to show me how the service works?

I explained I was not actively looking to find a mate. I was merely curious about the personality report they promised. I also told them that, as someone in sales myself, I would never waste another salesperson’s time. And there was absolutely no way I was going to join their program!

The phone representative wasn’t easily put off. She listed a handful of reasons I should listen to the presentation. Finally I gave in, saying, “But please let your salesperson know I’m not going to buy. If he still wants to come out and waste his time, okay.”

“Take a Chance on Me”—Abba

When the salesman arrived, he launched into a 90-minute, exceptionally well-crafted presentation about the merits of the dating service, and he had a good answer to every objection I gave him. When I asked the price of the service, he said it was “only” $1,500 for a one year membership, and wouldn’t that be worth it if I could find the man of my dreams. I told him there was no way I was going to fork over $1,500 when I wasn’t even interested in dating!

He left, unsuccessful in his mission to make a sale. (Hey, I had warned him!)

About ten days later, I received another call from the service. “We are desperately in need of women like you in the service. Would you join if we discounted the rate to $100 for two years?” Let’s see: $1,500 for one year, or $100 for two years. Hmm. … Isn’t that a 97% discount?

So I said, “Sure,” figuring that if nothing else, I would get some good stories if I ever decided to write my autobiography.

Shortly after that call, the dating service started mailing me one or two referrals each month. Over the next few months, I met five or six of the referrals for lunch. They were all really nice guys, and they all did seem to have a lot in common with me. The service was doing its job, all right, but there weren’t any sparks. I firmly believe there must be chemistry, even on the first date, so no second dates followed.

In December 1989, the service sent a referral to a man named Larry Hayward—the man who is now my husband, my best friend, and the love of my life. Larry sounded fascinating just based on the way he described himself on the referral form. He didn’t try to “sell” himself. In fact, he was pretty casual about the whole thing.

That was refreshing! For the first time since joining the dating service, I was really looking forward to meeting one of their referrals.

“My One And Only Love”—Frank Sinatra

When Larry and I met, we clicked on all levels. We were truly matched in so many ways. In fact, we’ve become real believers in this kind of “third-party selection process” for people looking for mates.

Larry had two previous marriages that had ended badly. His reason for joining the dating service was that he realized that on his own, he wasn’t attracting the right kind of woman. It was time to let the experts do it for him, using a scientific and tested method!

The two of us have been together ever since.

Larry worked the night shift at the post office. But he soon quit his job to work full time in my company. His talents complemented mine, and the company’s revenues soon began to grow as a result of our partnership.

We got tired of the heat, traffic and the crazy sprawling city Phoenix had become. We realized we could run our company from anywhere we wanted—and this was well before working from home or running a business without a building was common. We decided to relocate to Santa Fe, New Mexico, where we still live today.

For several years, Larry and I had a blast traveling around the country and throughout Southeast Asia together giving business seminars. Eventually, the constant traveling—often four or five different cities in one week—got tiring. Then after 9/11, with all of its new security restrictions and regulations, traveling became a grind.

We decided to do more telephone seminars from home and package our expertise for sale as recorded training programs on CDs, accompanied by printed materials. Larry held my hand (so I wouldn’t tear out my hair) while I wrote two books, both of which became New York Times best sellers, and we’ve weathered a number of life’s crises together. I couldn’t ask for a better partner in business or in life.

“Magic Mirror, on the Wall, Who Is the Fairest One of All?”—The Evil Queen in Disney’s “Snow White”

So what about that third seemingly unattainable goal I had written down, the one that said, “I want to be able to look in the mirror and like—if not love—what I see”?

I’m getting there! I can look at myself in a full-length mirror, without worrying that the mirror will crack—or crack up.

I still don’t love having my picture taken for publication, but mostly now it’s because I don’t want to go to the trouble of getting my hair done and other stuff like that.

But I actually am more pleased with my appearance today than I was when I was a mere child of 30 … or 40.

I’ve also come to gauge my worth by who I am and the contribution I make to the world, rather than by what I look like.

I didn’t know that it was possible to reach those three goals, when Marlene McGoffin urged me to write them down. I plunked down cash for that workshop with absolutely no assurance it wouldn’t be a waste of money I couldn’t afford to waste.

But in that instance, as in so many other times in my life, I listened to my instinct. I followed my gut.

And I remember what personal development teacher Les Brown taught me …

Shoot for the moon and if you miss you will still be among the stars.”

So what’s the moral of this story?

  1. What you want the most is often just beyond what you fear the most. (That’s one of life’s little ironies!) Don’t let your dragons scare you away from who you can become.
  2. It’s smart to get help from the experts, whether it’s your career, learning to feel good about yourself, improving your finances, or even finding a mate!
  3. Don’t be afraid to follow your intuition. Be willing to say “yes” more often than “no.” If I hadn’t naively accepted the gig for the American Cancer Society, if I hadn’t reluctantly agreed to meet the dating service salesman, and if I hadn’t enthusiastically accepted the date with Larry, I wouldn’t have the awesome life I enjoy today!

To put it all in perspective, I have to agree with the great humanitarian, Albert Schweitzer:

Success is not the key to happiness. Happiness is the key to success. If you love what you are doing, you will be successful.”

My life continued to take some interesting twists and turns, so check out the next chapter of my story here.

Movie poster: Perils of Pauline, by Movie Goods, Public Domain

Why Does Ted Benna, the “Father of the 401(k),” Love the “501(k)” Plan?

The man widely credited as the “Father of the 401(k) Plan,” Ted Benna, is among those saying the plan is no longer a good way to save and invest for retirement. He cites concerns that the government may change the rules, and not in your favor; that an impending market crash will wipe out much of what you’ve saved for your retirement; and that staggering fees can eat up a large portion of your nest egg.

Benna has gone on record as endorsing something that has been creatively called a “501(k) Plan.” Don’t get distracted by the name “501(k).” Although “401(k)” refers to the section of the Internal Revenue Code that deals with retirement plans, “501(k)” is an obscure Internal Revenue Code reference that describes the educational status of certain child care organizations! Using “501(k)” to refer to some kind of retirement plan is a gimmick dreamed up by Madison Avenue types. But all they did was take the Bank On Yourself concept, which is a proven 401(k) alternative, and give it a mysterious new name, the “501(k),” hoping you’ll pay money to find out what they’re talking about.

But while others are charging you money for this information, we’ve been giving it away for years! For FREE information about the Bank On Yourself method that others call a “501(k),” download our free report, 5 Simple Steps to Bypass Wall Street, Beat the Banks at Their Own Game and Take Control of Your Financial Future here.

History of the 401(k) Plan and Ted Benna’s Contribution to It

[Read more…]

Stock Market Reaches New Highs – Do You Trust It?

When we released our Stock Market Survey a few weeks back, we were surprised so many readers responded. We were even more surprised by the results of the Survey, which we promised to share with you, so read on…

Nearly half (45%) of those who took the survey said, “I don’t trust the market with money I can’t afford to lose.” They clearly understand that the money they’re setting aside for something as important as retirement or a college education is money you really can’t afford to lose.

Fully 45% of our subscribers believe a major market crash – a plunge of 50% or more, as we had in 2000 and again in 2008 – is imminent. And another 34% expect that calamity to happen in the next 3-5 years.

But when we brought the situation closer to home and asked readers how a severe market crash would affect them personally, we found wave after wave of denial.

About 12% said that even if the market drops by 50%, “I have plenty of time to recover.” I suspect these folks don’t realize that since 1929, we’ve had three market crashes where the Dow took between 16 to 25 years to recover. What if history repeats itself? [Read more…]

What Is a 501k Plan and Is It an Alternative for Saving for Retirement?

Let me cut through the hype and give you the scoop: The 501(k) plan is just the latest name the Palm Beach Research Group has given to the concept most people know as Bank On Yourself, which is based on a high cash value dividend-paying whole life insurance policy.

The Palm Beach Group has been bombarding subscribers to various email lists about a “warning” issued by the “Father of the 401(k),” Ted Benna.

The Palm Beach Research Group wants you to watch a long video interview they did with Ted Benna, where he reveals three dangers he sees coming that could impact your 401(k) and IRA accounts. He says these dangers could slash your savings by 40%. And you’re promised that by watching this long interview you’ll learn about “a non-government sponsored 501(k) plan” that may “be the only way left for most Americans to retire today.”

This secret plan is touted as a 401(k) alternative “account,” where Benna and some prominent members of Congress have put some of their savings, to shield them from these three dangers.

Unfortunately, even after you watch the lengthy interview with Ted Benna, you still won’t know what this “account” actually is—until you fork over $75 to $149 to subscribe to the Palm Beach Letter and get your copy of their “new” book, The 501(k) Plan: How to Fully Fund Your Own Worry-Free Retirement—Starting at Any Age.

You can’t judge this book by its cover

[Read more…]

Is “Tax-Free Retirement” Too Good to Be True?

Tax-free retirement—living a comfortable life in retirement without the obligation to pay income tax—comes as the result of planning and arranging your finances (following IRS guidelines every step of the way) so that when you retire, none of the money you receive is taxable—perhaps not even your Social Security income.

Tax-free retirement is good, and this article reveals how to make it happen.

Is Avoiding Taxes on Your Retirement Income Legal?

Reducing or avoiding taxes is perfectly legal. People take steps to reduce or avoid taxes all the time. They may donate to charity to avoid paying as much tax. They deduct their mortgage payments. They take legitimate business deductions. They may shift medical expenses, hoping to bunch expenses into one year and exceed the threshold for deductions that year. These are just a few of the legal tax-avoiding measures Americans take every day.

Many people even believe they have an IRA or a 401(k) to avoid paying taxes. But that’s a trap, because traditional IRAs, 401(k)s, and most other government-controlled retirement plans do not allow you to avoid paying taxes. They merely postpone tax day. We’ll talk more about that in a few minutes.

Over and over again courts have said that there is nothing sinister in so arranging one’s affairs as to keep taxes as low as possible. Everybody does so, rich or poor; and all do right, for nobody owes any public duty to pay more than the law demands.” — Supreme Court Justice Learned Hand

So while avoiding taxes is legal, evading taxes is not. Maybe you don’t report your income. Maybe you take deductions you’re not allowed. Or maybe you just tell the IRS to take a hike. That’s tax evasion.

But make no mistake: A tax-free retirement can be achieved legally, using IRS-approved methods.

Ways to Avoid Income Tax in Retirement

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Austrian Economics—What the Heck IS It?

What is “Austrian economics”? Let’s break it down:

Economics: “A social science concerned chiefly with description and analysis of the production, distribution, and consumption of goods and services.” Ooo-eee! That’s gotta be a page-turner! Thank you, Merriam-Webster.

Austrian economics: “A school of economic thought that is based on methodological individualism.” Gads! But thank you, Wikipedia.

I never studied economics in college. And I’m pretty sure I didn’t take economics in high school either. Or if I did, I slept through it.

Ron Paul, 2012 Republican Presidential Contender

But “Austrian Economics” is a phrase you hear from time to time—even if it’s said in code, like what Ron Paul said following the 2012 Iowa presidential primary. “I’m waiting for the day when we can say, ‘We’re all Austrians now!’”

That struck me as odd. As Matthew Yglesias colorfully observed in his Slate article on Austrian economics, “The average Republican presidential candidate would sooner officiate at a gay marriage than praise Europe, yet here was Paul pledging allegiance to Vienna. What did he mean? Why would we all be Austrians?”

[Read more…]

The Truth About Whole Life Insurance and Why It’s More Than a “Rich Man’s Roth”

I came across an online article by an anonymous blogger who claimed that the only good purpose for whole life insurance was as a rich man’s Roth. He was certain whole life insurance was only for individuals whose high incomes made them ineligible for the tax-saving advantages of a Roth IRA.

That’s actually pretty funny. Why restrict the incredible advantages of whole life insurance—including the tax advantages—only to the wealthy?

Let’s look at how a Roth IRA works and then compare it to a Bank On Yourself-type whole life insurance policy.

How Does a Roth IRA Work?

A Roth Individual Retirement Arrangement (Roth IRA) is an IRS-approved strategy that allows you to invest money you have earned by making contributions to a Roth IRA plan you have set up. You are not allowed to take a tax deduction for your contribution as you are with a traditional IRA. However, none of the money you take from your plan in the future is taxable. As far as the money in your Roth IRA is concerned, you will not be affected by future changes in the tax rate.

How a Roth IRA differs from a traditional IRA

Roth IRAs are quite different from traditional IRAs.

Chart Comparing Key Differences Between Traditional And Roth IRAsWith a traditional IRA, your contributions are tax-deductible. However, when you withdraw money from your traditional IRA—and you must withdraw specific percentages annually, beginning soon after your seventieth birthday—you must pay taxes on everything you withdraw—at whatever the tax rate happens to be at the time.

See the table for a summary of the key differences between a Traditional IRA and a Roth IRA. [Read more…]

The Surprising Truth About What Happens to the Cash Value of Your Life Insurance Policy When You Die

In Part 1 of this two-part series, I proved the media’s financial gurus are wrong when they claim that it takes years to build cash value in a whole life insurance policy.

In this second part of the series, I’ll show you why all the self-proclaimed experts miss the boat when they claim that whole life insurance policies are a rip-off because you build up all that cash value, then the insurance company keeps it when you die and only gives your heirs the death benefit.

It doesn’t have to be that way, my friend!

Click on the policy statement above to see a larger version

Here’s an actual whole life insurance policy annual statement. (This is a different policy than the one I showed you in Part 1.)

This is a whole life insurance policy purchased on my life in 1992. The statement I’m showing you, issued 17 years later, makes some astounding revelations. [Read more…]

Here’s Proof That the Financial “Experts” Don’t Know About Bank On Yourself Whole Life Insurance Policies

Policy Statement Showing How Whole Life Policies Designed the Bank On Yourself Way are Different From the Policies Most Financial "Gurus" Talk About

Click on the policy statement above to see a larger version

Take a look at this life insurance policy statement. It’s for a policy I took out on September 15, 2002. I’m showing it to you because I want put to rest the misconceptions and untruths the so-called financial “gurus” are spreading about the cash value growth of well-designed dividend-paying whole life insurance policies.

The financial gurus tell you not to buy whole life insurance because your equity in the policy—your cash value—grows too slowly, and you won’t have any equity for the first few years.

This is simply not true of Bank On Yourself-type whole life insurance policies!

You’ll have cash value in the first year with a whole life insurance policy designed the Bank On Yourself way!

[Read more…]