I’ve written extensively about why more and more experts are warning that the 401(k) is an experiment that’s failed, and why the man considered to be the “father” of the 401(k) says it’s a monster that should be destroyed.
But the pandemic, shutdown and resulting economic downturn have exposed dangerous cracks in the 401(k) system. I’ll explain three of them here and show you how to protect yourself…
New 401(k) Problem #1: Companies are Suspending Matching Contributions
Tens of millions of workers have already been affected, and more companies have announced their plans to suspend the 401(k) match.
That’s a real blow for employees who’ve come to think of the match as “free money” and assumed it’s a perk that won’t be yanked with little warning.
But the reality is that the employer match isn’t really “free money” at all. According to a study by the Center for Retirement Research, for every dollar an employer contributes to your 401(k) match, they pay 90 cents less in salary to men and 99 cents less to women!
Translation: For every matching dollar you’re given, you really only receive 10 cents or less in total compensation.
PLUS, you don’t even get all of your employer match until you’re “vested,” usually after 4 to 6 years on the job. Even before the downturn, the average employee didn’t stay on the job long enough to qualify for full vesting.
New 401(k) Problem #2: Take a 401(k) Loan and then Losing Your Job Has Costly Consequences
Even though recent legislation provides some relief if you take a loan due to virus-related hardships, if you leave the company – whether by choice or not – your loan can end up as a taxable distribution and you could still get stuck with a 10% early withdrawal penalty.
Many 401(k) plans will still require you to repay the loan, with interest, fairly quickly if you separate from the company.
If you can’t come up with the money within a certain amount of time, it becomes a taxable distribution, and you could still get hit with the 10% early withdrawal penalty.
New 401(k) Problem #3: Tax-Deferral Turns into a Major Tax Trap!
In our immediate gratification society, the concept of deferring your taxes is another major reason people plow virtually all of their retirement savings into tax-deferred 401(k)s, IRAs, and so on.
Never mind that the Society of Actuaries says that if tax rates remain the same, “It doesn’t make any difference if the taxes are taken away from you at the beginning or at the end. It’s the same fraction of your money that is left to you.”
And most people never give a thought to what the tax rates will be during 30 or so years of retirement. In fact, they forget that tax bill is even coming, according to the Center for Retirement Research.
Note that the Society of Actuaries said, “If tax rates remain the same,” you’ll pay the same fraction now or later.
But with the biggest stimulus programs in history piled on top of an already record-high national debt and an aging population, deferred taxes could easily devour 50% or more of your nest-egg!
The Reality is that the Money in Your 401(k) or IRA Doesn’t Belong to You – it Belongs to the Government, the IRS and Your Employer
And they can change the rules any time they want without your permission or approval!
As Robert Anthony noted…
There are no victims, only volunteers.”
When You’ve Had Enough of Volunteering to Be a Victim, There’s Another Way…
The Bank On Yourself safe wealth-building strategy provides an antidote to all of these wealth-killing traps. You can enjoy all these benefits and more:
- Guaranteed, predictable growth and retirement income
- No volatility – your principal and growth are locked in and not subject to market risk
- You can access your money any time for any reason – no questions asked
- You can even continue to get the same growth on any money you’ve accessed
- You can access your principal and growth with no taxes due, under current tax law – this lets you avoid a major tax shock later
- You can know the minimum guaranteed value of your nest-egg on the day you plan to tap into it – and at every point along the way
It’s Not Too Late to Rescue Your Retirement and Take Back Control of Your Money and Finances
But don’t put it off another day. Request your free Analysis here. You’ll get a referral to a Bank On Yourself Professional who can answer your questions and show you how a custom-tailored program can help you reach your financial goals and dreams – without taking any unnecessary risks.
They’ll review strategies for funding a Bank On Yourself program, such as redirecting a portion of your 401(k) contribution, rolling over a 401(k) or IRA, lump-sum funding options, and more.
There is no cost or obligation, and you can meet “virtually” – by phone, email and computer screen sharing.
So do yourself and your family a big favor and take the next step towards financial stability here now: