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Thursday, February 14, 2008

The 401(K) Trap

All the financial "experts" are telling us to contribute to our 401(k) plans. This is good advice. I will tell you that they are WRONG to tell us to depend ONLY on 401(k) plans or qualified plans. They are ticking time bombs; and they are savings bonds for the IRS. You are probably saying, " Savings Bonds for the IRS, what gives?"


The IRS has all kinds of qualified plans. These plans have three major benefits:




  • Tax Deductible Contribution


  • Tax Deferred Accumulation


  • Tax Free Distribution


You can only get two of the three. Which one would you choose? Most people choose the first two because the "experts" tell us that we will be in a lower tax bracket at retirement? Really?? How do they know? My guess is that taxes will be higher due to the entitlement programs and other Government Spending. If you choose the first two, you will pay MORE in Taxes at retirement. Why work, save and invest for retirement, to see you run out of money in 9 years? Why would you run out of money at retirement? There is only ONE financial product that can guarantee a lifetime of income throughout retirement. In my opinion, a Fixed Annuity is an excellent choice. It provides a lifetime of income that the principle is guaranteed by the insurance company. You principle will not be subject to the stock market ups and downs. Next, it provides a free pass through on probate. No worries about the estate tax man. Does the 401(k) plan meet this test? No, your principle will be subject to the estate tax man. The problems with Fixed Annuities(Immediate or Deferred) is the bad press by the Radio "Experts". Their ignorance has created some controversy surrounding these products, but yet they recommend the most risky investment products for retirement. I think it is risker to run out of money at retirement, AND pay estate taxes on your hard earned money that has already been taxed once! Annuities are not for EVERY situation, but for long term retirement income, you can't beat an annuity!