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[00:00:00] VoiceOver: Welcome to private banking strategies podcast with Vance Lowe and Seth Hicks, your secret weapon to protect your assets and never have to start over financially. Again, Vance and Seth help high net worth individuals, families, business owners, and investors structure an asset protected tax-free fortress for their families.
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[00:00:39] Aric Johnson: Hello and welcome to private banking strategies with Vance Lowe and Seth Hicks.
Gentlemen. It’s so good to be back with you today. How are you?
[00:00:46] Seth: doing great. I do an absolutely fantastic.
[00:00:49] Aric Johnson: All right. I, I, we caught up a little bit before we hit the record button. Just talked about what was going on in our lives, but I don’t know we’re talking about today. What, what are you guys going to present?
[00:00:59] Vance: We’re going to be talking [00:01:00] about traditional retirement programs that are government sponsored, Aric and the 401k, the IRA 4 0 3 BS. These qualified plans that a lot of our audience may have, uh, been in or that traditional wisdom tells you to be in. And the title of the podcast is why you should dump your 401k as fast as possible.
And is there
[00:01:26] Seth: something better. Huh.
[00:01:27] Aric Johnson: Okay. Well, I’ve, I’ve never, I’ve never heard somebody talking about this. So I’m excited to get into this today. Where are we?
[00:01:35] Vance: Well, there’s a big myth. That’s been growing for decades, Aric. And that’s that the 401k money you have socked away is actually your money fact. Is it?
Isn’t your money? You can’t get it when you want it. You can’t get it when you. Uh, and in fact, when you’re planning for retirement, you can’t even determine how much money is going to be there when you do need it, [00:02:00] uh, in your retirement years. And you don’t know how much you’re going to be taxed when you’re going to be taking that out.
If you’re planning well in advance, but many people, you know, or they’re told that they’re going to get out. Of the tax man by deferring taxes. But in reality, the government and the tax code isn’t set up for our benefit. It’s set up for the government’s benefit. And when you defer taxes in a 401k or another qualified plan, you’re not going to be paying less tax.
You’re going to be paying more tax and in fact, much more in many circumstances. And that’s assuming. Tax rates stay where they are now, which they’re not. So Vance, I’m going to let you jump in here and ask Aric a couple of questions about the 401ks and IRAs and Ross.
[00:02:52] Seth: Okay. Now I’ll be happy to do that. Uh, but first I want to clarify one thing again, about ownership, a lot of, [00:03:00] uh, flies in the face of the way.
Most of us think. Yeah. Well, this is mine, you know, I’ve put a lot of money in here. I’m having contributions by the employer. Why isn’t it? Mine? Well folks they all. Are owned under what’s called ERISA. ERISA is an acronym. And don’t ask me to go through that whole name, uh, but it’s called ERISA. And these are government owned trusts, uh, noticed who the owner is.
It doesn’t say Vance Lowe or Aric or Seth owned trusts. These are government owned, which means the retroactive, um, throughout life, I’ve old enough to see many changes happen. Uh, IRA’s introduced and them changed over time and everything can be retroactive, including the raw. So Aric, you know, just based on that [00:04:00] topic, on, on the experiences to date, you’ve heard of all these, you know, qualified plans, IRAs, ROS, uh, 401ks, and the majority of the working people participate in one or all three.
Why do you think that’s the cause? Why, what, what causes that? What do you think they’re interested in doing that? Well,
[00:04:26] Aric Johnson: first of all, let’s take 401ks. I mean, that’s an easy answer. Uh, they, you know, you hear all this free money and what they mean by that is that your employer contributes, uh, you know, most employers contribute to that when you put in money, there’s a certain match.
So that’s, that’s number one. Uh, everybody loves free money, right? Number two with 401ks, it’s just what you do. And I’m using air quotes on a podcast, which is in the fact that. It’s what you do when you, when you get a job, you sign up for the 401k because that’s how you build your retirement. It’s, it’s a given.
If you, if you want to call it that way now it’s a little bit more difficult [00:05:00] to answer your question when it comes to IRAs and Roth, but those are just when, when you get, I guess, more sophisticated, uh, in your investing. I think that that’s what people say. Okay, well now you need to start a Roth IRA because it’s, you know, you pay tax on the seed, not on the tree kind of thing.
And it’s. It’s inundated into our culture. That’s the education that’s out there. Those are the options that are presented as the end all
[00:05:24] Seth: and be all. All right. You know, uh, we’ll kind of accept that as, as an answer I’d like to take even a higher level, look and see why people are motivated into these things.
Because if we can identify that maybe we can identify. How to avoid that. And I think one of the main issues when it comes to the 401k is our co-worker or what we call peer pressure. Hey, everybody’s doing it. You need to be doing this to the fact of getting something, maybe for [00:06:00] nothing, having the employer, uh, put in dollars or matching dollars.
Um, People also need to understand that we used to have pensions. Uh, we stayed with an employer long enough. We could retire with a pen. You know, uh, literally a retirement income. Well, they took those away and substitute them for 401ks, which is far less expense on the employer. Then the employers, when they first came out, started matching as much as three to one, you put $1 in, well, we’ll put $3 in, and that was AmArican airlines.
When it first started. I happened to know that because I had a lot of clients. And then that’s dwindled down. And now I’m finding if I push the issues, when people tell me that their 401ks are matched, less than [00:07:00] 50% of them are actually matched, they think they are, but not actually. And then it’s only up to a maximum amount that they’re willing to put in per year.
It’s not on all of their contributions. It’s kind of phenomenal. It’s a phenomenon out there when so many people are doing this and we’re not hearing any good results. All y’all. My 401k is, is growing well. Let’s be see by how much let’s subtract, how much you’ve put in, um, how much your employer put in.
Oh. Oh, it didn’t grow. Oh, okay. Well now we know why it’s growing. Um, I’d like to maybe share with us a few client stories that I’ve had along the way that have involved. Some critical circumstances had a client one time who had an opportunity to buy into a business. [00:08:00] It was an in law. The business was extremely successful.
Uh, there was a lot of money to be made and the business was really going to skyrocket and it was actually his father-in-law’s, but his father-in-law said, Hey, I need to sell this company. I’m happy to sell it to you, but you’re going to have to come up with a sufficient down payment. All of his assets was in his 401k.
So he runs over to the employer. Actually he calls me and says, Hey, I could buy into this thing. You know, I need $80,000, you know, and I’ve got over $400,000 in my 401k. Uh, you know, how do I pull that out? How do I get that? I have to tell him, well, I’m not sure number one, if you can, but call human resources.
Who’s over the 401k and find out. So he calls. [00:09:00] And he’s immediately told no in our 401k, unless it’s for a medical emergency or you’re purchasing a house, you cannot access any of your 401k. He could not get that money. And his father-in-law had to end up selling that business to someone else, no access to money that was rightfully his, that he should have some sort of access to.
That’s not the case in every 401k. Some people might get access, but they are limited to probably a maximum of $50,000. And for specific reasons, sometimes the employer might be a little more liberal on the interpretation of what you can use it for, but when you take it out, an automatic repayment is set up at a certain interest rate that is not chosen by [00:10:00] you.
It’s chosen by the employer and that’s usually 7% what I’ve heard in the past. And that is automatically deducted out of your paycheck. And many times that is after tax. So taxes are paid, then it subtracted. Now you’ve got an after tax money in a 401k. And you’re going to have to pay taxes all over again.
So many times Aric and Seth, I don’t know if I’ve even told this story to Seth that I’ve seen the employers make terrible mistakes. They’re not supposed to charge tax before the payment, but they have that money has gone back into the 401k and there is no way it’s not going to be taxed. A huge horror story.
Others are just the fact of, uh, uh, a common the common theme is here. I can’t get it. The money in a 401k. Let’s do one [00:11:00] on, on a regular IRA. That’s self-directed okay. I get to choose where I put the money. How do I get access to it? Well, if I’m under age 59 and a half, I’m going to have to pay penalties and taxes.
And that’s a horse or that stops people from doing that old man. I don’t want to do that. So they leave the money there alone. It’s not doing as well as it could be outside. We’ve talked in previous, um, podcast of what an investment is when it’s awake versus an investment is when it’s asleep. When it’s awake, you’re actively using a painter.
Is turning inventory. He’s buying cans of paint, making, you know, $2 profit per can where an inactive or an account asleep has to sit in an account. You do not have access to it because you’re trying to get an interest rate return on it [00:12:00] while the. Are actively using the account and they’ll pay a very small amount.
So those are just a couple of horror stories that I could go on and on, but I think there’s a few more. Things that we want to get out today. And I want to turn the time back over to Seth to talk about some of the other huge problems that we face that people face.
[00:12:26] Voice Over: Do you see yourself in that story? Do you feel like you are generating a lot of revenue, but are not moving forward as fast as you would?
Like? Are you ready for help please? Call private banking strategies set eight one seven two hundred four seven seven. Or visit us at www.privatebankingstrategies.com.
[00:12:52] Vance: Well, you highlighted one of the major problems with these programs and that is the control and [00:13:00] access to your money or what you think is your money.
It’s not your money. W if you do gain access, it’s riddled with penalties there’s penalties. If you take the money out too early there’s penalties, if you take the money out too late, and it’s cloaked with penalties, penalties, and more penalties. So. One of the contrasting elements that we’re going to get into in the next podcast.
Aric is some of the sweet places where you don’t have to play in the sandbox and there aren’t penalties to control and access your money. Another large component of these government sponsored accounts is that there are many times, uh, especially the 401k they’re in the equities market. And you’ve got them in a blended basket.
I mentioned to you off air, got a friend who’s in the 401k and didn’t really know why. Uh, his, uh, [00:14:00] grandfather had taken advice from a money manager and the money manager had him in the, in a blended, uh, uh, equities basket. So he was putting his money there, but didn’t know, he didn’t even know what stocks he was in, but he did know that, hey, the stock market.
10% he’d look at his 401k and it only be up 2% or, you know, then the stock market’s down 10% and his 401k is, you know, down 25% and he couldn’t understand those ratios. When the market’s going up, you don’t have a direct correlation and the value of your 401k. And when it’s going down, there is a direct correlation.
So the problem with that is that you you’re bearing the risk of loss and what supposedly a retirement account and with a retirement account, it’s our opinion that it should be a very stable guarantee. And [00:15:00] predictable value that you can count on. So when you’re planning for retirement, you need to know, Hey, this is what’s going to be there when I need it.
This is the value of my nest egg on this date. And this is what I need it. This is what I’m going to be able to take out and have a well-structured plan. If your 401k or other qualified account is tied to the equities market. That’s just not the case. You’re actually sitting on a ticking time bomb.
That’s waiting to explode and you’re bearing the risk of loss when you don’t have to now. Here’s the, the elephant in the room and that is taxation. There’s, there’s three primary reasons we’re focusing on, uh, in this episode for why 401ks are a ticking time bomb and you should dump them. One is the penalties and it’s not your controlled.
Two is you’re bearing the risk of loss and the value of your accounts is being diminished and [00:16:00] devalued without your control. And you’re taking on that risk. And third is the taxation issue. Now there’s a, there’s a legislation that was recently passed, called the secure act and the secure act is already changing the way.
Yeah, people are paying taxes on retirement accounts and it’s gonna, it’s gonna get worse. Most of the drawbacks, um, uh, around 401k sitter center around liquidity and control, but taxation is the, is the big elephant in the room, Aric. And if they changed the tax code and increased taxes on distributions, what ability do you have to control that?
What ability do you have to raise your hand and change? You don’t none. You have, you have absolutely zero.
[00:16:49] Seth: Seth. Let me jump in here on that. Very comment right there. We see this happen and a rationale that’s illogical happening [00:17:00] all the time on this. Would you, would we rather pay taxes on the seed? I’m talking as a farmer here, I guess, or the harvest.
With what’s going on with our government today in the runaway inflation that we’re faced, that they’re not announcing, there’s a purpose out there to help erode, um, nest eggs and, and money out there. And literally get us into a higher tax bracket if things are going to cost more. So it was a long time ago.
That people would retire in a lower tax bracket. When I first started hitting the market 40 years ago, that might’ve been the case 45 years ago today. It’s not the case. People aren’t retiring in a lower tax bracket unless they have no money. And they’re only on social security there they stay at or higher.
So I just [00:18:00] wanted to point that out. Why would people be willing? To postpone taxes that are lower today into a higher tax bracket tomorrow. Does that make sense to you, Aric?
[00:18:15] Aric Johnson: No. And that, and that scares us, not out. I mean, to be honest with you, because of all the spending the government has done, we know, I mean, I can’t speak factually, but who doesn’t think that taxes are going to go way up and they’re going to find ways to get that money back.
[00:18:29] Seth: I’ve asked that question. Hundreds of times to people and I never get a different answer. Oh, it’s going up. We believe it’s going up. So sorry to interrupt south. I just thought that would be a good point to, to just bring that home to people. How serious this tax consequences. Yeah.
[00:18:50] Vance: Do you, you pointed out, uh, just a second ago that the government has increased.
Uh, spending and [00:19:00] tax dollars in pork barrel ways and handouts and stimulus packages. And on prior episodes, we’ve, we’ve drilled down there a little bit, uh, not only to handouts, to foreign countries with no value, uh, in consideration, back to us, but the maintenance and repair of the Kennedy center, which was closed and they had handed out $65 million for, uh, the maintenance of the Kennedy center, those types of things.
Are absurd. And anybody with a reasonable mind will look at that type of spending and, and see that it equals the demise of our country. And how are they going to pay a $30 trillion? They’re going to pay it with increased taxation on the people that are making money. They’re going to go after baby boomers, uh, retirement accounts.
And by last research that I did, there was a approximately $7 trillion in baby boomer, retirement plans that are, uh, qualified government plans, [00:20:00] 7 trillion. You’ve got uncle Sam over there, licking his chops going there, 7 trillion that I can get my hands on. And just by simply changing the tax laws. And that’s what they’ve done with the secure act as they’ve began to encroach, uh, in that direction.
And I think that the current administration has, uh, already promised that they’re going to increasingly encroach there until it’s really not even hidden. It’s in your face. W, you know, the taxation issue, something we can’t control and something that I wouldn’t, if you don’t have to play by their rules, you shouldn’t,
[00:20:40] Seth: you know, Seth and Aric, one of these times, we need to show people the, the effect that attacks, uh, taxes have on the growth of the money I need.
We want to share with the people at some point that if government actually wants more taxes, They have to lower the [00:21:00] taxes that provides more money tax money for the government. And we can prove that they in and day out the raising of taxes. Isn’t about them wanting more money. It’s about wanting more control.
So it hurts us. It limits us. It takes away our ability to be self-sufficient and successful by raising taxes. It does not put more money in the hoppers because less money is created because of that tax reason. And, uh, we can bring to bear, uh, you know, those numbers and those statistics to prove that we’re going to propose
[00:21:43] Vance: that there, there are alternative ways where you can play by your own rules and you’ve got control.
You’ve got liquidity and you’ve got the ability to put that money to work for you. Not just letting it sit there, idle and a 401k. Or another government qualified plan [00:22:00] and get a much larger X-Factor that is growing tax-free and is completely within your control. Um, that’s the good news. So we’ve told people about the penalties and the bearing the risk of loss and the taxation confiscation that occurs with these qualified programs.
But we’ve got, we’ve got some good news to share as well. Okay. Well,
[00:22:23] Aric Johnson: we could use some good news after, after that those concerns have been felt by the entire audience night. I mean, again, I’m very interested to hear this next part, because bottom line is, like you said that the common frame of the, of the narrative out there is get into a 401k start an IRA, start over.
This is what you do to prepare for your future. But you really brought up a lot of great points as far as how your hands are tied in this situation. And I know that I, we felt it in our family because of, you know, a situation with our 401k before. And so I’m really interested to hear, um, [00:23:00] how you can change that and change the narrative and, and.
[00:23:03] Seth: Aric there’s w there’s one thought that a S a lot of this is not our own thinking. It’s it’s led on by government agents, government agents, uh, go on many times, go under the title of CPA. CPAs are the, probably one of the main culprits. Oh, you could lower your taxes by contributing to a 401k or self-directed IRA, or this.
They have no concept of planning, money planning, or anything else it’s just, oh, today we could go from a, we could save an extra thousand dollars, you know, today. Um, let alone tying that money up and reality. It’s going to cost the client $20,000. Hmm, because it’s going to tie the money up and they can’t put it to work, how they invested another way.
So [00:24:00] CPAs can be good to help you not pay taxes and keep you out of hot water. But when they’re advising that you get into tax qualified accounts, Uh, for me, I don’t think they know their head from a hole in the ground, you know, they’re, they’re, they’re talking just that, you know, Hey, we can help you here.
And too many people take that.
[00:24:23] Aric Johnson: All right, Seth, any closing thoughts from you today?
[00:24:25] Seth: Well, I’m, I’m excited to get into how people can play in their own sandbox with rules that are completely in their favor and not stacked against them. Well, how they’ve got complete liquidity and control of their assets and there’s no tax on the growth.
Aric and, and that’s, that’s what we’re going to show people in this, in this next set. Next segment is, uh, how to accomplish that and be able to put their money to work, capture the velocity of money and take advantage of the opportunities that are, that are coming there way. Alright,
[00:24:57] Aric Johnson: sounds good. I look forward to it.
Uh, Vance and Seth, [00:25:00] thank you so much for your time, day and the education that you provide. Uh, and I’m really looking forward to the answers on the next podcast. So again, uh, our last thank you of course, is to you listening audience. Thank you so much for tuning in and listening to the private banking strategies podcast with Vance Lowe and Seth Hicks.
If you have not subscribed to the podcast yet, please click the subscribe. Now button below this way. When Vance and Seth come out with a new podcast, it’ll show up directly on your listening device. This makes it really easy to share this podcast with your friends. Again, thanks for listening today for everyone at private banking strategies, this is Aric Johnson reminding you to live your best day every day, and we’ll see you next time.
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