[00:00:00] Outro: Welcome to Private Banking Strategies Podcast with Vance Low 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 and asset protected fortress for their families.
[00:00:21] Outro: Learn how to keep what you earn and use the velocity of money. To create your own private banking system. Join us on this journey as we explore the secret strategies of the rich and political elite and help you take total control of your financial security. Now onto the show.
[00:00:39] Eric (Host): Hello and welcome to Private Banking Strategies with Vance Low and Seth Hicks, gentlemen, and so good to be back with you today.
[00:00:45] Eric (Host): How are you?
[00:00:46] Vance Lowe: Doing great, Eric. Uh, doing absolutely fantastic.
[00:00:50] Eric (Host): Alright, 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 what we’re talking about today. What, what are you guys gonna present today?
[00:00:59] Seth Hicks Esq.: We’re gonna be [00:01:00] talking about traditional retirement programs that are government sponsored, Eric 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.
[00:01:18] Seth Hicks Esq.: And the title of the podcast is why you should dump your 401k as fast as possible, and Is there something better?
[00:01:27] Eric (Host): Huh. Okay. Well, I’ve, I’ve never, I’ve never heard somebody talk about this, so I’m excited to, to get into this today.
[00:01:34] Seth Hicks Esq.: Where do we start? Well, there’s a big myth that’s been growing, uh, for decades, Eric, and that’s that the 401k money you have socked away is actually your money.
[00:01:45] Seth Hicks Esq.: Fact is, it isn’t your money. Uh, you can’t get it when you want it. You can’t get it when you need it. Uh, and in fact. When you’re planning for retirement, you can’t even determine how much money’s gonna be there when you do need it, [00:02:00] uh, in your retirement years. And you don’t know how much you’re gonna be taxed when you’re gonna be taking that out, if you’re planning well in advance.
[00:02:07] Seth Hicks Esq.: But many people, you know, they’re told that they’re gonna get out ahead of the tax man, uh, by deferring taxes, but it in, in reality. The government and the tax code isn’t set up for our benefit. It’s set up for the government’s benefit. Mm-hmm. And when you defer taxes in a 401k or another qualified plan, you’re not gonna be paying less tax.
[00:02:32] Seth Hicks Esq.: You’re gonna be paying more tax, and in fact, much more in many circumstances. And that’s assuming that tax rates stay where they are now, which they’re not. So Vance. I’m gonna let you jump in here and, and ask Eric a couple questions about the 4 0 1 Ks and IRAs and Roths.
[00:02:52] Vance Lowe: Okay. That I’d be happy to do that.
[00:02:54] Vance Lowe: Fir. Uh, but first I want to clarify one thing, uh, 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. Uh, why isn’t it mine? Well, folks, they all. Uh, are owned under what’s called erisa.
[00:03:16] Vance Lowe: 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, notice who the owner is. It doesn’t say Vance Low or Eric or Seth. Own trust. These are government owned, which means they’re retroactive. Um, throughout life I’ve old enough to to see many changes happen.
[00:03:47] Vance Lowe: Uh, IRAs introduced and, and them changed over time, and everything can be retroactive, including the Roth. So Eric, 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 mm-hmm. IRAs, Roths, uh, 4 0 1 Ks, and the majority of the working people participate in one or all three.
[00:04:18] Vance Lowe: Why do you think that’s the cause? Why, what, what causes that? Why do you think they’re interested in doing that for.
[00:04:25] Eric (Host): Well, first of all, let’s take 4 0 1 Ks. I mean, that, that’s an easy answer. Uh, they, you know, you hear, well, it’s free money. And, and what they mean by that is that your employer contributes, uh, you know, most employers contribute to that.
[00:04:37] Eric (Host): 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 4 0 1 Ks. It’s just what you do. And I’m using air quotes on a podcast, which is ineffective. 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.
[00:04:54] Eric (Host): It’s, it’s a given if you, if you wanna 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 Roths, but those are just, when, when you get, I guess, more sophisticated, uh, in, 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, you pay tax on the seed, not on the tree kind of thing.
[00:05:17] Eric (Host): Uh, and it’s just. 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 and be all.
[00:05:25] Vance Lowe: Alright. You know, uh, we’ll kinda accept that as, as an answer. I’d like to take even a higher level look and, and see why people are motivated into these things.
[00:05:36] Vance Lowe: ’cause 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 4 0 1 Ks are coworker, or what we call peer pressure. Hey, everybody’s doing it. You need to be doing this too. The fact of getting something maybe for [00:06:00] nothing, having the employer, uh, put in dollars mm-hmm.
[00:06:05] Vance Lowe: Or, or matching dollars. Um. People also need to understand that we used to have pensions. Uh, if we stayed with an employer long enough, we could retire with a pension. You know, uh, literally a retirement income, well, they took those away and substitute ’em for 4 0 1 ks, which is far less expense on the employer.
[00:06:29] Vance Lowe: Then the employers, when they first came out, started matching as much as three to one. You put $1 in, we’ll put $3 in, and that was American Airlines when it first started. Hmm. I happen to know that ’cause I had a lot of clients there. And then that’s dwindled down. And now I’m finding, if I push the issues, when people tell me that their 4 0 1 ks are matched, less than [00:07:00] 50% of ’em are actually matched.
[00:07:02] Vance Lowe: They think they are, but not actually. Hmm. 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, it’s kind of phenomenal. Uh, or it’s a phenomenon out there when so many people are doing this and we’re not hearing any good results. Oh, yeah, my 401k is, is growing.
[00:07:30] Vance Lowe: Well, let’s be see by how much, let’s subtract, how much you’ve put in and 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 a few client stories that I’ve had along the way that have involved some critical circumstances.
[00:07:54] Vance Lowe: 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, was really gonna skyrocket, and it was actually his father-in-law’s, but his father-in-law said, Hey, I need to sell this company.
[00:08:21] Vance Lowe: I’m happy to sell it to you, but you’re gonna have to come up with a sufficient down payment. Mm-hmm. All of his assets was in his 401k. So he runs over to the employer, actually, he calls me, 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?
[00:08:48] Vance Lowe: 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.
[00:09:20] Vance Lowe: 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.
[00:09:53] Vance Lowe: 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% of what I’ve heard in the past, and that is automatically deducted outta your paycheck. And many times that is after tax. So taxes are paid, then it’s subtracted. Now you’ve got a after tax money in a 401k.
[00:10:22] Vance Lowe: And you’re gonna have to pay taxes all over again.
[00:10:25] Eric (Host): Hmm.
[00:10:26] Vance Lowe: So many times. Eric and Seth, I don’t know if I’ve even told the 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 gonna be taxed again.
[00:10:48] Vance Lowe: A huge horror story. Others are just the fact of, uh, uh, a common, the common theme is here, I can’t get at 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 gonna have to pay penalties and taxes.
[00:11:14] Vance Lowe: And that’s a horse or that stops people from doing that. Oh man, I don’t wanna do that. Mm-hmm. So they leave the money there alone, it’s not doing as well as it could be out 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.
[00:11:37] Vance Lowe: When it’s awake, you’re actively using a, 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 other people.
[00:12:02] Vance Lowe: Are actively using the account and they’ll pay a very small amount. So those are just a couple of horror stories that, uh, 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, uh, to Seth to talk about some of the other huge problems that we face, the people base.
[00:12:26] Midroll: 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 at (817) 200-4777 or visit us at www.privatebankingstrategies.com. Sure.
[00:12:52] Seth Hicks Esq.: Well, you highlighted, uh, one of the major problems with these programs, and that is the control and access.[00:13:00]
[00:13:00] Seth Hicks Esq.: To, uh, your money or what you think is your money, it’s not your money. 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 gonna get into in the next podcast, Eric, 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.
[00:13:37] Seth Hicks Esq.: Another large component of these. Uh, government sponsored accounts is that there are many times, uh, especially the 401k, they’re in the equities market and you’ve got ’em in a blended basket. I, uh, mentioned to you off air, got a, a friend who’s in the 401k and didn’t really know why. Uh, his, uh, [00:14:00] grandfather had, uh, taken advice from a money manager and the money manager had him in the, in a blended.
[00:14:07] Seth Hicks Esq.: Um, uh, equities basket. Mm-hmm. 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’s up. 10% and he’d look at his 401k and it’d 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.
[00:14:33] Seth Hicks Esq.: Mm-hmm. How. When the market’s going up, you don’t have a direct correlation in the value of your 401k and when it’s going down, there is a direct correlation. So the, the problem with that is that you, you’re bearing the risk of loss and what’s supposedly a retirement account. And with a retirement account, it’s our opinion that it should be a very stable guaranteed.
[00:14:59] Seth Hicks Esq.: 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 gonna be there when I need it. This is the value of my nest egg on this date, and this is when I need it. This is what I’m gonna be able to take out and have a, a well-structured plan.
[00:15:16] Seth Hicks Esq.: If you’re 401k or other, uh, 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.
[00:15:37] Seth Hicks Esq.: There’s, there’s three primary reasons we’re focusing on, uh, in this episode, uh, for why 4 0 1 ks are, uh, a ticking time bomb and you should dump them. One is the penalties and it’s not your control asset. 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.
[00:16:03] Seth Hicks Esq.: 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. Uh, people are paying taxes on retirement accounts and it’s gonna, it’s gonna get worse. Most of the drawbacks, uh, around 4 0 1 Ks sit center around liquidity and control, but taxation is the, is the big elephant in the room, Eric?
[00:16:30] Seth Hicks Esq.: And if they change 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, and change that? You don’t. None. You have, you have
[00:16:47] Vance Lowe: absolutely zero. Seth, let me jump in here on that very comment right there. We see this happen and a rationale that’s illogical [00:17:00] happening all the time on this.
[00:17:02] Vance Lowe: Would you, would we rather pay taxes on the seed? I’m talking as a farmer here, I guess. Mm-hmm. Or the harvest. With what’s going on with our government today and 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 gonna cost more.
[00:17:32] Vance Lowe: 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.
[00:17:56] Vance Lowe: They’re, 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, Eric?
[00:18:15] Eric (Host): No. And that, and that scares us not out of me, to be honest with you, because of all the spending the government has done, we, we know, I mean, I can’t speak factually, but who doesn’t think that taxes are gonna go way up and they’re gonna find ways to get that money back?
[00:18:29] Vance Lowe: 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. Mm-hmm. So, sorry to interrupt, Seth. I just thought that would be a good point to, to just to bring that home to people, how serious this tax consequence is.
[00:18:49] Seth Hicks Esq.: Yeah. And Eric, you, you pointed out, uh, just a second ago that the government has increased.
[00:18:57] Seth Hicks Esq.: Uh, uh, spending and of [00:19:00] tax dollars and 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 the 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.
[00:19:22] Seth Hicks Esq.: The maintenance of the Kennedy Center, those type 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 gonna pay a $30 trillion debt? They’re gonna pay it with increased taxation. Mm-hmm. On the people that are making money, they’re gonna go after baby boomers, uh, retirement accounts.
[00:19:48] Seth Hicks Esq.: And by, uh, last research that I did, there was approximately $7 trillion in baby boomer retirement. Uh, plans that are, uh, qualified government plans, [00:20:00] 7 trillion. Hmm. So. You’ve got Uncle Sam over there licking his chops, going, there’s 7 trillion that I can, uh, get my hands on. And just by simply changing the tax laws, and that’s what they’ve done with the Secure Act, is they’ve began to encroach, uh, in that direction.
[00:20:18] Seth Hicks Esq.: And I think that the current administration has, uh, already promised that they’re going to increasingly, uh, encroach there until it’s really not even hidden. It’s in your face. You, you know, the taxation issue is something we can’t control and something that I wouldn’t, if you don’t have to play by their rules, you shouldn’t.
[00:20:39] Vance Lowe: Mm-hmm. You know, Seth, uh, and, and Eric, one of these times, we need to show people the, the effect that tax, uh, taxes have on the growth of money. I need. We want to share with the people at some point that if government actually wants more tax money. They have to lower the [00:21:00] taxes. That provides more money, tax money for the government, and we can prove that day in and day out.
[00:21:08] Vance Lowe: It, the raising of taxes isn’t about them wanting more money, it’s about wanting more control. Mm. So it, it, it, it hurts us. It, it, 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.
[00:21:35] Vance Lowe: And, uh, we can bring to bear. Uh, you know, those numbers and those statistics to, to prove that out.
[00:21:42] Seth Hicks Esq.: We’re gonna propose that there are, 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 in a 401k.
[00:21:57] Seth Hicks Esq.: 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, Eric.
[00:22:23] Seth Hicks Esq.: Okay, well, we could use some good news after,
[00:22:26] Eric (Host): after that. Those concerns have been, you know, felt by the entire audience. And I, I mean, again, I’m, I’m very interested to hear this next part because, uh, bottom line is, like you said, that the, the common frame of the, of the narrative out there is get into a 401k start, an IRA start, a Roth.
[00:22:44] Eric (Host): 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, 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, I’m really interested to hear, um, [00:23:00] how you can change that and change the narrative and, and do better.
[00:23:03] Vance Lowe: Eric, there’s one, there’s one thought that, uh, so 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. Hmm. CPAs are the, probably one of the main culprits. Oh, you could lower your taxes by contributing into a 401k or self-directed IRA or this, that, that or the other.
[00:23:31] Vance Lowe: They have no concept of planning, money, planning or anything else. It’s just, oh, today we could go from, uh, we could save an extra thousand dollars, you know, today. Mm-hmm. Um, let alone tying that money up and, and, and reality, it’s gonna cost the client $20,000.
[00:23:52] Eric (Host): Hmm.
[00:23:53] Vance Lowe: Because it’s gonna tie the money up and they can’t put it to work.
[00:23:56] Vance Lowe: Have they invested it another way? So [00:24:00] CPAs, you know, can be good to, to help you not pay taxes and keep you outta hot water. But when they’re advising that you get into tax qualified accounts, 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.
[00:24:18] Vance Lowe: You know, Hey, we can help you here. Mm-hmm. And too many people take that advice.
[00:24:23] Eric (Host): All right, Seth, any closing thoughts from you today?
[00:24:25] Seth Hicks Esq.: 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.
[00:24:40] Seth Hicks Esq.: Eric, and, and that’s, that’s what we’re gonna show people in this, in this next sec, 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 your their way.
[00:24:56] Eric (Host): Alright, sounds good. I look forward to it.
[00:24:58] Eric (Host): Uh, Vance and Seth, [00:25:00] thank you so much for your time today 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 the listening audience. Thank you so much for tuning in and listening to the Private Banking Strategies Podcast with Vance Low and Seth Hicks.
[00:25:14] Eric (Host): 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 listing device. This makes it really easy to share this podcast with your friends and family. Again, thanks for listening today.
[00:25:26] Eric (Host): For everyone at Private Banking Strategies, this is Eric Johnson reminding you to live your best day every day, and we’ll see you next time.
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