DID YOU KNOW

With over a trillion dollars in Qualified Plans, I wonder if people realize the Federal Government is their partner on these plans and will take millions for their share.  The government encourages you to put your money in a “Qualified Plan Account” and to defer the taxes.  An example of some of these accounts includes 401(K)’s, IRA’s, SEP’s and 403(b) plans just to name a few.

Who came up with these Plans? – The Government.  Over the last 40 or 50 years there have been numerous changes in Qualified Plans and I believe no one will be surprised with the present landscape in our government today that they could certainly change again.  Qualified Plans are not “tax saving accounts” as many believe.  They only do two things: They defer the tax you owe and the tax calculation.

But this is exactly what we are doing with  the government in “Qualified Accounts”

They are not saying: “You do not owe the tax”.

They are saying: “You can pay the tax later”.

At What Bracket? “That is a good question”.

Qualified Retirement Plans can be a viable tool for some of us for our retirement planning; however, they can lead to financial ruin if they are not fully understood.  People believe these plans are the best tool for their retirement as this is the status quo of today.  Two factors that could destroy their wealth are increases in tax brackets to maintain the lifestyle they expect and the government’s ability to change the rules at anytime.

Doing some research and quickly educating yourself you will see the future tax liability and how it may affect your effective rate of return.  The message here is government intervention and future increases in tax brackets to pay off the mounting debt that is accruing today leaves us with a bleak forecast.  Anything tied to Washington and income taxes is certainly bad news for us and our children.

This is not to say Qualified Plans are bad.  However, it is important that you know and understand exactly what they do.  If you put this under a microscope and carefully think it through, you will see the water is murky.  What was once intended to be financial security in our golden years has been turned upside down by government spending and it may take many generations to right the ship once again.

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Thought for the Day:

“The world is a looking glass and gives back to every man the reflection of his own face. Frown at it, and it will look sourly upon: laugh at it and with it, and it is a jolly, kind companion.”