Misconceptions of your Retirement Accounts.

One of the biggest pieces of advice right now and has been since the early 80's, in the financial world is to max out your qualified retirement plans. For easy recognition think of your Traditional IRA or 401(k). People are told of many benefits to why you should do this. But there's a lot of misconceptions around these accounts. Some being:

• Tax deduction
• Lower income taxes when you retire
• Forced savings
• You own your qualified retirement account

They say you get a tax deduction, but where do you get to write off the money you put in these accounts? You don't. What you are doing is reducing your income for the year you are putting the money into the account before paying tax on this portion. This means that instead of paying the taxes today you are deferring them to a later date into the future of unknown tax rates. Which brings us to the next reason, lower taxes.

The second major reason people tell you to max out your plans is because you will be in a lower tax bracket when you retire. First you need to know how that would be possible. To be in a lower tax bracket, in this scenario, you would have to take less income. Less income during retirement. Weren't you told to live today like no one else, so later you can live like no one else? Where does this actually make sense? The two most expensive days in the week right now for most working families is Saturday and Sunday. Everyday of retirement is Saturday and Sunday, so why would I want to take less income in the time when I was told to enjoy my life like no one else? This scenario also is only if taxes never change from today. But what's the likelihood that taxes will stay the same? None, absolutely none. If we look at 1913 when the tax code was put in place until today the highest average tax bracket is 61%. Knowing that you could say a couple things, one taxes are on sale today and two taxes will most likely be going up with the way our economy is going. So even if you continue to push your taxes off until a later date thinking you will be in a lower tax bracket, the likelihood is that it's not going to happen.

The third reason is that this account is forced savings. This is a huge misconception of the whole account because you're not saving anything, you're investing everything. The only thing this account can guarantee 100% is that it can lose 100% of the value.

Lastly, you own your qualified retirement plan. This is by far, in my opinion, the largest misconception of the account. Majority of people think they are the ones who own these accounts, but forget to realize who makes all the rules on the account. When you sign the dotted line to get into these accounts you sign all the money you are contributing over to the government. Yes, the government. For easy remembering, the government owns majority of accounts that have letters and numbers together usually in pairs of three. You may recognize accounts like 403(b), 401(k), IRA, 457, 529, SEP, etc. They decide on many factors like how you will be taxed now and going into the future, when you must start taking distributions, how much you can put into the account, how much you can take out, when you can take it out, and many more.

When planning for your retirement there are many things you need to consider. A great question you can ask yourself is, "Do I want a big retirement ACCOUNT or big retirement INCOME?" Before making investments into your retirement understand the taxes, limits, and consequences of what you will be doing.

Some advice you may want to consider if you are an employee, is reducing your contributions to take advantage of the match that your company is willing to pay. If you are an employer you need to find a different area to be saving for retirement as well as different vehicles to hold your money, as you will always need access to capital. When you do this you should be looking at areas you can redirect the money that you were over funding these accounts with for a bigger and better use. These areas could include savings, life insurance, real estate, or other investments outside the account. Along with this you should be looking for strategies to offset the taxes when it comes time to use the money.

Take back control of your money and put it in motion. Be a good steward of what you have and use what you have for a greater use. Keep more of what you earn, and earn more on what you have.

If you have questions or would like some help please feel free to send a private message or email to [email protected]