Key 2 Deadly Mistakes That Can Cost You Thousands of $$ When YOU Retire- Key #2

 Key 2 – The Lure of IRA’s and 401(k)’s

             Most Americans are lured into saving for retirement with traditional qualified retirement plans, such as IRAs and 401(k)’s. They are convinced by financial advisors to contribute pre-tax dollars to 401(k) plans or place tax-deductible contributions into IRAs because of the tax advantages during the contribution and accumulation phases of their retirement planning.  They seem to ignore the two most important phases—when you withdraw your money for retirement income, and when you pass away and transfer any remaining funds to your heirs.  We want to teach you how to receive tax-favored benefits during all four phases of retirement planning: the contribution, accumulation, distribution, and transfer phases.

            

Most of us don’t want to outlive our money, and no one is getting out of here alive.  When people die, they usually leave behind some money in their IRAs and 401(k)’s that is transferred to their beneficiaries.  Unfortunately, non-spousal heirs far too often end up with only about 28 percent of the money that was left in their parents’ IRAs and 401(k)’s.

 

            Most people and their advisors feel that tax-deductible or pre-tax contributions to qualified plans such as IRAs and 401(k) s will provide the greatest retirement benefits because of tax-deferred growth.  But do they?

 

            If you were a farmer, would you rather save tax on the purchase of your seed in the springtime and pay tax on the sale of your harvest in the fall, or would you rather pay a tax on the seed and sell your harvest without any tax on the gain?  I would rather purchase the seed with after-tax dollars and later sell my harvest tax free.  We can teach you how to do the later.

 

            A Roth IRA is one way to accomplish this, but we believe it still has too many strings attached.  The maximum yearly contribution that can be made by an individual is $4000 in tax year 2008.  Distributions may not be taken until at least five years after the first contribution is made.  In addition, distributions must be taken when or after the owner reaches the age of 59 ½, except in the event of the owner’s death or disability, or for “qualified first-time homebuyers expenses.”

 

 

January 22, 2009  Tags: , , , , , ,   Posted in: Financial

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