November 26, 2018

Delivering Nontraditional News From The Money World

SMR 1 | Nontraditional News

 

Timothy Bush gives a great overview of the world of finances, delivering nontraditional news that is full of fresh insights, he goes about and speaks on topics from oil and gas to retirement. Learn how oil and gas investment works and its effects. Know when you’re going to need a deduction when you pay your taxes. Find out how the 401(k) became the retirement standard in today’s world, what it means to be in the lower tax bracket when you retire, and what you need to do about social security. And find clarity into where the government stands in all of this—from tax code laws to IRS.

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Delivering Nontraditional News From The Money World

I’m delivering the message to you. I’m delivering nontraditional news to you, which sometimes is not the most popular but I’m a numbers person and I’m delivering facts. As we close out 2018, if you’re going to need a deduction when you pay your taxes, there is no other deduction like an oil and gas investment. You invest the money. There’s potentially a way to write off, to deduct. There’s a difference between a tax deduction and a tax credit. This is not a credit. This is a deduction. There is a way to potentially write off 100%. It doesn’t always work out, but there’s a way to possibly write off 100% of the amount. Very few people know about this.

When I meet someone and show it to them, a lot of times they’ll bounce off their CPA. I am amazed at how many CPAs do not know the tax code when it comes to deductions on oil and gas investments. It almost seems too good to be true, but it’s not. We can go down the road and talking about American independence of foreign oil and we’re going down that road. We don’t drill oil wells just for tax deductions, but if you’re looking for a deduction in 2018, I highly encourage you to get educated on oil and gas deductions. The only thing you’re going to be asked is a little time and you go to the website and you get educated. You can call me 202-SAGE. That’s 202-7243. You can go to the website. You can send me an email from there. It’s just about getting educated and learning about the current US Tax Code because there’s another strategy that I call the golden child of the US tax code.

Let me ask you a serious question here. If you had the opportunity, let’s say you were a farmer and you go to buy some seed. You’re given the choice to pay taxes now on the seed or pay taxes on the harvest, which would you choose? Pay taxes on the seed or pay taxes on the harvest? I’m hoping you would say you pay taxes on the seed. That is not what the 401(k) is and I often beat up on the 401(k), even though that’s where most Americans have the overall substantial proportion of their money. I think the 401(k) is a bad plan and let me tell you why. It could be killing your financial plan. It all started back in 1978 when the famous 401(k) was in a way created by accident. In the late ‘70s, most employers contributed to a defined benefit plan, which is also known as a pension and that costs employers a lot of money.

Think about it, most people you know right now working do not have a pension. They’re very rare nowadays. During that same time, tax rates were much higher than they were now. Some very highly compensated executives were looking for loopholes to avoid high tax rates. What they proposed was they could be bonused out in the form of a 401(k). It’s section 401(k) of the tax code, which allowed them to take their bonus, dumping into a 401(k) plan to avoid paying the high taxes now and then grab the bonus money at retirement when taxes are much lower.

This is the deal. How many of you heard that you will be in a lower tax bracket when you retire? Whenever we do a little presentation, I ask that question. Most hands go up. How many of you heard that you will be in a lower tax bracket when you retire? I think that is a myth. There may be some people that do that and end up like that, but very few. First of all, if you’re in a lower tax bracket when you retire, your financial plan, even if it’s certified, has gone off the tracks. Who wants to be lower? That means you’re spending less money. What I want you to realize is that the 401(k) plan came out because of high tax rates. What I want you to understand right now is historically we were in the lowest tax rates since 1933.

SMR 1 | Nontraditional News

Nontraditional News: Taxes are much different today than what they were then.

 

Why are you deferring taxes now? Do you think we’re going to be in a lower tax rate in the future? I guess if you do, then you should be putting as much as you can but I don’t believe that. I have some statistics to back that up. I don’t believe that our current system can sustain what we’re doing mainly because of Social Security and Medicare. All that’s going to affect taxes. After the 401(k) was started a few years later, businesses started catching on and realize they would save millions upon millions of dollars by getting rid of the pension plan and moving into a 401(k). Instead of having to fund a pension for years after retirement, they could offer a company match and have the employees contribute the majority to their retirement. That’s how the 401(k) became the retirement standard in this world, by accident.

If you are contributing to a 401(k), I think you should contribute minimally to receive the match. A lot of people are neat. They are maxing out their 401(k). They’re putting an extra 20% and whatever it is to max it out. I think you should put in the minimum amount to receive the match and then call me and let me show you what I’m doing with my own money because I don’t want to change anyone’s monthly standard of living. You’re used to getting X amount of dollars per paycheck. If you stopped contributing over the match with the 401(k), you’re going to be receiving more. Let me show you where to put that money that you can take it out tax-free down the road. You know it’s not an annuity. It’s not 1978 anymore. I was at the ripe old age of two years old in ‘78.

Taxes are much different now than what they were then. The government debt is much higher than it was then and there was a huge problem facing social security. You realize when the 401(k) started, the see the country was not even $1 trillion in debt. Now, we’re $21.6 trillion or something like that. We have a huge problem facing Social Security. How are we going to pay for Social Security and how are we going to pay off this massive $21 trillion of debt? Is it possible that taxes could go up from their all-time lows of 2017? If taxes are at an all-time low right now and we forecast we may need to raise taxes in the future to pay for the government’s financial mess, then does it make sense to save in a 401(k) now? You were deferring your taxes. Think about this. A lot of people get caught up in the herd mentality. You were deferring taxes in the lowest brackets since 1933, in almost 100 years. You’re deferring them in the lowest tax environment we have been in. Why? I think people get caught up.

I could even make an argument on the free money, but it’s okay to contribute your money the minimum amount to receive the match. Anything over than that is a bad idea. That’s my opinion and my opinion and a dollar bill would buy you a cold beer on a Tuesday night somewhere maybe. All I can do is sit here and tell you exactly what I’m doing with my money. I’ve been very fortunate and very blessed to be around some very smart people, some very successful people and some very wealthy people. Money that I’ll never even come close to having. They have mentored me and I have asked them, “Mike, what are you doing today at 63 that you wish you would’ve known about at 42? Michael, looking back when you were 42, tell me something you regret doing with your money.” I’ve asked all these people these questions and a lot of the answers are the same. I challenge you to get educated on nontraditional, nonconventional strategies for your money to make money.

In my opinion, from all the hours of research that I’ve done and the books I’ve read, it all comes down to Social Security. People are living so much longer now than what they were years ago and the government did not take that into consideration. When we look at the first Baby Boomer turned 62 years old in 2008. The first Baby Boomer turned 65 in 2011. What is the significance of those ages? 62 is eligible to start receiving social security. 65, obviously Medicare. There’s a third date that has impacted the path that America is on for wealth and that is 70 and a half. What is 70 and a half? 70 and a half is when the government forces you to take out money of your retirement plan even if you don’t want to.

A lot of people get caught up in the herd mentality. Click To Tweet

That’s what you have to understand, you have to say, “I’m in control with my own money. I like to control my money. I don’t like anybody telling me what I have to do with my own money. I understand paying taxes. I understand we needed infrastructure and all that, but I don’t want someone forcing me years down the road to do something with my own money.” I truly believe that the government is your partner in a 401(k). Any kind of qualified plan, 401(k), SEP IRA, or anything like that where you defer taxes, the government is your partner. The government is going to tell you years down the road how much you owe them basically at an unknown date and an unknown rate. I’m 42 right now, they may lower the RMD to 65 later on. Who knows? We don’t know what tax rates are going to be in the future. If you are receiving financial advice from someone that is telling you that you will be in a lower tax bracket when you retire, run.

They can’t predict that. In fact, I asked them if they will sign that and date it on their letterhead. They don’t know. That is a myth. I have clients right now that are not in a lower tax bracket and they are retired. They are not. For some, maybe they are but it is not a blanket statement to tell people, that you will be in a lower tax bracket when you retire. More than likely, your house will be paid. More than likely, your kids will be off the payroll. More than likely, you won’t have the deductions. If you’re not working, you’re probably not getting as much to the church or charities. There are so many factors in that.

I’ve had numerous conversations with people that have turned 70 and a half and they call me and they do not want to take out their RMD, their required minimum distribution, but there’s no way around that. You have to. Let me tell you something. If you forget or you don’t take out enough, the government, the IRS absolutely hammers you. It’s downright ridiculous on what the penalties are for not taking enough money out of the RMD. It’s just crazy. I don’t have faith in the government like that. I don’t have faith with the government spending money. They do a terrible job spending money. Just in Louisiana, a report came out. We overspent $85 million on Medicaid and then the elite moron, idiotic politicians want to raise taxes and they wonder why we question them.

Prove you can spend the money that we have first. That’s the idea, if the government, if the idiotic, moron politicians would treat the taxpayers’ dollar like they treat their own dollar, at the day house we only have X amount of dollars. We can’t go do this and do that every month. We have something called a budget and there is no one to bail me out when I don’t have the money. If the idiotic, moron politicians would treat taxpayers’ dollars like their own money, we wouldn’t be spending like that. It’s even hard to comprehend. $85 million in Louisiana was spent on Medicaid for people that shouldn’t have got it. They overpaid them or shouldn’t have been on it. What’s going on? In my opinion, the government’s too big.

Let me circle back. I don’t want the government being my partner in anything to do with money. That’s why I don’t put money into 401(k). I don’t put a single penny and I could if I wanted to know. I do like the Roth. I think the Roth is okay. You pay the taxes today, but I don’t want to put my money in the market. I know there are other things you can do with the Roth. I’m putting my money in and let me take Roth, Roth on steroids. Senator Roth went to certain parts of the Tax Code and pull out to make the Roth IRA. What I did, I just hurdled the Roth. I went around the Roth and I went to the original part of the Tax Code and that’s where I’m putting my money in. I am paying the taxes now because I think we’re in the lowest tax brackets we’re probably ever going to be in. I think tax rates are going to be higher in the future. I’m not taking that chance. When I want to pull my money out, I’m going to pull it out tax-free. In fact, the government’s not going to know about it. The way I have mine structured, when I put money out, there is no place even to put on the 1040 that I have income and it’s legit.

SMR 1 | Nontraditional News

Nontraditional News: Take advice from someone who’s doing what they talk about.

 

People say, “Is it legal?” I don’t get insulted, but I will not be doing anything that was illegal with my money. I encourage you to learn about the tax code. People get mad when I introduced them to the deductions of oil and gas, when I introduced them to the unlimited Roth. They want to get mad at their CPA. I don’t think the CPA’s job isn’t necessarily to tell you about tax deductions. CPA’s job is to file your tax return. Most CPAs are looking in the rearview mirror. They’re not looking ahead. Take advice from someone who’s doing what they talk about. I only have my money basically in three places and that’s what I talk about here on the radio every week. Especially if you were at least two years away from retirement, even a year away from retirement, I can show you how to never pay taxes on Social Security. I never talked about that yet. People are going to pay taxes on Social Security for life possibly.

Depending on what you’ve earned in your lifetime, it could be anywhere from $150,000 to $250,000, unnecessarily taxes on Social Security because it’s where your money sits. There is a way to get around that. It is extreme but there is a way and people do it often. You’re not going to hear about it from your certified financial planner, from your financial advisers because those guys are married to the market. They’re all about accumulation, chasing the rate of return. I like to have the conversation about distribution because very few people talk about that. I’ll ask that question 1,000 times dealing with people one-on-one. I’m talking with people one-on-one and in groups of people. Have you ever had a conversation about the distribution side of your wealth? You’ve got to know what I’m talking about. I’m talking about taxes because you could do everything right and it could be wrong because of the government on the way they handle taxes.

I think they’re going to keep testing Social Security. Right now, if you’re married and filing jointly, you make over $44,000 of what the government calls provisional income, you owe taxes on Social Security. Even though you’ve already paid taxes on Social Security, they’re making you pay it again because the government sucks at managing money. Their answer to everything is to raise taxes. They don’t like to cut because they’re gutless human beings up there in DC. Take advantage of the tax code of what’s already on the books. Do you want to disinherit the IRS from your retirement plan? Would you rather pay taxes on the seed or the harvest? I’m going to throw some questions out there that you probably haven’t been asked because you’ve probably been getting advice from the traditional financial guys that are in bed with Wall Street, which is in bed with the fed, which is in bed with the government.

I want to do the opposite of what those people are doing. I’ve been very fortunate and blessed to find some of these strategies that have been on the books for a while. It’s just very few people know about them. I’m putting my money in every one of them because that’s very important. Whenever you’re sitting down and talking with someone about money and they’re giving you advice, they better be putting their money where they’re telling you their money is. Don’t let them give you this crap about, “Mr. Smith, I’m 40 and you’re 68, so I have more time to make up if the market goes down or whatever.” If they’re telling you to put your money somewhere, it doesn’t matter the age, they should have their money in there too, just for me. The people I have asked, they showed me where their money was. I want to see proof and they showed me.

We’re talking about current tax code laws that I feel that most people don’t know about. I encourage you to learn about the current tax code laws. One of those is the deductions of investing in oil and gas. I talk about it all the time and there are two ways that the company that I’m affiliated with invest in oil and gas. One of them is basically direct participation where you put your money in, you own part of the well and you own part of the entity that owns part of the wells. There’s a major tax deduction for that. If you’re looking for a deduction for next year or whenever you do your 2018 taxes, I encourage you to look at this. I’m reading right here from something from the IRS.gov. The US government offers attractive tax incentives to encourage investment in domestic oil and gas projects. Intangible drilling costs, which include items such as labor and water, typically account for 60% to 80% of the cost of completing a well and can be 100% tax deductible during the first year.

Somebody somewhere is getting rich off of someone else’s money. Click To Tweet

Depletion allowance is a deduction from taxable income that reflects the declining production of reserves over time. Independent producers and royalty owners are permitted to take a 15% reduction to the taxable gross income of a productive well to account for the depletion of reserves. This results in 85% of income from oil and gas investments being taxable subject to limits and restrictions. There is potentially a way to get a deduction for 100% of the investment you make potentially. I’m talking about you put in $100,000, you may get $100,000 deduction. I will say minimally, each project’s a little different per item, but it’s 85% the minimum. Trump, in the new tax laws, there were already awesome tax laws and they made them better. They made them sweeter. You can accelerate the depletion allowance as well. Every oil project is different. It depends on when the oils are drilled and all that, but it has the potential to receive a major deduction. Oil and gas are worth looking into.

That’s what we call patience money because we don’t drill wells for tax deductions. We drill wells to make money, but the tax deductions are lagniappe. Talking about the tax code and the drilling of oil wells, major tax deductions there. If you are a high-income earner or you’re looking for a deduction for 2018, look at this. The company also has another way to put up money. Going back to the oils, we call it patient money because some of these projects have six, eight, ten wells in the whole project. They do that because they don’t hit every well. We have actually drilled some wells that were dry. It’s part of the deal. If you’re in a package where there are multiple wells, it spreads the risk around. All your money’s not going in one or two wells. The income is monthly. There is a risk in this investment, there’s a risk in this strategy. Number one, are they going to hit oil? Number two, what’s the price of oil per barrel? Number three, how many barrels will be in pumped per day? Your income per month is going to fluctuate. You may be pumping less oil but because it’s more per barrel, one month, then the next month.

I encourage you to learn about it and to find out about the team because you have to know and trust the team that’s doing this and this company has a pretty good track record. In fact, they tell everybody it’s a three to five-year deal because they like to flip the wells just like you flip houses. They’d like to flip the wells, get in there, drill the wells, prove the production, prove the reserves and then get out. We just sold two projects in September. They sold them in August and we got paid for them in September. You receive a wire for your basis. I don’t like that word basis. Any investment you should be in, you should know about what your basis is. We received my basis back, then I received the profit on the wells, which is around 20%. That doesn’t include the monthly income that I received for the last eighteen months plus the tax deduction. When it’s all said and done, one of my clients is a CPA. He called me, he was the first one to call me. He said, “I just did the math on this. This was a 52.4% return on investment.” Actually for him, it was fifteen months. For some folks, it will be a little bit less because maybe somebody put their money up eighteen months ago.

They got into the project on the early stages of the funding. Those may have been eighteen months and therefore they’re a little bit lower. For him, he’s a CPA, he knows numbers and that’s pretty solid now. Not every well’s like that. I’m in wells that we drilled before those that we haven’t sold yet, but as I’ve learned with these guys, that project specifically was not for sale but it can be bought. They thought the time was right to sell it for what they were offered on it. They weren’t looking to sell it, they were offered money on it. They did an appraisal just like you would in a home before you sell it and they got out. My monthly income has decreased a little bit because I don’t have as many wells flowing, but I see my basis back plus about 20%. I’m going to roll it into the next project and get another tax deduction. I can lower the money on paying the corrupt federal government.

I do owe them taxes every year. It drives me crazy and my wife that we pay Social Security taxes. My wife works so hard. She’s a private school teacher here in Baton Rouge and she works hard. I think we should have the choice. Just like we had the choice to go to the casino. We had the choice to go to the racetrack. You had the choice to even now bet on football games here around Baton Rouge. What if you want to do that? You don’t have to, but the government makes you pay into Social Security, which to me should be a crime. I don’t want to pay into it but they’re taking my money. If you’re receiving Social Security right now, you paid it through all those years. I don’t know if I’m ever going to receive it because they’re going to keep means testing it.

SMR 1 | Nontraditional News

Nontraditional News: This is patience money. We don’t drill wells for tax deductions. We drill wells to make money.

 

We discussed the oil well investment. There is something that the slang term is the land bank. If you’re for monthly consistent income, this is solid. It’s for credited investors only and you are lending the company your money and they were returned paying you 8%, 8.5%, 9% rate of return. If you commit to one year, it’s 8% and the money’s paid monthly. Do the math on that. You put up $100,000, simple interest, that’s $8,000 back you get per year, but it’s paid back over every month. $150,000 investment in one-year deal is $12,000 back per year. If you commit to two years, it’s $25,500. If you commit to three years, it’s $40,500 total over three years, but it’s paid monthly. They have one, two and three-year options, and then they have simple and compounding. The simple is 8%, 8.5%, 9% per year respectively. The compounding is 8.3%, 9.23%. The three years, 10.28%. People will say, “I brought this to my financial guy and he said nothing is paying 10% right now.”

Let me tell you something, if you’re not making tons of money in the market, you need to ask what’s going on. It’s record-breaking highs for the market. I met a guy, he had money in some kind of market-linked CD. He has $3,000. I think he put in $59,000. It was worth $56,000. How does that happen and the market’s rolling right now? He’d done better off going to the regular CD. It’s Wall Street. Somebody is getting rich off his money. This company, you lend them your money and they in turn lease some land to eventually drill for wales. In this particular investment strategy, the success of the oil well does not depend on your monthly return. People always ask me, “Is this guaranteed?” I say, “No, this is not guaranteed.” You could lose all of your money. In my opinion, I think it’s much less risky than the stock market.

Have you ever lost money in the market? If you think about that, that’s crazy. Would you put your money in the markets called securities? There’s nothing secure about security, “You really haven’t lost until you pull it out.” I’m a control freak with my money. These monthly interest payments are offered to eligible lenders. Each lender holds a pari-passu first position security interest in the project loan document. This company acquires, develops and liquidates mineral assets in proven Texas oil fields. Loan options include simple interest and paid monthly or compounding interest.

Let’s say someone’s got an old 401(k) laying around, it’s easy to transfer that to a self-directed IRA. This is all about education and you get a username and password and you’ve got to look at the website and learn about it. Each business loan is guaranteed by the company, secured by a pari-passu security interest in project loan documents perfected via a UCC financing statement in favor of each lender. Perfected liens are created when the lender files a UCC financing statement with the appropriate authority, the Texas Secretary of State and the statement that specifies the collateral used to secure the loan and gives the lender precedence in the collection process if the borrower defaults. Unperfected liens leave lenders open to possible claims against the collateral by other creditors. That project loan will be secured by liens against real and personal property of the sponsor.

Yes, there’s risk in this. I think the risk is very low, very mitigated. That’s my opinion but I have my own money in there. It’s helping me subsidize my kid’s private school tuition. The oil wells are a great tax deduction. There are two different ways to invest in oil and gas. One is a consistent rate of return, going in the minerals, the land. One is in the wells, which gives a great tax deduction. There is no tax deduction for investing in the land. My family, we are getting ready to lease our land hopefully in the next couple of months to accompany our land in East Feliciana Parish. Where is the money going to come from to pay my family on that land? The company we’re going to lease it from is a publicly traded company. They have shareholders, they have stockholders, so all oil and gas companies, they have to go lease land before they drill wells. This is a private company. They have lenders who do that.

There are two goals of retirement: to maximize retirement and to minimize tax. Click To Tweet

Another nontraditional, another unconventional way for your money to make money. Most people and 99% of financial planners, financial advisors, they’re all about accumulation. They’re all about climbing the mountain. If you think of working as 35, 40-year career of working, the point is to retire. If you think of retirement as sticking the flag on top of the mountain, you have reached the pinnacle. You have to come down the mountain and that is correlated to the distribution side of your money. Have you ever had a conversation about the distribution side of your money?

I asked that question often. I asked that question every time I meet with someone and the answer has been every time, “No.” No one’s ever answered yes to that question. Have you ever had a conversation about the distribution side of your money? I’m not talking about annuities. Annuities are usually a bad place to put money. I don’t like locking my money up for fourteen years. I do think they serve a purpose. It’s like a pension. It’s actually a pension with your own money. If you’re looking for a place to hold the money. There are other opportunities out there. I’m not a big fan of annuities and I know they’re blasted on the radio all the time for advertisements and people think of annuities are safe and they are. They’re guaranteed, but I think there are other places. The problem with annuities is they’re oversold. People in annuities probably shouldn’t be in annuities. That’s just my opinion. I often meet people who wish they would have never gotten and when they don’t know what they were getting in and their money locked up for so long.

If you think of retirement as coming down the mountain, you have retired, now in retirement, you need distribution. The two goals of retirement are to maximize retirement and to minimize tax. If you’re interested in minimizing the tax in retirement then call me. Do you think taxes will eventually go up? I do. That’s why the 401(k) is a terrible place to put money right now. I often meet people, I always say, “If you are overfunding your 401(k), what I mean by that is if you’re contributing more than the company match, call me.” It’s not a bad idea to contribute the minimum amount to receive the match and then take the difference and put it in something else where you pay the taxes now. This is of juvenile example, but it’s the truth. If you were a farmer and you were given the choice and you were buying the seed, you’re at the counter at the co-op. If you were in a big town of Centreville, Mississippi and you’re at Dalton’s Farm Supply out there. You go up there and Dan’s around the cashier and Dan says, “Bobby, you had the choice to pay the taxes now on this seed or I’m going to come to get the harvest from you and pay the taxes on that. What would you rather do?”

Let’s talk about tax rates, “Dan, what are the tax rates on the seed?” Right now, we are in the lowest tax brackets since 1933. If you are contributing to your 401(k), why are you deferring taxes in the lowest tax environment since 1933? You may have a good answer for that. I understand contributing the 401(k) the minimum to get the match. If you were overfunding that thing, stop or at least learn about the other alternatives out there. When Social Security was starting, they didn’t count people living to be 85 and 90 still receiving benefits. The Government, the Social Security people, those corrupt and fraudulent, they love people like my parents. Hollis and June Day. My mom, June Higginbotham Day, 1970 graduate of Central High School. My dad was nine years older than my mom. My dad was in 1960 Graduate of Istrouma High. Hollis and June work their whole lives just like most of us do. Hollis and June contributed to Social Security and Medicare just like most of us do because it’s the law. We don’t have a choice. As I say, the government gives us the middle finger every time we’re paying the Social Security. Hollis and June both passed away before they ever got a dime from either one. My mom died at 54 years old from ovarian cancer. Once she was diagnosed, she didn’t live long enough to get Social Security disability. My mother never got a penny from Social Security or Medicare.

When she passed away, my dad received a $250,000 check to help with burial expenses. My dad was to start receiving Social Security when he was 65. We went to the Social Security Office on Harding Boulevard in October of ‘07 to sign up. They told him exactly how he would receive. My dad died very unexpectedly on Thanksgiving Day of ‘07. It was November 22nd of a pulmonary embolism. My father never received a penny of Social Security or Medicare. This is part of my why.

SMR 1 | Nontraditional News

Nontraditional News: Most people and 99% of financial planners and advisors are all about accumulation. They’re all about climbing the mountain.

 

I think it’s an absolute crime of theft. I go back to the ‘80s, whenever Congress enacted taxes on Social Security, I would like to chokeslam every person who voted on this. We are paying Social Security with after-tax dollars. Why is the government going to tax me because I have provisional income in something else? Provisional income means real estate, money in the 401(k), it doesn’t matter what it is. If you are married and filing taxes jointly with your spouse and you have more than $44,000 of provisional income, 85% of the amount of your social security will be taxed at whatever tax bracket you’re in. I think tax brackets are going to be higher in the future, which is why I don’t put money into a 401(k) right now. People putting money into a 401(k), you were deferring taxes.

If you think taxes will be higher, then you’re deferring taxes to pay them at a higher rate down the road. Think about this, when the 401(k) started, we were in some high tax brackets in the late ‘70s and early ‘80s. It made sense putting money in my 401(k) now, defer the taxes, in a lower tax bracket. When I retire because back then you could pretty much predict you’ll be in a lower tax bracket when you retire. It’s not the same now. The 401(k) doesn’t make sense. I think there’s other alternatives, other places for your money to make money. “Hollis, did you say 401(k) is a bad plan?” “Yes. It could kill your financial plan.” It all started back in 1978. The famous 401(k) plan was created by accident back in the late ‘70s. Most employers contribute to a defined benefit plan, a pension that cost employers a lot of money. During the same time, tax rates were much higher than they were now and some very highly compensated executives were looking for loopholes to avoid these high taxes. What they proposed was they could be bonused out in the form of 401(k) plan, which allowed them to take their bonus dumping them into a 401(k) plan to avoid paying the high taxes now. Then grab that bonus money at retirement when taxes are much lower.

However, a few years later, businesses started catching on and realize they would save millions upon millions of dollars by getting rid of the pension and moving to 401(k) plan. Instead of having to fund a pension for years after retirement, they could offer a company match and have the employees contribute the majority to their retirement. That’s how the 401(k) became the retirement standard in this world by accident. It’s not 1978 anymore. Taxes are much different than they were then. The government debt is much higher than it was then and there is a huge problem facing social security. How are we going to continue to pay for Social Security? How are we going to pay off the massive $21 trillion of debt? Is it possible that taxes could go up from their all-time lows of 2017? It’s not making sense to save in a 401(k) now if we think taxes are going to be lower in the future. Call me 202 SAGE, that’s 202-7243. You can go to the website, SageMoneyRadio.com. I hope you enjoyed the show. God bless you. God bless the USA.

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