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The Truth about 401Ks April 8, 2014

Posted by shaferfinancial in Finance.
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Among the least discussed issue with 401Ks is the fact that you really don’t have control over that money. That is the deal the government and Wall Street has made with you. You get an up front tax break, but you lose control of what you can do with the money.

At least 5 times a year I get a call from someone wanting to move money from their tax protected savings plan into another type of savings vehicle. My first words are usually “are you sure you can move the money?” Invariably I get a “yes” and then after we have a great conversation they get back to me and say, “well actually I can’t get my money out.”

Let me say this directly, the government and Wall Street has sold you a savings plan that in exchange for a small tax break, you give up the ability to direct where your money is invested, are forced into “company negotiated” options that usually have higher expenses that you can get elsewhere for the same product, limit the options on type of investments [usually to mutual funds, company stock or money market funds], and have you obligated to pay taxes on what should be a much larger amount at some future date.

So the government increases the amount of taxes it gets from you and Wall Street gets millions of small investors forced into their products at high fees. And if you want out, you can’t. Or if you move jobs then you can, but you are forced to pay a 10% penalty tax as well as regular income tax.

Lyrics from Hotel California from the Eagles pretty much sum it up:

Mirrors on the ceiling,
The pink champagne on ice
And she said “We are all just prisoners here, of our own device”
And in the master’s chambers,
They gathered for the feast
They stab it with their steely knives,
But they just can’t kill the beast

Last thing I remember, I was
Running for the door
I had to find the passage back
To the place I was before
“Relax, ” said the night man,
“We are programmed to receive.
You can check-out any time you like,
But you can never leave!

If someone came to you and told you what I just said, would you buy into it?
Now you understand the magnitude of the propaganda machine the government and Wall Street has created.
Most people just shrug their shoulders and say “what can we do?,” or “I am getting a match from my company so that makes it all worthwhile.”

No it doesn’t. It doesn’t make it worthwhile, it doesn’t make sense, and it is a really bad retirement strategy that was never designed to be anything but an additional retirement bonus for upper level management on top of a defined benefit pension.

Just remember “you can check-out any time you like, but you can never leave.”

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