Category: 401(k) withdrawal rules

How to Pay Zero Taxes in Retirement – Without Being Broke

March 27th, 2018 by Pamela Yellen | Leave a Comment

Do you have money in a tax-deferred retirement account such as a 401(k), IRA or 403(b)? If so, you’re sitting on a tax time bomb.

I’m going to reveal the tax traps you face and show you how to move toward a 0% tax bracket in retirement (legally!) – but not by doing it the way most people do it, which is by being broke!

Conventional wisdom says, “Maximize your contributions to tax-deferred plans. Your money compounds without being reduced by taxes, and you’ll end up with more money during retirement.”

But like much conventional wisdom about personal finance, it’s not true…

The Society of Actuaries says if the tax rates are the same,

It doesn’t make any difference whether [the taxes] are taken away from you at the beginning (tax-exempt) or at the end (tax-deferred). It’s the same fraction of your money that is left to you.”

But most people look at their savings and think it’s all theirs. You may have forgotten you’ll owe Uncle Sam the taxes he let you defer all those years – on every penny you’ve put in and every penny of growth.

And according to Boston College’s Center for Retirement director, Alicia Munnell,

It’s a very big deal when people realize they only have two-thirds or three-quarters of what they thought they had.”

If the tax rates are actually lower during your retirement, you might come out ahead by deferring your taxes. But where do you think tax rates are headed long term? You must consider what tax rates might be during a retirement that could last 30+ years.

Most people we talk to think taxes ultimately must go up due to the aging demographics of our country and our unsustainable national debt. (Recently the debt passed $21 trillion for the first time.) If tax rates do go up, and you’re successful in growing your nest-egg, you’ll simply end up paying higher taxes on a bigger number. [Read more…] “How to Pay Zero Taxes in Retirement – Without Being Broke”

Congress Considers Axing Your 401(k) Tax Deduction

September 13th, 2017 by Pamela Yellen | Leave a Comment

Congress is considering proposals right now to take away the tax advantages of your 401(k).

To help finance the tax reforms being proposed, Congress is eyeing axing the up-front tax deduction for 401(k) contributions. And one proposal would also change the tax-deferred nature of 401(k)s by imposing a 15% tax on your annual gains.

Why would Congress consider tinkering with the tax benefits of such a popular program as the 401(k)?

For the same reason that notorious holdup man Willie Sutton gave for robbing banks:

Because that’s where the money is!”

The current taxation of 401(k) plans was estimated to have cost the federal government more than $90 billion in potential tax revenue last year alone, according to the Joint Committee on Taxation. [Read more…] “Congress Considers Axing Your 401(k) Tax Deduction”

Why Does Ted Benna, the “Father of the 401(k),” Love the “501(k)” Plan?

August 1st, 2017 by Pamela Yellen | 2 Comments

The man widely credited as the “Father of the 401(k) Plan,” Ted Benna, is among those saying the plan is no longer a good way to save and invest for retirement. He cites concerns that the government may change the rules, and not in your favor; that an impending market crash will wipe out much of what you’ve saved for your retirement; and that staggering fees can eat up a large portion of your nest egg.

Benna has gone on record as endorsing something that has been creatively called a “501(k) Plan.” Ted Benna says,

I created a monster (the 401(k)) that should be blown up… I’m now putting most of my money in the 501(k).”

Don’t get distracted by the name “501(k).” Although “401(k)” refers to the section of the Internal Revenue Code that deals with retirement plans, “501(k)” is an obscure Internal Revenue Code reference that describes the educational status of certain child care organizations! Using “501(k)” to refer to some kind of retirement plan is a gimmick dreamed up by Madison Avenue types.

But all they did was take the Bank On Yourself concept, which is a proven 401(k) alternative, and give it a mysterious new name, the “501(k),” hoping you’ll pay money to find out what they’re talking about.

But while others are charging you money for this information, we’ve been giving it away for years! For FREE information about the Bank On Yourself method that others call a “501(k),” download our free report, 5 Simple Steps to Bypass Wall Street, Beat the Banks at Their Own Game and Take Control of Your Financial Future here.

History of the 401(k) Plan and Ted Benna’s Contribution to It

Bill Williams’ AHA Moment: How Bank On Yourself Freed Him from 401(k) Loans and Mutual Funds

April 7th, 2017 by Pamela Yellen | Leave a Comment

Bill Williams is an enthusiastic believer in the Bank On Yourself concept because of how it has helped his family financially. He wrote to me several years ago, and I included his letter on page 228 of my 2014 New York Times best-selling book, The Bank On Yourself Revolution:

Thanks for all the good things you are doing, Pamela. I am working with my Bank On Yourself Professional to set up my third policy, and I am so appreciative of her guidance and expertise. She has been tremendously supportive.

The real “snake oil” is all of the purported advice about savings and investing we have been fed by the “experts” in the past. I get so upset by the advice to invest with before-tax dollars into 401(k)s or 403(b)s.

I’m over sixty years old and know when I turn 70½, I’m going to have to take required withdrawals from my plans and have the added burden of paying taxes on them. After all, the IRS wants to get its hands on the taxes they let me avoid paying all those years.

I wish not only that I had learned about Bank On Yourself earlier, but that the concept could be taught to the masses when they are young enough to get the maximum benefit from it.

Here’s why I say that: I think of all of the purchases I’ve made through the years where Bank On Yourself would have been a much better means to fund them. As an example, my son’s college expenses, which I paid every cent by selling stock and mutual funds and taking a loan from a 401(k).

Needless to say, my son received a great education (to his credit), but dear old dad has nothing to show for it. I had to put money into the stocks, 401(k), and mutual fund, so I had the resources—which could have been so much more powerful in a Bank On Yourself policy! It’s as simple as that. If I had done that, I would now still have the policies, which would have even more value.

I am depleting an IRA to fund my third policy and to help fund my first two Bank On Yourself-type policies. I just hope I live long enough to enjoy all the benefits.

Bill Williams writes again, about Bank On Yourself, tax-free retirement, and dividend-paying whole life insurance

Why Most Early Proponents of the 401(k) Now Say It’s a Failure

January 10th, 2017 by Pamela Yellen | Leave a Comment

Herbert Whitehouse was one of the first proponents of the 401(k) 35 years ago, when he was a human resources executive at Johnson & Johnson.

Today the 65-year-old Whitehouse says he will have to work into his mid-70s if he wants to maintain his standard of living, after his own 401(k) took a hit in 2008.

Whitehouse is one of a chorus of early 401(k) supporters who have changed their minds.

A recent article in the Wall Street Journal reveals how pre-retirees at all income levels are falling short – way short – of the amount of money they need to have to be able to retire.

Fully half of those between ages 50-64 have less than one year of their income saved.

The top 10% (those making $251,000 or more annually) have an average of only two years of their income saved.

The article mentions that “financial experts recommend that people amass at least eight times their annual salary to retire.”

Those “experts” ought to have their heads examined, because even a $1 million nest-egg would provide you only $28,000 a year at the current recommended withdrawal rate of 2.8% per year. [Read more…] “Why Most Early Proponents of the 401(k) Now Say It’s a Failure”

Six Reasons Your 401(k) is a Scam

November 30th, 2016 by Pamela Yellen | 14 Comments

UPDATED: March, 2020

I’m going to make a very bold statement that’s sure to get me some nasty blowback. But as a financial investigator who’s exposed the truth about the conventional financial wisdom, I’m used to that, so here goes…

401(k)s are a scam. Want proof?

Here Are Six Reasons Why 401(k)s Are a Scam…

Reason #1: The 401(k) Tax-Deferral Scam

In our immediate-gratification society, deferring your taxes by funding your 401(k) sounds so good, doesn’t it?

But when the tax man eventually comes calling, he won’t ask you to pay what your tax liability would have been if you’d been paying taxes all along. He’ll tell you what your tax liability is at the time your taxes are due.

Conventional wisdom says you’ll come out ahead by deferring taxes. After all, doesn’t that mean your entire contribution can go to work for you immediately? Unfortunately, like many assumptions about personal finance, this simply isn’t true. According to the Society of Actuaries, if tax rates remain the same…

“It doesn’t make any difference whether the taxes are taken away from you at the beginning (before you put the money in a savings vehicle) or at the end (tax-deferred). It’s the same fraction of your money that is left to you.”

If tax rates are lower in the future, you’ll come out ahead. However, most people, including most financial experts, believe tax rates must head higher, not lower, over the long term. And your retirement could last 20-30 years or more.

The reality is that you are probably sitting on a tax time bomb. Simply put, the government is going to need more money in years to come for several reasons. For example, let’s look at the numbers impacting Social Security and Medicare.

Today there are 62 million Americans using Social Security and Medicare. By 2045, 140 million – twice as many – Baby Boomers and Gen X-ers will be over 65 and requiring Social Security and Medicare. Where do you think the money to pay for that will come from?

Social Security and Medicare’s financial condition has deteriorated despite a long economic expansion. In fact, Social Security is already in a negative cash flow situation. What will happen to those funds in the next downturn?

And what about the national debt? Washington has not dealt with the government’s unsustainable debt and spending for decades, and as of March 2020, the national debt has ballooned to over $23.4 trillion— which comes to $189,585 for each US taxpayer! And it’s climbing at a head-spinning rate. (For a painful wake-up call, check out USDebtClock.org)

For all these reasons, the likelihood is that tax rates will go UP over the long term, and if they do, then OOPS! There goes the whole 401(k) “tax-deferral” argument.

Reason #2: The 401(k) Employer Match “Free Money” Scam

Could the Government Seize Your 401(k) and IRA Money?

August 9th, 2016 by Pamela Yellen | 1 Comment

Is it far-fetched to wonder if the government could take control of your retirement savings in 401(k)s and IRAs?

Or is that just a paranoid conspiracy theory?

The fact of the matter is that it’s not far-fetched, or a conspiracy theory. The groundwork has already been laid.

And the government already gave banks the green light to seize your bank accounts.

Read on for the facts – and I urge you NOT to discount the importance and urgency of this issue affecting your hard-earned savings…

The Government Has BIG Plans for Your Retirement Savings

An article in American Thinker titled “The Feds Want Your Retirement Accounts” revealed that, “Quietly, behind the scenes, the groundwork is being laid for federal government confiscation of tax-deferred retirement accounts. Slowly the cat is being let out of the bag.”

And Bloomberg reported that,

The U.S. Consumer Financial Protection Bureau is weighing whether it should take a role in helping Americans manage the $19.4 trillion they’ve put into retirement savings.”

For the last 18 months, the Treasury Department has been testing the “myRA” program – which Obama created through executive order – no Congressional approval needed.

The myRA, which stands for “My Retirement Account” supposedly “guarantees a decent return with no risk of loss.”

And the only investment allowed in this account is a low-yielding Treasury security.

Of course, the Treasury wants to get more people signed up for this program, because it means more funds flowing right back into the U.S. Treasury to help the government meet its voracious borrowing needs. How convenient… [Read more…] “Could the Government Seize Your 401(k) and IRA Money?”

Can you Roll Over your 401(k) or IRA into a Bank On Yourself Plan?

February 20th, 2015 by Pamela Yellen | 15 Comments

Updated April, 2020

One common question we get is…

“Can I roll over funds from my 401(k)/IRA/403(b)/TSA into a Bank On Yourself policy – and what are the tax consequences?”

Moving money from a conventional tax-deferred retirement account into a Bank On Yourself policy is a common method people use to fund a policy. It’s not technically a “rollover,” since you can only do that from one 401(k) or IRA to another. Here’s how it works… [Read more…] “Can you Roll Over your 401(k) or IRA into a Bank On Yourself Plan?”

Breaking news roundup from
Bank On Yourself

June 17th, 2014 by Pamela Yellen | Leave a Comment

Here are summaries of three important news stories affecting your money and finances…

1. Investment brokers fight rule to favor best interests of clients

Did you know that brokers are not necessarily required to act in your best interest – even if it’s your retirement savings at stake?

The investment industry – from large Wall Street firms to small independent advisors – is spending millions of dollars to fight a rule that would require a broader group of brokers and planners to put their clients’ interests ahead of their own.

The Labor Department said it would release the proposed rule in January, but has already indicated it may miss that deadline. That’s not the first delay on this, though. The rule was originally introduced in 2010 and was rescinded the following year after brokers and lawmakers protested. Wow!

Two New 401k Revelations

May 13th, 2014 by Pamela Yellen | 1 Comment

If you’ve been a subscriber for a while or you’ve read my new best-selling book, The Bank On Yourself Revolution, it’s no secret that at the end of the day, I’m not a big fan of the 401(k).

Or the IRA, 403(b), or any other government “blessed” and controlled retirement account. There are many reasons for that. This recent blog post I wrote reveals one big problem – mutual fund fees, which are likely devouring far more of your savings than you realize.

But in the last couple of weeks, there have been new studies revealing just how devastating to your financial health a 401(k) can be:

Recent 401(k) Wealth-Killing Revelation #1:

A new academic study by two Yale and University of Virginia professors argues that millions of workers have been ripped off by excessive fees charged by plan sponsors and advisors to these plans.

The study concluded that…

[Read more…] “Two New 401k Revelations”