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Turning Your 401(k) Upside Down

September 10, 2020

The Principle:

Are you putting money away in a 401(k)? Are you also considering the taxes you’ll have to pay on that later on?

(Want to jump ahead in the episode? Click the featured times below to skip to a specific section.)

Honest Takes:

For many of us, a 401(k) is a great way to set money aside for retirement. When it comes right out of your paycheck and perhaps your employer is matching it, it grows over time. But what happens if that changes moving forward? What other options do you have available?

Most likely, tax rates will raise in the future. A logical resolution for governments facing budget deficits is to raise taxes. When taxes are poised to rise, deferring them with a 401(k) puts you at risk of paying more later. So instead, when you are paying in, maybe you should pay the taxes on them now and get it over with.

Experts all over the country are suggesting this is a worthwhile strategy. Using a Roth account gives you the opportunity to pay the tax now instead of later. You don’t know your tax rates in the future, but you do know them now.

Right now, the market seems strong, but is it an accurate representation? Consider what happened in March–it was extremely volatile! Finding ways to establish steady income while maintaining flexibility is important to your retirement income strategy. Whether that’s a pension or Social Security or an annuity, make sure you don’t fully rely on the market.

Listen to the entire episode or click on the timestamps below to skip ahead to a specific segment.

[0:16] – What happens if the idea behind the 401(k) is turned upside down?

[2:13] – Some politicians are promising to end the traditional 401(k) style retirement benefits.

[4:11] – What happens if the tax rates rise?

[5:03] – A listener finally converted his retirement savings to a Roth.

[6:38] – The market has been strong lately, but is it giving a false sense of security?

Today’s Truth:

A logical resolution for governments facing budget deficits is to raise taxes. When taxes are poised to rise, deferring them with a 401(k) puts you at risk of paying more later.

Brian Bowen

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Brian Bowen – Contact

Brian Bowen Integrity Financial Planning Roanoke Virginia discusses the deferred payment plan Bobby Bonilla and his agent were able to work out