Institute for Wealth & Safety

Qualified Plans

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The harsh Reality Is That People Can Not Afford To Make Mistakes With Their Money.  Qualified plans are tax-deferred savings accounts that are sanctioned by the federal government. The tax deductions are taken at the time of deposit.  Qualified plans are not savings accounts but tax-deferred savings accounts. 

What you Don’t Know May Be More Important Than What You Do Know.  Almost everyone knows that you receive a tax deduction when contributions are made to you 401(k) or IRA.  Qualified plans do two things: (1) defer taxes; (2) Defer the tax calculation.  Most people believe they will be in a lower tax bracket when they retire.  While this may be true or not the unknown factor is what will taxes be at retirement?  The tax bracket plays a major role in determining the amount of tax to be paid. The IRS is not going to ask what tax bracket you were in at the time of contribution. Their only concern is what tax bracket you are in at the time of withdrawal.  Not all qualified plans are bad, and they do serve a purpose in the proper situation. One thing to take into consideration when making contributions is if your employer participates.

Are You Really Saving Money?  It is impossible to determine the money saved when contributing to a qualified plan. The calculation can only be determined once the withdrawals are taken and the tax calculation is made. For example, say you have 8% in an IRA and you have a car payment or a car loan in which you are paying 8%. You are actually transferring the equal amount of wealth that you are accumulating in the IRA as you are in making your car payments.  Unless the taxes go down you really have lost money.  The other questions to keep in mind are will the health care costs go up, what will taxes be at the time of withdrawals regardless of the tax bracket that you may be in. It is important to know how these qualified plans work and what the rules are.

Who Has Control Of Your Money?  If your money is in a qualified plan the answer is the government.  The money in your qualified plan is not accessible during the accumulation phase. Your money is always in the government's control until you are allowed to take it out. While the money is in the qualified plan, the government determines when you can take it and how much tax you will pay.

If this is a concern of yours then we should schedule an appointment to meet to discuss your options.

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