Let’s use an example here. Let’s say that your salary is $60,000 and you are looking for a better paying job. Let us also say that as a result of your search you get an offer from 2 separate jobs. Job #1 offers you a contract for $75,000 a year. A much-needed boost in pay. Job #2 offers you a contract for a salary of $70,000 that also includes a pay raise each year for 10 years resulting in a $30,000 increase from the year you started. That is a total of $100,000 a year after 10 years of employment with them! Sounds exciting! Too good to be true! But here's the rub. On Job #2, after year 10, the company has rights to take up to 30%, 50%, or 70% more in taxes from your paycheck. Would you still be just as interested in Job #2 after hearing that?
You wouldn't opt for someone offering you more money during your working years at the expense of them taking more out of your paycheck later in your working years; so why allow your Qualified Retirement Plan – (401(k), 401(a), 403(b), SEP IRA, 457 Plan, Simple IRA Plan, Keogh Plan/HR-10) - to treat your retirement income like that? But can that really happen to your retirement income? Yes! You purchased a parcel of the tax code. You are renting financial space from the IRS. And when you are renting, you owe rent. Moreover, we are among the lowest tax brackets that we have seen in a century, so taxes are going to have to raise. How can we be sure tax raises are imminent? National debt. Taxes are historically how the government remedies its debt. It should be of some alarm to you that we are currently up to 31 trillion dollars of national debt! Be advised: When you have a Qualified Retirement Plan, the government has “qualified” you for their tax purposes.
So, if you have your heart set on gains, just remember that you funded your 401(k) with pre-tax dollars so that you can pay the tax during withdrawal at a future unknown rate. Therefore, the money you keep in retirement is not accurately reflected in any balance that you have accumulated.
