• Stephen Gardner

Taxes will crush your retirement dreams.

Updated: May 1, 2019

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"Taxes will be the single biggest factor to separate you from your retirement dreams." When I heard the most beloved CPA in America, Ed Slott, say these words, I made a note to research taxes and see how they would personally affect me. This was over a decade ago and things have only gotten worse. Luckily, in my research I discovered a way to legally avoid taxes and control my savings environment.


20 years ago the US National Debt was $5.5 Trillion. By 2008 it had risen to $10.4 Trillion. As of writing this in 2019, the US National Debt has skyrocketed to over $22 TRILLION. Our countries debt obligation is out of control. To date there has only been one plan put forth by government officials - let the next guy handle it.


How does the United States of America generate revenue? By taxing it's people! So the more debt they have, the more likely we are to see higher taxes in the future. This is article is not designed to scare you, but to educate and inform you on the scary reality of our country and a solution to your own future tax problem. But it will scare you as it scared me. Regardless of which direction taxes go, they aren't going away! But there is a way to control them with your largest pool of money.


You can't evade taxes or you will go to jail! However, it is perfectly legal to use the advantages in the tax code to legally avoid taxes and pass more of your wealth on to your loved ones. Yet no one wants to discuss this strategy without push back.


First we need to discuss the elephant in the room. The majority of Americans are saving their money in 401k's and IRA's that will create major tax problems later in life. These programs were not designed to be the main savings program for US citizens. They were designed to ease the tax burden of the wealthy. However, Wall Street saw them as an opportunity to lock peoples money in the stock market for decades, allowing them to skim fees off the top.


Outside of free money given by an employer in the form of a 401k contribution match, I am very much against these programs. Why on earth would you lock your money away until age 59 1/2? This makes people dependent upon the stock market for growth, blocks them from using their own money when opportunities come their way and compounds their future tax problem. Most people will wind up paying 4 to 7 times more money in taxes than they could have by growing it in a tax advantaged environment.


Think about it! For decades you put money away that has yet to be taxed. If you are lucky or smart or fortunate enough to get good growth on your account over this time period, the growth is not taxed until you pull money out. The benefits of compound growth are eaten up by the ravaging effects of compound taxes owed to the government. The more you make, the more they will take.


The scariest part is the government gets to decide how much of your money they own.


Yet the government supports and endorses this way of saving and investing.


Yet the entertainers disguised as educators on TV support and endorse this way of saving and investing.


Yet employers and HR departments support and endorse this way of saving and investing.


Yet Wall Street supports and endorses this way of saving and investing.


Yet your own CPA supports and endorses this way of saving and investing.


With this many people endorsing a program, its hard not to believe it is the best way to

save and prepare for retirement. In reality, its the best way for Uncle Sam and Wall Street.


It's very easy to follow the masses when this many people support using a 401k and IRA. Just because something is used by the majority, doesn't mean it is whats best for the majority. Let me break this down quickly and simply. The government, through poor spending and borrowing, created the need to tax us as high as they do, then graciously gives us the ability to lower our current taxes by placing money in a government sponsored program.


Only, don't forget that at some future date they will get every dime they believe they are entitled to or more. If our government really wanted to help us, they would create and stick to reasonable budgets and not tax us so heavily to begin with. Giving us a small solution to a big problem they created really isn't a good solution at all.


TV personalities exist only to sell advertising, not help you make money. Who pays for their advertising? You guessed it, Wall Street and financial firms. Is there any chance the media is being told what to say or else Wall Street will yank millions of dollars away in ad revenue away? YES! We are being educated to give money to the very people that only survive by us giving them money.


Its reminds me of when a cigarette company paid for the study to show cigarettes people cigarettes weren't harmful. They controlled what they wanted us to know.


Your employer doesn't want to offer a pension or be responsible for your money or future so they put all the risk and responsibility on you. They also get to write off the money they give to your 401k since you will pay the tax for them at a future date.


Wall Street is the largest fee skimming operation in the world. If you could lock up a clients money for decades and take fees, wouldn't you? Whether you win or lose, Wall Street gets paid. Like a casino, the house is set up to win.


Now for the CPA. Your tax guy or gal is seen as a knight on a horse that helps you keep your money. He or she stands between you and the IRS dragon. You need them and need to trust what they tell you, so if they say to put money in an IRA or 401k, you do it.


However, pretend with me for a moment that your CPA isn't saving you enough in taxes. What do you do? You fire them and find a new one. Their job and retaining you as a paying client is 100% built around saving you money TODAY. This year. By April 15th or they are fired. They don't want to be fired! So instead of showing you how you will pay way more in taxes during retirement because of compounding taxes in a 401k or IRA, they tell you to make a contribution this year and their job is saved for another tax season. They look like a hero!


A common lie I hear regularly is 'you will be in a lower tax bracket during retirement'. I have found from working with retired people that most pay the same or higher taxes during retirement. Here's why, right about retirement age you find yourself without the two biggest write off's most family's have been accustomed to - writing off children and dependents in the home and writing off mortgage interest. Yes you want your children out on their own and your home paid off, but with that comes less write off's and thus the same or higher taxes.


Right about this time retired people also turn on social security income. This income has not been taxed so it adds to your bottom line. Did you know the government gave itself the right to tax social security money up to 85%!?


So now that you have had a brief education on the tax traps awaiting you, who would you guess is the number one beneficiary of your hard work during retirement and upon death? That's right, the GOVERNMENT!


Shouldn't your family be the biggest beneficiary of your money and life's work? If you play in the governments sand box, then you play by the governments rules. Like a casino, they have designed these programs so their house wins, not yours. The government is the winner of the retirement game. Their house, their rules.


Speaking of rules, did you know the Government can change the rules of an IRA or 401k at any time? Over $23 Trillion is locked away in government sponsored retirement plans. Seniors are now past age 70 1/2 when they MUST take out money as a distribution or be hit with a 50% penalty on their money. Money trapped in government sponsored plans are like fish swimming in a barrel - an easy target! Getting to your money would be easy as shooting fish in a barrel. The largest wave of money in world history, in the form of the baby boomer generation, is about to encounter these forced distributions whether they need the money or not.


I can show you what to do with those distributions. I can also show you how to create a plan that avoids this whole mess all together.


Rarely do I meet someone with over a million dollars in an IRA or 401k. However, recently a man found my best-selling book in the back of an old Catholic Church. He read it and liked it so he called me. We discussed his success and options for how to protect and grow his money. However, I had to burst a very big bubble which he was not happy about. Over the course of several phone meetings he bragged about this million dollars. He used the phrase as often as he could. Then I mentioned that none of that money had been taxed and having money in a qualified plan at death was the worst thing he could do for his family and money.


I pointed out that he still owed about $400,000 on that 401k money and if he died, even less would go to his family over time. His heart sank and so did his excitement. It was like ripping the rug out from a toddler. I felt terrible but it was a truth no one had shared with him.


He told me he had completely forgotten he owed tax on the principal and all the growth he had accumulated. He told me he had been using a professional accountant since the 80's and none of them told him as he moved around the country. He told me he had been working with different HR reps and none had mentioned it. He had had several financial advisers over the years and the focus was always on growth or lower taxes today. He thanked me for correcting his thinking on his retirement account, but I could tell the wind was knocked out of his sails.


I've had this conversation more times than I care to admit. Everyone should be having this conversation but it is easier to gloss over and keep the focus on growing theaccount. Leaving someone with a large tax burden during retirement is an incredible disservice.


I hope I am crystal clear in my dislike for 401k's and IRA's but I am also not a hater. I believe in tax diversification. So much time is spent on properly diversifying a portfolio (hopefully), but relatively no time is given to tax diversification.


How much of your current retirement plan will leave you with money that needs to be taxed?


How much of your current plan is building in a program that will never be taxed?


There are ways to build a tax-free retirement. You've probably guessed, but I will cover the tax advantages of a properly designed cash value life insurance policy. Since after tax dollars are used, they can't be taxed again. As money grows within your account, it is not taxed similar to a Roth IRA. When you die, the much larger death benefit is also paid to your family tax-free. If you could choose between a large pool of tax-free money or a pool of money that is still under obligation to be taxed, which would you choose?


Most will say tax-free of course, then go on their way continuing to fund an account that will be to be taxed in the future. It's a cycle that can be broken right now, but sadly most won't. Those that don't will pay for this decision in retirement.


The tax-free nature of life insurance is hundreds of years older than the US income tax laws. The US government has protected life insurance in the tax code. By using properly designed life insurance, you can control your savings environment. You erase the eroding effects of market loss and taxes. You can earn on your money every single year. During your life time, you can access the money tax-free through loans. During retirement you can access the money tax-free through withdrawing money to your contribution limit and then switching to loans. Upon your death, there is no probate or waiting for money to be released or taxed, the money is released to the beneficiary tax-free.


You can't escape death or taxes, but you can control how they affect you with proper planning. There are only two forms of money left when you die, tax-free and taxable. Give your family the gift and ease of tax-free money. Give yourself the advantage and ease of tax-free money during your life time. Make sure your family is the one getting the biggest benefit from your life's work.


To see how a tax advantaged insurance contract could help you recover the money you would lose to taxes, interest and depreciation on major purchases and market loss, contact me and I'll run numbers and walk you through how it would work for you. Then I will mentor you into more money as you use your plan to your advantage.





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Stephen teaches about money, finance, getting out of debt and building tax free wealth.