Today the editorial department of American Life Guide received an article from a life insurance broker "Is Your 401(k) or IRA a Sleeping Tax Bear?"This article describes the risk that retirement accounts such as 401K may become a tax minefield after we retire, and points outExponential policySeveral solutions included.But does this proposition hold in the first place?Do you agree?Second, are these solutions better?What should be the fundamental starting point for our choice?Finally, on the issue of retirement, is it possible for us to create a better solution?How should it be built?
So we conducted an internal interview with American Life Insurance Guide. JT shared some of his views and introduced what he built for himself401K+ Life Insurance Policy Combination system.The system is used to deal with income risks after retirement, and the principles behind the application are also applicable to other situations, and I hope it will be helpful to subscribers.
JT:First of all, I personally don’t agree with this kind of operation.401KRisk, and then amplify401KIts shortcomings were directly identified as a target, and then began to encircle and fight.
This way of conveying information is a bit too one-sided. When it comes up, it puts "good" and "bad" labels, and then puts401KPutting it on the opposite side of life insurance, it also exports a feeling of "either one or the other, either black or white".
I agree with the factual part of the article and support life insurance, but I personally think there are better ways to promote the concept.
Life Insurance Guide: So, don’t you think401KWill it become a tax minefield after retirement?
JT: 401KIt is not opposed to life insurance policies. It is a financial tool for each of our families to plan for retirement income in the United States. It is suitable for different Chinese groups and at different stages, and each has its own advantages and disadvantages.
Secondly, whether it is401K, Roth IRA, orIUL, These tools are used to provide the public with confidence in retirement and protection of life after retirement.As professionals, our task is to help the public in need, understand relevant knowledge and the American social system, combine their own situation, correctly choose and configure such "financial" tools, and help people build confidence in retirement life-not Throw out the "panic" problem, create a sense of tension, and then offer the "antidote".
Life Insurance Guide: So, will 401K greatly affect the income after retirement?
JT (laughs):Can't avoid it.How should I answer this question?My personal experience is that if your goal is only to receive social security pensions, the income you withdraw from 401K may make your social security retirement pensions partially taxed.But this is based on the overall income figures exceeding a horizontal line after retirement, and taxation is also a reasonable level.
I don’t quite understand why the taxation caused by the normal increase in income has become a minefield.This article also throws a conclusion as soon as it comes, and does not provide actual data to support the taxDegree of specificity.
I ran a case with efile. If in 2019, a 67-year-old retired couple has a one-year social security pension of $3, then they do not need to pay taxes. If they withdraw an extra $401 from the 3k, it becomes income. , After earning $6, you need to pay tax of $3627.This is the case without calculating any other deductions. When I looked at the numbers, I felt that it was not so scary.At the same time, accounts like 401K have already enjoyed a tax deduction when depositing money.As far as this figure is concerned, I personally think it is quite fair.
I also ran a comparison of the amount withdrawn from 401k and Roth accounts at retirement. Everything depends on the tax rate at retirement and varies from person to person. Such a simple comparison does not make much sense.
This article just says that tax exemption is good. I agree with both hands and feet that tax exemption tools are better than tax delay tools.However, the full text only introduces the tools that can be exempted from taxes, and does not provide a specific figure to illustrate the effect of 401k income on retirementinfluence level,I came to a conclusion, it seems that paying a tax of $1 is wrong.
Secondly, if the tax is paid because of an increase in income, which is a good thing, how can it become a risk?
But having said that, I agree that the article coverslife insurancepart.
Life Insurance Guide: You say you agree with life insurance. What does this mean?
JT:I look at this issue from the perspective of risk management.I can give an example, if I only hold a 401K account, when I announce my retirement, suppose there are $100 million in it.
At this time, if there is a financial crisis like 2008, the stock market plummets by 50%, and the money in the 401K retirement account is only $50. And this year I retire, and I must live with $5.If I were to spend $50 from this $5 at this time, the money I had saved for a lifetime would be $45 less in one year.This kind of market situation has happened several times in history, and if I meet it myself, I will be unwilling.
But if we look at this issue from the perspective of risk prevention and control and asset allocation, if I have a 401K account and also a life insurance policy account, the two accounts will each have $50.When the market risk becomes a reality, I have the choice to deal with this risk-I immediately stop or minimize the withdrawal of cash from my 401K account, and instead "borrow" $5 from my life insurance account for my own livelihood ——The book value of 401K is halved, but when the economy recovers in the next year and the stock index rises, the book value of 401k will slowly return.
At the same time, due toExponential policyIn the first year, the cash value account of the policy did not drop by 50%, but the bottom was guaranteed. There was no loss in the value of the account that year.
Then, due to the "reset" feature of the index policy, if the market only rises by half in the second year, the life insurance policy account will immediately start to enjoy the benefits of the rise and can hedge the current year's interest generated by the "borrowing".
Therefore, 401K accounts and life insurance policy accounts are, for me, an excellent partner for managing the risk of retirement income.
Life Insurance Guide: In this case, why not directly configure all life insurance accounts?
JT:As I said just now, 401K and life insurance policies are different financial instruments, applicable to different groups and at different stages, and each has its own advantages and disadvantages.
From the perspective of risk management, I also don't recommend using a life insurance policy as the only tax-free income method for retirement.This is the same as the risk of using 401K as the only method of retirement income-if too much tax-free money is withdrawn from the policy, once the market is cold for a long time, the policy will quickly consume cash value, policy cash account value and death claims The amount will be the same as the 08K account in the 401 financial turmoil, facing shrinking.
In the final analysis, the focus is to meet the needs of risk management and build a dynamically balanced system for itself.
Life Insurance Guide: So what are your conclusions and recommendations?
JT:There are many controversies about 401K, IRAs, life insurance, real estate investment, and direct investment in securities on the market. They all hold their own words.I personally think that there is no need to spend energy arguing about "good or bad".
My conclusion is that in the face of these tools, it is not a matter of choosing one or the other-a tool is definitely better than no tool, and a tool that can fully function is definitely better than a tool whose configuration design is not reasonable.
Under the premise of mastering the correct use of various tools, they are all good, but they are not necessarily suitable for your actual situation, such as personality, family income status, risk and property management planning, etc.It is said that eggs should not be placed in the same basket. There are multiple tool combinations to hedge and complement each other, and the ability to resist risks will be stronger.
The above is my personal experience sharing, I hope it will be helpful to you.
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