The biggest name on the block is the Roth 401(k) when it comes to retirement accounts. Most people consider it essential to growing your nest egg and the only secure option for those looking to make long term investments.
Within the Cash Flow Tactics community, we argue against this methodology. We believe a qualified plan will never make business owners or anyone financially free. These vehicles keep you trapped in the broken retirement system, hoping and praying that things work out. Brad and Jimmy break down why this investing strategy violates the Core Four and Four Pillars and show you that the only path to becoming financially free in 10 years or less starts and ends with you!
The Truth About the 401(k)
We passionately believe that business owners and anyone interested in investing should never have a 401(k). We believe that it holds you back from becoming financially free. It is assumed that qualified plans are the responsible choice and that anyone without one will be unable to retire.
To understand why 401(k)s aren’t the best option, it’s essential to go back and look at why they were created in the first place. Legislators for high-income employees created these types of qualified plans. In infancy, companies were beginning to go public, and the stock market started to take off. It wasn’t uncommon for hefty bonuses and payouts to be issued to employees.
Businesses were so keen to dish out 401(k)s and pensions because it protected them. They could promise employees an outcome of security without making any contributions themselves.
During this time, goldfish advisors were becoming plentiful. They weren’t wealthy themselves, but their job was to teach others how to operate within a specific financial system.
“Companies love 401k’s because it makes them look like a caring company while shifting all the risk to you.” -Bradley Gibb
For a while, it seemed like a perfect plan. Everyone who got started with qualified plans when they rolled out was able to retire comfortably. The issues resulting from these plans were not exposed for a couple of decades. It all boils down to a simple truth. Qualified plans are for people inside the rat’s race. At Cash Flow Tactics, our goal is to remove ourselves from the rat’s race so we can actually achieve freedom.
Why Business Owners Struggle With a 401(k)
“The number one tool for a business owner to not go out of the game is cash”- Jimmy Vreeland
A business owner carries the weight of the entire ship. It can be incredibly daunting. And we definitely see the appeal to letting someone else deal with the financial side of things. But if you are committed to making actual progress you have to keep the helm in hand.
There is so much uncertainty with being a business owner. It makes no sense to lock away liquidity for thirty-plus years when there is a real chance you’ll need it immediately. On top of that, it is so important to use your position as a business owner or investor to your advantage. When analyzing the tax code, investors and business owners end up having to pay the least amount of taxes.
When you give up that privilege by putting money away in a qualified plan, it can really derail progress. Within a qualified plan, you are subject to the IRS looking at that money as wages or income once it’s removed. Now you’re stuck in the employee quadrant or a business owner forced to pay tax on their own money.
It fails the Core Four because the business owner or investor ends up taking more risk while having less control and has to pay more taxes. A 401(k) also fails the Four Pillars. Why? It doesn’t produce cash flow. The cash flow is irrelevant when you buy real estate within an IRA because it has to stay locked up in your retirement account. It’s also pretty impossible to get leverage within a retirement account, and you have to pay tax on it again.
What To Do Instead
So if a 401(k) isn’t the answer, what should someone do instead? Rather than contributing to a 401(k) business owners should look for ways to make more money. They should then learn the tax code so that they better protect the money they do have. And finally, create a nest egg that is safeguarded and liquid.
“Liquidity keeps things moving”- Bradley Gibb
If you want more money, reinvest in your business as well as yourself. And if you want more time, then go and create cash flow. It’s that simple. This information is just as important for nonbusiness owners. If you want to be financially free, then you need to know what business owners are doing. And you have to play by the same rules with your own money.
Are you looking to produce more? Head over to our Facebook group! You’ll find more information on the Side Hustle Challenge and other ways to maximize your earnings and investments.