Some of the Most Offensive Advice Given in MF101
Comes from the Chapters on Free Yourself
From the IRA and 401(k) Trap and
Solve Your IRA/401(k) Dilemma
Because the author uses again flawed math, the numbers from his chapter, "Free Yourself from the IRA and 401(k) Trap", create a good financial outcome for the reader. However, when real world numbers used, that is not usually the case.
Do you think you will be in the same tax bracket in retirement?
Most people will not because they will move from a full time job paying income at someone's highest earning years, to retirement income from accumulated assets (which typically is significantly less).
However, the author of MF101 as he goes through this chapter assumes that everyone will be in the same tax bracket in retirement (again, a faulty assumption).
IRA/401(k)/403(b) rescue (hereinafter IRA) is fairly simple. The concept is based on the fact that money in an IRA is going to get income taxed at some point and it is better to take the money out now and reposition it into a tax-favorable wealth building tool (such as cash value life insurance where money can grow tax free and be removed tax free in retirement).
The author has a nice quote: "you can either pay the IRS now or pay them later."
The author states that if you "can get the same rate of return in a non-qualified account as you can in a qualified account, and enjoy the tax-free growth and access to your account thereafter, I would recommend discontinuing new contributions to any type of qualified plan (unless an attractive matching percentage is available)."
The "Real World" Math
1) Strategic roll out of money in an IRA. For the vast majority of readers, rolling money out of an IRA at age 50-59 ½ will make virtually no since when doing so will give rise to both income taxes and a 10% early withdrawal penalty on the removed funds.
But won't repositioning the funds into a tax-free accumulation vehicle make up for these costs? No, because the wealth building tool discussed in MF101 is a cash value life insurance policy. It is nearly impossible to have a 50-70+ year old client remove money from an IRA, pay the exepenses to remove the money, fund a cash value life insurance policy, and then be able to remove more money tax free from the policy in retirement.
Why? It's very simple. The costs are very high to remove the money from the IRA and because of the age of the person when buying the cash value life insurance policy with the remaining funds, the costs in the policy will more then offset any tax benefit offered.