401 K Plans | What Corporations Don’t Want You To Do

Years ago companies provided a pension for their employees. People would work for the the same company for their entire working career. Once they hit retirement age they would throw a party for you and out the door you would go. Into the never-never land of being obsolete. Feeling put out to pasture.

Then along came the 401K’s in the late 70’s but really started to get traction in the early 80’s. When I started work right after high school the company I worked for had one. Did I know what it was? Not really. I heard some talk about it, but back in the 80’s there was no internet. We did not have access to information at our fingertips. If we happened to see a newspaper article or a magazine article about something we would be lucky. But other than that, it was mostly word of mouth from people you knew.

The ironic thing was that the first job I got after high school ~ an accounting firm. You would think they would’ve provided a bit of education for their employees.

What Corporate America Doesn’t Want You To Do

(This is the corporate agenda in any country)

By switching over to 401K plans, people no longer stay at one company. They are free to pursue other opportunities since they do not have to stay with one company to qualify for a pension.

So the question become “how to keep people in the workforce long term?” The 401K match was born. Most companies match 3%. It is way of silently leading the masses. Most people only put up to the company match to get the free money. NO ONE wants to tell you that by maximizing your 401K you are controlling your own destiny.

If you approach a 401K as your basis for financial independence you would put MORE in from every paycheck than just enough to get the company match. You can put up to $19,000 if you are younger than age 50. If you are older than age 50 you can put an extra $6,000 per year to “catch-up” for a total of $25,000 (as of 2019).

Traditional and Roth IRAs

But you are not limited to just that amount if you use other accounts such as a traditional or Roth IRA. These are similar to 401K’s but are taxed differently.

• With traditional IRAs, you deduct contributions now and pay taxes on withdrawals later.
• With Roth IRAs, you pay taxes on contributions now and get tax-free withdrawals later.

These also have caps on what you can invest ~ For 2019, $6,000, or $7,000 if you’re age 50 or older by the end of the year.

So you can also max these out. Example, if you are 50 or younger with both a 401K and Roth IRA maxed each year, total invested is $25,000 per year. Of course, it would depend on your income and if you live frugally and spend wisely or you are a spender and live paycheck to paycheck.

Taxable Investment Accounts

Sometimes referred to as self-directed investing, taxable investment accounts allow you to purchase and trade investments on your own, through online trading platforms and apps. These are the accounts that you do not have to pay a penalty to withdraw before retirement age. You will have to pay capital gains tax but if you sign up for one such as, Betterment you will get automated tax loss harvesting.

Tax loss harvesting is simply selling a security that you have a loss in. By “harvesting” this security you can offset taxes on both your gains and income. You are basically turning a loser into a tax break. A similar one is then bought for the account and this helps you to maintain your asset allocation with winners.

These taxable accounts can than be used before you reach retirement age for large purchases, such as a house so you do not have to dip into your retirement accounts. Or once you have enough money invested you can make small withdrawals to fund your early retirement.

Corporate Conspiracy

Which brings us back to corporate conspiracy. If you educate yourself, invest heavily you can retire before you reach retirement age. Where is the conspiracy?

• Lack of education
• Company match ~ used to influence you to only invest up to the percentage offered for the free money.

If there was education easily available for everyone to access, everyone would be smarter about saving, spending and investing ~~ and retiring early. THEY do not want you to retire early. They want you to keep on being the worker drone you are, till you are old.

If this became part of early education in high school not all would do it but just think of how many would. Then more and more people would retire early and corporations would need to have incentives for people to stay.

Instead of the top tiers getting all the money in a corporation, they would have to pay people decent salaries to make it even worth staying and working for them.

Just think of the ripple effect this would have all the way down to the lowest paid employee in a company. I am all for this revolution “to break the corporate conspiracy that they use to keep you down, low-paid and working” and instead share the wealth. (But I am more for the retiring early and working for myself ideal.) So that is my aim. And so many people in the world have taken it upon themselves to get educated so they can be financially independent and free from the rat race.

Any comments or suggestions, please share below. Thanks!