Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Dow Stock Market Short-term and Long-term Trend Analysis - 28th Nov 20
How To Spot The End Of An Excess Market Trend Phase – Part II - 28th Nov 20
BLOCKCHAIN INVESTMENT PRIMER - 28th Nov 20
The Gold Stocks Correction is Maturing - 28th Nov 20
Biden and Yellen Pushed Gold Price Down to $1,800 - 28th Nov 20
Sheffield Christmas Lights 2020 - Peace Gardens vs 2019 and 2018 - 28th Nov 20
MUST WATCH Before You Waste Money on Buying A New PC Computer System - 27th Nov 20
Gold: Insurance for Prudent Investors, Precious Metals Reduce Risk & Preserve Wealth - 27th Nov 20
How To Spot The End Of An Excess Market Trend Phase - 27th Nov 20
Snow Falling Effect Christmas Lights Outdoor Projector Amazon Review - 27th Nov 20
4 Reasons Why You Shouldn't Put off Your Roof Repairs - 27th Nov 20
Further Clues Reveal Gold’s Weakness - 26th Nov 20
Fun Things to Do this Christmas - 26th Nov 20
Industries that Require Secure Messaging Apps - 26th Nov 20
Dow Stock Market Trend Analysis - 25th Nov 20
Amazon Black Friday Dell 32 Inch S3220DGF VA Curved Screen Gaming Monitor Bargain Deal! - 25th Nov 20
Biden the Silver Bull - 25th Nov 20
Inflation Warning to the Fed: Be Careful What You Wish For - 25th Nov 20
Financial Stocks Sector ETF Shows Unique Island Setup – What Next? - 25th Nov 20
Herd Immunity or Herd Insolvency: Which Will Affect Gold More? - 25th Nov 20
Stock Market SEASONAL TREND and ELECTION CYCLE - 24th Nov 20
Amazon Black Friday - Karcher K7 FC Pressure Washer Assembly and 1st Use - Is it Any Good? - 24th Nov 20
I Dislike Shallow People And Shallow Market Pullbacks - 24th Nov 20
Small Traders vs. Large Traders vs. Commercials: Who Is Right Most Often? - 24th Nov 20
10 Reasons You Should Trade With a Regulated Broker In UK - 24th Nov 20
Stock Market Elliott Wave Analysis - 23rd Nov 20
Evolution of the Fed - 23rd Nov 20
Gold and Silver Now and Then - A Comparison - 23rd Nov 20
Nasdaq NQ Has Stalled Above a 1.382 Fibonacci Expansion Range Three Times - 23rd Nov 20
Learn How To Trade Forex Successfully - 23rd Nov 20
Market 2020 vs 2016 and 2012 - 22nd Nov 20
Gold & Silver - Adapting Dynamic Learning Shows Possible Upside Price Rally - 22nd Nov 20
Stock Market Short-term Correction - 22nd Nov 20
Stock Market SPY/SPX Island Setups Warn Of A Potential Reversal In This Uptrend - 21st Nov 20
Why Budgies Make Great Pets for Kids - 21st Nov 20
How To Find The Best Dry Dog Food For Your Furry Best Friend?  - 21st Nov 20
The Key to a Successful LGBT Relationship is Matching by Preferences - 21st Nov 20
Stock Market Dow Long-term Trend Analysis - 20th Nov 20
Margin: How Stock Market Investors Are "Reaching for the Stars" - 20th Nov 20
World’s Largest Free-Trade Pact Inspiration for Global Economic Recovery - 20th Nov 20
Dating Sites Break all the Stereotypes About Distance - 20th Nov 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Not Maxing Out Your 401(k) or IRA Contributions Is Stupid

Personal_Finance / Pensions & Retirement May 20, 2019 - 02:11 PM GMT

By: Jared_Dillian

Personal_Finance

Uncle Sam doesn’t give out too many freebies when it comes to tax time, except in the form of retirement plans.

Surprisingly, not many people take advantage of them. Only 41% of people contribute to a 401(k) when they have the option to do so.

A 401(k) allows annual contributions up to $19,000. If you maxed out your contributions, you could save thousands of dollars on your taxes.

Why do more people not contribute?


  1. They say they don’t have the money. Wrong—everyone has the money. This is what saving is all about.
  1. They don’t know about it. Sounds hard to believe, but I have met people who don’t know about the existence of these tax-advantaged retirement plans.
  1. Laziness.
  1. Taxes are too hard to figure out.
  1. Etc.

That is a lot of money to leave on the table. You know what? If you make $100,000 a year, you can max it out. I guarantee you can do it. You can still have a cup of coffee once in a while!

At a 25% tax rate, you will save almost $5,000 a year in taxes. That is a lot of money to a lot of people.

Smart investors save as much on taxes where they can. Warren Buffett saves pretty much all of his taxes. He hardly has any tax liability at all.

We can’t all be Warren Buffett, but the least we can do is take advantage of very obvious tax breaks where we can.

The SEP IRA

The one retirement plan that goes completely overlooked is the SEP IRA. The SEP is for self-employed people, sole proprietors, single-member LLCs, etc.

With a SEP IRA, you can shield a massive $56,000 a year from taxes. If your tax rate is 30%, that’s almost $17,000 in tax savings.

I have been taking advantage of the SEP IRA for years. 50-odd thousand goes into my retirement account every year.

You don’t even need any growth in your retirement funds for this to add up quickly. If you do this over the course of your career, you’ll have over $2 million with no investment gains. Not to mention the tax savings.

I run into a lot of self-employed folks who don’t even know of the existence of a SEP IRA. It is very common. If everyone who could contribute, did contribute, I wonder what it would “cost” the government in terms of lost revenue?

Those discussions haven’t started yet. They might someday. The government is spending a lot (an understatement) and currently nobody seems to care about debt.

That might change, in which case the government will be looking for every bit of revenue they can find.

Retirement plans have been sacrosanct, but nothing is permanent. These plans might one day disappear. You can see how the narrative will run: “Who needs a $17,000 tax break? Only rich people.” And so on.

Tax Aggression

Some people are very aggressive on their taxes.

I am not. There’s not much I can do, anyway. Having said that, I take every benefit I am entitled to.

Let me put it this way: you wouldn’t not take your mortgage interest deduction because… you didn’t feel like it? Or it was hard?

The bank makes it easy, they send you a 1099 with the interest you paid, and you or your accountant plug it in the computer. Retirement plans are really no different.

My guess is that the savings reflex for a lot of people is weak. Maxing out a $19K 401(k) contribution seems distasteful, compared with the alternatives. To me, Alpo seems distasteful, compared with the alternatives.

If the tax code encourages you to do something—whether it is buy a house, buy a Tesla, save for retirement, or something else—I suggest you do it.

Open up any popular finance website and you will get bombarded with propaganda telling you to save for retirement. The participation rate is nowhere near 100%, for basically the same reason that people don’t refinance their mortgages when interest rates go down.

Lots of people moan about Wall Street taking advantage of Main Street all the time.

Well, that’s because you make it easy.

Free Report: 5 Key ETF Trading Strategies Every Investor Should Know About

From Jared Dillian, former head of ETF trading at Lehman Brothers and renowned contrarian analyst, comes this exclusive special report. If you’re invested in ETFs, or thinking about taking the plunge into the investment vehicle everyone’s talking about, then this report is a clever—and necessary—first step. Get it now.

By Jared Dillian

© 2019 Copyright Jared Dillian - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules