Government Savings Plans – Episode 134

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[00:01] Welcome to the Prosperity Podcast, fresh alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your host, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome to another edition of the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Once again, got bestselling financial author, Kim Butler with us. And today we’re going to be talking about government savings plans, and I almost have to laugh about this because I think about how the government has done with managing their own money, and now they want to manage mine. And if they do half as well with my money as they did with theirs, then I would only

[00:49] lose half as much. Oh dear, yeah. That’s kind of a scary thing, isn’t it? Well it’s, now wait a minute. If you have more expenses than you have income, that’s the way it’s supposed to be? Well, I mean, unfortunately, under our particular plans, they don’t let us have a printing press in the basement to make up the difference. Oh dang, I thought we could have one of those, you know, sounds like a pretty cool thing. Oh, so amazing. So let’s talk about these government savings plans for a minute. So we’re talking about 401k plans, 403b plans, 529 plans. And Todd, you had just recently read an article about 529 plans. Tell us what that was. This is specifically referencing the late September issue of Money

[01:48] Magazine, is talking about a new 529-like savings plan that has been designed for special needs children. Now, just to give you some background, a special needs child that is on social security may not have more than $2,000 worth of assets in their own name. So this is made for to be able to put money into this 529 plan. But unfortunately, once the money’s in that 529 plan, it’s then invested in mutual funds. So your principal is now at risk. You know, they can’t have the money in the savings account. They can’t have the money anywhere but this new 529 plan. And hopefully we’ve got maybe some alternatives that we’re working on here at Partners for Prosperity that would be more productive. Well, you know, anytime we get the government involved in saving or in

[02:47] designing a quote plan, I think we’re subjecting ourselves to limitations, not only in the actual structure of the plan, but in what it can be invested in. And that’s where my real hangup is. You know, whether this particular 529 plan or I love how they said it, 529 like plan, yeah, is good or not good, you know, is of course subject to maybe further research, which frankly, I have to admit, I’m not sure I would spend the time or waste the time doing. Because to me, we’ve violated a major principle of prosperity, which is giving up control. And so I’m not even talking about the investment level yet. We’ll get there in a minute. When the government controls the structure of your plan, which it does

[03:37] in 401Ks, 403Bs, Roth IRAs also, and 529 plans, plus these 529 like plans, good heavens, it really is subjecting you, the investor, you, the owner, to major, major limitations. Now, I do have to say that they did get one thing right a long time ago when they started 401K plans. They did truly call them savings plans. The word savings is very important. And as we know, they have really turned into 401K investing plans. Because what most people try to put underneath their 401K umbrella is some form of mutual fund, which we would call an investment, not a savings. Because savings should be guaranteed. Savings should not fluctuate. Savings should be there, and though it may be boring and at a lower

[04:31] interest rate, it should be something we rely on. But unfortunately, for all of these areas, 529s, Roths, 403Bs, 401Ks, we’ve completely turned them into investings. That’s maybe not the proper English word, but it does make a good point. And every single 529 plan that I have ever looked at has only the amount of money that the people have put in there. Because the fees and the market fluctuations have destroyed whatever quote growth was supposed to happen. So here we’re supposed to be all excited about a 529-like savings vehicle. And then when you look at your life, do you want a complicated structure or do you want a simple structure? And I think most people are realizing that simplicity is so much more

[05:25] efficient, so much better able to deal with things that come up. And so when you go into the 401K, 403B, Roth 529 arena, you’re complicating your finances because you no longer get to set the rules. But instead, you have to pay attention to the rules. And I’m just disgusted sometimes when we get into the nitty gritty of somebody wanting to actually do something with this money. And we find that there’s some little unknown piece or parcel of a rule that is limiting our ability to do anything. So whether it’s you’ve got a 529 plan and you want to send your kid to special school instead of typical college, there could be a problem with that. Or whether you want to use your 401K to start a business, there

[06:17] could be a problem with that. Sometimes it’s worth paying the penalty just for the freedom of that money. As a general rule of thumb, I’m not a fan of paying a penalty. But sometimes a 10% penalty is nothing compared to, for example, putting the money on a credit card where we have to pay 18% every single year for the money or completely opting out of the opportunity at all because the money is so tied up. Todd, I’m curious to throw a question back to you. What do you think the government’s goal is here when they’re doing all these things like 401Ks, 403Bs, 529s, et cetera? What do you think they’re trying to get out of it? Well, I think, first of all, I think a lot of the government is controlled by the banking systems and the banking systems

[07:09] are profiting tremendously through the fees that they’re allowed to charge inside of these plans. And then secondly, the idea is, is that if they can grow the money to a larger amount, they’re able to tax the larger amount, which a lot of times we use the analogy of paying tax on the seed or paying tax on the harvest. And they definitely would rather collect those taxes on the harvest, which chances are will be at a higher percentage rate anyway. Right. So with Truth Concept Software and my husband Todd Langford, we’ve done some studies on the rate of return that the government actually gets on that deferred tax savings. So this is in a 401K arena, although the same could be said of 403B, whereby you’re deferring your income tax.

[08:09] So we can calculate about how much money, based on current tax brackets, you would have put in, and then we can calculate about how much money, again, only based on current tax brackets, that’s all we can use, about how much the government would get out and we can run a rate of return calculator on that. And every single time we’ve run that analysis, the government is getting a higher rate of return on what is your money that’s deferred for them than you are. And the reason is because the government are going to get their tax dollars, regardless of what’s going on, whereas you end up paying the fees on all of the money because, of course, the fees are coming out of your account and the government is getting portions of what’s

[09:05] left over. So typically we see where the 8% is used as an assumed interest rate as an example, the government is absolutely getting close to that 8% where you might be getting five and a half or so after all the fees and actually paying the taxes. So it’s a pretty interesting analysis to do is to figure out what rate of return the government is getting on your deferred money. Because the 401k and 403b arena is a deferral. It’s not a tax-free environment and so many people think it is, which is where this tax on the seed or tax on the harvest comes up. You are being taxed on that harvest and the government, while they say that they are not allowed to invest in the stock market, essentially they are investing in the stock

[10:00] market through every single person’s 401k, 403b and 529 account because that money, that deferred tax that’s hanging out in your 401k plan that is actually going to go to the government is of course in the stock market if that’s what you’ve invested in and mutual funds inside the stock market is the most common place and then that money as we’ve indicated is going to go to the government. So they get to invest in this even if they say that they don’t. And so what we’re just talking about here is being clear that control, which is of course one of the principles of prosperity, and simplicity, which is not one of the principles of prosperity but probably should be, are important things to seek out in your

[10:51] monetary environment and yet most people don’t seek those out. They give up control and they give up simplicity and boy this 529 quote like plan that they’re setting up for this particular person with this and not that and you know 10 different other rules you’ve got to find, here we go, back into complexity again. There’s a new rule that just came out that I want to get your opinion on that I don’t even know if you’re aware of it. It just went into effect and it deals with transferring money from a 401k to an IRA which we help a lot of people to do. There is a 60 day limit. You have to have that money transferred within from one account to another deferred account within 60 days. Otherwise it counts as income and you have

[11:39] to potentially pay penalties and taxes. They’ve now waived that 60 day requirement and there is no specific day requirement but you have 30 days from the date that you move the money to prove why you couldn’t move it in 60 days. Oh good heavens. Sits around and comes up with this stuff. It’s effective immediately so you know if you know there’s a I mean because sometimes there are some major delays. I mean the companies that are holding the money don’t want to release it and that’s right the intermediary company and then moving it and things like that but you know to now have no specific daily guidelines but you still have to prove why you didn’t meet the 60 days within 30 days. That’s just what a rule.

[12:34] Wow amazing and we wonder what they’re doing in Washington and now we know they’re sitting around adding complexity to an environment that really just needs to be simple and it’s why Partners for Prosperity has continued to preach our very simple message. Your money needs to do three things. It needs to either be stored liquid as cash which is a savings account used to be available for anything that you want used for whatever you want and of course our favorite alternative for that is the whole life insurance with a dividend paying mutual company. Which is tax free by the way. Correct. Number two your money should be used for income which our goal there is that you actually get a paycheck every month because that’s what it’s

[13:26] supposed to do not because the stock market went up or because the company that you bought hopefully hopefully paid dividends but because you actually got a paycheck every single month. Most of the investments that we work with either pay on the third or the seventh of the month or that your money’s growing and our method for growth is that you buy low and sell high but not in the stock market. So if you’re curious about any of that head over to partners number four prosperity.com slash ebook. So this is partners number four prosperity.com forward slash ebook. There’s an audio version there as well and listen to financial planning has failed where we talk about the three jobs that your money

[14:10] is supposed to be doing in a very simple form where you control the deal 100 percent and let’s keep the government out of not only setting the rules for the structure that we invest in but then dictating what we invest in underneath that structure. And if there’s one thing I will say is that Kim has spent year after year just simplifying the process so that you can control your money. You don’t have to delegate responsibility. You don’t have to spend 20 hours a week analyzing the market. It’s a really simple process where you do have control. You are able to get probably three to five percent on your liquid money and double digits are close to double digits on your long term money. Right. That’s correct.

[15:05] Those are the numbers that we seek with simplicity and control and the ability to multiply wealth which is another principle of prosperity that we make sure all of our investments meet. Super. And if you’d like to ask a specific question or would like to get an appointment, hello at partners, the number four prosperity dot com is the best way to do that. And again this is No BS Bunny Guy Todd Strobel. Special thanks to Kim Butler and we’ll talk to y’all again soon. Thank you for listening to the Prosperity podcast. To take control of your money and have it work for you, visit us at partnersforprosperity.com. If you liked this episode, make sure you subscribe and leave a review.