Garrett Gunderson Helps us Figure Out if Your 401(k) is a Scam or Fraud?

The financial industry has done a tremendous job of getting companies and individuals alike to heavily rely on 401(k) plans. But are you being sold a fraud or even a scam? Once you've seen the facts, you may agree that this is the case...

Ask yourself, why do certain sectors of the financial industry push 401(k)'s so much? Take a guess. According to financial expert, Garrett Gunderson, (who helped provide much of the information in the article) it may be that they get your money, the government's money (the money that would have been paid in taxes), AND they have the rules on their side to hold on to it for a very, very long time! This is what Garrett sometimes calls the "401(k) Hoax".

Even if your employer offers an irresistible "matching" program [where they match your contribution to your 401(k)], it's still not that great of a deal. Why? The stipulations and rules for how and when you use that money make it difficult at best to ever utilize your money.

Some people use the logic that at least they're saving SOMETHING, no matter how ineffective, for their retirement. Unfortunately, due to a lack of management and knowledge, people are hemorrhaging in these plans and it impacts their overall well-being, attitude, and is putting hard earned money at risk.

Below are some strong alternatives, but first let's look at some of the specific reasons why Garrett suggests that 401(k)s are usually a poor investment strategy for most people, and (more importantly) what to look for instead.

Here are our thoughts:

1. Poor liquidity - 401(k) investment money is so tied up with penalties and restrictions so numerous that it is very difficult to navigate them should you ever require access to the money. There may be ways to loan on part of the money or even certain stipulations for hardships, but overall there is very limited access to money along the way before those restrictions are lifted.

2. Your money is market dependent. - The performance of your funds becomes dependent upon market factors, which means that you have to be okay with losses in the investment if the market does not cooperate. Many times there are limited selections of funds to choose from. Most participants do not change the original allocation and therefore are not managing risks properly.

Do you have any control over what the market will do? Do you know what your investments allocations are and what type of stocks or bonds are in the funds that you have chosen? If not, then what you are doing is more like gambling, a fraud, or a scam, than investing.

3. Administrative fees - 401(k)s are subject to various administrative fees in addition to expense ratios and 12-b1 fees (for marketing expenses) for the funds your dollars are invested in. This is something that most people, and even many financial professionals, ignore. "Hidden" fees often substantially derail your projections and currently there is a minimal amount accountability when it comes to administration fees.

These fees are an all too often an unseen expense since you are not writing the check to pay them. Typically they are automatically being taken out of the account with you even realizing it! Ten thousand dollars invested for 30 years, at a 10 percent interest rate, would hypothetically grow to $174,494. If we add just two percent in fees it only grows to $100,627. That is almost a $75,000 difference!

4. Tax-free vs. tax-deferred - If you don't like paying taxes today, why would you want to pay even more in the future? The tax deferral aspect of 401(k)s, which is touted as a great boon, is actually a primary factor contributing to why most retirees let the money sit, even during their retirement years, for fear of triggering tax consequences. This may be the biggest scam or myth of all because if you just have to pay the taxes at a later date how is it a real tax advantage?

Think of it this way, when you defer things in your life: working out, getting gas in your car, a commitment you make to someone - how does that end up working out for you? If you merely defer taxes, that does not necessarily save anything- it merely defers it.

5. Higher tax bracket upon withdrawal - The general financial advice given in main stream media often fails to take into consideration the possibility of you being in a higher tax bracket during your retirement years than you were when you put the money into your 401(k). If you have achieved any measure of success accumulating money in your retirement plans, you would usually be in a higher tax bracket at retirement, which means that you'll be paying a lot more to Uncle Sam when it comes time to pay the taxes on your 401 (k) savings.

However, for some reason, most advisors project that you will be in a lower tax bracket, which doesn't make much sense. It's illogical to project healthy returns on a qualified plan while also simultaneously projecting that you'll be in a lower tax bracket at retirement.

There is always the chance that the government might lower taxes or you will have more deductions in the future, but do you want to count on that happening? Another consideration is if you are at an age where your kids are a tax deduction today, bu they may not be tax deductible when you pull the money out of the plan and have to pay the taxes.

These are just a few of the many issues surrounding 401(k)s and qualified plans in general. I could certainly keep pointing out even more limitations, but it comes down something more basic: YOU. Your investments should be about you-not just the future you, but you in the present as well. Are you building a nest egg and net worth at the expense of your current production and cash flow? Are you living an ideal life not only financially, but also by doing what you love, taking vacations, spending time with the people you love to be around, and creating time to take care of your health?

The difference between the Business of You vs. mindlessly funding a 401(k) is that the former is exhilarating and profitable, while the latter is uninspiring and uncertain. The bottom line is that there is a lot more risk involved in investing in 401(k)s than many people realize. YOU are a much better investment.

The truth is that you can save for your future AND have fun, AND be in control of your finances, AND increase your current cash flow. I've seen first hand that investing in YOU is always a smarter idea than investing in a 401(k). While writing this article, Garrett Gunderson and I discussed it, and you may be surprised to find out that we've never met someone who is truly rich because they invested in a 401 (K).

Without exception, all of the rich people we know made their money by investing in themselves and following their passions. If you're like most people, however, then you've been taught that you have to settle for less now in order to make it big in the future.

That is a destructive myth that leads to a mediocre and unsatisfying life NOW and LATER. Don't fall for this scam because it's promises are a fraud! Don't buy into the hoax that someone else knows better how to manage your life and money than you do!

To find out more about how to invest in yourself or out perform your 401(k) plan, check out Garrett's Best Selling Book here...