The Problem With Your 401k

Jerry Fetta
5 min readMar 27, 2018

Since the 1980’s we have been encouraged to invest money into our 401k’s. In fact, in 1979 the 401k was invented by a man named Ted Benna. It was actually not released to the masses until Wall Street got their hands on it. Now, if you have a career, you most likely have a 401k. Has anyone every stopped to ask if it’s a good idea? I have and based on basic reason, I want to share with you what I discovered is wrong with the 401k.

  1. The source. The 401k is actually an internal revenue code established in 1979 by the IRS. What does this mean? The national organization that steals from your paycheck against your will every 2 weeks approves this plan. Ask yourself: Should I trust the IRS with my money for the next 4 decades? It is a lot like trusting a fat kid to guard the twinkie stash. It’s just a losing proposal, we already know what’s going to happen. Why on earth would you give the IRS anymore of your income? Don’t they get enough already from taxes?
  2. The tax deferral benefit. This is actually one of the main benefits we are taught about with the 401k. See, if you put money in, you can deduct it from your income, thus lowering your taxable income in the year of the contribution. There are a few issues with this:
  3. Investments held more than 1 year are taxed as a long term capital gain (typically a 15% bracket). Once money goes into a 401k it is taxed as income (up to 40%). You lose the major tax break that a long term capital gain gives you.
  4. Tax rates will be higher in the future. It’s a fact. Taxes have always gone up and they always will go up. When you pull your money out you will pay a higher income tax on it then than you would today
  5. The match. This is the second big benefit we are fed about the 401k. I hear it all the time from people. “But what about my match?” Here’s the deal. A 401k is a deferred compensation plan. What that literally means is your compensation is being deferred. When surveyed, most employers state that for every $1 contributed as a match in the 401k plan is a $0.99 reduction in wages to offset the difference. Secondarily, employers are protected from YOU against any losses in the account so long as they invest the money in certain types of funds. So basically, your employer is taking your wage away, forcing it into a plan created by the IRS, and then limiting you to certain Wall Street investments because it covers their liability. What part of this sounds like a benefit?
  6. Liquidity. As soon as your money enters the 401k it is locked up until age 59.5. There are no if’s, ands, or buts. Your money now belongs to Wall Street and the IRS until you are old. If you want to withdraw it early, you will pay a 10% penalty, plus income tax on your 401k. However, most employers will not allow you to withdraw an active 401k plan. You aren’t allowed. I thought it was your money?
  7. Fees. Over the next 40 years, there will be 1 group getting paid on your 401k. Wall Street. That’s right. The average 401k annual expense that I see is 1.25%. This can represent 20–30% of your overall investment balance going towards fees until you turn 59.5. This is hundreds of thousands of dollars so that you have access to a 1–800 number and a website. Have you thought about the fact that over the long haul your 401k costs about as much as your house? It’s just as bad an investment too!

I like re-associating concepts, so let’s play that game real quick. Let’s say you have a creepy uncle named Sam who steals from you multiple times per month. This uncle of yours comes up with a plan for you to never have to work again! Here are the terms. a. He is going to setup a bank account for you and every month you will save money into the account. If you do this, he will refrain from stealing any dollar you put into the account. b. He will also match every dollar you put into it! Only, the match is money that he is stealing out of your paycheck…. c. You won’t be able to access the funds until you’re almost 60 and in the mean time while you wait, he’s going to give all of your money to his creepy friends and let them steal from it too. Don’t worry, they promise over the long term you’ll make money with them. d. When you take your money out at age 60 you will pay significant fees that he calls his allowance to him since he reduced the amount of money he stole when you put the money into the account initially.

Doesn’t this sound like a scene out of Lemony Snickets? This really is how your 401k plan works! Warren Buffett says “never lose money”. Well with your 401k, the only guarantee you have is that you will lose money by paying fees. It sounds like a terrible idea. I help my clients find alternatives to their 401k plan that give them full control, liquidity, and no management fees. Most of my investments are in real estate and my average client secures 8–12% fixed annual returns on their assets when working with me. Click here to learn about investments that make sense.

Own Your Potential,

Jerry Fetta

Jerry Fetta helps his clients make money, keep it, and multiply it.

He believes everyone should own their potential. He believes you were not created to spend 40+ hours per week serving the 40-year-to-life sentence trading your precious time for money just to live in mediocrity.

However, the truth is that time and money must be exchanged. It just doesn’t need to be you making the exchange.

Jerry helps his clients create wealth that exchanges time and money on their behalf.

His clients see a 30% increase in income, a guaranteed increase in savings rate, and 8–12% fixed annual returns on their assets in the 1st 90 days of working with him.

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Jerry Fetta

Jerry Fetta is the CEO and Founder of Wealth DynamX. Jerry’s mission in life is to help create millions of financially educated and wealthy families.