4 mins
October 10, 2022

The Emotional Rollercoaster of Qualified Funds

The Emotional Rollercoaster of Qualified Funds

Qualified plans are not the only way (or the best way) to save for retirement

When I first started in my career, I believed the best way to save for retirement was by contributing to a qualified plan like a 401(k), and then investing that money so the account would grow.

But the more I learned about investing, the more I wondered if there might be other effective ways to build my wealth that were more tax efficient and afforded me a greater level of control. 

I’d already started to observe how having a large portion of my wealth tied up in a 401(k) was putting me on an emotional rollercoaster, and I wanted to make sure I was not staking my entire future on this one vehicle. 

3 Major Problems with Qualified Funds

Qualified plans can be useful if you use them strategically in alignment with your goals, but they should not be your only wealth building vehicle, especially if you are an Accredited Investor. There are three main reasons for this:

1. Qualified Plans Allow Someone Else to Control Your Money for Years 

If you want to see the results you hope for, you need to put quality time into managing your finances, and that includes your qualified funds. 

Just as I wouldn’t want someone else to raise my kids, I realized I didn’t want someone else managing my money. When you invest in a qualified plan, you’re essentially entrusting your wealth to someone else for years to come. 

Unlike a personal financial advisor or partner who will work closely with you to understand your goals and direct your investments accordingly, qualified funds are managed by someone who knows very little about you and your unique goals. 

2. The Success of Qualified Plans is Too Closely Tied to the Stock Market 

In most cases, the way that your qualified funds grow is through dividends from investing the money in stocks, bonds, and mutual funds. While historical data does show that the stock market will likely continue to grow over the long-term, these paper assets tend to be more volatile than other “real” assets. 

The stock market is completely out of your control, so it can be an emotional rollercoaster trying to track its performance when the bulk of your retirement savings depend on it. And what happens if the market crashes right before you’re ready to retire and start withdrawing funds? 

It’s nerve wracking to entrust your entire future into something that is completely out of your control, but too many people follow this path because they don’t realize there are other options available to them. 

3. Withdrawing Qualified Funds Requires You to Pay Income Tax

Many people first start investing in a qualified plan for the tax benefits, but they don’t always realize the future implications. 

When you put money into a qualified plan like an IRA or 401(k) that money grows “tax deferred.” As soon as you withdraw money from the account, however, you have to pay income tax on the amount you withdraw. The more your account grows, the more you’ll have to pay. 

This means that the balance you see in your account is actually far higher than the number of dollars you’ll have in your pocket after taxes. If you forget to plan for these taxes or underestimate the rate you’ll be taxed at, you’ll likely have to choose between lowering your standard of living or postponing your retirement. And there is a further 10% penalty for taking some of that money before turning 59½.

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A New Way to Build Wealth for Retirement

If you’re reading this article and wondering, “What should I do instead?” I have good news for you. There’s another investment strategy that allows you to grow your wealth, and its tax benefits are even greater than those of a qualified plan. 

When you invest in carbon capture technology, the current U.S. Tax Code allows you to deduct at least 100% of your investment for the first year against your earned (W-2) income tax. And with leverage, your depreciation loss will be calculated as up to 200% the amount of your investment. 

In this way, you can reduce the amount of tax you pay on your earned income tax, and the investment also generates consistent returns.

Keep in mind that this specific investment vehicle is the only one that provides these unique benefits for Accredited Investors. If you’re interested in learning more about how investing in carbon capture technology can serve as an alternative or a supplement to your qualified plan, please contact us today.  

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October 10, 2022
Billy Keels