When you’re early in your career, contributing to a qualified plan like a 401(k) can seem like a no brainer. After all, you get an instant tax deferral, your money will grow over time, and in some cases, your employer will even match your contributions!

But 401(k)s and other qualified plans have a few major shortcomings. We’ve talked more in depth about those issues in a previous blog. But today, I want to focus on one key thing that people tend to overlook when they use a qualified plan as their primary form of retirement savings: long-term tax efficiency. 

A Small Reward Now, or a Large One When You Retire?

Think of it this way: Would you rather have a small reward right now or a larger benefit in the future, right when you need it the most?

Investing in a qualified plan allows your money to grow “tax deferred.” That means that you won’t owe income taxes on the money when you invest it, but you will have to pay them when you withdraw the money from your account. 

And because the money in your qualified account is presumably growing from now until you retire, you’ll actually end up paying more taxes in the long run. The better your account performs, the more you’ll have to pay. 

When Retirement Plans Go Awry

Here’s an example of what can happen if you don’t prioritize long-term tax efficiency. 

Janet is not a real person, but I frequently talk to people in situations just like this one. She spent her whole career diligently saving for retirement with monthly contributions to a 401(k). Janet enjoyed the immediate tax benefits, but most of all, she liked knowing that she was providing for her future self.

Unfortunately, no one explained to Janet the long-term impact of tax deferred contributions. When she turned 65 and started to withdraw money from her 401(k), she soon realized that the balance she saw in her account was far higher than the number of dollars she’d have in her pocket after taxes. And because her investments in her 401(k) had performed so well over the years, she was being taxed at a much higher rate than she’d planned for. 

No one wants to have to make the choice between postponing their retirement or lowering their standard of living. But people in circumstances like Janet’s are frequently faced with that difficult decision. 

So if qualified plans aren’t giving us the tax benefits we hoped, what do we do instead? Fortunately, there is another option. 

Grow Your Wealth While Decreasing Your Taxable Income

Investing in carbon capture technology allows you to access even greater tax benefits than a qualified plan, without the drawback of paying high taxes upon retirement.

When you invest in this equipment, the current U.S. Tax Code allows you to deduct at least 80% of your investment for the first year against your earned (W-2) income tax. Instead of just deferring your taxes until retirement, you’re actually reducing the amount you owe, while also generating consistent returns.

This benefit is nearly unheard of when it comes to other investment vehicles, and it’s too good to pass up — especially if you’re investing with the goal of saving for retirement.  

If you’re interested in learning more about carbon capture and the specific ways it can help you achieve your retirement goals, our team at FGCP^TM would love to connect with you. Please fill out this short form to get in touch.