10 Ginormous Problems with your 401K

“The 401k will turn out to be the greatest systemic financial hoax ever perpetrated on an unsuspecting public.” – William Wollman, The Great 401(k) Hoax

When you retire, depending on how you set it up, your retirement income may not be what you think it is.  Many people are reaching retirement age realizing they do not have enough money to live off of, so they have to get a part time job to make ends meet. If you are planning on your 401k to be your retirement, you better think twice.

Think about working your entire life to retire and not have any money to retire on.  Every day, baby boomers are hitting retirement age realizing they do not have enough money to live on.  I personally do not want to reach retirement age without enough money to live on without keeping a job for income.

What a sad day it would be when you realize that your 401K is not enough to allow you to retire.

The 401k is a law created by politicians with specific rules in the law.  One major problem with the 401k is that the government can change the laws whenever they want to.  If the politicians decide that you are not paying your fair share, all they need to do is change the laws and allow themselves to take more money from you in the form of taxes or even seizures. The sad thing is that future politicians can change the rules if they get enough votes to do so.

Other countries have already looted the savings accounts of their citizens because the politicians voted to do so.  This same thing can also happen in America.  It would take is some specific events for this to happen but I believe it is possible.

I choose to invest in things that have passive income which bring in monthly cash flow.  Cash flow that will pay my bills, buy more investments, and subsidize the lifestyle I design for myself now without me working.

I choose instead to invest in rental properties.  There are many benefits to rental properties and I have talked about them in other posts.   The 401k and IRA do none of these and both are created by the government for the employee.

Here the problems with the 401k:

  1. Fees, fees, and more fees!

    • Management fees, Administrative fees, Distribution fees – average 1% yearly
    • Sales loads – average 1.4% yearly
    • Trading Costs – average .5-1% yearly
    • Excess capital gains taxes when a portfolio is turned over
  1. Little to no control of your money

The only control you have over your money is whether or not you want to participate in the plan. You contribute a portion of your salary to an account and the employer takes the money out of your paycheck and deposits it for you and is the sponsor of the account. Then your employer hires another company to administer the plan and its investments in stocks or mutual funds.

  1. Dependent on outside circumstances and influences

You basically own stocks and mutual funds as you would normally but you have no control over which stocks or mutual funds you own. The plans administrator does all the work and you are left hoping they do a good job and the companies they purchase do the same. If the market crashes, so do your investment and all the time you spent making the money to put into your 401k plan.

In 2010, the stock market crashed in the matter of seconds.  It crashed because the stock market is now ran with computers and can be manipulated by anyone with the knowledge and desire to do so.  Investigations have found that one person caused the flash crash by himself and sent the stock market in a panic.

Here is a recent article regarding the 2010 flash stock market crash from USA Today:


The arrest of a London trader who allegedly helped cause the 2010 Flash Crash isn’t boosting investors’ confidence. It’s spooking them.

“If this one random guy could impact billions of market value in seconds or milliseconds, what’s going on?” billionaire entrepreneur Mark Cuban said in an interview.

“If a guy in his underwear can manipulate markets, anybody can. The optics look really, really bad,” said Cuban, who owns the Dallas Mavericks NBA basketball team.


  1. 401k’s were created to supplement pensions and not meant to be a substitute

When the 401k was created in 1978 and was intended to allow taxpayers a break on taxes on deferred income. In 1980, Ted Benna figured out how to use the law as a way to save for retirement. Now companies around the country offer these 401k plans instead of pensions because it saves them millions of dollars and the headache of administering the pension for its employees.

  1. 401k money is tax deferred not tax free

You are betting that your tax rate will not be higher when you start to withdraw your money. If the government raises the rates once you start withdrawing your money, you are taxed at a higher rate than when you put it into the 401k. Also, you can pay the tax before you put your money in (ROTH 401k) the plan or after you start to draw from it. Either way, you pay the taxman.

  1. Withdrawing money is seen as income

When you withdraw your money, it is seen as income and you have to report it to the IRS as regular income. Depending on where you are in life, you could be taxed at a higher rate because of the increase in income.

  1. The money you put into your 401k lowers your tax rate now but also lowers your tax breaks for deductions like mortgage interest and others.

If you put your money into a 401k, you are taking less in income per year because that money is not being given to you directly. It is being placed, before tax, into a plan that you hope will go up in value. Because you are not taking the money now, your annual income is lowered by the amount you put into the plan. So your tax rate may be lower because you show less annual income.

  1. Withdrawals of the 401k can trigger much higher levels of Social Security taxes.

If you are withdrawing from your 401k, your income goes up which may affect the rate of taxes you pay on your social security benefits. The more income, the higher the tax bracket, the higher the tax bracket, the less in benefits you receive from social security.

  1. Long investment timelines. You must wait until the age of retirement to access your money without penalties.

If you take your money out of the plan before retirement age you are hit with fees, penalties, and taxes. This is the way the government gets you to keep your money in the market for as long as possible. The Way of the Rich is to get paid cash NOW, when you retire, and every month in between.

  1. Limits to contributions

As of 2015, the maximum amount you can contribute per year is $18,000. Not everyone can give that much or more per year but what if you were able to? Why should you be stopped from investing your money in something that will help you for the future? With real estate, the only limit on how much you can invest is your own limit that you choose.

  1. The Rich do not need a 401k

The rich do not want to leave it up to other people to control how their money is being handled. Also, they want to be paid now, tomorrow, and when they retire. Waiting until retirement age will not work because they are already retired and want the money now so they can invest and spend the way they want to.

All of these reasons the Way of the Rich is to not throw your money into a “Plan” that someone else controls and you don’t get to touch until age 65. If you invest in passive income with monthly cash flow in real estate, you will have the ability to retire now, get paid now, and live the life you want now.

Not when you are 65…

Let me know your thoughts! Leave me a comment below.

10 Ginormous Problems With Your 401K

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