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The 401(k) Tax Myth: Why Deferring Could Cost You More

For decades, we’ve been told that 401(k)s and IRAs “save you money on taxes.” But here’s the truth: they don’t save you anything. They simply delay your tax bill and often push it into a time when you’ll pay more, not less.

My goal is to help you become work optional by creating passive income and taking control of your money. And that starts with breaking down myths that keep people stuck.

Why Deferring Taxes Rarely Helps

Traditional retirement accounts work like this: you put in pre-tax money, it grows tax-deferred, and then you withdraw it later at ordinary income tax rates the highest tax rates possible.

That means you’re not saving taxes you’re just postponing them. And when you retire, you’ll likely face:

• Fewer deductions (mortgage interest gone, kids grown).

• Higher expenses (healthcare, lifestyle, travel).

• Inflation forcing you to withdraw more.

Put all that together, and your withdrawals could easily push you into a higher bracket than today.

Business Owners: The Worst Trade-Off

If you own a business, you already enjoy powerful tax deductions today. Contributing to a 401(k) or SEP often means trading your lowest tax years now for higher taxable income later without the same write-offs. And don’t forget: the government controls the rules and can change them anytime.

So What’s Better?

I prefer strategies that give me control, liquidity, and tax advantages today. For me, that means:

• Building cash reserves in properly structured whole life insurance (with tax-advantaged access).

• Investing in real estate and alternative assets that produce cash flow and come with tax benefits.

• Using employer contributions or legacy accounts only as a bonus, not a core plan.

The goal isn’t just “saving taxes this year.” It’s reducing lifetime taxes while creating income streams that let you work because you want to not because you have to.

Final Thought

Don’t fall for the myth that deferring taxes is saving money. It’s not. If you want to become financially free faster, focus on building cash flow now in places you control not locking up your money and hoping future tax rules work in your favor.