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Multiply Your Net Worth with Your Retirement Plan

Believe it or not, the government can actually help you on this one!

Your SEP IRA and solo 401(k) retirement plans, can enhance your net worth by:

  • Creating tax deductions for the money you invest
  • Growing tax-deferred money within the plan
  • Holding off taxes until funds are withdrawn (hopefully, once you are in a lower tax bracket).

Let’s say you invest $1,000 a month in your retirement account and you are in the 40% tax bracket. If you are earning 10% on your investments, after 30 years, you will have $1.58 million in after-tax cash.

This would be comprised of (roughly):

  • $1.2 million from the retirement plan ($2 million gross, less 40% in taxes)
  • $380,000 from a side fund (created by investing the $400 of monthly tax savings—$1,000 deduction x 40%)

If you had no government help on the taxes and invested $1,000 a month in an investment that earned 10% (6% after taxes), without using a qualified retirement plan, you would have a little more than $950,000.

The retirement plan wins by $630,000 ($1.58 million vs. $950,000).

Invest your tax savings to bump up that net worth! As always, if you have any questions, please contact me.