THE NO-COMPROMISE RETIREMENT PLAN • 33
be limitations on how much you can contribute to these types of plans each year.
Which One is Best? I believe most savers today need to be growing and accessing at least a portion of their retirement funds tax free. It’s certainly the best approach for me and my wife, and this book will help you de- termine if it’s the best approach for you, too. Many people forget the tax deferral in an IRA or 401(k) is not a gift. Sure, you get a deduction the year you contribute to a quali- fied account. But it’s not like taking a mortgage deduction or child deduction on your taxes. Those deductions lower your tax bill to- day, with no repercussions in the future. But the deductions you get for contributing to a 401(k) or IRA today come with strings attached: they require you to pay back those taxes (with the inter- est earned) in the future. That’s why the accounts are called tax- deferred accounts. You’re not eliminating your tax liability; you’re just deferring it to the future. In essence, the government is giving you a very expensive loan to avoid paying taxes today. A loan you have to pay back with in- terest. There are two reasons I believe many savers — including my- self — are better off saving at least a portion of their retirement funds tax-free. One is theoretical, and one is actuarial. Will Your Tax Rate be Lower in Retirement? The first reason is theoretical. The benefit of tax-deferred sav- ing is largely based on deferring your taxes at a higher rate, and then paying your taxes at a lower rate. I think of this as my parents’ tax strategy.
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