All Forum Posts by: Kevin Coggins

 Tony Robbins disagrees with you. He is a best selling author and is worth >$500M. The amount he spends on research for a single book he writes is in excess of your net worth I'd imagine. And he is PRO 401k/mutual funds by the way. What I mentioned is detailed in his latest major book "Money : Master the Game.

@Kevin Coggins Very good questions and I'll try to answer them the best I can.  Before I do though, I am not a financial advisor at all so read at your own risk. Here it is and I hope it helps you increase your Financial IQ in some way.  

A 50K cash out prior 59 1/2 could cost you 21K in penalties and taxes. I'm not a fan of giving Uncle Sam 21K of the money I saved just because I want to cash out. If you just withdraw some monies from your plan, it is taxed as ordinary income and may be subject to a 10% federal tax penalty if taken prior to 59 1/2. 

As far as the loan goes, yes that is an option but you have to pay it back with after tax dollars. If you are in the 25% tax bracket and have a 401K loan, every $100 you borrow cost you $125 when you pay it back. If you are in the 15% tax bracket, it cost you $115 for every $100 you borrow when you pay it back. If you quit, are laid off or fired, you have to repay the loan back within 60 days. If not, the loan is considered a distribution, subjected to income tax and a 10% penalty if the borrow is under 59 1/2. 

On the flip side, if you get to 70 1/2 and do not need your RMD you still have to take it or you get to pay the IRS 50% of the RMD for not taking it for that year. For me, it makes more sense to reallocate the monies I was contributing to my 401K to other investments that help me build passive income so I can enjoy the benefits of that money now instead of years from now.

Using the example you gave of investing 5K a year into a 401K. What if you were to take that 5K and use it towards a down payment on a property that has a ROI of 15% and it cash flows $150 a month with a 2% yearly increase. A couple of years later you decide hey, I want to buy more investment property. If you have been saving the $150 every month that your first property is cash flowing, you can use it towards the down payment on another property that generates the same returns. Now back to the first property, say it has appreciated 5K in two years and you have some equity in it. So you decide to do a cash out refi, pull your initial investment of 5K back out of it and use the rest plus the $150 a month you have been saving for the last 24 months as a down payment for another property or properties using leverage. At this point you have no money of your own in either property or properties but you are making passive income off of them every month. The ROI would be infinity since you are using no money of your own. This to me is so much better than a 401K where I have very little control over my money and the returns I get are based on what the market does or does not do for the year.

I actually stopped contributing to my 401K this year. Why, because I have very little control over my money inside the 401K and I can't touch it until I either quit or retire. If I quit then I get to pay a penalty on it when I do pull it out. Unless I want to wait until I am of age to avoid the penalty. I can also do much better managing my own money with far greater returns than what the company that I work for does.

Plus I figured out the taxes are a lot less if my money is invested outside a 401K. How is this, by having my money generate passive income.

 If you invested a given amount of money over a 30 year period. Then, you invested that same amount of money, in the same exact equities over the same time and had a 100% employee match.. you would produce roughly 2% more return in the latter case over the lifetime of the investment. So, while the "100% return on your capital" sounds nice, your actual returns on your investment would be 2% better, at best.

 Be careful when looking at charts like these - they are deceptive.  I'm not defending Gold (or silver or any other precious metal) as an investment...but I want to point out the inaccuracies.  The chart above doesn't take into account Executive Order 6102 which essentially made it illegal for Americans to own Gold coins and Gold Bullion.  Nixon ended that by taking us off the "gold standard" in 1974.  There's a reason why the Dollar and the price of gold tracked closely together from 1933 to 1974...and a reason why you see such a big change after 1974.

Precious metals (gold and silver) are a good hedge against inflation.  Check the rate of inflation in 1980 (six years after going off the gold standard) vs the rate of inflation in 2000.  I can remember my grandmother buying certificates of deposit at 12% and 16% interest back then.