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« Money Worries Hinder Job Performance | Main | A Bank Fee You Can Easily Avoid »

October 18, 2005

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One does not avoid taxed by investing in a 401k, they only get deferred. This a big liability that people rarely factor into retirement planning or net worth.

Nels beat me to it...yes, the savings in a 401k are tax deferred, not tax free. These savings will be taxed as ordinary income when you begin making withdraws. This is most likely what Kiyosaki is alluding to.

Clarification: I meant that it grows tax deferred -- thus you have no taxes on the growth over 10, 20, 30 years while it is becoming bigger and bigger. In addition, it reduces your taxable income every year you contribute, thus making it an even better deal.

Question for Nels and Brian: So, are you saying a 401k is a BAD investment vehicle, one to be avoided? Are you advocating an investment portfolio of only real estate, oil and gas investments, and similar investment options?

I've seen too many people trapped in a 401k-come to find out they are in a higher tax bracket and they are reluctant to take distributions. I love the 401k but on an after tax basis-you still get the match but not the big hit at the end!

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