This is transcribed material from a talk Christopher Jacobs gave in 2017 about qualified plans.
How many people have some sort of qualified plan? Most people.
So, what do these qualified plans do? Well, they really do two things.
The first thing they do is this: they defer the tax.
Now, I’ve got a friend, Rock, and Rock’s an architect in St. Louis and he puts about $60,000 back a year into one of these. And I said, “Rock, why do you put that much money back into one of those plans? He said, “Well, I’m saving taxes.” I said, “Eh, not really.”
He goes, “Oh, yeah, I’m deferring them.” I said, “Listen, Rock, if you wanted to borrow money from me and I stroked you the check, what are the two things you would want to know about that transaction?”
What would you want to know if I was lending you that money? Interest rate and when you’d have to pay it back, right?
What if I told you I’m doing okay right now, I don’t need that money, but there will be a time coming down the road where I am going to need that money? And at that point, I’ll just figure out how much interest I need to charge on the deal to make me whole? Would you want to cash that check?
No. And Rock said no too. So, I said, “How’s that any different than the deal you’re making with the federal government on putting this money back on these qualified plans? You’re going to love his answer, keep in mind he’s the business owner. He goes, “Yeah, Chris, but I’m getting the company match.” I’m like, “Yeah, but it’s your money. You’re the owner.”
So, I’m from St. Louis, and I went to a Cardinal’s game last year and it rained. They did not say it was rain deferred, did they? They said it was rain postponed. That’s a lot like qualified plans.
They postpone the tax, but they also postpone the tax calculation.
So, there are two questions to ask. One, what deductions are you going to have available when you go to take this money out? Now, if you’re an older person like me, the house and the kids are gone and you no longer have any deductions here, right? Now, the other question to ask is this: What tax bracket will you be when you go to take the money out?
Do you think tax rates are going up, down, or they’re going to stay the same in the future? Most people think up.
Let’s take a stroll down memory lane when it comes to tax history in this country. It started in 1913 when the top marginal was 7% of anything over $500,000. They said it was a temporary tax and that we only needed to do this for a year.
The good news is that it’s still only on the books as a temporary tax.
By 1941, 81% of anything over $5 million (how many people in 1941 were making over $5 million? Maybe four?)… they democratized it the next year.
88% of anything over $200,000 with the stroke of a pen. Back when Raegan was making Bedtime for Bonzo movies, he worked through March and made two movies and then went to the ranch. Why would you work for 6%?
Hi, my name’s Jimmy Carter, 70% of anything over $215,000 in 1980. Then Reagan comes back, now not as an actor but as president with 28% of anything over $29, 750 in 1988. That was probably as close to a flat tax as we’ll ever get in this country.
Last year, in 2016, where was it? 39.6% of anything over 466,950. Where’s it going? Who knows, right? I just know this: the top average bracket in this country has been 58%.
Would you say your income is common or uncommon? If what you believed about your income turned out to not be true, when would you know about it?
So, let’s look. What does it take to be in the top 1%, 5%, 10% and 25% of the adjusted growth income filers?
25% takes a household AGI of $77,714, 10% is $133,445, 5% is $188,996, and to be the fat cats at the top 1% it’s $465,626. Now, who pays what percent of the tax in this country? Well, if you’re in those upper echelons, the top 25% of people in this country pay 86.78% of the taxes. And if you’re in those very high brackets, you probably feel like you’ve got a bullseye pinned on you.
$19,918,959,727,192: Do you know what this figure represents?
Check back in part two to find out.
Chris Jacob is a Registered Representative with Saxony Securities, Inc.. Securities offered through Saxony Securities Inc. (SSI)..Member FINRA, SIPC. Non-security products and services or tax services are not offered through SSI. Cadeau is not affiliated with SSI.