1. Contribute to 401k plan to receive match
  2. Check to see if the 401k plan has a “Roth” provision
  3. Purchase a maximum funded life insurance policy

If you work for a company offering a 401k plan with a match, TAKE ADVANTAGE of the match! This is free money. I cannot tell you how many times I have met with clients who are brainwashed into thinking their 401k is evil and they are not contributing and taking advantage of free money; this is insane. I always encourage people to take advantage of all the free money they can get. In other words, I urge them to contribute at least the minimum amount needed to maximize the free money their employer is willing to give them.

Additionally, you should check to see if the plan documents in your 401k plan have a “Roth” provision. If this is the case, if you are of the mindset taxes will most likely be higher in the future, you can take advantage of the “Roth” provision, pay the tax now, and NEVER again. Let me make sure this is crystal clear: You can pay the tax now on the money you contribute into the 401k plan and all the compounding growth on the Roth (post-tax) side of your retirement will not be taxed. Conversely, the free money from your employer will be taxed when you pull the money out in retirement, this is called pre-tax money. I believe in Tax-Diversification; meaning, building up two buckets of money to pull from in retirement. If you defer your contributions into the “Roth” side of the 401k and get matched equally (because you are only contributing up to the match), you are creating Tax-Diversification equally.

Contributing into the 401k plan to take advantage of the match is not enough, though. You need to save at least 10% of your annual income for your retirement. If you have a W-2 income of 100,000 per year and your employer offers a 401k plan with a 3% match (God bless them for helping American’s save for retirement), you should contribute $3,000 into the “Roth” (post-tax) side and get matched $3,000 (pre-tax). You need to be saving an additional 7% somewhere, but where should you save the additional 7%? First thing you need to do is read Tax-Free Retirement by Patrick Kelly and create a solid foundation of why you should utilize a maximum-funded life insurance contract to supplement your retirement. After you read Tax-Free Retirement, myself or one of my associates would be more than happy to speak with you to answer any questions and run some numbers. We can be reached at www.fortitudefinancialgroup.com.