In this episode of the Power of Zero Show, host David McKnight discusses the scenario in which you have maxed out your 401(k) and are wondering where you should invest the rest of your money.

The episode kicks off with David addressing the type of 401(k)s you should be investing in first.

There are two types of 401(k)s: the traditional pre-tax 401(k) and the Roth 401(k).

Should you go for a traditional 401(k) or a Roth 401(k)? It all depends on whether you think your tax bracket is likely to be lower or higher in retirement…

With the national debt set to hit $62 trillion by the year 2035, David believes that, “There isn’t any way the Federal Government can service that type of debt without increasing taxes.” 

Planning on retiring past 2035 and you’re currently in the 24% tax bracket? Then, David recommends opting for a Roth 401(k).

This year, you can put $23,500 into your Roth 401(k) if you’re younger than 50, and $31,000 if you’re over the age of 50.

David talks about what to do if you’re married and have maxed out your Roth 401(k), as well as what you can do if your modified adjusted gross income is less than $246,000 as a married couple, or $161,000 as a single filer.

David illustrates the scenario in which relying on a LIRP (Life Insurance Retirement Plan) would make sense.

According to a recent Ernst & Young study, if you can save between 3 and 5 years worth of living expenses in your LIRP by day 1 of retirement, you can increase the sustainable withdrawal rate of your stock portfolio from 4% to as high as 8%.

David points out that there’s no limit on how much you can put into your LIRP and, unlike with what happens with Roth contributions, you are not constrained by your modified adjusted gross income level.

Another point in favor of opting for a LIRP is the fact that it grows safely and productively – the growth of the money in your LIRP is linked to the upward movement of a stock market index.

Whatever that index does in any given year, you get to keep up to a cap that’s typically between 10% and 12%. Index going down? Then, you’re simply credited a zero.

 

 

Mentioned in this episode:

David’s national bestselling book: The Guru Gap: How America’s Financial Gurus Are Leading You Astray, and How to Get Back on Track

DavidMcKnight.com

DavidMcKnightBooks.com

PowerOfZero.com (free video series)

@mcknightandco on Twitter 

@davidcmcknight on Instagram

David McKnight on YouTube

Get David's Tax-free Tool Kit at taxfreetoolkit.com

Ernst & Young