Financial personality Grant Cardone has shared a bunch of hot takes throughout his career, including his latest tidbit about 401(k) and IRA plans. He refers to these retirement accounts as "the biggest scam" in finance.
Cardone is bound to get some resistance since these accounts have been touted as valuable investment vehicles for many years. However, Cardone expands on his argument in a way that will leave some people considering alternative strategies to save money for retirement.
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You Can't Get Out
Cardone asserts that retirement plans make you a prisoner to the bank since you can't withdraw your money at any time. You must be at least 59 ½ years old before you can make penalty-free withdrawals. Some people would benefit a lot more if they could access the same money sooner.
Cardone also mentions that there's a lot of friction on your way out. You will have to pay income taxes on any withdrawals you make from a traditional retirement account. The tax rates can get quite high depending on where you live.
Most people know that if you avoid taxes on retirement account contributions, you will have to pay taxes when you make withdrawals. The opposite applies to Roth retirement accounts. These accounts tax you on the way in, but you don't pay any taxes on withdrawals, capital gains, or dividends.
You also have to make required minimum distributions, which the IRS defines, in case you get any ideas about hoarding money in your retirement accounts to prolong your tax payments. The IRS only has RMDs in place for traditional retirement accounts. Roth accounts get a free pass from this rule.
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You Don't Know Which Companies Are Receiving Your Money
Retirement accounts typically let you choose from some funds, but most investors do not know what they are funding. Cardone explains that your retirement account may be funding big pharma, military campaigns, and other initiatives that you may not support.
Large corporations often rely on investors to remain solvent and fund new projects. Your money may be going to shady organizations if you stick it in a fund without reviewing the holdings.
There's also the risk of losing money in your retirement account due to administrative fees. Some 401(k) providers charge admin fees that are close to 2%, and that doesn't even include a fund's expense ratio.
These fees can eat up all of your profits and result in a net loss in your 401(k) plan. That doesn't even include the amount you'll have to pay in taxes once you are ready to withdraw your money.
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Real Estate Is A Tax Haven
Unsurprisingly, Cardone mentioned real estate as a viable solution to retirement accounts. You can use leverage to get real estate sooner and generate monthly cash flow from your property. Real estate comes with a bunch of write-offs that you won't find with other investments.
It's important to remember that real estate requires a lot of work, especially if you get started with a bunch of single-family homes. You will have to handle phone calls, regularly check properties, deal with various issues like leaks and mold, make property repairs, and do a bunch of other things.
Real estate gets easier if you can invest in apartment buildings since all of the units are located in the same place. Real estate is not for everyone, but the people who master this asset can unlock some of the best tax advantages in the entire tax code.
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