Qualified plans do two things: #1 they defer the tax and #2 the tax calculation. I’d like to give you this illustration:
Let’s assume you wanted to borrow ten thousand dollars. So, I would immediately say well sure let me write you a check and I will hand it to you.
Now, what’s the first question you’re going to ask me? The first thing you’re going to ask me is how much interest you are going to make me pay.
And I’m going to say to you, well I tell you what, I’m in good shape right now and I don’t really need any money but there is going to come a point in my life when I’m going to need some money and when I know what that amount is then I’ll go back and figure out
what rate of interest I’d have to charge you to get that amount of money. So, I’ll just figure it up at the end when I know how much I need.
What would you do? Hopefully, you’d hand that check back to me as fast as you could and let me know you don’t need the money that bad.
In essence, that’s what the federal government is doing with these qualified plans.
Sure, you get a tax deduction – so remember you don’t t save taxes you just defer them.
And to what tax bracket?
Well, it could possibly be a higher tax bracket when you actually take the money out.