In any payroll these days for U.S. people or not there is some form of tax equalization built into it. You find tax equalization is quite common. Basically your payroll is assumed to be tax equalized one way or the other and that is an expensive way to deal with this problem. Instead you can use a retirement plan that moves aside a part of the payroll pre-tax and forever.
A savings account with a retirement plan label on it is not retirement plan law.
When you understand the starting point of retirement plan law and when you look at it from that point of view then you will see that a label that states “retirement plan” is not the determining factor. Deferred Compensation: is unreduced by taxation, thus providing a larger capital base and “turbo-charged” gains and accumulations. By means of deferred compensation, employers can cut payroll costs between a third and a half.
Pre-tax contributions to this retirement plan immediately lower payroll costs
The IRC402(b), which we named the “Regulated Asset Protection Structure”, is the remuneration and deferred compensation legal entity. The funding is set aside not on the ”employer” books but on the books of a retirement plan administrator who is IRC402(b) compliant.
In other words it is not that the ”employer” is withholding it for future pay, the employer is actually setting it aside and paying it over to the 402(b) deferred compensation administrator. Meaning that it is not yours (employee) until it is yours. When it is yours you are subject to tax on it but not before.
[box style=”rounded” border=”full”]As a legal matter there are no maximum limits as this is a tax law issue. An example, a classic foreign domestic plan is one that has an annual contribution limit of 2,000 (U.S. Dollar equivalent) a year, which is really nothing. We are talking tax deferral on a huge scale, which means it is deferred on both domestic foreign and U.S. tax.[/box]
The reason accounts and attorneys haven’t come up with this tax deferred solution is that they are not retirement plan regulated, registered and recognized administrators. They can’t create the product. IRC 402(b) is not a capital injection product it is a retirement plan contribution product. Creating an IRC 402(b) to generate a short term tax break is the wrong way to look at it. Creating tax breaks continuously is the purpose of all retirement plans.
[box type=”note” style=”rounded” border=”full”]Internationally there are occupational retirement plans. The International Organization of Pension Supervisors (IOPS) covers this whole area, and also if you look at the E.U. Directive itself the whole idea behind these laws and legal concepts is primarily to do with people’s work. It is in regards to the work of people that the laws give favorable tax treatment.[/box]
What these governments are saying is that if you are going to work and you save part of that income for retirement then we will give you legal breaks on that money because it is different than other types of money. As a result this matrix of laws is designed to give preferential treatment not only to the retirement plan as a structure but also to what the fund can do with that money, how they invest and how membership can be protected.
Leave a Reply