Of all the wealth creation techniques 401k investing is probably the best ride.

You do not even need to use your own money

Example: To make mental math calculations simple – say you make a contribution of $20,000 this year to your 401k. (For workers age 50 the maximum contribution allowed by IRS is $26,000 – workers under 50 have a contribution limit of $19,500)

Here are the basic Maths:

(Assume the worker has earnings of $75.000 – Marginal tax rate at the Federal Level is 22%)

Tax rebate for the Employee amounts to $4,400

Calculate the ROI based on the 401k contribution by the worker.

Some Financial Planners get it wrong, basing costs on the $20,000 outlay – whereas the cost of the investment net is $15,600.

Thus the ROI is $4,400 percentaged on $15,6oo = 28.2%

How does that ROI *(a guaranteed return) compare to speculative investments?

Now Grade up a notch:

Instead of using your own money – Borrow the $20,000 Capital

The interest rate is irrelevant – as you can refinance at 5% and negate that cost by paying interest to yourself borrowing back the full amount of the invested capital.

Momentarily calculate ROI based on the 5% interest cost – $1,000

Deduct that expense from the $4.400 rebate so you net $3,400 (TAX FREE)

Calculate ROI … 3,400/1,000 . which is a massive 340% …

Now follow that up with the zero real cost of the loan achieved by making interest payments to yourself – which produces an Infinite ROI

There are missing pieces to the puzzle which an astute Financial Planner should be able to work out – although many will be dumbfounded.

For zero cost an employer will be able to make a matching contribution to the employees. At that point, subject to a few compliance parameters, the Employee is then able to use half of the value in their 401k (up to $100,000 – previously restricted to $50,000) to pay down the $20,000 borrowed externally to make their own 401k contribution.

At that stage there is no external borrowings and zero real interest expense