Rich Dad advises that you avoid 401(k), but should you?

Robert Kiyosaki doesn’t hesitate to rock the boat.

To the best-selling author of Rich Dad, Poor Dad, the worst thing you can do with your money is to stash it away in a 401(k).

“The worst advice most people take is that they go to school, they get a job and then they get a 401(k),” said Kiyosaki.

Take that, conventional wisdom!

For Kiyosaki and his team, the financial boogeyman is income taxes.

“Taxes are going up, and taxes are your single largest expense throughout your life,” Kiyosaki said.

And the 401(k) is one of the biggest offenders, said Tom Wheelwright, Kiyosaki’s tax specialist.

“All a 401(k) does is defer or postpone your taxes to a later date,” he said. “A 401(k) really presumes that when you retire, you’re going to be poor. It presumes that you’re going to be in a lower tax bracket than you are today.”

In fact, Wheelwright said, most people who want to retire with the same lifestyle they’re living today actually need more money, not less.

“They’ll pay higher taxes, not less,” he said. “They won’t have their children as an exemption, they may not have their home mortgage interest deduction, so they’re actually in a higher tax bracket.”

Dallas certified financial planner Michael Reppert understands Kiyosaki’s perspective, especially his argument that taxes are headed higher because of the health care overhaul and its effect on government spending.

“He’s got a very good point about where we’re headed now with the entitlement programs and our government debt,” said Reppert, of Spectrum Advisors in Addison.

He also said Kiyosaki’s argument “has some merit in that the 401(k) should not be the only vehicle you’re using for retirement.”

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Instead of having all their savings in taxable accounts, such as traditional IRAs and 401(k)s, Reppert said, consumers should have another source to draw from, such as a Roth IRA.

If tax rates are going up, you want to have the ability draw from a tax-free bucket to offset those increases in taxes, he said.

“If you need $50,000 a year, you could draw a portion of what you need from the taxable and the other portion from the tax-free so that you can actually lower your overall tax,” Reppert said.

I understand Reppert’s logic, but it presumes that you have enough money to spread among different accounts and other investments.

For many, the challenge is more primal. They’ve got to start saving for retirement at some point, and for most workers, the 401(k) is the best place to start. That’s where I differ from Kiyosaki.

“What we do know about the majority of people is that they have very little money,” said Dallas Salisbury, chief executive of the Employee Benefit Research Institute, a nonprofit, nonpartisan organization that studies employee benefits issues. “The 401(k) is the first time they’ve ever engaged in systematic savings.”

And that’s where you want them to stay.