Episode 9: Why I Exited My 401(k) (And Why You Should Too)

Listen Here

In this special solo episode of Wealth Strategy Deep Dives, Dave breaks down one of the most misunderstood — and often taboo — strategies in traditional retirement planning: the idea of exiting your 401(k). Dave walks you through the math, mindset, and practical considerations behind taking control of your retirement capital and putting it to work in more tax-efficient, high-yielding private investments. Using the brand-new 401(k) Exit Calculator, Dave demonstrates how to objectively analyze your own situation and see whether staying locked into Wall Street truly aligns with your wealth goals.

If you’ve ever wondered whether your 401(k) is really “free money” or whether your capital could be compounding far faster elsewhere, this episode will open your eyes and empower you to run the numbers for yourself.

Jump to Links and Resources

How is it going, everyone? And welcome to a special solo series of Wealth Strategy Secrets Of The Ultra Wealthy. I’m your host, Dave Wolcott. We get a lot of the same questions from our investors about infinite banking, tax efficiency, asset protection, strategy stacking, and how to actually build wealth outside of Wall Street. And we get it.

We know you’re busy. So in this series, I’m breaking down complex wealth strategy topics into short tactical episodes that you can actually use to build legacy wealth. Whether you’re just starting your journey or fine-tuning your portfolio, these episodes are designed to give you high-impact insights in just a few minutes. So let’s dive in. In today’s deep dive, I wanted to unpack what could be a completely alternative strategy and really what’s considered frankly taboo in the market, which would be to actually exit your four zero one k.

Over 90% of Americans have their capital tied up in government-sponsored qualified plans like a 401K, and I was one of those as well. Right? And years ago, I came to a point in my trajectory, on my wealth trajectory, that I realized I needed more capital. I was growing and doing really well in private investments and real estate, and I wanted to actually untap additional capital. And I had to kinda look under every rock and try to find additional capital sources, and that’s when I took the, you know, route of looking at the four zero one k and trying to do this objective analysis on it to really see, you know, hey.

Does it really make sense to just keep it in this, stock market exposure that’s probably getting maybe a seven or 8% return over the long haul? How can I actually, you know, capitalize on this, potentially exit it? And if my theory is correct, optimize the returns in different private assets. So what I’m gonna show you today is something that we put together, and actually an asset that I’m happy to share with any of the listeners out there. This is gonna be a good episode, definitely for checking out, on our YouTube channel, where you can have the good visuals for this.

But, essentially, what we’ve built is a 401K exit calculator. Again, I will throw out the disclaimer that I am not a financial planner or CPA. So do your own due diligence on this. But what I simply did was put together some math, right, and create some objectivity. And we are gonna start with this calculator with a basis of $100,000 in terms of an investment.

What we did is we are assuming that there’s a 10% penalty rate that you’re gonna pay to access this capital. And then in the calculator, you can actually manipulate your tax rate, whatever that might be for you. You could just make the adjustment. In this case, we have a 35% tax rate. So, if you take the tax rate plus the early penalty withdrawal of 10%, you actually have 45% that you’re going to pay in taxes and fees.

So that would get you to a net investable 55,000. So the first question I was thinking of, which is, okay, if you sold this and then you put it into, let’s say, a syndication that could earn you 20%, right, when would you actually break even? Considering a 20% a 20% average annual return, and that would be in some type of tax-efficient, syndication-like real estate or energy. Well, you can see here that with those assumptions, you would actually break even in year four. So your 55,000 would become a 114,000, and that’s when your break-even would be.

If you had kept it in the 401K, right, that capital of 100,000 would actually be a 131,000 in year four. So it’s only about a $15,000 difference. Now what’s really fascinating here is when you actually run the math out for twenty years, we can say that we can see that this $55,000 actually becomes $2,100,000, right, after twenty years of compounding, that is again in tax-efficient vehicles. So you’re compounding at 20%, and we have 2.1 as a total after year two. And now here is the real kicker.

So what if we had left that, assuming a 7% annual rate of return inside of the four zero one k? We never paid the penalties on it, originally, and that capital at the end of twenty years would be 386,000. So literally, a very substantial difference. So, you know, it’s one, based upon your investor DNA, based upon your risk tolerance, you know, you can make some assumptions there and say maybe 20% is too aggressive, maybe you wanna model that out at 15%. But this is what’s gonna help make you give you some visibility into saying, you know, depending upon your age, your goals, your time horizon, your investor DNA, does it actually make sense to keep my capital tied up in this four zero one k?

Right? And we’re kind of under the false illusion that even if it’s a government sponsor or let’s say you’re getting, you know, a match through your company, you’re thinking that that 3% match is free money. Well, I would encourage you to actually do the math and then see if it really is free money when you compound this out over time and really truly see the net effect. The other thing that we didn’t talk about here that is often misstated in four zero one k plans and financial planning is that we talked about that $386,000 number. Now, remember that that capital is going to be taxed at ordinary dividend rates when you take that out.

So basically taxed at the highest rate, and it is subject to taxes, fees, and inflation over that long haul. So hope this has been illuminating for you. See you at the next one. If you found this helpful and you’d like a free copy of this 401K exit calculator, please send us an email or drop us a message, and we’ll make sure we get one out to you. Thanks for tuning in to our special solo series.

If this episode sparked something for you and you’re ready to learn more, head over to holisticwealthstrategy.com and download a free copy of my book. You’ll also get access to our investor community where we share exclusive educational content, new opportunities, and resources designed to help you accelerate your path to freedom. And if you wanna take it even further, book a call with our team to learn about our virtual family office services or join our mastermind group where we go deep into building true generational wealth. I’ll see you in the next episode.