The Two Tax Systems — A Tale of Two Retirements
How Erica kept her million, while Mike fed the IRS
Same Office, Same Paycheque, Totally Different Futures
Mike and Erica started at the firm on the same Monday in 1989, ate the same cafeteria tacos, and both funneled 10 % into the company 401(k). They crossed the retirement finish line together with matching balances: $1,000,000 each.
Ten years later, they met for coffee.
Mike’s face tightened as he admitted his nest egg had shrunk to $460 k.
Erica sipped her latte and showed a statement still reading $905 k—plus a tidy stream of tax-free income.
“What did you do that I didn’t?” Mike asked.
Erica smiled. “I learned there are two tax systems. You used the default one.”
The Fork in the Road
The difference wasn’t markets or luck. It was knowing—and using—the pages of the tax code most people skip.
Erica’s Three-Step Playbook
3.1 Roth Conversions: Pay the Sale Price, Skip the Mark-Up
While still working, Erica converted chunks of her pre-tax 401(k) into a Roth each year—never breaching her target bracket. She chose her tax bill when rates were low, locking in tax-free growth forever.
“I treated it like buying out an annoying business partner—the IRS—at a discount.”
SDIC — The Private Pension the Market Can’t Sink
With part of her cash, she funded a Specially Designed Insurance Contract. Result:
Principal protected from crashes.
Lifetime paycheque that the IRS classifies as return of basis, not taxable income.
Any leftover value passes to kids tax-free.
While Mike sold shares in down markets, Erica’s SDIC deposit hit her bank account on the 1st—every month, crash or no crash.
The “Invisible Wallet” — Custom Entity Structures
Erica rolled freelance consulting into a single-member LLC taxed as an S-corp. That let her:
Split salary/dividend to shrink payroll tax.
Deduct home-office and health costs.
Route surplus cash into a holding company in a tax-favoured state.
Money parked there compounds, but because distributions can be structured as return of capital, the IRS doesn’t call it income.
Mike’s Reality Check
Mike followed the brochure advice:
Let the 401(k) balloon.
Delay taxes until Required Minimum Distributions forced huge withdrawals.
Watch those withdrawals push him into a higher bracket, jacking up Medicare premiums and taxation on Social Security.
Markets dipped twice. Selling to meet RMDs locked in losses. Each April 15 felt like peeling off another chunk of his life savings.
What Ten Years of Decisions Look Like
Your Take-Home Lesson
Pick your tax bill early—or the IRS will pick a bigger one later.
Create income the code can’t label “taxable.”
Shelter growth where the government can’t reach.
The tools—Roth conversions, SDICs, tailored entities—are perfectly legal. The only barrier is knowledge.
Ready to Switch Systems?
In a free 45-minute Wealth Acceleration Session we’ll:
Project your lifetime tax under both systems.
Map a phased Roth conversion that fits your bracket.
Show exactly how an SDIC or entity structure could turn taxes into future income.
👉 Claim your session here (limited spots this month).
Why feed the IRS more than you must? Follow Erica’s path and let your money buy your freedom—while others fund the government.
The tax code is an open book. Read the right pages and retire richer.
