September 19, 2024 • 15 mins
Discover the top 2024 retirement tax strategies tailored for S-Corporation owners. Learn how to maximize your savings with solo 401(k) and SEP IRA plans and understand how these tax strategies can benefit your S-Corporation or LLC. We'll dive into effective retirement planning techniques that not only help you save for the future but also optimize your tax deductions and write-offs. Don't miss out on essential tax planning advice designed to help you achieve your financial goals.
I've put together this FREE resource for you:
7 Write-Offs Every S-Corporation Business Owner MUST Know
🆓 Download FREE PDF here: https://7taxwriteoffs.com/?el=podcast&htrafficsource=buzzsprout
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*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this ...
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
You're probably having a really, really positive
cash flow in your S-Corporation.
Now you're thinking, hey,should I start putting money
away into my retirement account?
Will I get a tax benefit, orshould I put the money into real
estate?
And if I do put it intoretirement, what type of a tax
benefit do I get?
I'm going to break it down foryou into what types of two
retirement accounts that we havein the United States and in the
(00:22):
tax code.
Then we're going to talk aboutthe three most common types of
retirement accounts for anS-corporation owner We've got a
SEP IRA, solo 401k and the 401kwith employees and how to
structure that to maximize yoursavings.
Then I'm going to walk youthrough a very detailed example
and at the end we're going totalk about hey, you business
(00:42):
owner, does this make sense toyou?
Does everything that we talkabout the tax strategy, the tax
write-off, the future retirementincome does it make sense for
you or not as a business owner?
Ready, let's get going.
Speaker 2 (00:55):
Welcome to the Tax Reduction Podcast for
money-making entrepreneurs withBoris Mushaev.
Boris has helped entrepreneursacross the United States
collectively save millions ofdollars in taxes with the power
of tax planning and advisory.
The only way you, the businessowner, can save money on taxes
is by using proactive taxstrategies, and this podcast is
(01:16):
all about saving you money ontaxes.
Boris will share with youin-depth and easy to understand
tax reduction strategies thatyou can implement in your
business within 30 days or less.
Let's jump into today's episode.
Speaker 1 (01:29):
Thanks so much.
Now let's get started.
Now let's talk about how itworks.
Now you have to understand thatin the United States tax code
right we've got two types ofretirement accounts, like really
two main types.
One is traditional and one isRoth.
Traditional basically means youget a tax write-off.
If you put away $69,000 fromyour taxable income into a
(01:51):
traditional retirement account,that $69,000 is basically being
deferred at the time ofretirement.
So when you do retire, that iswhen you're going to pay taxes
on it.
Not only are you going to paytaxes on that $69,000 in our
example, but also on anythingthat he has earned in that
retirement account.
(02:12):
So really think about it thisway Whatever you get a write-off
right now, it is taxed to youat the retirement.
The second type of retirementcontributions that we have is a
Roth retirement.
Basically, that means you don'tget to write off anything that
you put into there, buteverything that you do write off
excuse me, everything that youdo contribute does not get taxed
(02:35):
to you at the time when youretire, and anything that it
earns in that retirement accountbecomes tax-free.
Roth IRA, by the way, is one ofthe greatest tax strategies out
there for you to basically havea tax-free income, but it
doesn't work for everyone, andthat's exactly what we're going
to talk about here today.
And before we continue to thethree most common, we'll be back
(02:58):
right after this break.
Speaker 2 (02:59):
If you have a tax preparer and you do not have a
tax advisor, the only way youcan save money on taxes is by
using proactive tax planningstrategies that only a tax
advisor can give you.
Borah has put together a freePDF for you, the business owner
Seven Tax Write-offs EveryS-Corporation Business Owner
Must Know.
In this PDF, you can find seventax strategies that you can
(03:23):
start using in your business toinstantly start saving money on
taxes.
Click on the link in thedescription below for a free
download.
Speaker 1 (03:30):
Great.
Welcome back.
Now let's talk about the threemost common types of retirement
accounts.
So we've got a SEP IRA.
A SEP IRA really works if youdo not have any other employees.
So do not make a mistakethinking that I can continue
using SEP IRA if I haveemployees.
Now, sep IRA the contribution tothe SEP IRA if you're an S
(03:51):
corporation owner okay, 25% ofyour W-2 salary.
So, basically, if you payyourself $100,000, then you can
only put away $25,000.
The maximum contribution thatyou can do is $69,000.
Now you might think well, boris, I want to do $69,000, but if I
(04:12):
pay myself a $100,000 salary, Ican only do $25,000.
That's one of the biggestdrawbacks, okay, because in
order for you to maximize your$69,000, and, by the way, you
can put away $76,000 if you'reover the age of 50, in order for
you to maximize the $69,000,you have to maximize your salary
(04:33):
and pay yourself $276,000 on aW-2.
Now, paying yourself a reallyhigh salary defeats the purpose
of having an S-corporation,really, because what happens is
that you're going to end uppaying 15.3% self-employment
taxes, which is Social Securityand Medicare.
Now, social Security is limitedto like $168,000, but then
(04:54):
you've got unlimited Medicaretax, so to speak of 2.9% on
anything that you pay yourselfon a salary.
So that's a lot of money.
So you've got to do acost-benefit analysis.
Hey, if I want to maximize myretirement contributions in a
SEP IRA for $69,000 and I andmax myself a salary, does it
make sense?
A lot of times, business ownersdo not understand this and
(05:16):
their tax preparer does not tellthem.
What you need to do is workwith a tax advisor.
Every time you want toimplement a tax strategy, you've
got to speak with a tax advisor.
I tell my clients all the time,all the time hey, if anything
touches the word tax, I don'tcare what type of investment it
is or what is it that you'redoing.
If anything that touches theword tax, you've got to call us
(05:37):
and speak to us and strategize,because that is exactly what you
, a business owner, need to bedoing with your tax advisor.
Now, that's a SEP IRA.
Sep IRA is very simple to setup.
It's very simple to maintain.
But if you really want tomaximize your contributions not
really a good idea to have a SEPIRA you might want to move on
(05:57):
to a solo 401k.
Now again, we're talking aboutin a situation where you have no
employees.
If you've got a partner or aspouse, that's totally okay.
Same rules would apply to them.
With a solo 401k, the rules area little different.
It's the same 25% of your W-2salary.
So same thing as a SEP IRA, butwith the solo 401k you can also
(06:19):
plus right.
You can defer $23,000 from yourW-2 salary on top of the 25%.
And if you're over the age of50, you can do what's called a
catch-up, which is $30,500,meaning to say, on top of your
25% of your salary, just like inour example of $100,000, you
(06:41):
can do another $23,000.
So in our example, if you aregetting paid $100,000, your
total contribution will bebasically $48,000 compared to
$25,000 here.
So, as you see, solo 401k worksgreat for you.
But if you say, boris, I wantto maximize solo 401k, what
should my maximum salary be?
(07:02):
Your maximum salary should beat $184,000.
That is in order for you to geta $69,000 write-off if you're
under the age of 50.
But remember, you've got to befollowing the rules of an
S-corporation for a salary andpay yourself a reasonable
compensation.
But in my experience I don'tthink IRS will ever bark at you
(07:22):
for paying yourself higher thanwhat you should, because you're
really paying into the SocialSecurity Medicare.
Then the next third commonretirement plan is 401k with
employees.
Now, when you have employees,it's a different story.
If you have a SEP IRA and youhave employees, when you put
away 25% for yourself, irs saysyou got to put 25% for your
(07:45):
employees as well.
Really, really defeats thepurpose of this whole thing.
With a solo 401k, same thing25% of a W-2 to your employees.
So it doesn't really work.
It really disqualifies it.
What you want to do is have a401k with employees.
Now what's the benefit here?
Now, when you have a 401k withemployees, what happens is that
(08:05):
from your W-2 that you payyourself as an owner from your S
corporation, you can defer$23,000, just like with a solo
401k operation.
You can defer $23,000, justlike with a solo 401k, from your
W-2 into your retirementaccount.
Okay, and if you're over theage of 50, that's $30,500.
Then when you set it up, youwant to tell your financial
(08:26):
advisor, whoever's setting upyour 401k, be like hey, I want
to make sure I have a safeharbor match.
That means I will match myemployees three or four percent,
however it is in your document.
So let's just use three percentas an example.
Let's say you make $100,000 inyour business and Joe who works
for you also makes $100,000 inyour business.
You decide you want to do$23,000 salary deferral from
(08:51):
your W-2, right, put it into the401k.
Joe, on the other hand, can sayyou know what?
I also want to do $23,000.
That's okay, it doesn't affectyour pocket.
You, as a business owner, haveno obligation to match him
$23,000 or pay that.
The maximum you're going to payhim is 3% safe harbor match.
So that's 3% of $100,000,regardless if he's maximizing
(09:14):
his $23,000.
Really, those are the threemost common retirement tax
strategies for you, the businessowner.
Now, in the next segment, righthere, I will walk you through
an example.
How much can that grow?
How much of that will betaxable and does it really make
sense to you?
We'll be back right after thisbreak.
Speaker 2 (09:32):
If all your accountant does is taxes, you
may be overpaying in taxes bythousands of dollars every year.
Every week, Boris releases atax strategy on his podcast so
that you, the business owner,can pay less in taxes every
single year.
Be sure to subscribe to ourpodcast to be notified when a
new tax strategy is released.
If you're ready to work with atax advisor on your tax strategy
(09:53):
and planning, be sure toschedule your call by heading
over to wwwtaxplanningcallcom.
Again, that'swwwtaxplanningcallcom.
Speaker 1 (10:04):
Now let's talk about an example.
So we've got Josh and we've gotEmily, s-corporation owners.
Both are 35 years old.
So we're going to take Josh outof this example, we're going to
use his contributions.
They have four children, whichis very common with a lot of
successful entrepreneurs who aremaking money as corporation
owners married, have childrenand what's the most important
(10:24):
thing for them is retiring withwealth, retiring with money.
Okay, so he wants to retire atage of 70.
Okay, and we're going to assumethat the return on his
investment in the retirementaccount is 7%, because really,
historically it's been 7% ormore.
So we're just going to stayconservative.
Say 7%.
He's got employees.
Okay, he's got employees andhe's putting away $23,000 from
(10:49):
his W-2 salary.
That's it we're going to be.
We're in this section righthere $23,000.
Remember, he want the 401k, sep, iras, solo 401k and the 401k.
They're all traditional.
Okay, now can you do a Roth, atax-free retirement for all of
them?
Can Josh do it with Emily?
Yes, they can.
That is how you structure yourretirement account.
(11:11):
You got to speak to your taxadvisor about this and see what
makes the most sense.
Now let's come back to ourexample before we get carried
away.
So 401k over the course he'sfrom 35 years to 70, over the
course of 35 years the totalcontributions, at $23,000 per
year, will be $805,000.
Okay, it's going to grow at 7%compounded annually.
(11:34):
If he's contributing it on amonthly basis from his paycheck,
it's going to grow at 7%compounded annually.
If he's contributing it on amonthly basis from his paycheck,
it's going to grow to $2.5million, almost $2.6 million.
So the total retirement accountwill be $3.4 million.
Now Josh can choose how that$3.4 million will be at age 35,
(11:54):
when he's planning this rightNow.
If he's a traditional 401k,which is the traditional right
here he has employees okay, thenhe's going to pay tax on the
entire $3.4 million.
Okay, at his retirement.
Why?
Because he got a write-off overthe course of his life for
$805,000.
He earned 2.6.
(12:16):
Now he starts drawing on thatretirement.
That's $3.4 million.
Now if Josh decided that hedoes not need a write-off for
whatever reason and we're goingto talk about why let's say Josh
said I don't want thiswrite-off Then you could have a
401k, you as a business ownerthat is a Roth 401k, and you can
(12:36):
have your $23,000, for example,completely not taxable to you.
So the $3.4 million at the ageof retirement will not be
taxable.
But what did you decide?
What type of decision did youmake as a business owner, with
your tax advisor?
Do you want to set up aretirement account that is
taxable to you in the future, ordo you want to set up a
(12:57):
retirement account that is nottaxable to you in the future?
And that is the case with Josh,right, he's going to retire
with a taxable income of $3.4million in his retirement, which
is, again, it's better thanhaving $805,000.
That's for sure.
Right, he's been contributing.
It grew, it grew.
It was an investment, but nowit is a taxable investment.
(13:18):
Now the question really comesdown to should you use this
strategy?
It depends where you are in thebusiness.
Okay, first of all, the firstthing I'd like to look at is
your profit and your tax bracket.
If your tax bracket is very low, especially when you're first
starting out like you're in 15at 20 tax bracket between
federal and, I don't think it'sworth it for you to take a
(13:40):
deduction, because when youretire, you're most likely going
to be in a much higher taxbracket, contrary to the popular
belief.
Oh, you're going to retire witha lower tax bracket.
What kind of world do you livein?
Do you want to retire poor?
You want to retire with money,so you're most likely going to
be in the highest tax bracket.
So if you are in a lower taxbracket right now, don't take
(14:03):
this right off.
Don't use a retirement strategyas a right off or set up for
yourself a Roth.
That is what I would recommendand that is the conversation
that we're having with ourclients.
You've got to assess it.
Should you invest and does itmake sense for you to use this
tax strategy so that reallycomes down.
The first and foremost thing, Iwould say your bracket.
(14:24):
The second thing is that do youhave other investments?
There are some business ownerslike Boris I don't want to use
retirement strategy anymore.
I just want to set this up formy employees to do the employee
retention.
But I want to invest in realestate.
I'll make more money, morereturn on real estate.
Great, Okay, that is yourdecision, but my job is to
educate you about thesedifferent scenarios and options
(14:45):
that you have.
Again, all the show notes arein the description below in a
free PDF for you.
Thank you so much.
Speaker 2 (14:50):
That's it for today's episode.
Be sure to check out thedescription below for some free
tax reduction resources thatBoris put together for you.
If you're ready to work with atax advisor on your tax planning
, be sure to schedule your callby heading over to
wwwtaxplanningcallcom.
That's wwwtaxplanningcallcom.
And be sure to subscribe to ourpodcast to be notified when the
(15:12):
next strategy is released.
You're probably having a really, really positive
cash flow in your S-Corporation.
Now you're thinking, hey,should I start putting money
away into my retirement account?
Will I get a tax benefit, orshould I put the money into real
estate?
And if I do put it intoretirement, what type of a tax
benefit do I get?
I'm going to break it down foryou into what types of two
retirement accounts that we havein the United States and in the
(00:22):
tax code.
Then we're going to talk aboutthe three most common types of
retirement accounts for anS-corporation owner We've got a
SEP IRA, solo 401k and the 401kwith employees and how to
structure that to maximize yoursavings.
Then I'm going to walk youthrough a very detailed example
and at the end we're going totalk about hey, you business
(00:42):
owner, does this make sense toyou?
Does everything that we talkabout the tax strategy, the tax
write-off, the future retirementincome does it make sense for
you or not as a business owner?
Ready, let's get going.
Speaker 2 (00:55):
Welcome to the Tax Reduction Podcast for
money-making entrepreneurs withBoris Mushaev.
Boris has helped entrepreneursacross the United States
collectively save millions ofdollars in taxes with the power
of tax planning and advisory.
The only way you, the businessowner, can save money on taxes
is by using proactive taxstrategies, and this podcast is
(01:16):
all about saving you money ontaxes.
Boris will share with youin-depth and easy to understand
tax reduction strategies thatyou can implement in your
business within 30 days or less.
Let's jump into today's episode.
Speaker 1 (01:29):
Thanks so much.
Now let's get started.
Now let's talk about how itworks.
Now you have to understand thatin the United States tax code
right we've got two types ofretirement accounts, like really
two main types.
One is traditional and one isRoth.
Traditional basically means youget a tax write-off.
If you put away $69,000 fromyour taxable income into a
(01:51):
traditional retirement account,that $69,000 is basically being
deferred at the time ofretirement.
So when you do retire, that iswhen you're going to pay taxes
on it.
Not only are you going to paytaxes on that $69,000 in our
example, but also on anythingthat he has earned in that
retirement account.
(02:12):
So really think about it thisway Whatever you get a write-off
right now, it is taxed to youat the retirement.
The second type of retirementcontributions that we have is a
Roth retirement.
Basically, that means you don'tget to write off anything that
you put into there, buteverything that you do write off
excuse me, everything that youdo contribute does not get taxed
(02:35):
to you at the time when youretire, and anything that it
earns in that retirement accountbecomes tax-free.
Roth IRA, by the way, is one ofthe greatest tax strategies out
there for you to basically havea tax-free income, but it
doesn't work for everyone, andthat's exactly what we're going
to talk about here today.
And before we continue to thethree most common, we'll be back
(02:58):
right after this break.
Speaker 2 (02:59):
If you have a tax preparer and you do not have a
tax advisor, the only way youcan save money on taxes is by
using proactive tax planningstrategies that only a tax
advisor can give you.
Borah has put together a freePDF for you, the business owner
Seven Tax Write-offs EveryS-Corporation Business Owner
Must Know.
In this PDF, you can find seventax strategies that you can
(03:23):
start using in your business toinstantly start saving money on
taxes.
Click on the link in thedescription below for a free
download.
Speaker 1 (03:30):
Great.
Welcome back.
Now let's talk about the threemost common types of retirement
accounts.
So we've got a SEP IRA.
A SEP IRA really works if youdo not have any other employees.
So do not make a mistakethinking that I can continue
using SEP IRA if I haveemployees.
Now, sep IRA the contribution tothe SEP IRA if you're an S
(03:51):
corporation owner okay, 25% ofyour W-2 salary.
So, basically, if you payyourself $100,000, then you can
only put away $25,000.
The maximum contribution thatyou can do is $69,000.
Now you might think well, boris, I want to do $69,000, but if I
(04:12):
pay myself a $100,000 salary, Ican only do $25,000.
That's one of the biggestdrawbacks, okay, because in
order for you to maximize your$69,000, and, by the way, you
can put away $76,000 if you'reover the age of 50, in order for
you to maximize the $69,000,you have to maximize your salary
(04:33):
and pay yourself $276,000 on aW-2.
Now, paying yourself a reallyhigh salary defeats the purpose
of having an S-corporation,really, because what happens is
that you're going to end uppaying 15.3% self-employment
taxes, which is Social Securityand Medicare.
Now, social Security is limitedto like $168,000, but then
(04:54):
you've got unlimited Medicaretax, so to speak of 2.9% on
anything that you pay yourselfon a salary.
So that's a lot of money.
So you've got to do acost-benefit analysis.
Hey, if I want to maximize myretirement contributions in a
SEP IRA for $69,000 and I andmax myself a salary, does it
make sense?
A lot of times, business ownersdo not understand this and
(05:16):
their tax preparer does not tellthem.
What you need to do is workwith a tax advisor.
Every time you want toimplement a tax strategy, you've
got to speak with a tax advisor.
I tell my clients all the time,all the time hey, if anything
touches the word tax, I don'tcare what type of investment it
is or what is it that you'redoing.
If anything that touches theword tax, you've got to call us
(05:37):
and speak to us and strategize,because that is exactly what you
, a business owner, need to bedoing with your tax advisor.
Now, that's a SEP IRA.
Sep IRA is very simple to setup.
It's very simple to maintain.
But if you really want tomaximize your contributions not
really a good idea to have a SEPIRA you might want to move on
(05:57):
to a solo 401k.
Now again, we're talking aboutin a situation where you have no
employees.
If you've got a partner or aspouse, that's totally okay.
Same rules would apply to them.
With a solo 401k, the rules area little different.
It's the same 25% of your W-2salary.
So same thing as a SEP IRA, butwith the solo 401k you can also
(06:19):
plus right.
You can defer $23,000 from yourW-2 salary on top of the 25%.
And if you're over the age of50, you can do what's called a
catch-up, which is $30,500,meaning to say, on top of your
25% of your salary, just like inour example of $100,000, you
(06:41):
can do another $23,000.
So in our example, if you aregetting paid $100,000, your
total contribution will bebasically $48,000 compared to
$25,000 here.
So, as you see, solo 401k worksgreat for you.
But if you say, boris, I wantto maximize solo 401k, what
should my maximum salary be?
(07:02):
Your maximum salary should beat $184,000.
That is in order for you to geta $69,000 write-off if you're
under the age of 50.
But remember, you've got to befollowing the rules of an
S-corporation for a salary andpay yourself a reasonable
compensation.
But in my experience I don'tthink IRS will ever bark at you
(07:22):
for paying yourself higher thanwhat you should, because you're
really paying into the SocialSecurity Medicare.
Then the next third commonretirement plan is 401k with
employees.
Now, when you have employees,it's a different story.
If you have a SEP IRA and youhave employees, when you put
away 25% for yourself, irs saysyou got to put 25% for your
(07:45):
employees as well.
Really, really defeats thepurpose of this whole thing.
With a solo 401k, same thing25% of a W-2 to your employees.
So it doesn't really work.
It really disqualifies it.
What you want to do is have a401k with employees.
Now what's the benefit here?
Now, when you have a 401k withemployees, what happens is that
(08:05):
from your W-2 that you payyourself as an owner from your S
corporation, you can defer$23,000, just like with a solo
401k operation.
You can defer $23,000, justlike with a solo 401k, from your
W-2 into your retirementaccount.
Okay, and if you're over theage of 50, that's $30,500.
Then when you set it up, youwant to tell your financial
(08:26):
advisor, whoever's setting upyour 401k, be like hey, I want
to make sure I have a safeharbor match.
That means I will match myemployees three or four percent,
however it is in your document.
So let's just use three percentas an example.
Let's say you make $100,000 inyour business and Joe who works
for you also makes $100,000 inyour business.
You decide you want to do$23,000 salary deferral from
(08:51):
your W-2, right, put it into the401k.
Joe, on the other hand, can sayyou know what?
I also want to do $23,000.
That's okay, it doesn't affectyour pocket.
You, as a business owner, haveno obligation to match him
$23,000 or pay that.
The maximum you're going to payhim is 3% safe harbor match.
So that's 3% of $100,000,regardless if he's maximizing
(09:14):
his $23,000.
Really, those are the threemost common retirement tax
strategies for you, the businessowner.
Now, in the next segment, righthere, I will walk you through
an example.
How much can that grow?
How much of that will betaxable and does it really make
sense to you?
We'll be back right after thisbreak.
Speaker 2 (09:32):
If all your accountant does is taxes, you
may be overpaying in taxes bythousands of dollars every year.
Every week, Boris releases atax strategy on his podcast so
that you, the business owner,can pay less in taxes every
single year.
Be sure to subscribe to ourpodcast to be notified when a
new tax strategy is released.
If you're ready to work with atax advisor on your tax strategy
(09:53):
and planning, be sure toschedule your call by heading
over to wwwtaxplanningcallcom.
Again, that'swwwtaxplanningcallcom.
Speaker 1 (10:04):
Now let's talk about an example.
So we've got Josh and we've gotEmily, s-corporation owners.
Both are 35 years old.
So we're going to take Josh outof this example, we're going to
use his contributions.
They have four children, whichis very common with a lot of
successful entrepreneurs who aremaking money as corporation
owners married, have childrenand what's the most important
(10:24):
thing for them is retiring withwealth, retiring with money.
Okay, so he wants to retire atage of 70.
Okay, and we're going to assumethat the return on his
investment in the retirementaccount is 7%, because really,
historically it's been 7% ormore.
So we're just going to stayconservative.
Say 7%.
He's got employees.
Okay, he's got employees andhe's putting away $23,000 from
(10:49):
his W-2 salary.
That's it we're going to be.
We're in this section righthere $23,000.
Remember, he want the 401k, sep, iras, solo 401k and the 401k.
They're all traditional.
Okay, now can you do a Roth, atax-free retirement for all of
them?
Can Josh do it with Emily?
Yes, they can.
That is how you structure yourretirement account.
(11:11):
You got to speak to your taxadvisor about this and see what
makes the most sense.
Now let's come back to ourexample before we get carried
away.
So 401k over the course he'sfrom 35 years to 70, over the
course of 35 years the totalcontributions, at $23,000 per
year, will be $805,000.
Okay, it's going to grow at 7%compounded annually.
(11:34):
If he's contributing it on amonthly basis from his paycheck,
it's going to grow at 7%compounded annually.
If he's contributing it on amonthly basis from his paycheck,
it's going to grow to $2.5million, almost $2.6 million.
So the total retirement accountwill be $3.4 million.
Now Josh can choose how that$3.4 million will be at age 35,
(11:54):
when he's planning this rightNow.
If he's a traditional 401k,which is the traditional right
here he has employees okay, thenhe's going to pay tax on the
entire $3.4 million.
Okay, at his retirement.
Why?
Because he got a write-off overthe course of his life for
$805,000.
He earned 2.6.
(12:16):
Now he starts drawing on thatretirement.
That's $3.4 million.
Now if Josh decided that hedoes not need a write-off for
whatever reason and we're goingto talk about why let's say Josh
said I don't want thiswrite-off Then you could have a
401k, you as a business ownerthat is a Roth 401k, and you can
(12:36):
have your $23,000, for example,completely not taxable to you.
So the $3.4 million at the ageof retirement will not be
taxable.
But what did you decide?
What type of decision did youmake as a business owner, with
your tax advisor?
Do you want to set up aretirement account that is
taxable to you in the future, ordo you want to set up a
(12:57):
retirement account that is nottaxable to you in the future?
And that is the case with Josh,right, he's going to retire
with a taxable income of $3.4million in his retirement, which
is, again, it's better thanhaving $805,000.
That's for sure.
Right, he's been contributing.
It grew, it grew.
It was an investment, but nowit is a taxable investment.
(13:18):
Now the question really comesdown to should you use this
strategy?
It depends where you are in thebusiness.
Okay, first of all, the firstthing I'd like to look at is
your profit and your tax bracket.
If your tax bracket is very low, especially when you're first
starting out like you're in 15at 20 tax bracket between
federal and, I don't think it'sworth it for you to take a
(13:40):
deduction, because when youretire, you're most likely going
to be in a much higher taxbracket, contrary to the popular
belief.
Oh, you're going to retire witha lower tax bracket.
What kind of world do you livein?
Do you want to retire poor?
You want to retire with money,so you're most likely going to
be in the highest tax bracket.
So if you are in a lower taxbracket right now, don't take
(14:03):
this right off.
Don't use a retirement strategyas a right off or set up for
yourself a Roth.
That is what I would recommendand that is the conversation
that we're having with ourclients.
You've got to assess it.
Should you invest and does itmake sense for you to use this
tax strategy so that reallycomes down.
The first and foremost thing, Iwould say your bracket.
(14:24):
The second thing is that do youhave other investments?
There are some business ownerslike Boris I don't want to use
retirement strategy anymore.
I just want to set this up formy employees to do the employee
retention.
But I want to invest in realestate.
I'll make more money, morereturn on real estate.
Great, Okay, that is yourdecision, but my job is to
educate you about thesedifferent scenarios and options
(14:45):
that you have.
Again, all the show notes arein the description below in a
free PDF for you.
Thank you so much.
Speaker 2 (14:50):
That's it for today's episode.
Be sure to check out thedescription below for some free
tax reduction resources thatBoris put together for you.
If you're ready to work with atax advisor on your tax planning
, be sure to schedule your callby heading over to
wwwtaxplanningcallcom.
That's wwwtaxplanningcallcom.
And be sure to subscribe to ourpodcast to be notified when the
(15:12):
next strategy is released.
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