Tax deductions

[em1234]

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I'm looking at the schwab defined benefit plan. How does age even come into play? What happens if next year I'm no longer 1099 and am back to w2?

age comes into play because it largely determines how much you can contribute. The older you are, the more you can put in.
An individual DBP for a 1099 IC looking to squirrel away a bunch of money from the tax man is easiest to conceptualize like this, it is a one man pension plan. My "company" opened a pension for it's employee (me) and every year needs to make contributions to the plan so that when my predetermined retirement age comes about they plan will have enough in the account to cover a pre-defined amount of money per month during my retirement, aka the defined benefit. A defined benefit plan has an account max of 2.5 Million, so depending on your age, you will have X number of years to contribute to the plan to hit the max (or whatever total will derive the predetermined defined benefit). The younger you start with the plan the more years you will have to contribute and the lower your yearly contributions. If you start it late, see example in a prior post about my partner, your minimum contributions can be exceptionally high. So every January, I contact my guy at my Pension/actuarial company and he gives me my min/max contribution every year and I email him receipts for the deposits. They take care of all the paperwork and reporting, which is significant, and away we go. In the last 3 years, I have put away almost 450k. The tax savings on that money has been tremendous, obviously and has really advanced my FIRE horizon. And should I ever change jobs or we get our pay slashed and I can no longer afford to make the contributions, I closed the plan and since I am the only participant, the money gets rolled into an IRA, which I would roll into my i401k at fidelity. Easily the best $2500 I spend every year. I think every high earner/low spender should consider it.

 

[EctopicFetus]

age comes into play because it largely determines how much you can contribute. The older you are, the more you can put in.
An individual DBP for a 1099 IC looking to squirrel away a bunch of money from the tax man is easiest to conceptualize like this, it is a one man pension plan. My "company" opened a pension for it's employee (me) and every year needs to make contributions to the plan so that when my predetermined retirement age comes about they plan will have enough in the account to cover a pre-defined amount of money per month during my retirement, aka the defined benefit. A defined benefit plan has an account max of 2.5 Million, so depending on your age, you will have X number of years to contribute to the plan to hit the max (or whatever total will derive the predetermined defined benefit). The younger you start with the plan the more years you will have to contribute and the lower your yearly contributions. If you start it late, see example in a prior post about my partner, your minimum contributions can be exceptionally high. So every January, I contact my guy at my Pension/actuarial company and he gives me my min/max contribution every year and I email him receipts for the deposits. They take care of all the paperwork and reporting, which is significant, and away we go. In the last 3 years, I have put away almost 450k. The tax savings on that money has been tremendous, obviously and has really advanced my FIRE horizon. And should I ever change jobs or we get our pay slashed and I can no longer afford to make the contributions, I closed the plan and since I am the only participant, the money gets rolled into an IRA, which I would roll into my i401k at fidelity. Easily the best $2500 I spend every year. I think every high earner/low spender should consider it.

Simply put I want to put away as much as I can while having a good life while things are good. Im not a person who thinks the sky is falling with M4A or the balance billing stuff however I have a great job and frankly I do well and we live a solid life with great trips. I would rather tuck away as much as I can pretax. At some point it wont make sense and I assume that when that happens my desire to work will decrease. So I may end up with similar take home income all while working less.

While at age 50 you can put away way way more as mentioned around the age of 40 you can do up to an extra 100k. Thats nothing to sneeze at. if you do that from 40 to 50 and earn 7% you will end up with 1.38M after 10 years. I assumed 0 return in year 1. 1,394M if you earn the full 7% on the 100k year 1.

Keep in mind of the 1m you put in you really only put in 600k, uncle sam puts in another 400k and the other 400k is growth. The math is compelling to me.

 

[Splenda88]

What kind of money an EM doc is making to be able to put away 450k in 3 yrs? Do you guys pay taxes at all?

 

[Fox800]

What kind of money an EM doc is making to be able to put away 450k in 3 yrs? Do you guys pay taxes at all?

If you're at a job making $400-450k/yr it's not hard to imagine at all.

 

[southerndoc]

Perhaps I received bad advice when I looked into DBP's. Schwab advised I was too young to invest in one.

Would be curious how the younger guys set theirs up, who they used, etc.

 

[southerndoc]

age comes into play because it largely determines how much you can contribute. The older you are, the more you can put in.
An individual DBP for a 1099 IC looking to squirrel away a bunch of money from the tax man is easiest to conceptualize like this, it is a one man pension plan. My "company" opened a pension for it's employee (me) and every year needs to make contributions to the plan so that when my predetermined retirement age comes about they plan will have enough in the account to cover a pre-defined amount of money per month during my retirement, aka the defined benefit. A defined benefit plan has an account max of 2.5 Million, so depending on your age, you will have X number of years to contribute to the plan to hit the max (or whatever total will derive the predetermined defined benefit). The younger you start with the plan the more years you will have to contribute and the lower your yearly contributions. If you start it late, see example in a prior post about my partner, your minimum contributions can be exceptionally high. So every January, I contact my guy at my Pension/actuarial company and he gives me my min/max contribution every year and I email him receipts for the deposits. They take care of all the paperwork and reporting, which is significant, and away we go. In the last 3 years, I have put away almost 450k. The tax savings on that money has been tremendous, obviously and has really advanced my FIRE horizon. And should I ever change jobs or we get our pay slashed and I can no longer afford to make the contributions, I closed the plan and since I am the only participant, the money gets rolled into an IRA, which I would roll into my i401k at fidelity. Easily the best $2500 I spend every year. I think every high earner/low spender should consider it.

Why did I think there was significant penalties if you can't make the yearly contribution. Did this change recently?

 

[Fox800]

This thread has been supremely enlightening. You guys really made my week. I'm starting a new job in a few months and I'm going to be all over this.

 

[em1234]

Why did I think there was significant penalties if you can't make the yearly contribution. Did this change recently?

I’ve never been in a position to have to ask about penalties, but every year my pension firm gives me a contribution max and minimum. I’m trying to fill this plan as fast as possible, so I always just budget to hit the max, but have always felt that the minimums are always very reachable.
One thing to remember is that you are on the hook for plan investment losses and “keeping the account whole”. So last december when the market dropped like 2000 points, when the pension people were doing my calculations for 2019 the 2018 final balance looked like the plan incurred a significant loss. That loss was added to my standard actuarial calculation for my contribution limits for 2019. You aren’t allowed underfund a pension plan, In stark contrast to what seems to keep happening to firefighters and cops. So the December loss added to my regular 2019 contribution, plus my i401k space lead to a contribution max of 220k of pretax deferral account space, or as I like to think of it, all of the 401k contributions that I never got a chance to make in my 20’s thanks to med school and residency.
I believe there is some way to mess with the numbers because when they sent me my contribution max and min for 2019 they wanted me to let them know if I thought it would be a problem to met those numbers. It wasn’t, so I didn’t ask about what this’s next steps would be.
I, so far, do kind of like being forced to cover any plan losses as it gives me more space to stash cash and forces me to buy at the bottom.
Say I had the plan for 10y and I had 2M in and the market took a big dip and lost 20%. Covering the 400k loss would be kind of tough. 🙂 at which point if I couldn’t cover the loss, the exit strategy is to just close the plan roll it to an ira. The end.

Sorry it sounds like you got some bad intel from CShwab. I have yet to have any issues with the dbp and have loved everything about it.

And to the person who asked about taxes, I still pay plenty but way less than I used to thanks to this plan.

 

[Splenda88]

If you're at a job making $400-450k/yr it's not hard to imagine at all.

Half of the money already goes into taxes, 401k, health insurance, disability insurance etc... Unless you have a spouse making also six figures, it's hard to save that kind of money. However, I am glad to see my 10-yr semi retirement plan will be attainable even if I won't be making anywhere near 400k as a IM doc.

 

[cyanide12345678]

Half of the money already goes into taxes, 401k, health insurance, disability insurance etc... Unless you have a spouse making also six figures, it's hard to save that kind of money. However, I am glad to see my 10-yr semi retirement plan will be attainable even if I won't be making anywhere near 400k as a IM doc.

Not really. I'm at the 450k mark and making 20k monthly debt payments. It's pretty easy to put in a 150-200k into savings assets annually with that level of income.

 

[cyanide12345678]

A question for all the guys with a defined benefit plan - what sort of contribution do you think a 31 year old could make?

If i could make 40-50k+ contributions then I'll definitely look into setting up one.

Which company are you guys using?

How much are you paying?

Could you ballpark what annual contribution you were allowed at certain ages - 40,45,50 etc?

 

[Splenda88]

Not really. I'm at the 450k mark and making 20k monthly debt payments. It's pretty easy to put in a 150-200k into savings assets annually with that level of income.

What is your net monthly income then?

 

[Hercules]

Half of the money already goes into taxes, 401k, health insurance, disability insurance etc... Unless you have a spouse making also six figures, it's hard to save that kind of money. However, I am glad to see my 10-yr semi retirement plan will be attainable even if I won't be making anywhere near 400k as a IM doc.

Half of the money won’t necessarily wind up gone if you contribute a large amount of pretax money. My spouse adds no additional income and our 4 kids are in private schools. The savings are doable, especially if you work hard early on to set yourself up with some side gigs and/or passive income.

 

[cyanide12345678]

What is your net monthly income then?

450k + 55k spouse is gross annually

So net monthly is somewhere between 27-28k

 

[Fox800]

Half of the money already goes into taxes, 401k, health insurance, disability insurance etc... Unless you have a spouse making also six figures, it's hard to save that kind of money. However, I am glad to see my 10-yr semi retirement plan will be attainable even if I won't be making anywhere near 400k as a IM doc.

Are you a 1099/independent contractor, or W2? Big difference. You need to have a self-employment/partnership scheme to do a personal DBP.

Even if you make $300,000 a year...
$56,000 into your 401k (19k employee + the remainder as employer contributions)
$6,000 health insurance premiums (obviously more if married/kids)
$3,500 for HSA (7k if married)
These numbers are spitballed for me, as I'm unmarried. Disability insurance should be paid with post-tax dollars so the benefit is not taxable if you become disabled and cash in the policy.

That leaves $234,500 before taxes. DBP lowers your taxable income even more. I don't know how old you are, but use the calculator here to figure out possible DBP contributions.

A 45 year old, making $300,000 a year, and filing as an LLC, S-Corp, etc could put away $83,800 per year into a DBP, pre-tax. This is an estimate. So now your taxable income is $150,700 and you're a 22% tax bracket instead of 24%. Nice.

 

[Fox800]

A question for all the guys with a defined benefit plan - what sort of contribution do you think a 31 year old could make?

If i could make 40-50k+ contributions then I'll definitely look into setting up one.

Which company are you guys using?

How much are you paying?

Could you ballpark what annual contribution you were allowed at certain ages - 40,45,50 etc?

That's the catch, the younger you are, the lower your contributions will be. I ran myself (33 yo) through the calculator here and it estimated that I can only put away just under $30,000 per year. I'm going to chat with Schwab and some other smaller financial firms and see what they think I can contribute, because I'd like to put away much more.

I also need to figure out the differences between a DBP and a cash balance plan.

 

[dpmd]

Why did I think there was significant penalties if you can't make the yearly contribution. Did this change recently?

There are, but only if there isn't some change in your business that justifies it. If you close the plan early it can also trigger irs auditing and they can deny the whole thing as a tax shelter if they don't find you had good reason to close it. Closing the plan can have some high fees as well. Then there is this other little tidbit I found which is that if your assets in the plan are too high at retirement according to the irs there is a 50% excise tax on top of the income tax to get it back

 

[Splenda88]

There are a lot tax saving schemes out there that favor the wealthy; no wonder Elizabeth Warren and Bernie want to tax the millionaires to their teeth... 😛


@Fox800
What if you are a W2 and have a 1099 side gig?

 

[RustedFox]

There are a lot tax saving schemes out there that favor the wealthy; no wonder Elizabeth Warren and Bernie want to tax the millionaires to their teeth... 😛

Why should they want to give it up? They get little to anything in return for their disproportionate percentage of taxes.
Lets say I worked my keister off this past year and made a million.
Bernie didn't make it. He didn't work for it. He can fox-off.

ADDENDUM: Bernie, the hypocrite. I want to know how many of his homes he's going to give away in the name of funding M4A. Now what's the over/under on the number of posts until some pre-med posts on here to remind us that "we have roads and police; so taxes are good".

 

[Fox800]

There are a lot tax saving schemes out there that favor the wealthy; no wonder Elizabeth Warren and Bernie want to tax the millionaires to their teeth... 😛


@Fox800
What if you are a W2 and have a 1099 side gig?

If you're asking about the DBP, I believe it has to be funded by the company itself - because the "company" (i.e. you) is responsible for ensuring that the employee (also you) account is properly funded each year. So I believe if would have to come out of your 1099/"business" income. Not entirely sure about this, though.

 

[southerndoc]

Are there any administrators that work with Vanguard? I have all my retirement accounts there, and if I went a defined benefit route (which I had planned on at 50), I would like to have it at Vanguard if possible. I know Vanguard doesn't administer the plans, but some third-party administrators work with Vanguard (just don't know which ones).

 

[em1234]

Are there any administrators that work with Vanguard? I have all my retirement accounts there, and if I went a defined benefit route (which I had planned on at 50), I would like to have it at Vanguard if possible. I know Vanguard doesn't administer the plans, but some third-party administrators work with Vanguard (just don't know which ones).

That is the set up I have. The pension company I use is the TPA but my “pooled money account” (where the dbp money actually gets deposited) is at vanguard and I manage all the investments. No middle men.

 

[southerndoc]

That is the set up I have. The pension company I use is the TPA but my “pooled money account” (where the dbp money actually gets deposited) is at vanguard and I manage all the investments. No middle men.

Which TPA do you use?

 

[em1234]

Which TPA do you use?

I use a private retirement company out of Houston
LDSCO.com

 

[EctopicFetus]

Just as an idea.

A 37 year old can do 84K
42 year old 107K
47 year old 137k
52 year old 175k

A early 30s person can do 60k.

i do mine thru my group and we use their tpa. If you called vanguard I bet they could tell you which TPAs they work with if they do DB plans.

For those of you who dont think you can do it if you can live on 300k a year or 25k a month that means you could save 450k. Making 400k as an EM doc isnt exactly killing it in the world of EM. There is no shortage of EM docs who make 500k.

Now if you live like a resident and pay off 8-10k a month you should still have plenty when done paying off your loans to load up some retirement. If you google DB plan or third party administrator you can find some people.

 

[EctopicFetus]

im not saying doing it is easy but it is hard to imagine you cant live on 300k a year (whats left after retirement).one other thing is that you do not need to make up for every year. The DB plan has to run in a band and as long as you are inthe band you are fine. Also, the goal of these is to run them for a while and then close it and put it in your 401k.

 

[southerndoc]

I won't establish one until I pay off what's left of my student loans and possibly my mortgage. That's all I have remaining to be debt free.

 

[EctopicFetus]

I won't establish one until I pay off what's left of my student loans and possibly my mortgage. That's all I have remaining to be debt free.

To each their own. I think this is a super reasonable plan. That being said tax arbitrage is real especially when you make EM md $$$.

 

[Magyarzorag]

Here are some things I plan on doing 8 years from now when I start bringing in $300K+
1. Marry. If you're desperate, doesn't matter who it is. Will save you $30K/year (Spouse shouldn't work)
2. Run a side rental Airbnb business. I was going to buy a $150000 Mercedes G63 AMG for this use and take the full deduction on it (IRS pays 50K). I was planning on buying a beach rental 2-3 hours away so I can go a few times a month, put miles on my car, I was also planning on buying homes abroad (good asset protection against potential gold-digging spouse), and traveling to them to renovate them (something I also like to do). I will try to make a small profit so the IRS doesn't classify it as a hobby, but the IRS is essentially paying for luxury SUVs and international travel.
3. Start a charity similar to the make-a-wish foundation, where I give terminally ill pediatric cancer patients rides in exotic automobiles like Ferrari, BMW m3, Maseratis, and Bentleys once a week for a few hours. I will fund the purchase of these vehicles through a 50% charitable donation annually (which you can write off). The cars are technically not yours, but your charity's, but you have access to them, and they are a big depreciating asset. As long as sales go back to your charity, you should be fine. Since I hope to work at a hospital where these children are treated, I can use these cars as my daily drivers to meet the children who will get the rides.
4. Max out IRAS. That's a $20K deduction
5. Work less (I might do this to focus on my side businesses)
6. Move to a state without income tax (FL, NV, DE, TX, TN, WA, WY). Especially with new SALT deductions, the difference between living in Florida and high tax New York City can be $40K/year. Sales tax is also deductible in these states if you keep good records of all your receipts from restaurants to Walmart
7. Yes. At the end, you may be spending more money than you are compared to just paying the IRS and may not be in shape for retirement, but I cars are my passion, and I rather buy a million dollar car than pay $350K for corruption, bureaucracy, war, and wasteful government spending. If the government can be wasteful, I should also have the right to be wasteful. I plan on just cutting back to maybe 9 months a year at 45, collecting my IRA at 60, Social Security at 62 (should hopefully be $3000/month), and jetting off to live in Thailand or Dubai to avoid $5000/year on property taxes.

 

[Hamhock]

Here are some things I plan on doing 8 years from now when I start bringing in $300K+
1. Marry. If you're desperate, doesn't matter who it is. Will save you $30K/year (Spouse shouldn't work)
2. Run a side rental Airbnb business. I was going to buy a $150000 Mercedes G63 AMG for this use and take the full deduction on it (IRS pays 50K). I was planning on buying a beach rental 2-3 hours away so I can go a few times a month, put miles on my car, I was also planning on buying homes abroad (good asset protection against potential gold-digging spouse), and traveling to them to renovate them (something I also like to do). I will try to make a small profit so the IRS doesn't classify it as a hobby, but the IRS is essentially paying for luxury SUVs and international travel.
3. Start a charity similar to the make-a-wish foundation, where I give terminally ill pediatric cancer patients rides in exotic automobiles like Ferrari, BMW m3, Maseratis, and Bentleys once a week for a few hours. I will fund the purchase of these vehicles through a 50% charitable donation annually (which you can write off). The cars are technically not yours, but your charity's, but you have access to them, and they are a big depreciating asset. As long as sales go back to your charity, you should be fine. Since I hope to work at a hospital where these children are treated, I can use these cars as my daily drivers to meet the children who will get the rides.
4. Max out IRAS. That's a $20K deduction
5. Work less (I might do this to focus on my side businesses)
6. Move to a state without income tax (FL, NV, DE, TX, TN, WA, WY). Especially with new SALT deductions, the difference between living in Florida and high tax New York City can be $40K/year. Sales tax is also deductible in these states if you keep good records of all your receipts from restaurants to Walmart
7. Yes. At the end, you may be spending more money than you are compared to just paying the IRS and may not be in shape for retirement, but I cars are my passion, and I rather buy a million dollar car than pay $350K for corruption, bureaucracy, war, and wasteful government spending. If the government can be wasteful, I should also have the right to be wasteful. I plan on just cutting back to maybe 9 months a year at 45, collecting my IRA at 60, Social Security at 62 (should hopefully be $3000/month), and jetting off to live in Thailand or Dubai to avoid $5000/year on property taxes.

I can't tell if you are joking (parody) or serious. Either way I am laughing.
HH

 

[Brorthopedic]

I can't tell if you are joking (parody) or serious. Either way I am laughing.
HH

They're awfully specific to be joking. Either way, I like it. A man with a plan.

 

[dpmd]

I was particularly amused by the recommendation to marry for the tax benefit. Like yes, make yourself financially responsible for a person (that you want to not work) because you might pay a little less tax.

 

[thegenius]

Very expensive hobbies. Let’s buy something that costs $150,000 so we can pay a discount on it and only pay $100,000!

 

[betamale]

Can

age comes into play because it largely determines how much you can contribute. The older you are, the more you can put in.
An individual DBP for a 1099 IC looking to squirrel away a bunch of money from the tax man is easiest to conceptualize like this, it is a one man pension plan. My "company" opened a pension for it's employee (me) and every year needs to make contributions to the plan so that when my predetermined retirement age comes about they plan will have enough in the account to cover a pre-defined amount of money per month during my retirement, aka the defined benefit. A defined benefit plan has an account max of 2.5 Million, so depending on your age, you will have X number of years to contribute to the plan to hit the max (or whatever total will derive the predetermined defined benefit). The younger you start with the plan the more years you will have to contribute and the lower your yearly contributions. If you start it late, see example in a prior post about my partner, your minimum contributions can be exceptionally high. So every January, I contact my guy at my Pension/actuarial company and he gives me my min/max contribution every year and I email him receipts for the deposits. They take care of all the paperwork and reporting, which is significant, and away we go. In the last 3 years, I have put away almost 450k. The tax savings on that money has been tremendous, obviously and has really advanced my FIRE horizon. And should I ever change jobs or we get our pay slashed and I can no longer afford to make the contributions, I closed the plan and since I am the only participant, the money gets rolled into an IRA, which I would roll into my i401k at fidelity. Easily the best $2500 I spend every year. I think every high earner/low spender should consider it.

Can you have a "cash balance/DBP" and an SEP IRA at same time?

 

[EctopicFetus]

Can


Can you have a "cash balance/DBP" and an SEP IRA at same time?

yes. totally different.

 

[deleted87051]

Are you a 1099/independent contractor, or W2? Big difference. You need to have a self-employment/partnership scheme to do a personal DBP.

Even if you make $300,000 a year...
$56,000 into your 401k (19k employee + the remainder as employer contributions)
$6,000 health insurance premiums (obviously more if married/kids)
$3,500 for HSA (7k if married)
These numbers are spitballed for me, as I'm unmarried. Disability insurance should be paid with post-tax dollars so the benefit is not taxable if you become disabled and cash in the policy.

That leaves $234,500 before taxes. DBP lowers your taxable income even more. I don't know how old you are, but use the calculator here to figure out possible DBP contributions.

A 45 year old, making $300,000 a year, and filing as an LLC, S-Corp, etc could put away $83,800 per year into a DBP, pre-tax. This is an estimate. So now your taxable income is $150,700 and you're a 22% tax bracket instead of 24%. Nice.

View attachment 285732

I’m a partner in a large single specialty group practice. We get paid on a W2 and have both and 401k and a DBP. Several other large medical groups in my town also have DBPs. You don’t need to be 1099 in order to get a DBP.

 

[Mbekweni]

This is a little out of date, but this is the approximate amount you can contribute to a DBP, plus a bit added for inflation since 2014

I try and max out every dollar of tax advantaged retirement space. Keep as much money for myself as possible and away from the tax man to reach financial independence. I'm sure that there will be ways to arbitrage the drawdown ie moving to a no income tax state (or travel the world which is treated the same from a tax perspective only paying federal). Making large DBP contributions is especially easy especially in a high tax state since you are essentially getting a 50% match from the government. Ie put 100k into the DBP or pay 50k in taxes and decide how to best save the other 50k. In an ideal world I would pay taxes and live on about 100k and put the rest away pre tax, drawing out that same 100k a year in retirement.

 

[Fox800]

This is a little out of date, but this is the approximate amount you can contribute to a DBP, plus a bit added for inflation since 2014

I try and max out every dollar of tax advantaged retirement space. Keep as much money for myself as possible and away from the tax man to reach financial independence. I'm sure that there will be ways to arbitrage the drawdown ie moving to a no income tax state (or travel the world which is treated the same from a tax perspective only paying federal). Making large DBP contributions is especially easy especially in a high tax state since you are essentially getting a 50% match from the government. Ie put 100k into the DBP or pay 50k in taxes and decide how to best save the other 50k. In an ideal world I would pay taxes and live on about 100k and put the rest away pre tax, drawing out that same 100k a year in retirement.

It's important to note that these number are HIGHLY dependent on your plan administrator. My partnership group offers their own DBP, and the limit is $30,000 per year. Meanwhile, I've looked into outside companies to manage a DBP and they've quoted me $80,000-$100,000+ a year (I'm in my mid thirties).

 

[Mbekweni]

It's important to note that these number are HIGHLY dependent on your plan administrator. My partnership group offers their own DBP, and the limit is $30,000 per year. Meanwhile, I've looked into outside companies to manage a DBP and they've quoted me $80,000-$100,000+ a year (I'm in my mid thirties).

Individual plans that adjust contributions for each participant are more expensive to administer but also allow you to do the fancy math needed to max out your government allowed contributions. For some other esoteric reason there seems to be a second tier of defined benefit plan favored by larger groups that skips the individual actuarial process for each participant and settles on 30k a year max (this is what my group did, but is currently re-assessing given the huge benefits of additional contributions). Additional bonus, all taxable income below 315k for married filing jointly (phase out to $415,000) and $157,500 single (phase out to $207,500) gets the pass through income tax deduction worth about 15k in extra tax savings if you would have otherwise been above the threshold.

 

[EctopicFetus]

Individual plans that adjust contributions for each participant are more expensive to administer but also allow you to do the fancy math needed to max out your government allowed contributions. For some other esoteric reason there seems to be a second tier of defined benefit plan favored by larger groups that skips the individual actuarial process for each participant and settles on 30k a year max (this is what my group did, but is currently re-assessing given the huge benefits of additional contributions). Additional bonus, all taxable income below 315k for married filing jointly (phase out to $415,000) and $157,500 (phase out to $207,500) gets the pass through income tax deduction worth about 15k in extra tax savings if you would have otherwise been above the threshold.

Fwiw I’m in my early 40s. My max was 15k higher than what was in the table. Much depends on your plan. Nonetheless even young people in their early 30s can do 50-60k.
For me it’s all about tucking money away while my job is solid and I make good $$. When that stops. I’ll cut this first. If you have 5 years of savings 150k and you do it before age 45. You will have enough to retire if you just hit the standard 50k or so the other years. Could retire rich well before 55.
My goal was fi prior to age 50. Would
Need economic collapse not get there.
Not bad for a kid who grew up with no $$$.

 

[Mbekweni]

Fwiw I’m in my early 40s. My max was 15k higher than what was in the table. Much depends on your plan. Nonetheless even young people in their early 30s can do 50-60k.
For me it’s all about tucking money away while my job is solid and I make good $$. When that stops. I’ll cut this first. If you have 5 years of savings 150k and you do it before age 45. You will have enough to retire if you just hit the standard 50k or so the other years. Could retire rich well before 55.
My goal was fi prior to age 50. Would
Need economic collapse not get there.
Not bad for a kid who grew up with no $$$.

Absolutely. I like the approach of save 20% of your net for standard retirement, 30% for early retirement or a bit of extra buffer and 40-50% for very early retirement (before 50) or with lots of extra safety buffer.

 

[Itssalsatime]

How much are your accountants charging?? Man ol’ mighty...
We have 2x LLC an S-Corp.
We made 439k last year.
Sent In 102k in taxes.

Also, do not add home expenses or part of your home as deduction.. unless you plan on losing that increased value section of your home to capital gains tax...

PM me if you want our accountant information.

 

[sylvanthus]

Any recommendations from those in the know for tax savings if my LLC income is drying up? Getting hard to pickup ED shifts now so my LLC income is tanking.

 

[GeneralVeers]

There aren't many options now that the tax code has reduced almost all deductions if you are W2.

1. Max out retirement
2. HSA plan
3. Mortgage interest deduction
4. SALT deduction

 

[cyanide12345678]

From my own math (could very well be wrong), I'm saving ~$10-15K a year

That math is probably wrong. You're probably saving 2-4k. A lot of the deductions you are probably considering you can take as sole proprietor. The only difference is if you get s corp tax status as llc is you do not pay ficaa. Which for most of us means just a savings if 2.9 percent Medicare tax since our reasonable salary is already above social security limit almost all the time.

 

[BAM!]

Is it easy to set up a DBP for an individual in a large partnership, K-1? Does the partnership generally have to approve the DBP?

 

[EctopicFetus]

That math is probably wrong. You're probably saving 2-4k. A lot of the deductions you are probably considering you can take as sole proprietor. The only difference is if you get s corp tax status as llc is you do not pay ficaa. Which for most of us means just a savings if 2.9 percent Medicare tax since our reasonable salary is already above social security limit almost all the time.

2.9% on 200k isn’t small. Whether or not it is worth it is a different question. I’m not a 1099 but having an llc May allow you to more easily employ a spouse and kids which may lead to tax savings / Backdoor ira contributions. We are getting deep in the weeds here.

 

[EctopicFetus]

Is it easy to set up a DBP for an individual in a large partnership, K-1? Does the partnership generally have to approve the DBP?

You need to derive most of your income as a 1099. As a k-1 I don’t think that’s an option. If you are a w-2 your employer has to do it. As a 1099 you can do it and it’s fairly easy but costs can eat you up.

 

[southerndoc]

2.9% on 200k isn’t small. Whether or not it is worth it is a different question. I’m not a 1099 but having an llc May allow you to more easily employ a spouse and kids which may lead to tax savings / Backdoor ira contributions. We are getting deep in the weeds here.

$5800

I've never incorporated because I was under the false impression that the tax deductions would be eliminated soon and it offered no malpractice coverage. Now I realize over 10 years I've wasted at least $100,000 in taxes I've sent to the IRS.

What happens if I incorporate now? I don't think I can pay myself a salary less than what I'm making now as I've probably already set precedent for my hourly rate. So what would be the benefits?

For the new grads, it's probably best to go ahead and establish it as soon as you graduate and don't be like me. Precedent is hard to overcome. If Biden wins the presidency and gets his way, the income limit on SS/Medicare taxes (payroll) will be eliminated. That means even more paid in taxes -- 15% if you're self-employed.

 

[Groove]

Do your due diligence depending on your state. In TN there is an excise tax to make up for the lack of state income tax on distributions. I had an s-corp for several years and it was a monstrous headache. My CPA fees were much higher than a sole proprietorship. I got rid of it and never looked back. I may be losing a small amount of money but it just wasn't worth it to me. My CPA agreed. He said In my case an s-corp was good for him, but not for me. I suppose I might revisit the topic with him if Biden is elected.