How to do effective retirement planning for high income individuals
How to do effective retirement planning for high income individuals
401K vs Taxes
Question: Hi, I am trying to find out what would be more beneficial to me. According to the Tax Law. I made too much money (Only about 130K) between the wife and I for the year, we are empty nesters and we and paying up to the moon in taxes. Is there a formula in which I could figured out if I should put away more every month in order to cover my taxes at the end of the year vs just putting the maximun allowed of money ( I believe it is 16K) into a retirement 401K type account in order to bring down the total amount of money earn at the end of the year. I hope I didnt confused you. I do not know if that would no any difference, but I thought I should ask. Thanks for your response in advance.
Answer: I can commiserate with you. It is hard to find the perfect balance to somehow eek out a little extra. Certainly at $130,000 you are getting victimized by taxes.
Let me give you some additional data, so we can throw some perspective on the problem. While the 401k does avoid paying a tax this year (I say "A Tax" because it doesn't reduce FICA or Self Employment). More important; it does not eliminate the tax, it only postpones the tax into the future. I'm guessing you'll be retired in 10-20 years. Do you know what tax rates you'll be paying? Neither do I. Keep in mind that we are paying an historic low tax rate right now.
Also, in order to justify the postponement of taxes, all of the projections ASSUME that we will need significantly less income at retirement. That the old homestead is finally paid off, that the family has learned to cook and enjoy cheaper meat cuts, etc. But, I have yet to talk to anyone that has a well planned retirement that sees themselves in an Andy Griffith scene just sitting on the front porch watching the sheriff patrol the neighborhood. If this is also not your plan then the tax deferred retirement plan won't be very successful. But it stands to reason since Congress doesn't really want anyone to be "Successful" at retirement, they only want us to work at it.
You didn't mention from what source you are getting your income. If it all from wage or salary, your options are limited.
If some of it is from business income that opens a whole new set of options. There is a business owners retirement plan that is far more effective.
What if I told you there is a retirement plan for business owners, that you can put up to $50,000 into each year; without having to take high income, and pay all the tax on that?
without having to pay your personal tax rate on the contribution like in a Roth?
without having to pay your tax to get it out like in your 401k or IRA?
without having it restricted to a limited class of investments?
without having to include your employees?
without having to wait until your are 59.5 or 5 years whichever is greater?
without having to take it out at 70.5 if you don't want to?
without having it tied to insurance or annuities?
without Your business having to pay payroll taxes on the money?
without having to do withholdings?
You would;
be able to invest in ANYTHING, including, real estate, naked options, your own business, and collectibles?
be able to retire tomorrow, if you chose without paying any penalties?
If you are in business that might be more in line with what you are looking for. If you are not in business, then I have not yet been able to project a way that under reasonable scenarios that the Tax deferred retirement plan, does any provable good.
Richard Fritzler
www.NevadaCorporateServices.com
phone 800 590-6612
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