Read on Twitter
I had a couple of comments and DMs asking about 401k strategies.
Disclaimer - none of this is specific advice. Work with a Planner CPA for your situation.
But this is what I think
(thread) https://twitter.com/baldridgecpa/status/1321427943093055489
Disclaimer - none of this is specific advice. Work with a Planner CPA for your situation.
But this is what I think
(thread) https://twitter.com/baldridgecpa/status/1321427943093055489
1. A fundamental principle of retirement savings is diversification. This is often used in terms of asset or market diversification, but not regularly discussed in terms of tax diversification.
The same way you diversify your investments, you should diversify your tax vehicles.
The same way you diversify your investments, you should diversify your tax vehicles.
Most people should have some taxable brokerage, some Roth, and some deferred (401k, IRA, DB Pension plan, etc..)
This is a key to retirement setup that often isn't considered until it is too late.
This is a key to retirement setup that often isn't considered until it is too late.
2. Tax rates probably aren't going lower. Remember that the primary driver of tax deferred retirement is to take money that you make today and compound it betting on a lower future tax rate.
The whole thing is a timing difference, and a tax rate difference.
The whole thing is a timing difference, and a tax rate difference.
Example - I don't find many reasons today to make a traditional IRA contribution. There may be a edge case reason, like needing to drive income below a certain threshold, so don't rule it out.
If your income is low enough to make 6k contribution, pay the tax and use a Roth.
If your income is low enough to make 6k contribution, pay the tax and use a Roth.
3. Law of unintended consequences -
You need to use the correct tax vehicle for the correct purpose. Not every investment fits nicely into every product for many reasons.
Dividend stocks in traditional, growth stocks in Roth, Muni bonds and MLPs in traditional brokerage, etc..
You need to use the correct tax vehicle for the correct purpose. Not every investment fits nicely into every product for many reasons.
Dividend stocks in traditional, growth stocks in Roth, Muni bonds and MLPs in traditional brokerage, etc..
Please don't put your real estate (or LP interests) into a self directed IRA.
Real estate is a illiquid, very tax efficient investment w/ an opportunity to carry basis over without tax via 1031.
If you have RE interest your IRA think about buying it out with cash.
Real estate is a illiquid, very tax efficient investment w/ an opportunity to carry basis over without tax via 1031.
If you have RE interest your IRA think about buying it out with cash.
Same with SMBs - If you want to put the franchise you are buying into a ROBS I'm probably not your guy.
I just don't see the benefit - I want the tax shield of that business to go directly to me as the owner, and to be able to run my business without a trust looking over me.
I just don't see the benefit - I want the tax shield of that business to go directly to me as the owner, and to be able to run my business without a trust looking over me.
Note - if you don't have any money to get into the deal other than your IRA, don't get in the deal.
Follow @moseskagan advice
https://twitter.com/moseskagan/status/1321447046109253632?s=20
Follow @moseskagan advice
https://twitter.com/moseskagan/status/1321447046109253632?s=20
4. Convert all of your IRA investments into Roth at 24% or less and you can do backdoor Roth's going forward. This allows you to put 6k (6.5 in 2021) into Roth even if you are above the income limit.
You can also roll your IRA into your 401k if the plan allows and defer the tax.
You can also roll your IRA into your 401k if the plan allows and defer the tax.
5. If you are self employed in a solo SCorp I like the Solo 401k.
One benefit is maximizing the QBI deduction by electing to defer 19k of the reasonable salary paid rather than taking deductions on the company side.
The deferral comes out of income that is ineligible for QBI.
One benefit is maximizing the QBI deduction by electing to defer 19k of the reasonable salary paid rather than taking deductions on the company side.
The deferral comes out of income that is ineligible for QBI.
5a. Another reason I prefer the Solo K rather than SEP or Simple is the opportunity for MEGA BACKDOOR ROTH.
If you are in 24% bracket and love to save, you can get up to 56k into a Roth plan.
Or best of both - you can defer 19 out of salary and contribute the 37 after tax
If you are in 24% bracket and love to save, you can get up to 56k into a Roth plan.
Or best of both - you can defer 19 out of salary and contribute the 37 after tax
6. Story time -
An old CPA told me he doesn't do retirement plans - "Any time the gov't gives you a deal it's not really a deal. Pay the tax and move on."
He's not totally wrong. What goes around comes around.
Remember - This is just a timing and a strict bet on tax rates.
An old CPA told me he doesn't do retirement plans - "Any time the gov't gives you a deal it's not really a deal. Pay the tax and move on."
He's not totally wrong. What goes around comes around.
Remember - This is just a timing and a strict bet on tax rates.
6a. 2 things in life are certain -
Deferring income will allow you to enjoy the growth of more $ that will compound. But you will pay the tax one day and be subject to the laws of that time.
Or your heirs will receive the bag and have to pay a lot of tax over the next 5 years.
Deferring income will allow you to enjoy the growth of more $ that will compound. But you will pay the tax one day and be subject to the laws of that time.
Or your heirs will receive the bag and have to pay a lot of tax over the next 5 years.
7. Most of the planning work I do with wealthy retired folks around around their IRAs involves figuring out how to distribute the money as quickly as possible without getting crushed on taxes.
Taxable assets get step up. With deferred accounts taxes are paid one way or another.
Taxable assets get step up. With deferred accounts taxes are paid one way or another.
8. So much info - What to do?
Everything.
If your company matches, you should contribute.
If you are paying 37% try to defer
If you can get cash into a Roth do it! You can pull out the basis if you need it.
Like I said - it's about diversification
Everything.
If your company matches, you should contribute.
If you are paying 37% try to defer
If you can get cash into a Roth do it! You can pull out the basis if you need it.
Like I said - it's about diversification
