It's that time of year again. Uncle Sam is licking his chops and you are wiping your tears. 2016 is over and there is little you can do now to significantly impact your tax bill but 2017 can be a different story. There is a significant tax deduction that several of you are eligible for yet are not taking advantage of. Yes, I said significant. Well, that is if you think $54,000-$60,000 per year is significant. I realize everything is relevant but for most people, removing $54,000 from their taxable income in 2017 and beyond is a very BIG deal!
So who is eligible for this deduction that is often overlooked? This large deduction is available to many but those who get the biggest impact are those who are self-employed with no employees; in other words, one-man shops. Think about it. Real estate agents, attorneys, business consultants, lawn care service, make-up consultants...the possibilities are endless!
I am going to share the details of this fabulous opportunity here but I don't want you to take my word for it. Here is the link where you can read it for yourself. https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits
This link will take you to "Retirement Topics - 401(k) and Profit-Sharing Plan Contribution Limits". And right there my friends is the magic; Profit-Sharing Plans. These plans are often over looked because not too many employers like to share their profits with their employees. I get it! BUT when the employer and the employee are one in the same, well now, that's a whole different story!
Are you getting this? If you are self employed with no employees you are eligible to defer $54,000 of your income in 2017! If you defer $54,000 that means Uncle Sam can't have any tax on that money until you access it later during retirement. AND if you are 50 years of age or older, YOU can defer $60,000 in 2017. That's right. You are eligible to defer an additional $6,000 as a "catch-up" contribution (check me out...it's in the link I shared above). Historically, this contribution limit has increased $1,000 per year. So, in 2018 you will probably be looking at $55,000 and $61,000. Note, your contributions are limited to 25% of your income. To fully fund this type of plan in 2017, you will need to earn $216,000 or more.
Now, if you have been following me you know I am not a huge fan of tax-deferral as I believe you are simply delaying the inevitable. However, I respect the fact that many of our clients want and need some tax relief now. So, for that reason I believe it is my responsibility to meet that need when possible. Profit Sharing Plans do just that and they have a ton of flexibility in that you do not have to contribute to your plan every year. Defer $54,000 in 2017, nothing in 2018 and $15,000 in 2019. You decide.
I suspect some of you may be curious about how your money is invested within a Profit Sharing Plan. Each plan is custom-designed. At JondaKnows, you have access to well-known money managers like Fidelity, Federated, T. Rowe Price, Invesco and MFS (they created the mutual fund). In addition, you can invest in life insurance. What?! That's right. Life Insurance is now recognized as an asset class. Why would you want to invest in life insurance within a Profit Sharing Plan? With the potential to make 12.5% in an up market and 0% in down markets, it makes for one heck of a bond-alternative not to mention you are using tax-deferred income to provide a death benefit in the event you pass prematurely. Think about that. You have every intention of contributing to your plan until your retire at which time you would convert your plan to income but what happens if you don't get to carry out that plan? What happens if you pass 10 years, 15 year or 20 years before retirement? The life insurance would pay a death benefit to your spouse/children/family self-completing your retirement plan. Now that's a REAL Retirement Plan right there!
If you have found this information valuable or would simply like more information about Profit Sharing Plans or Life Insurance as an asset class, we would love to continue this conversation. Call JondaKnows at 304.840.0001 or toll-free at 844.455.6697 to schedule your no-obligation consultation today!