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Options for tax advantaged saving when employer doesn't offer retirement plan?

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  • jfoxcpacfp
    replied
    Originally posted by ObgynMD View Post
    This is your year to do a huge Roth conversion. It’s the lowest tax bracket you will be in for the near future. I don’t know the details on how to do this because it doesn’t make sense for us, but many on this forum know how to.
    Agree it could probably make sense, especially if Roth conversions are reduced/eliminated. If so, might consider offsetting with a large DAF contribution if that’s one of your goals.

    Leave a comment:


  • ObgynMD
    replied
    This is your year to do a huge Roth conversion. It’s the lowest tax bracket you will be in for the near future. I don’t know the details on how to do this because it doesn’t make sense for us, but many on this forum know how to.

    Leave a comment:


  • LiveOak
    replied
    Originally posted by jfoxcpacfp View Post
    Welcome to the forum, LiveOak! At this point, you are navel gazing on taxes, as we are all wont to do in our own little worlds, comparing our situation to everyone else’s ostensibly ideal financial plans. Not anything to feel bad about, we’ve all been there, including most of our clients. It’s human nature. And, as CPAs, we are paid to have that narrow focus. However, at the risk of boring you, I’m going to address the financial planning implications of your question.

    Impo, I’d recommend you focus on the longer term view of your goals and plans. Yes, it’s wonderful to save taxes at every opportunity you can snatch, but I believe that goal is superseded by the overarching goal of growing your net worth in pursuit of reaching your goals and, ultimately, not running out of money in your life. So I believe the first priority to consider is growing your net worth. Taxes don’t necessarily drive the cart in this situation, they simply are one of many variables impacting the results. So what does this mean?

    As WCI is fond of saying, there are many roads to Dublin. If this particular road is currently closed, find a detour - and there are many. The true goal is building your net worth as you aim your sights on FI. Saving taxes is a worthwhile pursuit, but you may need to accept that this particular avenue is currently unavailable and seek out other methods to grow your net worth. One would be to use this opportunity to build a taxable account. Or pay down high-interest debt. Or frontload the 529s for those babies of yours. Or simply spend less and apply that $$ toward your recognized goals (probably the biggest impact). But spending precious time on a minor side hustle from which you get little gratification solely in order to save a small amount of taxes may not be consistent with your long-term goals and your financial plan to get there.

    Opportunities to save taxes will be available in the future, but don’t let the current lack deter you. Put together a plan to prioritize the highest and most optimal use of the excess cash that you would be contributing to retirement and put those funds to work rather than simply growing your lifestyle. And never overlook the fact that “retirement accounts” are not always ERISA-qualified plans. A significant taxable account balance is to be coveted in your retirement years, especially for early (50s-ish) retirees.

    Over the long term, you may be surprised at the positive impact of incorporating these and other ideas. It could help to run some planning scenarios comparing the results of various choices. What matters most is that you havea plan (that you consistently follow and update) to proactively build your long-term net worth in pursuit of your goals (FI, for example) as opposed to focusing on tax savings alone. Prioritize your goals and how to accomplish them.

    I hope this is helpful to you and other readers.
    Thank you, I appreciate the thoughtful response. That is very helpful!

    Leave a comment:


  • childay
    replied
    Originally posted by jz- View Post

    Is this legal? the owners have a qualified retirement account , but the employees do not?
    No it is not. I presume OP meant he may be able to lobby for a retirement plan. The fact they don't have one is rather odd...

    Leave a comment:


  • jfoxcpacfp
    replied
    Welcome to the forum, LiveOak! At this point, you are navel gazing on taxes, as we are all wont to do in our own little worlds, comparing our situation to everyone else’s ostensibly ideal financial plans. Not anything to feel bad about, we’ve all been there, including most of our clients. It’s human nature. And, as CPAs, we are paid to have that narrow focus. However, at the risk of boring you, I’m going to address the financial planning implications of your question.

    Impo, I’d recommend you focus on the longer term view of your goals and plans. Yes, it’s wonderful to save taxes at every opportunity you can snatch, but I believe that goal is superseded by the overarching goal of growing your net worth in pursuit of reaching your goals and, ultimately, not running out of money in your life. So I believe the first priority to consider is growing your net worth. Taxes don’t necessarily drive the cart in this situation, they simply are one of many variables impacting the results. So what does this mean?

    As WCI is fond of saying, there are many roads to Dublin. If this particular road is currently closed, find a detour - and there are many. The true goal is building your net worth as you aim your sights on FI. Saving taxes is a worthwhile pursuit, but you may need to accept that this particular avenue is currently unavailable and seek out other methods to grow your net worth. One would be to use this opportunity to build a taxable account. Or pay down high-interest debt. Or frontload the 529s for those babies of yours. Or simply spend less and apply that $$ toward your recognized goals (probably the biggest impact). But spending precious time on a minor side hustle from which you get little gratification solely in order to save a small amount of taxes may not be consistent with your long-term goals and your financial plan to get there.

    Opportunities to save taxes will be available in the future, but don’t let the current lack deter you. Put together a plan to prioritize the highest and most optimal use of the excess cash that you would be contributing to retirement and put those funds to work rather than simply growing your lifestyle. And never overlook the fact that “retirement accounts” are not always ERISA-qualified plans. A significant taxable account balance is to be coveted in your retirement years, especially for early (50s-ish) retirees.

    Over the long term, you may be surprised at the positive impact of incorporating these and other ideas. It could help to run some planning scenarios comparing the results of various choices. What matters most is that you havea plan (that you consistently follow and update) to proactively build your long-term net worth in pursuit of your goals (FI, for example) as opposed to focusing on tax savings alone. Prioritize your goals and how to accomplish them.

    I hope this is helpful to you and other readers.

    Leave a comment:


  • LiveOak
    replied
    Thank you, I appreciate the help.

    Leave a comment:


  • jz-
    replied
    Ostensibly my options will increase once in an ownership position so perhaps focus on saving in taxable account until then?
    Is this legal? the owners have a qualified retirement account , but the employees do not?

    Leave a comment:


  • Tim
    replied
    Tax advantaged options are limited. However, you should still save 20% towards retirement.

    Leave a comment:


  • Steven Podnos MD CFP
    replied
    If you have a source of 1099 income, you can open a solo 401k and do both salary deferral and profit sharing, but the contributions can only come from the 1099 income itself.

    Leave a comment:


  • Options for tax advantaged saving when employer doesn't offer retirement plan?

    Hello I am new to the forum and hoping for some thoughts on tax advantage saving. I am finishing residency in June and will be joining a small private practice that does not offer a 401K or other retirement account. I will be a W2 employee earning $400K, with opportunity for partnership in the practice in the coming 1-2 years. Married filing jointly. My spouse is not employed, and we have several children. Our state does have an income tax.

    Aside from a traditional IRA, HSA contributions, and state tax deductions for 529 contributions, are there any other tax advantaged savings strategies worth exploring?
    Ostensibly my options will increase once in an ownership position so perhaps focus on saving in taxable account until then?

    I seem to remember a WCI podcast episode earlier this year where Dr. Dahle mentioned that creating a business entity, even one with relatively little income, such as from taking surveys, would enable access to another type of tax advantaged account or strategy. Of course, I can't find this episode now.

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