Tax Advantages of Retirement Plans via Roth, HSA & DBP

retirement plans
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I used to buy into the concept that we either still buy into or are changing our opinions of. The concept of a retirement plan, at least when I learned tax, for the self-employed was to sock as much money away into these plans during your income-earning years when your tax bracket is higher. And then when it comes time to retire, you take the money out of retirement, and your income tax bracket is lower.

However, after all of those years, laws have changed, and we now have plenty of retirement plans.

The Roth IRA was introduced, which made withdrawals tax free. In the beginning a Roth had certain adjusted gross income (AGI) limitations. What followed was an evolution with Roths for those who were self-employed. You could open either a Solo 401(k) or a Safe Harbor 401(k). These plans allow for the best of both worlds. You could, through salary deferrals, put the maximum amount into the Roth portion of the 401(k), and then match your salary by 25 percent, which is deductible to the company. The contribution limit between the Roth salary deferral and 25 percent match, though, could only be $54,000.

Then we invented backdoor Roths, in which a person would open a new IRA account, make a non-deductible contribution to a traditional IRA and then convert it to a Roth the following day. The result of this transaction was tax free.

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About Craig W. Smalley, EA

Craig Smalley

Craig W. Smalley, MST, EA, has been in practice since 1994. He has been admitted to practice before the IRS as an enrolled agent and has a master's in taxation. He is well-versed in US tax law and US Tax Court cases. He specializes in taxation, entity structuring and restructuring, corporations, partnerships, and individual taxation, as well as representation before the IRS regarding negotiations, audits, and appeals. In his many years of practice, he has been exposed to a variety of businesses and has an excellent knowledge of most industries. He is the CEO and co-founder of CWSEAPA PLLC and Tax Crisis Center LLC; both business have locations in Florida, Delaware, and Nevada. Craig is the current Google small business accounting advisor for the Google Small Business Community. He is a contributor to AccountingWEB and Accounting Today, and has had 12 books published on various topics in taxation. His articles have also been featured in the Chicago Tribune, New York Times, Yahoo Finance, Nasdaq, and several other newspapers, periodicals, and magazines. He has been interviewed and been a featured guest on many radio shows and podcasts. Finally, he is the co-host of Tax Avoidance is Legal, which is a nationally broadcast weekly Internet radio show.


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