Retirement Planning is a Tax-Saving Tool!
TransGlobal Holding Co.
30+ years of wealth management expertise with 30+ branches across 14 states.
Why do tax saving plans start with the highest tax rate?
The federal income tax increases sequentially from 10%. For a couple, when the income that needs to be taxed exceeds $693,000, it reaches the highest tax rate of 37%. Otherwise, for middle-level income, it only goes from the range of 10% to 37%. Capital gains tax also only reaches the highest point of 20% when it exceeds a certain amount while the rate for a medium amount is relatively low. Any tax will get higher as the amount increases so for any tax saving plan, we make must start from the highest level. For example: A couple earned $800,000 this year. Depending on the tax rate, if their taxable income is between $693,000 and $800,000, they will have to pay the highest federal tax rate of 37%. Whether we use a retirement plan or help increase expenses and deductions, we can save on the highest rate of 37%. All tax savings start from the highest level.
Self-employed/small business owners can make good use of retirement plans to save on taxes.
Tax Saving Tool 1: Solo 401(k)
If you are a self-employer, depending on the company’s situation, the first step can be to set up a company to receive salary, thus saving on the self-employer tax. Then a second step can be done with different retirement plans. The most well-known retirement plans are IRA (traditional individual retirement account) or SEP (simplified employee pension plan). In fact, if there are no eligible employees, we can do a Solo 401(k). Solo 401(k) is a relatively flexible Profit Sharing + 401(k) retirement benefit plan and is only available to self-employers/small business owners and their spouses. A maximum of 25% of the salary can be put into the Profit-Sharing Plan. If a couple each receives a salary of $40,000, each of them can put $10,000 into the Profit-Sharing Plan. However, this $10,000 is from his/her K1, which is where their dividends begin to be paid.
Tax Saving Tool 2: 401(k)
In addition to putting money into the Profit-Sharing Plan, we can also add a 401(k) to the salary. This year, the maximum amount that can be put into the 401(k) is $30,000. For couples, a total of $60,000 can be put in. By putting the money into a retirement plan like this, isn’t your taxable income reduced?
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Tax Saving Tool 3: Defined Benefit + Combo Plan
If your income is even higher, what other kinds of retirement plan are there? If you are over 45 years old, your income is high, and there are not too many employees (less than 10 people), there is a good plan called Defined Benefit Plan (Defined benefit system is also called Defined Benefit plus Combo Plan). In other words, if the company sets up a Defined Benefit plus a 401(k) today, you can put 40% of the company’s employees in the Defined Benefit Plan and the other 60% in the Profit Sharing Plan. This design is actually very beneficial to self-employers/small business owners, especially those who are older because their salary is high and they can put in more money. The biggest difference in Defined Benefit is that older people can put in more money. This way, most of the contribution can be placed on self-employers/small business owners. How much can be put in? Assuming that a doctor and his wife earn $1 million a year, it will be very difficult to pay the income tax. However, if they get a salary of $200,000 a year and are around 50 years old, they can probably put nearly $500,000 a year in the retirement plan alone! If you take the original $1 million and deduct nearly $500,000 in the retirement plan then only $500,000 is taxable income, and the employee’s portion is not big.
Summary: Retirement planning is definitely a tax-saving tool! We can design a good retirement plan starting from the top to save some taxes reasonably and legally so that we can keep more money in your pocket. If you are also interested in financial management or tax planning, please contact us at TransGlobal. We have the most professional team and the most cutting-edge information to provide you with a full range of services.
TransGlobal has over 30 years of experience in financial planning and management, with expertise in six key management areas including real estate, loans, insurance, investments, tax services, and education. With over 5,000 independent agents across the United States and major Asian cities, it is the benchmark brand for one-stop wealth management services for the Asian community. Feel free to contact TransGlobal to let our professional team provide you with guidance and strategies and help you achieve maximum tax savings.
TransGlobal, professional and complete All-In-One service for the clients to enjoy. Services from life insurance, annuity, and financial management, to now encompassing mortgage financing, real estate, asset management, health insurance, property & casualty insurance, tax services, and family office & wealth management.
Please contact the local agent of TransGlobal today or call 888-831-8868.