Flexibility Leads to Substantial Retirement Savings


Written by: Jon McGraw

Ron and his wife, Sharon, both in their forties, discovered that a bit of flexibility from his employer would make it possible for them to increase retirement savings to over $100,000 per year. At the same time, they reduced their taxable income by making maximum 401K contributions of $17,500 each (2014).

As a successful salesman/consultant, Ron earns substantial commission income. Part of Ron’s plan, in addition to maxing out his 401k at $17,500 in 2014 through his employer’s plan ($18,000 for 2015) is to have his employer divert enough of his commission income to an LLC he and Sharon created for the purpose of establishing 1099 income and increasing his retirement savings options. Sharon has no other income other than what is provided by their LLC.

Their “Family CFO” journey began when Buttonwood, after consulting with Ron’s accountant, assisted with the creation of i401K plans for Ron and Sharon. What makes the Individual 401k unique is that, compared to other self-employed retirement plans, greater contributions may be made at identical income levels, as long as they have self-employment income, therefore maximizing retirement contributions and valuable tax deductions. Within an i401k, the IRS allows a maximum contribution of $52,000 in 2014, with $17,500 contributed as 401k contributions at 100% of income and the rest as employer contribution (25% of compensation). The LLC can have no other employees in order for Ron and Sharon to establish the i401k plans for themselves.

With the LLC and i401k plans in place, Ron is able to not only max out his 401k contribution through his employer’s plan; he can use the income from the LLC to fund a $34,500 employer contribution for a total annual contribution of $52,000 for himself. Sharon is able to match that total amount of personal contribution ($17,500) and employer contribution ($34,500), provided there is enough income through the LLC, and not to exceed 25% of compensation. The year’s total contribution of the couple to their i401k plans is up to $104,000.

Ron and Sharon took it a step further by making a non-tax deductible IRA contribution of $5,500 each, increasing their total annual retirement savings contribution to $115,000.

If you would like to learn more about what Buttonwood’s “Family CFO” services could mean to you, please contact Vince Pastorino to set a strategy appointment at 816-285-9000 or by clicking HERE.

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