Epic Real Estate Investing - 3 Ways to Make Contributions to Your 401K That You Won't Hear Anywhere Else | 479

Episode Date: September 25, 2018

Wondering about the 401K contribution limits for solo 401Ks? Self-directed 401Ks? In this episode, learn the 3 ways to make contributions to your 401K, what CODA is, and the advantages of the profit-sharing bucket. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, Rockstar, if you have a question here for Tim that you'd like him to answer on the show, anything tax related, anything asset protection related, go to taxhacker.com forward slash questions. Post your question there and then we'll answer it live right here on Tax Hacker Tuesday. Enjoy the show. This is Terrio Media. Did you know that up to 50% of your lifetime income will be wiped out by taxes? What if you could stop this madness? Isn't it about time you play on a level playing field with the wealthiest 1%? Now you can.

Tim Berry, attorney at law, shares here each and every week current tactics and strategies that anyone can implement to hack the tax code. Protect your assets and keep what's rightfully yours. It's time for Tax Hacker Tuesday. So what are the contributions that you can make inside your self-directed 401 today? And this is going to get a little bit complicated, but just bear with me. and it'll make sense as we go through it.

First off, as a general rule, there's three different ways that you can make contributions to your 401 plan. First off, the first bucket is the 401k bucket. And I hate to do this to you, but I'm going to give you the legal name of this bucket because it kind of makes sense

whenever you start going through these contributions. And the name of the 401k bucket is called the cash or deferred arrangement bucket, short for CODA. So you got C-O-D-A, which is the cash or deferred arrangement bucket. And that's whenever you're being paid a salary, you tell your corporation, your employer, that I don't want that salary. Instead of giving me $5,000 a month, why don't you keep $2,000, only give me $3,000, and the $2,000 you keep, you put inside of my 401K bucket. So that's the first bucket that you can make contributions to inside of a 401K.

plan is the cash or deferred arrangement bucket. I think you're allowed to put in the lesser of 100% of your salary or $17,000. That figure might be $17.5. I always get it confused and such. But with the 401k bucket, you're allowed to put the lesser of 100% of your salary or $17,000 into the 401k bucket. So if you have a salary of $15,000 a year and you don't need that salary, you can say, well, I don't want that money.

Go ahead and put it all inside the 401k bucket. That's what makes these 401Ks so incredibly powerful is all of the dollar amounts of contributions that you can make into these things. Next bucket is the profit sharing bucket. So what's going to happen with the profit sharing bucket is this. At the end of the year, if we're dealing with a corporation,

you're now going to run the numbers and you're going to say, okay, my salary from the corporation was, let's just say $100,000. With a corporation, you're allowed to have the corporation contribute up to 25% of your salary from that corporation. So if you made $100,000 for the year from that corporation and salary, the corporation can now put an additional $25,000 into your retirement plan for you. So if you maxed out that $17,000 contribution and now you're maxing out the 25% or $25,000 here

two, that's a total of $42,000 you're able to put inside your retirement plan at a fairly short time period. If you're dealing with an LLC or a sole proprietorship due to the self-employment taxes and doing some weird calculations there, the amount that you can contribute is based upon the profits of the company, and it's only 20%, it's not 25%. So going back to that same fact pattern. If you had profits of $100,000 for the year, the maximum profit sharing contribution would be 20% or $20,000, tied that in with the earlier $17,000. That's a total of $37,000 that you've just slipped into the retirement plan. So as a general rule, that's how much you can contribute to the retirement plans. You've got your $17,000 contribution limit with the 401k bucket,

the cash or deferred arrangement bucket. And then you also have the 25% limitation of your salary if it's a corporation or a 20% limitation if it's a sole proprietorship or an LLC. By the way, also, if you're over 50 years old, you're allowed to make something called catch up contributions that are $5,500 right now, and those go up their index for inflation each year. By the way, quick test. Whenever I started this off, I said there's three different buckets.

yet I only talked about two buckets. To find out about the third bucket, which is this absolutely amazing, go ahead and go to the video about employee contributions. Once again, if you have any questions about this or you just want to talk for a little bit, give me a call or send me an email. Thank you so much. That's it for today, as we dream of a tax system that works just for you. But until then, you have Tim Berry.

See you next Tuesday for another episode of Tax Hacker Tuesday. Hey, whenever you're ready to have Tim customize a tax hacker blueprint for you, a special custom blueprint just for you, go to taxhacker.com, answer a few questions about your situation. Tell Tim what you'd like to have happen. And then his team, they'll take it from there. And then he'll give you a copy of his free book, his free book all around Trump's new tax plan, specifically what the press isn't telling you. So go to taxhacker.com and we'll see right here next week, taxhacker.com. Take care. This podcast is a part of the C-suite Radio Network.

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