Are you a high income sole practitioner or individual business owner that is wondering about how to best plan for retirement? If so, what are you doing to reduce your income taxes?
What is a High Income Earner?
High income earners yield an above average salary and pay a certain amount in taxes each year. Let’s use this example of someone that would qualify as a high income earner:
Income earner is over age 50, has $200K of Schedule C Income, and pays a combined federal and state income tax rate of 38%.
How to Reduce Your Income Taxes
Using the example above, the income earner can establish and fund a Defined Benefit Plan plus 401K for a combined maximum of $106,100.
This will allow a dollar for dollar deduction of adjusted gross income and will have an estimated tax savings of $40,318.
Should You Choose a Defined Benefit Plan?
When looking to fund a retirement plan, one should carefully consider the costs to maintain the plan such as administration, record keeping, actuarial services, investing, etc. Defined Benefit Plans offer the highest level of allowed deductions, but also have strict funding requirements.
For an income earner that does not have a reliable income from year to year, a defined benefit plan may not be a suitable option. However, there are other retirement plans such as the solo 401K and profit sharing that can offer substantial tax savings and a bit more flexibility.
A Financial Advisor Can Help You Plan for Retirement
Getting a jump on early retirement planning is essential for securing your future. You want to ensure that you’re making the most of your retirement plans and saving money wherever possible to help improve the end results. Seeking out retirement planning advice can help make sure you’re on the right track for your future. Creating a retirement savings plan can help you reduce income taxes and save for retirement. Retirement specialists at Chatterton & Associates can help make sure you are planning for your future.