Hi, my name's mark Kohler, I'm a CPA attorney and small business specialist in saving taxes, protecting it, and building wealth! now
Here's my point. It's a pretty bold statement to make a title of this video the sweet spot for a 401k is not
$55,000 because I know how many of you believe. Oh, I got to do 55 grand. That's why I'm doing the 401k
Let's think twice
Ok now why say there's a sweet spot is because of one word the F word FICA
That's right, because you're gonna be paying a ton of FICA to get to
$55,000 and maybe we don't want to pay that much self-employment tax to get the
Contribution to the 401 K and we can think more creatively
Let's go through an example. So let's say you've got your S corp here
Which is where you're gonna be if you've got self-employment income and you're gonna be funding a 401 K
Now this 401 K. Is this little bucket over here on your asset side
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You're gonna see that operations are over here assets are over here
This is where your rental property and your vestments are your trust is down here your home yada yada
There's a trifecta. Do you want to try to bring together this whole plan?
But over here is your 401 K. Now example one is that you say I want to maximize my
$55,000 well in order to get to 55 you're gonna do
$18,500 now I'm assuming you're under age 50 so you can play with these numbers, but you're gonna do
18500 well to get up to my 55 thousand. It's got to be 25% times my salary
to make up the difference well to get to
$55,000 the plug your salary is going to have to be around
160,000 dollars. Oh my gosh. Do you know what that's gonna run you in self-employment tax? It's gonna be over
$20,000 in self-employment tax closer to 21. That's a big deal
so if I'm going to take this huge salary and pay biggest self-employment tax, I'm thinking I'm only doing this to take
$55,000 in
401k contribution deductions now depending on what your net income is you might be forced to take
$160,000 salary so that's moot meaning it doesn't matter cuz you like mark I got to take a huge salary because of my income level
Well as many of you know with my payroll matrix and S Corp strategy
I may not want to take that biggest salary or may not have to so let's come up with option two
I'll do it in red option two is well mark. I'm still gonna do my
18,500 but in my business I'm netting around 200 grand and I could thereby take a
$70,000 salary and you're darn right? I'll stand behind that I could take a
$70,000 salary save on self-employment tax and only pay 10,000 in self-employment tax and then do
25% of my seventy and I can get up to
$36,000 in my 401k because my salary is 0.25 times 70 grand so I created
$10,000 in savings and I still get
36,000 on my 401k but you say well mark I want to put away a ton of money
Well, you've got to start saying am I gonna really pay ten to put away this extra twenty
I mean really the net cost is I'm only up ten and I mean, I don't know you have to do the math, right?
Here's an other idea that you might like is bring your spouse into the mix
If you're married not all of you are I get it?
But if you're married I can put my spouse in the mix for maybe twenty or thirty thousand with my wife
I might put her in here at 20 grand in salary put 18 five into her
401k and then do 25 percent look at I'm up to a twenty three thousand dollar contribution
Approximately and I'm into this now what I got up to fifty nine thousand dollars
but I did it unless
Payroll and see this is a big deal because I can be building a 401k bucket for my spouse and me
Get up to 55 thousand or more but not be paying self-employment tax to get there now
I know I'm just generalizing some of these numbers in your salary levels gonna depend on your business and whether you're single or married
But what I'm saying is don't just believe in the mantra that I got to do 55 brain of my 401k
Just cuz I can do it. There's a sweet spot meet with your accountant. Talk about your payroll level
Look at your overall net income. Look at what you want to contribute
Maybe I should be pulling out some of this money and investing it outside of my 401k and finding a balance
With rental property outside of my 401k and in my 401k see there's all these other options
Too many of my clients just get fixated on. Oh, I can do 55 grand
I'm gonna do 55 grand and some accountants out there push their clients into that bucket or that mold and it's not for everybody
So there's a sweet spot run the numbers find what works best for you and use of the 401k to your advantage in
combination with the S Corp salary planning strategy
Good luck folks keep living the dream
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