Hey there, future-planning superheroes! Are you ready to take control of your financial future? Well, buckle up, because we’re about to take you on a ride that will blow your mind!
Let’s start by talking about self-employed 401k’s, Self Directed IRA’s, HSA’s, Solo 401ks and Legacy Wealth Accounts!
Self Employed 401k’s:
With a self-employed self directed 401k (otherwise known as a Solo 401k), in 2023 you get to put up to $66,000 into your self-employed 401k plan. For 2023 the limits consist of $43,500 from the employer and $22,500 from the employee. The employer contributes roughly up to 20% of its operating profits to the employer portion of the 401(k) plan. Therefore to max this out, the employer would need to make a net profit of at least $217,500 (20%) to obtain the max contribution of $43,500.
If the above self-employed 401(k) is self-directed, now you have the benefit of choosing what you invest in. This gives you the power to go beyond the boring old stocks, bonds and mutual funds. Think private equity, real estate, and even cryptocurrency or precious metals! It’s like having your own financial Batcave! You can invest in what you know or work with us to help you invest in real estate and businesses. Not to mention you can put up to $66,000 into this while drastically reducing your tax liability.
SEP stands for Simplified Employee Pension and IRA stands for Individual Retirement Account. This is much like a traditional IRA except for business owners. The contributions are tax-deductible and investments grow tax-deferred until retirement when distributions are taxed as income.
A traditional IRA only allows for you to contribute up to $6,500 in 2023. For those 50 or older can contribute another $1k. With a SEP IRA, you can pile on almost 10 times that amount, or up to $66,000 in 2023. However, SEP IRA annual contribution limits cannot exceed the lesser of.
* 25% of compensation
* $66,000 in 2023
The first limit, 25% of compensation, is also the limit for how much you can contribute for each eligible employee. The amount of compensation you can use to calculate the 25% limit is limited to $330k in 2023.
A SEP IRA is generally best for small to medium business owners that have few or no employees. However, this can also be combined with a traditional or Roth IRA where you are able to contribute another $6,000 to the traditional IRA OR ROTH IRA.
But wait, there’s more! Self-directed IRA’s offer even more flexibility in your investments. You can invest in things like precious metals, real estate, and even private equity. Plus, you get some sweet tax advantages that can help maximize your returns.
IRA LLC OR SELF-DIRECTED ROTH IRA LLC
An IRA LLC is a kind of self directed IRA that differs from a standard account in two important ways.
1. Retirement Asset of Choice:
A standard IRA is usually limited to market products such as stocks, bonds, or mutual funds. An IRA LLC can diversify with alternative assets like real estate, businesses, cryptocurrency or precious metals.
2. Easy Transactions Control:
An IRA LLC allows account holders to make transactions in real time without going through a custodian all while having full checkbook control of the IRA funds. This is great for investors because it takes away the paperwork, gets rid of transaction fees and allows you to pull the trigger on any time sensitive investment deal you are working on.
An IRA LLC (Regular or Roth) are great for buying real estate. Many investors interested in diversifying their retirement portfolios to include real estate but the traditional methods prohibit real estate so this is a great work around many investors never thought was possible. What they don’t know is that the IRS allows individuals to invest IRA’s into virtually any asset class (other than life insurance which we have a solution for, and collectibles). The common misconception actually comes from the brokerage firms like TD Ameritrade and Charles Schwab who do not accommodate real estate investments or even cryptocurrencies. Rather, they limit everything to publicly traded stocks, bonds and mutual funds.
In order to invest your IRA into real estate, you must have a self-directed IRA with a custodian that specializes in holding alternative assets. Then the challenge is that the custodian holds real estate on your behalf and is responsible to execute all real estate transactions. You will need to submit written request with documentation each time you make a payment or pay a bill on that property. That is where the power of the IRA LLC comes into play.
With an IRA LLC, the IRA LLC owns the real estate and you control the LLC having checkbook control. That allows YOU to handle the real estate transactions on your own and the funds in the IRA LLC bank account. You avoid having to reach out to a custodian each time you want to write a check or make a deposit. Here at DoWhatTheWealthyDo.com we help you get this all setup and can even help you with the purchase of your turn-key property utilizing your IRA LLC to purchase the property or invest into the property for equity or help you acquire larger quantities of cryptocurrencies if you so choose through our brother company Obsidian Capital Management which is a regulated Crypto OTC.
HEALTH SAVINGS ACCOUNTS (HSA):
If you want to save money on healthcare expenses, health savings accounts (HSAs) are a great way to go. These must be tied to a High Deductible Health Plan. By setting aside pre-tax dollars and getting a deduction for it, you can build up a healthy nest egg to cover medical expenses down the road. And the best part? If you don’t use it, you don’t lose it!
Now these accounts don’t simply just provide a way to cover your health expenses, they can also be an attractive investment vehicle. Investing in your HSA is going to highly depend on the administrator. Some don’t allow it and some require a specific amount in your account prior to any investment. The best upside is that HSA accounts offer a triple tax advantage.
1. You don’t have to pay federal income tax on your contributions.
2. You won’t be taxed on withdrawals for qualified medical expenses.
3. Your earnings from investments won’t be taxed
You benefit from the first two tax advantages even if you don’t invest your HSA money. However, if you do invest your HSA money, the third advantage helps you as well. Key strategy to investing your HSA funds is to invest as much of your funds as possible while ensuring that you keep enough cash to cover your qualified medical expenses. Consider where your other retirement plans are invested as well to make sure that your HSA investments provide diversification. Also avoid taking out funds from your HSA as much as possible. The more it can grow over time the better tax-free income stream it can be when you retire.
Here at DoWhatTheWealthyDo.com, we’re all about helping you become the hero of your own financial story. Our team of wealth advocates are here to guide you through the complex world of estate planning and help you make informed decisions about your strategies.
So, are you ready to unleash your financial superpowers? If so then be sure to check out our Legacy Wealth Account as this is the major strategy the wealthy take to secure their wealth account and then investing outside of that. All the above retirement options are key especially when it comes to tax advising and tax planning while maximizing out the various aspects of reducing tax liability and increasing your retirement options.