On this week’s Tax Hacker Tuesday, Tim Berry shares a 401K secret to maximizing the most bang for your buck. Using only your business structure and contribution method, you can save thousands of tax dollars every year.
What You Will Learn About a 401K Secret to Maximizing the Bang for Your Buck:
- What the initials at the end of your 401K plan stand for
- The 2 ways your can make contributions to your retirement plan
- How to use these 2 contribution types to your advantage
- Which contribution type you should choose
- How to avoid employment taxes and save thousands of dollars
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Speaker 1: This is Theriault 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.
Tim Berry: Let me share with you a little secret about getting the most tax bang from your 401K plan. First off, the initials PSP at the end of your 401K plan, that stands for profit sharing plan. In fact, every single 401K plan is a profit sharing plan, so that means you have the choice of two different ways to make contributions to the retirement plan. You can either make the contribution to the 401K side, or you can make the contributions to the profit sharing side.
Now, why does that matter? If your business is a corporate, a C corporation or an S corporation, and if your business makes contributions to the profit sharing side, no employment taxes are due on those contributions. However, if your business is either a LLC, a partnership, or a sole proprietorship and it makes contributions to either the 401K side or to the profit sharing side, employment taxes are due. Now, why is this important. This is important, because employment taxes are 15.3%.
Quick example. If your business is a corp or an S corp, a C corp or an S corp, and it makes a contribution to the profit sharing side of $10,000, you just saved $1,500. If it makes a contribution of $20,000 to the profit sharing side, you just saved $3,000. Guys, if you’re making contributions to your retirement plan, what you will probably want to do is make sure that your business is either a C corporation or an S corporation, because you’re gonna get more bang for your buck by doing so.
Speaker 1: 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.