Christine’s business is struggling. She needs more income. If she adds a full-time remote job to her plate, how will her retirement and finances change?
Rob enjoyed a banner year in 2023. He made over $1 million. But the sting of income tax has him making moves that violate his investment strategy. Is his tax tail wagging the dog?
Gena is excited to make the most of business deductions. Can she contribute 100 percent of her wages to a 401k and have the company match that?
Christina is tired of living like a pauper in the name of student loan repayment. Is Public Service Loan Forgiveness the answer?
Former financial planner Joe Saul-Sehy and I tackle these four questions in today’s episode.
Enjoy!
P.S. Got a question? Leave it here.
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Christine asks (at 02:11 minutes): I run my own business, but I’ve had a downturn in clients recently.
My friend suggested I get a full-time remote gig while still running my business. I have plenty of extra time each week and I think I could do both.
This leads me to questions about funding my retirement accounts:
- Would I be eligible to max out my Solo 401k if I’m contributing to another employer-sponsored retirement program? What would the tax implications be?
- Would I be able to contribute to my Roth IRA if my overall Modified Adjusted Gross Income (MAGI) is too high?
- Would this trigger a backdoor Roth scenario?
I started investing late at age 38 with a $70,000 portfolio.
Today I’m 43 and I’ve grown my portfolio to $285,000. After I fund my accounts with $46,000 at the end of the year, my portfolio will be worth $335,000.
How should I think through this decision beyond an income perspective?
Rob asks (at 12:28 minutes): 2023 was a record year for me. My income was substantially more than $900,000 and my passive income from real estate investments was more than $250,000.
I have a net worth of over $10 million, comprised of vacation rentals, apartments by the beach in San Diego, and Vanguard Total Stock Market ETFs (VTI).
My target asset allocation is 50 percent stocks and 50 percent real estate. I worked hard to achieve that balance between 2017 and 2020.
But when the 2017 Tax Cut Jobs Act introduced 100 percent bonus depreciation for full-time real estate professionals, I expanded my real estate portfolio significantly in 2020 and 2021.
Additionally, my high income this year compelled me to look for additional tax savings by buying another apartment building for bonus depreciation offset income.
I want to get back to a 50-50 split. Instead, my latest purchase will swing me further away from that goal. To pay cash for the apartment building, I need to sell off $2.1 million in VTI.
What are your thoughts on moving away from my target strategy for the sake of tax savings?
The property is located in a prime coastal neighborhood close to the ocean in San Diego. It offers over $700,000 in upside after remodeling.
It’s a trust sale that’s being sold significantly under market value with an opportunity to add Accessory Dwelling Units (ADUs) for additional income.
The acquisition aligns with my professional expertise and offers substantial tax benefits, which I need with my income this year.
Would you make the same decision in my shoes? Or would you prioritize maintaining the 50-50 asset allocation and pay the taxes?
A follow-up comment in response to Knoxville’s question:
Kris asks (at 28:29 minutes): Regarding Episode 467 about the HELOC loan and the 401k loan, one thing that I think was possibly missed was the risk of having a 401k loan.
If she separates from service or gets fired, for many plans, that loan needs to get paid back immediately. And if not, then it’s distributed as ordinary income.
So then she’s going to have to pay ordinary income tax on that rate. So I was curious about your thoughts as far as including that as a risk on a 401k loan.
Christina asks (at 30:36 minutes): I recently called about my loan repayment plan. At the time I was planning to throw as much money towards my loans as possible upon graduation.
My plans have changed since then because I’m tired of living in squalor.
I’ve decided to pursue Public Service Loan Forgiveness (PSLF) using the Saving on a Valuable Education (SAVE) Plan.
I just graduated from school as a physician assistant and I’ll start work in March making $100,000 a year.
What I should do during the grace period if SAVE doesn’t start until June of next year? Is it worth consolidating and skipping the grace period or should I wait six months?
Do you think this plan is a good idea at all?
Gena asks (at 43:10 minutes): Is there a maximum limit that my business is allowed to contribute to a 401k match?
My spouse is building a consulting business, and I’m going to help with office management and billing on the side.
As part of the business plan, I’m deciding how much to include for my wages as a 401k self-employed retirement contribution and company match.
I’ve read that I could contribute as much as 100 percent of my wages, but I haven’t found a specific limit as far as the company match.
This is a part-time job for me while I’m in law school, so I don’t anticipate reaching the $22,500 cap for personal contribution.
But this looks like a great way to reduce our tax liability while further building our retirement.
What should I pay attention to? Are there particulars to worry about, or other important tips I should consider?
Resources Mentioned:
- #195: I Make $168,000 Per Year and Spend $5,000 Per Year. What’s Next? | Podcast
- One Participant 401k Plans | Internal Revenue Service (irs.gov) | Website
- 2024 Solo 401k Rules | Website
- SAVE Plan Forgiveness | Website
- 401(k) limit increases to $23,000 for 2024, IRA limit rises to $7,000 | Website
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