Money Tips with Daniel
There are so many options when it comes to choosing a retirement plan. If you own a small business, you can choose a SIMPLE IRA, SEP IRA, or Solo-401(k). If you are an employee, than you can contribute to your 401(k) or 403(b). If you have any earned income whatsoever, you can contribute to a traditional IRA or a Roth IRA (after-tax dollars). There are limits to each of these and they all can affect each other so it’s important to work with a knowledgeable tax or investment advisor to help you optimize your tax and investing options.
Taxes and Retirement Planning
Dialogue:
Holly: Welcome back to money tips with Daniel! I’m here with our local certified financial planner professional Daniel Colston. Hey Daniel, how are you today?
Daniel: I’m doing great, Holly. How are you?
Holly: Excellent thanks. Today we’re talking about planning for taxes and retirement and how they interact with each other. Daniel, what are your thoughts?
Daniel: Well, it’s an excellent question because we could have talked about the two separately, and we will in another session, but it’s good to talk about them together because they affect each other so much. While you’re working, you can defer your salary into a retirement account to keep your taxes down. For example, if you’re in a high tax bracket, you need to be deferring some of your salary into your retirement account in order to keep taxes down. Another benefit of this is that you get the long-term appreciation of your investments.
This is especially important for business owners! I see a lot of business owners putting their earning back into their business which is great, but they need to remember to setup a retirement account, because otherwise Uncle Sam will get more of their money and they’ll come to retirement time and won’t be ready to retire. Why not have passive income as well as business income?
Holly: That’s very interesting. So what kinds of retrement account options are out there?
Daniel: Well, if you’re employed, then whatever your employer offers you. If they offer a match, then definitely contribute enough to get the match. In addition to your employer plan, you can also open up your own IRA. IRA stands for individual retirement account. Anyone can open one up as long as you have earned income and you can contribute up to 6k/year into it or 7k/year if you’re over the age of 50.
And if you’re a business owner, than you can choose any of a handful of different types of retirement plans for your business depending on what you’re trying to do, whether that’s retain top talent by rewarding employees or deferring as much tax as possible for yourself as the business owner.
Holly: Well this has been a great session and we’ve learned a lot about retirement plans and taxes! We’ll see you next time on financial tips with Daniel. Thanks Daniel!
Daniel: My pleasure
When Daniel is not giving financial advice or managing investments, he enjoys renovating properties, real estate investing, drinking coffee, hanging out with friends, spending weekend trips in his camper van, and exploring the outdoors on a hiking or biking trail in his hometown of Roanoke, VA and beyond.