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Everything you need to help you launch your new business entity from business entity selection to multiple-entity business structures.
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Everything you need to help you launch your new business entity from business entity selection to multiple-entity business structures.
Designed for rental property owners where WCG CPAs & Advisors supports you as your real estate CPA.
Everything you need from tax return preparation for your small business to your rental to your corporation is here.
WCG’s primary objective is to help you to feel comfortable about engaging with us
Table Of Contents
By Jason Watson, CPA
Posted Monday, December 30, 2024
If you want your retirement savings to grow tax free, you need a Roth IRA or Roth 401k. If tax-free growth is generally preferred, you can accomplish this outside of the business. However, there are some problems, or at least potential problems.
A quick recap of the limitations of a garden variety Roth IRA- a Roth IRA is only available to those who earn less than $246,000 per year for married filing joint taxpayers ($165,000 for single taxpayers) for the 2025 tax year, and a Roth IRA has very low contribution limits of $7,000. What can be done? Two things- a Roth 401k, which grows tax free, can accept business profit sharing and has a much higher contribution limits of $23,500 (for the 2025 tax year) or $31,000 with catch-up as we’ve already discussed. That is option #1.
Another Roth like option involves two steps. You create a SEP IRA in 2024 and take your deduction on your 2024 tax return. You convert the SEP IRA into a Roth IRA in 2025, and this in turn creates a taxable event for 2025 but no penalty. You then create another SEP IRA in the same year to counter the tax consequence of the conversion. Imagine putting $70,000 (for the 2025 tax year) into a Roth IRA each year- amazing. Frankly the ability to convert might not last long, but we’ll take advantage of it as long as we can. However, SEP IRAs can be viewed as the middleman, and we always want to cut out an unnecessary stop. Implementing a 401k plan circumvents this.
If you have a traditional IRA you can do the same thing. Be careful about shooting your income into the stratosphere in terms of marginal tax brackets. Too many financial advisors and taxpayers mess this up. Let us help. Let us model this taxable event.
Another option along the IRA lines is to make a non-deductible traditional IRA contribution and then convert that into a Roth IRA the following year. This has zero tax consequence since it was never deducted in the first place. Therefore, if you make too much money for a Roth IRA contribution you can contribute to a non-deductible traditional IRA and later convert it.
You are limited to one rollover or conversion per year per account (there is mild controversy within the IRS publications and industry practices on the number of allowed rollovers).
This KB article is an excerpt from our 420+ page book (some picture pages, but no scatch and sniff) which is available in paperback from Amazon, as an eBook for Kindle and as a PDF from ClickBank. We used to publish with iTunes and Nook, but keeping up with two different formats was brutal. You can cruise through these KB articles online, click on the fancy buttons below or visit our webpage which provides more information.
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Please use the form below to tell us a little about yourself, and what you have going on with your small business or 1099 contractor gig. WCG CPAs & Advisors are small business CPAs, tax professionals and consultants, and we look forward to talking to you!
The tax advisors, business consultants and rental property experts at WCG CPAs & Advisors are not salespeople; we are not putting lipstick on a pig expecting you to love it. Our job remains being professionally detached, giving you information and letting you decide within our ethical guidelines and your risk profiles.
We see far too many crazy schemes and half-baked ideas from attorneys and wealth managers. In some cases, they are good ideas. In most cases, all the entities, layering and mixed ownership is only the illusion of precision. As Chris Rock says, just because you can drive your car with your feet doesn’t make it a good idea. In other words, let’s not automatically convert “you can” into “you must.”
Let’s chat so you can be smart about it.
We typically schedule a 20-minute complimentary quick chat with one of our Partners or our amazing Senior Tax Professionals to determine if we are a good fit for each other, and how an engagement with our team looks. Tax returns only? Business advisory? Tax strategy and planning? Rental property support?
Taxes can be tricky. Chat with a WCG human now and get questions answered.
Everything you need to help you launch your new business entity from business entity selection to multiple-entity business structures.
Designed for rental property owners where WCG CPAs & Advisors supports you as your real estate CPA.
Everything you need from tax return preparation for your small business to your rental to your corporation is here.
WCG’s primary objective is to help you to feel comfortable about engaging with us