It was a pleasure to have “sat” with Johanna Fox CPA,CPF,RLP this early Saturday morning (via face time, in the comforts of our respective home offices.) As I need more tax-efficient space to save money beyond (my Roth IRA, Roth 401k, pretax 401, Mini’s 529 and Mini’s Roth IRA, tax-sheltered saving space totaling $45,000) 2016, I needed Johanna’s expert help on where to put my additional savings. Johanna’s comments are in blue below. Disclaimer: Johanna Fox is a sponsor of this site.

These are the things I learned during our session.

  1. There may be an after-tax 401k component available to me from Banner (checking as we speak, the SPD “Summary Plan Description” is not completely clear on that), which allows me to save $53k total (including my 401k Roth, 401k after tax, & Banner’s employer contribution.) This would be really exciting because it will provide me an additional $33k after-tax space to save for retirement which I can then Mega-rollover into my Roth, ideally on an annual basis!
  1. For my business/1099 income from blogging, writing, book royalties, if I choose to set up SEP-IRA, I actually have until 10/15/2016 to fund my 2015 SEP-IRA contribution. You read that right! So I can actually reach into the space (which I thought was lost to me) back into 2015, here in 2016 as we speak if so desired.
  1. DWM LLC can pay Mini Wise Money up to 6,300 without Mini having to pay a penny of taxes, and that would work perfect to fund her Roth IRA. [You may have to pay state income and unemployment taxes, depending upon where you live.]
  1. If I pay Mini above $6,300, she will pay taxes when she files her tax return, but the taxes will be way cheaper than mine! Since Mini already does so much work for DWM LLC, on the blog, might as well pay her more and pay Uncle Sam less in taxes. [As long as you are not incorporated and Mini is under age 18, there are no FICA taxes due on wages you pay her. Best to have an employment contract in place specifying duties and pay. Be sure to document work done. See “How do I hire my child?”]
  1. If it comes down to 529 vs. Roth IRA for Mini, it’s more important to max out her (Mini’s) Roth IRA instead of 529. Which I don’t understand why parents don’t do more often. I’ll be writing a post on why I think Roth IRA is way better than 529 for savings for children regardless of the purpose. But the gist is,

One can withdraw money from Roth IRA (the principle investment) without any penalty or additional taxes for any reason or at any age.

529 is earmarked for higher education. You get a penalty of 10% plus taxes if you withdraw the money for non-educational costs. (What if Mini decides to not attend college and be a YouTube entrepreneur instead?) [Or what she gets a full ride scholarship?) Or what if you save too much? I am one of the few who believe college costs will eventually begin to decline in our internet-saturated world. We are already seeing students turn to less-expensive community colleges and trade schools. Did you see this debate I had with WCI?]

FAFSA counts 529 against financial aid at a higher % than it would count dollars in a Roth IRA. Since I pay plenty of taxes as most physicians do and paid a grand price/cost for my ½ dollar medical school education, I’d like to get as little EFC (expected family contribution) on FAFSA as possible when it comes time to pay for Mini’s college.

While points #1 and #2 are completely new ideas to me, the rest of the ideas are further solidified and clarified by Johanna’s expertise.

It was a wonderful session, if you are interested in seeking Johanna’s service, you can reach her here. I highly recommend her. She’s knowledgeable, personable, and most importantly she’s authentic and has her heart set in service rather than pure monetary gains, quite refreshing to find in a money-expert like herself.

Thanks for the kind words, DWM. One more point to consider on the SEP v. 401k issue: when you become an attending, you will make too much money to contribute to a Roth IRA. Actually, you are bumping up against the threshold now. But you will pay taxes on a back-door Roth contribution if you have money in a pre-tax IRA, which includes the SEP. That is why for this year (2017) you should set up a SOLO-401k and roll any pre-tax IRA money into the SOLO-k. A 401k does not keep you from contributing to a tax-free back-door Roth IRA. On the other hand, if you don’t have the funds to contribute to a SEP OR a SOLO-k this year, you have until 10/15/2017 to save enough money to contribute to your SEP for 2016! Then you could set up the SOLO-k in 2017 for the year 2017 and roll the SEP into it. Hope this makes sense – I’m sure it will to you, but you may have to sort it all out for your readers J. Looking forward to future discussions.

You can seek out Johanna’s expertise and service by clicking here. I’m sure you’d be glad to learn to maximize your tax efficiency and to optimize your investment plan for your family and your future.

 If you like this article, you might enjoy other DWM articles on Personal Finance, Investing, Retirement, Practice Management, & Lifestyle.

All articles by DWM are for informational purposes only and not intended as a substitute for professional advice. Please consult a professional accountant, financial adviser or lawyer, before making financial decisions.
Tax-Sheltered Savings Beyond 401k, Roth IRA, & 529-Expert Sessions with Johanna Fox CPA,CPF,RLP
Tagged on:                     

Share Your Questions & Insights.

%d bloggers like this: