Host Introduction: Welcome to The Wealth Breakdown Podcast! Are you ready to increase your after-tax income and unlock your wealth? You're in the right place. Each episode, we bring you practical case studies to apply with your existing financial and legal professionals. I’m your host, Billy Amberg, and today we’ll explore how we helped “Fred,” a Vistage chair, optimize his finances.
Meet Fred: A Vistage Chair’s Financial Overview
Fred is a 55-year-old Vistage Chair from Georgia, with two kids, ages 12 and 14, and a spouse. Fred chairs two Chief Executive groups and one Key group, paying himself $350,000 annually through his LLC.
Fred’s Current Financial Picture
Business Structure: Fred operates under an LLC for Vistage and one-off coaching projects.
Income: $350,000 in net income from the LLC.
Tax Filing Status: Married, filing jointly.
Annual Taxes: Approximately $110,000, broken down into:
$60,000 in federal tax
$31,000 in self-employment tax
$19,000 in Georgia state tax
If Fred were single, these tax amounts would increase.
How Fred Feels About His Current Financial and Tax Situation
Fred feels content but is often shocked by his quarterly tax payments of $20,000. Though he acknowledges the potential for improvement, time constraints make it challenging to focus on personal finances.
Solutions and Results for Fred
1. Tax Efficient Bookkeeping
The foundation of tax savings begins with organized books. We recommended Fred sign up for QuickBooks, link his bank accounts, and grant his CPA access. This setup helps position him for optimal tax planning.
2. S-Corp Election for Tax Efficiency
Bloomwood and Fred’s CPA advised an S-Corp election for his LLC. Previously, his entire $350,000 salary was subject to payroll and self-employment taxes. Now, he pays himself:
$168,000 as salary (subject to payroll and income taxes)
$168,000 as distributions (subject only to income tax)
Savings: Approximately $23,000 annually in payroll taxes.
If Fred invests this savings at an 8% rate until age 70, it could grow to around $600,000.
3. Using a Credit Card for Business Expenses
Switching from a debit to a credit card, like the American Express Blue Business Plus, earns him $50-$100 per month in rewards. This small change offers added fraud protection and can be rewarding for incidentals.
4. Solo 401(k) Retirement Plan
Fred rolled over his old 401(k) into a Solo 401(k), a retirement plan for self-employed individuals. He now contributes $30,000 annually in addition to $7,500 to his IRA.
Tax Savings: $7,000 per year in deductions.
Invested at 8%, this 401(k) could reach approximately $800,000 by age 70. Alternatively, he could consider a Solo Defined Benefit Plan, allowing contributions of up to $300,000 with potentially even greater tax savings.
5. Backdoor Roth IRA Conversion
Fred’s income makes him ineligible for a traditional IRA deduction, so we recommended a backdoor Roth IRA. This strategy allows him to contribute post-tax income to a Roth IRA, offering tax-free growth and withdrawals in retirement.
Assuming an 8% return, his $7,500 annual contribution would grow to about $180,000 by age 70.
6. Hosting Vistage Meetings at Home
Fred hosts 12 monthly Vistage meetings at his home, billing his LLC $1,000 per meeting. This arrangement allows:
Business Expense: $12,000 for the LLC
Tax-Free Income: $12,000 for Fred
Tax Savings: Approximately $3,000 annually.
If invested over time, this savings could grow to around $90,000 by age 70.
7. Paying His Kids for Work in the Business
Fred employs his 12- and 14-year-olds for social media tasks, paying each $6,500 annually, which is tax-free due to the standard deduction. They contribute this income to Roth IRAs, creating long-term tax-free growth.
By age 70, each child’s Roth could potentially reach between $2-$3 million, assuming an 8% growth rate.
Annual Family Tax Savings: Around $3,000.
8. Buying State Tax Credits
Fred can buy state tax credits at a discount, paying about 85-90 cents per dollar of tax liability. This strategy saves him approximately $2,000 per year on his Georgia state tax liability, and if invested, could grow to about $54,000 by age 70.
How Fred Feels Post-Planning
Fred feels ecstatic, experiencing newfound financial confidence and freedom through Bloomwood’s process.
Final Thoughts: Ready to Unlock Your Wealth?
An hour or less could make you $100,000 wealthier or more. If this episode resonated, click the “Contact Us” button to schedule a consultation with a Bloomwood advisor and discuss your unique situation.
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