Featured Post, Generational Wealth

A Must Have Tool For Your Wealth Building Arsenal: The SEP-IRA

Every year around tax time there are always a few clients that make me really proud. When I see the smart money moves that they make I feel compelled to let the world know about those moves (of course confidentially). It’s a great feeling to see hard-working people of modest means creating a lifetime of wealth and building a solid legacy by making incremental changes that add tremendous future value.

I have always been a proponent of investing in positive cash flowing real estate. In my opinion it’s the best investment vehicle available to most people and that includes stocks, bonds, or just about any other investment anyone can make on the road to creating wealth. However every once in a while, you meet someone with an exceptional passion, the type of passion that could easily translate into creating a business. Last year I encouraged a client to start a “side hustle” even though he was not ready to leave the security of his day job just yet. In 2013, his sideline business has really done well. Even though he is still not yet at the point where he can quit his day job he has managed to turn a hobby and passion into a money-making venture. In the process of doing that, his business has made over $100K profit in its first year. This has allowed him to take advantage of sheltering a significant amount of income. It has provided a key tax benefit while at the same time allowing him to further secure his retirement. This move was made possible by starting a side business and funding a SEP-IRA. If he can replicate his efforts (and I see no reason why he can’t) he should be able to fund close to $100k in his retirement account, tax-free in less than 18 months. Quite an accomplishment!

The SEP-IRA is a variation of the traditional IRA. It is for self-employed individuals and/or business owners and their employees. The advantages of the SEP are you can fund and deduct contributions as much as 25% of your self-employment income, up to $51,000, regardless of how much you make on your job. So if he continues to grow his passion and grow his side hustle he can continue to fund his SEP-IRA year in and year out all while reducing his tax liability. Not bad for a home based business. (FYI speaking of home based businesses the home office deduction just got easier. The IRS is now allowing you to deduct $5 per square footage of office space as oppose the complex calculation of previous years.) So I hope many more people are able to use this tremendous wealth building vehicle, the SEP-IRA.

Well, back to the grind for me. God bless.