The Real Value of a 401(k) Plan

We all know putting money aside in a tax deferred account is a good idea.  Businesses should offer these to employees for many reasons, not the least which is that an employee that saves is a good employee.  The cost of administering retirement plans can be daunting.  SIMPLE’s are the cheapest and Defined Contribution plans tend to be the most expense.  The traditional 401(k) plan isn’t always the best bang for the buck, however, these plans pack punch that often go overlooked by the small business owner.  Two great reasons to consider a traditional 401(k) are as follows:


  • The extra $10,000.  In 2014 an employee may contribute up to $17,500 toward their retirement.  But, if your plan is so designed they may then be able to contribute an additional $10,000 as an after tax in-plan IRA contribution.  This additional contribution is without regard to whether or not regard to discrimination testing, short answer, the business owner can also make this contribution!  So a business owner who is also an employee participating in the Company 401(k) plan can contribute up to $39,500 to a retirement plan without having to set up pension and profit sharing plans and be subject to nondiscrimination testing.  Here’s the math for an owner/employee older than 50:


Traditional 401(k) contribution:                                  $17,500

Catch-up 401(k)                                                            5,500

After tax in-plan contribution                                       10,000

     Total 401(k) plan contributions                            $33,000

Traditional self-directed IRA contribution                   $5,500

Catch-up IRA                                                               1,000

     Total IRA contribution                                           $6,500

Total retirement account contributions                    $39,500

 **PLANNING NOTE:  Roll this extra $10,000 over into a self-directed IRA and convert both contributions to a Roth immediately for a $16,500 Roth contribution in spite of earnings limits.


Like it?  Call your financial advisor ASAP!

Tax Return Forget Me Nots

Red bow on finger


Before you submit your tax documents to your accountant for completion of your tax return, take a look at the top 5 most commonly overlooked items below to make sure you’ve included everything:

1. Long term care insurance:  Missouri allows for a deduction from taxable income for a portion of your long term care insurance. Many other states allow a deduction or sometimes a tax credit for these premiums.  Although this is one of the questions in the full version of the organizer, because we are so conditioned that medical expense is limited to 10 % of AGI, we forget that the state may allow for some benefit of these itemized deductions. Long term care insurance should be included on your return to take full advantage of this opportunity.

2. Electronic 1099s:  Many brokerage firms now have the option of sending your 1099s directly to your CPA.  All firms are different, but you may be able to save our email address as your CPA in your brokerage online account and have the 1099s securely emailed to us when they are ready.

3. Business expenses and AMT:  The top marginal tax rate is now 39.6%.  This could mean you are out of the Alternative Minimum Tax (AMT) now or will be in the near future.  While you were not deducting any unreimbursed business expenses while in AMT, now you could deduct them.  If you do not track and send them to us, you will not deduct them.  Remember to send us all business expenses (including mileage driven) with your tax documents so you are not missing out on these deductions.  Also, although there are a few states that do, most states do not have AMT so your expenses would be deductible on the state side even if you are still in AMT so go ahead and send everything to us even if you think you will be in AMT.

4. Non Cash Charitable Donations:  Donating items to charities such as the Salvation Army or Goodwill can save you substantial tax.  Websites such as and give the approximate values of used furniture, clothing, or appliances.  They make what used to be a difficult process, tracking values of donated items, easy and it will save you real money.  Many times, the values these websites give for items in good condition are higher then you may expect.

5. Charitable Mileage and Supplies:  If you use your vehicle for charitable organizations, you can deduct these miles as charitable donations.  If you purchase supplies on behalf of a charitable organization to use at an event, these are charitable donations.  There is a place on your organize for each of these items so remember to include them if they apply to you.

Thanks for allowing the HKA family to work with you again this year on your 2013 tax returns.  If you are not currently a client and wish to learn more about us and what we can do for you, please click here.

Purchase Real Estate with A Self-Directed IRA


It is a known fact that you cannot use your Individual Retirement Account (IRA) to invest in real estate.  Although this is true with a traditional 401(k) or traditional IRA, you can invest in real estate through the use of a self-directed IRA.

A self-directed IRA is an IRA like any other under IRS guidelines in terms of annual contributions, required minimum distributions, and types such as Traditional, ROTH, Simple, and SEP.  While most traditional IRAs limit your investments to publicly traded securities, self-directed IRAs are open to almost any investment, except for life insurance, collectibles, and S-Corporations.

Below are some key points you should review before you decide to use your self-directed IRA to purchase real estate:

  1. The property must be a new purchase directly into the IRA and cannot be a property you already own or a personal residence.
  2. You must have enough cash to purchase the property.  You cannot take out a mortgage in your IRA to finance the purchase.
  3. You cannot borrow money from the property or use it as security for a loan.
  4. You and your relatives are barred from occupying or working on the property.  If you are considering renting the property, you need a property manager to find tenants and all expenses for repairs and improvements must come out of the IRA.

While it is possible to use a self-directed IRA to purchase real estate it may become more complicated to manage its use than if it were purchased and operated outside of the IRA.

Feel free to give us a call if you have any questions or want to discuss this further.