Super Bonus EOY Episode! Solo-401k, Opportunities and Systems over Goals

Business Brain, the Entrepreneurs podcast, episode 412 for Wednesday, December 28, 2022. Greetings, folks, and welcome to Business Brain. Welcome back to Business Brain. If you're, if this is not your first episode, but if you are, it's fine. We're a welcoming family here. Except that we lied to you because we said that last week's episode was the final episode of the year and we would be back next week with our first episode of 2023. That has changed, obviously, because you're hearing this while we're still in 2022. We have some things that we wanted to talk about that are part of 2022. So we're going to do that. And then our first episode will be of 2023 will be the week of the 9th. So you get one episode for these two weeks. We just pulled it ahead a little bit Here in Durham, New Hampshire, I'm Dave Hamilton.

And in Lafayette, California, I'm Shannon Jean. Glad to release this one today. You and I started talking about couple of items and decided that. Yes, worth releasing early if you will, so that people could take advantage of what we're going to talk about.

Yeah, well, let's get right into that because it was our pre show agenda organizing discussions of what's called the solo 401k or the individual 401k. Some people call it a uni k which is a retirement account built very specifically for small business owners, solo business owners. But there are some asterisks that let you include your spouse. And then the other big thing is you can't have one of these plans if your business has employees or you.

Own part of another business with employees. There's some, you know, you need to.

Talk, you got to talk with your accountant about that. Yeah, the closely held companies and all of that. But it's not as clear, it's not definitive one way or the other. You have to look at how those businesses are organized and that sort of thing because you can have, there is a world where you can have a business that has its own 401k and then you have a second business that has the solo K or the solo, whatever we're calling it the solo 401k and you as the business owner. Because I had both accountants on the phone last week about this. This was a meeting of the minds. It was, it was a crazy little call. But they started talking and they were like, yeah, actually you can have it where you increase your contribution limits by contributing the maximum to your solo 401k in one business. And then you're an employee of this other business, so you get to contribute there too, just like your other employees do. And then everything is like arm's length and copacetic because you're covering all your employees with one and yada yada. They just want to make sure you're not screwing your employees. Yeah, that's right. That's correct.

Yeah. It's great. Yeah. And so I was mentioning to Dave that. Oh, I just funded. You know, in my case, since it's. And Dave just enlightened me about the rule. There are certain rules where if your spouse is involved, typically you're funding that before the end of the year unless she's a member of an LLC that is your Solo 401 business. And.

Correct. Yeah. If your spouse.

When you pay your tax, if your.

Spouse is your employer, employee, employee contributions have to be done in the calendar year. But partner or, or employer contributions can happen up until your tax filing deadline.

Right.

And so if you're. And, and again, your spouse is the only employee that you can have and still file a solo 401k the. Because I just went through all this like hours ago, I didn't realize we were talking about it on the show, but I'm glad. Here we are.

Me too.

The. There are. So that's one asterisk, the other asterisk. One other asterisk. Is that the plan in order to have. There are two. There are two limits of contribution that, that you can work with here. One is yourself as an employee, which you are. And then there is the yourself as the business owner. And there. There are contributions that can happen on both of those fronts. So even though you're not an employee of your business, you get to treat yourself that way in this scen. Again, do all of this with your accountant. But in order to treat yourself in that scenario, you can make those contributions up until your tax filing deadline. But in order to qualify for the employee contributions, the plan needs to be established before the end of the calendar year that the contributions or the tax year the contributions count towards. This is why we're releasing this episode.

Why we're here today.

Yeah, because you got to have the plan established at the very least to get the. The most out of it before December 31st. But then, then depending on who the relationship between you and your. Your spouse in, in terms of the business, hopefully the relationship between you and your spouse is good otherwise. But if they're just your employee, then they have to contribute before the end of the year. If they are A partner in an LLC and the only partner of yours in the llc. Then you can do that up until the tax filing deadline. And again, check with your accountant, because I believe I am 100% correct on all of this, but I'm only correct for me.

Yeah, yeah. Don't take accounting advice from us other than talk to your accountant. But yeah, and it's just a great plan. You can, you know, if you're an employee, you can contribute up to $27,000. And for yourself that 27 plus depending upon the revenue that you report from your. And so you can really sock away a good chunk of cash each year.

I think you can do more than 27,000, I think, for, for 2022, if you're, if, if you're. Okay, the limits in the 50s.

Yeah, right here. No, that's for you as well. The, the max employee. I just got this email. Max employee deferral has increased to 27,000 for 2022. It's 20,500 plus 6,500 for catch up if you're over 50, I think is what it is.

Correct.

Yeah. So.

Oh, and then you've got the employer contribution that you.

Correct.

Can you do and get you up to that 61,000 or whatever it is? Yes, that's correct. Yes.

Yeah.

Yes, that's right. Yeah.

Yeah. So that's, it's great. So, you know, pay to yourself or pay to the irs. You make the call. Of course, you'd still have to come up with the cash, but one way or another, you're going to have to come up with it either, you know, putting it in your own retirement or writing a check to Uncle Sam.

Right, Uncle Sam, that's right. Yeah. Yeah, it's, it's. And I, I found out today, and I'm not doing this, but only because it just hadn't ever come up before, but there is a Roth 401K, which is. Yes, there is an interesting little thing. I didn't roth solo for 1K. Like, I didn't. I thought it was, I thought 401Ks were all like tax deferred as opposed to the Roth treatment, which gives you the, you're, you pay, you, you pay tax on, on the contributions, but you, your earnings are. The growth of. The plan is tax free.

So, yeah, it's pretty impressive. Yeah, the Roth is definitely part of, should be part of your, your wealth. Planning to live your charmed life. Yeah, it's, it's really powerful. Whether you do the 401k or do some kind of IRA with your, you know, with your business.

Yep.

There's a famous story about Peter Thiel, how he turned his Roth from, you know, was only worth a couple thousand dollars a few decades ago and now it's worth 5 billion. If you look that up, you can read that story.

Wow.

Pretty interesting.

Wow.

Pretty crazy.

Yeah, yeah, yeah.

He's one of the founders of, of PayPal.

That's right. Among. Among many other things. Yeah, yeah.

PayPal mafia. The other thing I wanted to mention and even though I said last week we weren't doing it end of year show, I think it's worthwhile a couple of things that have come up for me over the last few weeks. One is opportunities. I love this time of year because if you're, if you're in the inventory, if you stock products and if, especially if you're a opportunistic buyer like me, if you're a reseller, if you're end of year for your business is not 1231, there's just tons of buying opportunities that come along in December from companies that want to dump inventory and get it off their books.

Do you have your, your inventory related business ending its year, like you know, April 1st or something or March 31st?

It's March. Yeah, yeah, yeah.

Smart.

And it, it's, I mean I, I just, I learned that trick years ago because I made a big mistake one time was oh, look at all these deals I'm going to buy in December, you know, and then having the taxes on it at the end of the month, which was, which was rough but shifting and moving it down, it just gives you lots of opportunity to take care of deals. It's kind of like the end of the month sale if you're going to, or end of the quarter if you're buying a car and somebody's trying to meet quota. There's all kinds of companies out there that want to sell products to hit their numbers before the end of the year and you can take advantage of those. It's great.

Smart.

There's other ways to do it too. You can have them book the sale to you and you not pay for it until after I think the end of the year. I think there's some ways again, you got to talk to your, got.

Yeah. You got to make sure you're on cash versus accruals basis on your accounting and, and, and manage that properly. But yeah, we were able to do some of that with the, the sale of, of the Mac observer, that asset last year or this year technically. So yeah, yeah, that's Great.

And then lastly, you know, now we're after Christmas and coming up on the new year, and you hear people talking about resolutions, goals for 2023 and everything. And I just a reminder that, you know, on this show we subscribe to the concept of systems over goals because it's far more powerful, it's more adaptable, and you can achieve things along the way instead of holding this big goal out to the end that, that is much, perhaps easier to fail at.

Well, and thinking the reason I like systems better than goals is from the standpoint of momentum, even if it's just emotional momentum. If I have a goal set and I hit that goal, you know, I'm a human being and most of us will be like, great, I made it. Okay, cool. And then, and then you stop or you slow down or something changes when you hit a goal. It's it. Because it's this thing that you've set. It's something you focused on. Now it's gone. Right? It's no longer there. And so it's easy to just back off and be like, okay. And I've caught myself doing it. I mean, it usually takes years for me to realize, oh, wow, I used to be more productive. Why am I not? And that's what really attracts me to the idea of systems. Because once you get a system in place, if the system's working, it's just working. And so make your goal to create a system or something. I don't know, you had a good thing.

So, yeah, I love how it's adaptable and it also is stackable. And what I mean by that is, okay for 2023, like, I want to create a system. I want to learn about teaching courses. I want to teach an online course. That's my thing. Okay. I've been working on a new book, but I've started to think, you know, I think this would be better as a course than a book. So. But instead of setting this goal that I'm going to create a course in the quarter of 2023 or whatever it is, I'm going to create a system so to learn how to develop courses. And it's, it's adaptable. And as I learn a little bit, I'm going to tell myself in my head because I'm a huge story guy. Oh, look, I already had success because I, I found the, the best place to teach me or I hired a teacher or coach, and then I'm going to build on that. It's kind of like the to did list concept where you're looking back and, and looking at how what you got done that day, that in my case helps me be more productive the next day. So the systems, adapting it, stacking up the successes you have along the way fuels that system and allows you to power through a goal and to keep, you know, adjusting as you go along. I love the concept. I think it's great.

I do too. No, it's obviously we've been talking about goals versus systems for years here. In fact, I gave a short three minute talk at, at a Google conference called Goals are for Losers and people loved it.

Exactly. Right.

Yeah. It's because, because like I said, it disappears when you hit that. And if you've got the system or.

If you don't hit it, you. Yeah. Or if you don't hit the goal, you often everything you. Yeah. And everything you learned along the way gets overshadowed by the fact that you didn't hit your goal correctly. But per, but I guarantee you something else happened along the way, right? You, you learned, you know, maybe you realize the goal isn't really, you know, either attainable or you don't want to achieve that anymore. So you're redoing. So systems are, you know, terrific. We had, I don't remember the author's name, but we had an author of a book called Systemology. Is that right?

Oh, I think that's right. Yeah, yeah, yeah. On the show.

Let me, yeah, we'll put a link in, in the Show Notes at BusinessBrain show for you to go take.

Yeah, David Jennings of Systemology. Yeah, yeah, yeah, yeah, yeah.

And, but, but systems are the way to go, man. It's just if you search for systems up at, at BusinessBrain show, you'll find lots of feedback on that because we both, Dave and I have been successful adapting to that.

So it's the key.

Important.

Yeah, I try to get my, I'm always like whenever I'm working with my staff and I, I had meetings with a lot of the team this week because it's a, it is a good time to start thinking about, all right, what systems do we want to put into place for next year? And, and it really was about, all right, let's just put systems in. It wasn't, let's set goals. The goal is the system. That's it, you know.

Yeah, it's great.

Yeah.

So that's those things I wanted to talk about, you know, that are, that are end of year related. So I'm glad that we came to you this week and kind of wrap up that stuff we hope you like these shorter shows. Let us know what you think. Feedbackusinessbrain.com show. Please reach out. We would love to hear from you.

We'd love to hear from you. I want to know what systems you're putting into Place for 2,023. So let us know. Feedback at BusinessBrain show and happy New Year, folks. Be safe. Keep living that charmed life.