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Does 199A Deduction affect my decision?

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  • Avatar milphys 
    Participant
    Status: Physician
    Posts: 3
    Joined: 06/12/2019

    I am a military physician.  Will make about 125k W-2 income (state income tax free) and another 60k from 1099 moonlighting (5.5% state income tax).   Trying to figure out how much to put in TSP vs solo 401k with roth options in either as well.  I would like to at least max out one of these since I recognize tax benefits of retirement accounts in general.  Given I am saving for downpayment for a house, I am unsure I want to max both out this year.  I am favoring traditional over ROTH contributions currently since I won’t have moonlighting income every year so my income is perhaps higher this year than typical.  I was favoring maxing solo 401k over TSP since I would pay state income tax on that money- does that make sense?  Also, how does the 199A deduction affect this decision about which retirement account I should favor?  Thanks for any feedback.

    #221207 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8114
    Joined: 01/09/2016

    Yes, 199a should be a factor in your decision. Are you married? If so, how much does your spouse make?

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #221222 Reply
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4420
    Joined: 01/08/2016
    Trying to figure out how much to put in TSP

    Click to expand…

    19K

    solo 401k with roth options in either as well.

    Click to expand…

    max allowed.

    are you going to stay in the military? will you get the pension? if so, probably all Roth.

     

    #221243 Reply
    Avatar milphys 
    Participant
    Status: Physician
    Posts: 3
    Joined: 06/12/2019

    wife doesn’t make money.  I don’t think at this time I will stay in the military.  I understand max retirement accounts is superior.  However, I am saving for a downpayment in house and may not be able to max.  This is why I was curious which would be superior for me if I could only put 19,000 in one of them.

    #221253 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8114
    Joined: 01/09/2016

    wife doesn’t make money.  I don’t think at this time I will stay in the military.  I understand max retirement accounts is superior.  However, I am saving for a downpayment in house and may not be able to max.  This is why I was curious which would be superior for me if I could only put 19,000 in one of them.

    Click to expand…

    Given your relatively low income, you should go with TSP Roth and get a full 20% deduction on your net IC income. The $19k is a great start for building a retirement nest egg, whether you remain in the military or not. Would be great if you could also contribute to the solo-k Roth, too. This ability to build a fund that will be forever tax free might supersede saving for a downpayment if you can qualify for a doctor loan when you’re ready to buy, especially if rates remain low.

    Sincere thanks for your service to our country!

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #221263 Reply
    Avatar milphys 
    Participant
    Status: Physician
    Posts: 3
    Joined: 06/12/2019

    Forgot I could use doctor loan- great advice!  How do I calculate how much the 20% deduction on my IC income is worth?  It must be worth more than the 5.5% of state taxes I will have to pay on the 60k (- $3300).  I take 20% of 60k and essentially that amount that I can lower my income by and is not taxed?  Is that right?

    #221271 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8114
    Joined: 01/09/2016

    The 199a deduction is 20% of your net earnings from IC – I am assuming you’ll have some deductions, maybe mileage, prorated licenses/fees/CME, home office, etc. That 20% reduces your taxable income for federal tax purposes.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #221276 Reply

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