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Nov 18, 2009 2:48 pm

Question for RIAs who have set up a Sub chap S for tax purposes-

What are you paying yourself as income? My accountant says to use the local avg of 72k (not sure where that number came from). However my income is much higher. I am trying to avoid having the IRS all over me.

Has anyone found a good percentage of revenue/income paid?


Nov 18, 2009 3:00 pm

How long have you been in business?  The IRS won’t start scrutinizing it until you’ve been at it three years.  You could have a ridiculously low salary and it would be fine.

Nov 18, 2009 3:23 pm

Maybe I’m being naive, but wouldn’t it be advantageous to show at least enough income to qualify for maximum Social Security benefits when you retire?  I guess you would have to look at the cost/benefit analysis of contributing to SS versus contributing to a 401K/SEP/SIMPLE or DB plan.  But just from a retirement risk management perspective, having guaranteed SS income is helpful.

Nov 18, 2009 3:37 pm

I’m not sure I see much benefit in SS.  That’s just me though.

Nov 18, 2009 4:13 pm

The NPV of SS income streams for a maximum benefit can be 300-400K (or more), guaranteed, and indexed with inflation.  And I am just assuming 20 years in retirement.  Based on how some people manage their money, they might be better off they could contribute more.  When you have a husband and wife, and each have maximum benefits, you’re talking $50K a year, and indexed with inflation for life.  You would need to sock away $1mm to get the same from an annuity (give or take).

I think the whole "Social Security is going away" argument is bunk anyway.  Yes, we're talking about advisors that should know better.  But I have friends that are advisors, making 175K a year, and beyond maybe a 10% 401K contribution, save nothing.  These are the one's that could use some social security. It also has the flexibility of payout options (early/normal/late).  So you can manage your withdrawal of other funds better.  SS should not be overlooked (IMHO).
Nov 18, 2009 4:27 pm

Basically, if I max out my social security payments starting right NOW until age 65 and then add in what I’ve paid in the past, I will have paid in $361,992, assuming the current value of a dollar remains the same (I’m sure we can agree it won’t).

To me, that’s not a very good rate of return.

Nov 18, 2009 6:22 pm

It is if you live until 95.  That’s the gamble.  The return is huge if you live longer.  But it also depends on your age now.  I have never looked at how long you need to max out to get max benefit.  That might be worth looking into.  If it’s 10 years, you just do it for the last 10 years of your career.  That would improve the equation dramatically.

Nov 18, 2009 6:40 pm

If more people are gonna continue to live longer, then eventually SS will stop paying.  They are already expecting to reduce benefits by 2014.

But for me, if I am going to max it out, as an independent business owner, I’d do it the last 10 years of my working years.

We’ll see.

Nov 18, 2009 7:30 pm

Moraen- been in the biz over 12 years - indy for two, RIA for this past year (2009 is first RIA year)

I am worried that they will see my high 1099 income from when I was indy to this year’s, which is higher. Then in 2010, if I set up a sub s, then much lower. Seems like a big red flag to me.

I wonder if it is a better idea to pay myself the same amount I am making now and any growth in future years will be “company earnings”

Nov 18, 2009 8:27 pm

If you are reinvesting the money in your business... dont see any big issues. Are you paying yourself the checks or expensing your personal stuff through the business?

I maintain full seperation between business and personal.