How to Retire Young, Healthy, and Wealthy

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Do you want to work forever? After you realize that being a fitness professional is actually a real career and you’ve come to terms with the fact that you really can do this for as long as you wish, then it’s time to structure your business for the long term. Part of this is setting up your own retirement account. It’s actually simple to do and in this post I share a little known secret of how you can put away up to $49,000 a year TAX FREE (saving you about $17,000 in taxes for the year) instead of the usual $5,000 you can put away.

Hi S3 Members!

This is the actual email I send out to all of my CPT team members here at the studio. They are all independent contractors, and thus, they can set up their own retirement account just like I do.

This is just one more reason why being an independent business owner/contractor is the way to go.

As usual any information I relay to you about the business end of personal training and the studio is highly confidential (this email is no exception to that).

Now having gotten the formalities out of the way I wanted to send a follow up email to our Monday morning meeting conversation we had on setting up a SEP IRA and how it can help you retire a wealthy individual (and save you a lot on taxes now).

So, if you’re interested please read on and then let me know if you have any questions (please do keep in mind that all of the information below is just an example and that I am not an accountant giving you advice on what to do with your money or what you owe for taxes):

 Advantages of a SEP

  • Contributions to a SEP are tax deductible and your business pays no taxes on the earnings on the investments.
  • You are not locked into making contributions every year. In fact, you decide each year whether, and how much, to contribute to your employees’ SEP-IRAs.
  • Generally, you do not have to file any documents with the government.
  • Sole proprietors, partnerships, and corporations, including S corporations, can set up SEPs.
  • You may be eligible for a tax credit of up to $500 per year for each of the first 3 years for the cost of starting the plan.
  • Administrative costs are low.

 

Real World Example:

Let’s say you make $80,000 a year and are looking for a way to set up a retirement account so that begin planning for the future. The best way I have found is by setting up a SEP IRA (Simplified Employee Pension). Unlike a Roth or Traditional IRA that you might set up as an employee of a corporation where you can only contribute up to $5,000, but with a SEP you can actually contribute 20% of your net income.

Essentially this allows you to put away $12,000 a year if you were to claim $60,000 after $20,000 of write offs. And after you put in $12,000 ($1,000 a month) to your SEP you would not only be taxed on $48,000 instead.

This essentially saves you at least another $3,000 in taxes.

So what happened was you started out with $80,000 of taxable income and now you have brought it down to $48,000 after write offs and contributing to your SEP which you do not get taxed onto until you take it out at age 59 1/2 or later.

The benefit to this is that you will most likely be taxed at a lower tax bracket when you retire and are not making as much income.

Here’s another example that may demonstrate how you can legally pay less in taxes right now and save for retirement. I will base it off a $100,000/year in income and the fact you own your own home – if yo do not own your own home I believe you can only right off around $5,000 a year in rent – sometimes more if you claim a home work office):

 

(*All financials below are based on 1 year – to calculate monthly cost divide each expense below by 12)

Business write-offs: $12,000 ($1,000 a month)

Mortgage interest: $18,000 ($1,500 a month)

Cell phone/internet: $1,800 ($150 a month)

Car (85% of usage), train, etc: $2,400 ($200 a month)

Misc write-offs (charity, equipment, etc): $1,200  ($100 a month)

Total Deductions: $35,400

 

This leaves you with $64,600 of taxable income after deductions:

 

That means you can now put $12,920 into a SEP IRA for your retirement.

 

Now your total taxable income is down to $51,680.

With $51,680 you still have over $4,000 a month to live on for personal expenses besides your home which was already accounted for…

So in the first scenario without any write offs you’ be looking at about $33,000 in taxes paid and now you’re down to about $16,000 or so in taxes (again I’m not an accountant, so please understand these are estimates and for example sake only).

Now you’ve legally cut your taxes in half by showing your business and home deductions as well as putting away 12K in retirement. This 12K alone would have been taxed around $3,000 so keep in mind that you just made $3,000! If you hadn’t put away the 12K you’d only have $9,000 after taxes…

Keep in mind that if you own your own studio you will most likely have another $36,000 in write offs due to rent, overhead, etc ($3,000+ a month). This means you’ll also pay far less in taxes (about $10K less) although you won’t be able to contribute quite as much to your SEP IRA.

This wasn’t meant to be the end all be all of saving for retirement and paying less legally in taxes, but I did want to give you place to start doing some research and looking into a SEP IRA.

(Please also note that it is not possible to escape taxes, but in this scenario you get to invest your own money tax free until you go to take it out after age 59.5 AND by that time you will be most likely be in the lowest tax bracket – this allows you to be taxed at 10% or more less… which means you get to keep 10%+ more in your pocket!)

It has helped me out a lot and gives me a lot of peace of mind when planning for the future. Plus, it’s one more perk about being an independent contractor and having more legal deductions than corporate employees do.

This is the SEP IRA company I used to set up my retirement account:

The Entrust Group Inc:

http://www.theentrustgroup.com/

 

This is also a great web page on what and how you can use your SEP for investing (I personally invest in real estate since it’s what I know, but you can opt for stocks, bonds, notes, loans, etc.:

http://www.portlandrealestatecafe.com/blog/using-a-self-directed-ira-to-buy-real-estate-faq.html

 

* Although this scenario is based in the USA I have no doubt an International version exists for our dozens of International Smart Studio Systems Members and if you know of one please leave it in the comment section below.

 

I hope this helps and please let me now if you have any questions I’d be happy to help if I have the answer!

 

Comments

Comment on this Content

  • Thanks Michael,

    And remember, it’s not what you make, but what you keep that counts.

    That’s why saving $10,000 a year is the SAME as making an extra $10,000 a year… most of us (including myself at times) forget this by engaging in unconscious wasteful spending or allowing needless expenses to pile up…

    If you take advantage of this SEP IRA you will be doing yourself and your family a HUGE favor in the long run – Plus your bank account will be happier at the end of the year as well!

  • I’m always looking for new ways for you to make or save more money as part of your S3 Membership!

    (Most people, never mind fitness professionals, have ever heard of a SEP IRA, but now you have the hook-up so talk with a qualified accountant and take advantage of it!)

    Remember, you don’t always have to make more money if you keep more of what you’re currently making… As they say, it’s not what you make, but what you keep!

    • Michael Bevard

      Great post Steven! Thanks for always looking out for us fitness pros! I will talk with my accountant and get on this asap!