Will The Deductibility of My Retirement Plan Contributions be Impacted by the QBI Rules?
The Qualified Business Income (QBI) deduction was introduced by the Tax Cuts and Jobs Act (TCJA) in 2017 and provides a 20% deduction on qualifying business income for pass-through entities, such as sole proprietorships, partnerships, S corporations, and limited liability companies (LLCs).
The QBI deduction is subject to certain limitations and phaseouts based on income and industry, which can make it a complex issue to navigate. One of the potential implications of the QBI deduction is a reduction in the deductibility of retirement plan contributions for small business owners.
The “Will The Deductibility Of My Retirement Plan Contributions Be Impacted By The QBI Rules?” flowchart helps small business owners navigate this issue by considering key eligibility guidelines, income thresholds, and the impact of lower AGI on retirement plan contributions.
For example, the flowchart helps small business owners determine if they are eligible for the QBI deduction and if the deduction will impact their AGI. Lower AGI can result in higher deductibility for certain types of retirement plan contributions, such as traditional 401(k) plans.
The flowchart also considers whether a Roth 401(k) or pre-tax 401(k) is a better option for small business owners, and highlights the importance of the Mega Backdoor Roth IRA for those who want to save even more for retirement.
By addressing these issues in a clear and concise manner, the flowchart helps small business owners make informed decisions about their retirement planning and QBI deduction strategy.
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Robert J. Pyle, CFP®, CFA, AEP® founded Diversified Asset Management, Inc., in 1996 to provide personalized, comprehensive wealth management services to successful individuals, families, single women, and business owners. His specialty is addressing the complex financial needs of self-employed professionals, corporate executives, and small-business owners. Our disclosure can be found here. The views, opinion, information, and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting, or tax advice.