5 ms·

Yes, there is a state issued (means tested, but not that hard to get) Pension that is funded out of general revenue. The 10% that is referred to is a separate b

Yes, there is a state issued (means tested, but not that hard to get) Pension that is funded out of general revenue. The 10% that is referred to is a separate but mandatory amount known as "supperannuation" - this is taxed at a reduced rate. I believe that this is similar to a 401K in the US, except that it's mandatory for all workers who earn over a small amount (less than the minimum weekly earning). The long term intent of this is to increase "private" savings to reduce the general-revenue funded pensions (though there is a large industry around structuring assets and savings to allow people to have their savings and still get the pension). https://en.wikipedia.org/wiki/Superannuation_in_Australia https://en.wikipedia.org/wiki/Superannuation_in_Australia

jschwartzi 8y ago
The thing about 401ks in the US is that you have to be working for a corporation to get one. If you are a 1099 none of your retirement savings can be tax-deferred. IRAs are kind of a joke compared to 401k and a lot of the tax benefits for "small businesses" don't really matter if you're a sole proprietorship with no other employees.
- scarface74 8y ago
  The thing about 401ks in the US is that you have to be working for a corporation to get one. If you are a 1099 none of your retirement savings can be tax-deferred. https://money.usnews.com/investing/articles/2016-02-22/retirement-plan-options-for-1099-employees https://money.usnews.com/investing/articles/2016-02-22/retir...
- maxxxxx 8y ago
  It's the same stupidity with the rules for health insurance. Why are any of these tax benefits dependent on where you work? They should all be available to everybody. Easier for companies and better for employees. It's pretty crazy that important things like retirement savings or health insurance are decided by companies and not the employees.
  - 2359623598 8y ago
    You need to read up on the US tax code, because you're completely losing out. In the current US tax system there's no reason why you would want to be a W2 instead of a 1099. Being a sole proprietorship, you as an individual can enroll in an ACA marketplace plan. Get a Bronze-level HDHP plan with HSA. That means the most out-of-pocket will be around $6K if a really bad emergency happens that requires surgery or you're incarcerated in a 'mental health' facility against your will, but _should_ be $0 if you take advantage of the free preventative stuff granted by the ACA and take your health seriously by eating right, exercise, learn basic first aid, and perform preventative maintenance on your organic machinery. You'll pay considerably less premiums and you'll be incentivized to never go to the scam artists that are doctors. ACA premiums and tax credit subsidies are based on your MAGI, which means if you're a 1099, you have extreme flexibility and precision in making sure your MAGI ends up right at the subsidy cliff, 150% of the poverty level. At the end of the year, when you tally your final income and figure out which of many ways to reduce your taxable income down to 150% poverty level, the IRS will pay you _more_ money as a _refundable_ credit than you even paid into the premiums in the first place, since the subsidy credit is based on the 2nd lowest Silver tier plan available in your location whereas you would have bought the much cheaper Bronze plan with HSA. Given the self-employed health care premium deduction (~5K), HSA contribution ($3.5K), IRA contribution ($5.5K), solo 401k contribution ($18K employee, $35K "employer"), and whatever miscellaneous deductions fit your specific situation, if you can't find a way to get your MAGI down you have no business complaining in the first place due to your extravagant income.
    - jdhn 8y ago
      This is fascinating. I take it you have to create your own C-corp or LLC in order for this to work?
      - 126825985 8y ago
        For the ACA Marketplace, the requirements for enrolling as an individual are something like you just can't be eligible for health insurance by an employer's rules with some caveats that you could apply for an appeal to enroll if your employer does not offer a plan that meets the Minimum Essential Coverage requirements based on benefits and affordability. Being self-employed, whether that is a straight passthrough entity such as your own identity as a sole proprietorship or LLC, or some more exotic structuring isn't really the issue. In fact, this could work even if you're a W2 employee who is not granted eligibility for health insurance coverage such as places with very draconian eligibility waiting periods or because you decided to work several part time jobs under the legal hourly limits before employers are required to provide health benefits. You wouldn't be able to use the Self-Employed Health Insurance Deduction, but you'll still be eligible for the Premium Tax Credit as long as you meet a list of requirements including MAGI in a certain range. The appeal of being a 1099 is that it's far easier to finely control your MAGI, be it for this ACA PTC or any other type of subsidy/credit/benefit that is tied specifically to MAGI/AGI and can thus be gamed into legally but artificially giving you income status as being near poverty levels. Of course, this is only really relevant for youngish people who are in an accumulation phase way before retirement and have frugal enough annual expenditures that you can sock away the vast majority of your income in tax-deferred accounts and still survive or have family that provide financial support anyways. There are also tradeoffs to consider in deducting traditional pre-tax contributions to retirement plans rather than Roth, but if you are in the situation that this scheme seems appealing for consideration, then there is a very good chance that you have somewhat unstable income streams, prefer your own working pace, or would even like to take breaks to go back to school/self-study/bootstrap_a_startup/whatever, that you could always smooth that out in future years by converting pre-tax to post-tax during times of relative famine. And if you're the type looking for early retirement going full throttle in your 20s/30s, it makes much more sense to defer taxes rather than pay upfront in Roth given your upcoming break/slowdown from the workforce. Of course, I'm not your tax attorney, so please read the various rules and regulations and figure applicability for yourself. :) For starters see: Pub 974: Self-Employed Health Insurance Deduction and PTC https://www.irs.gov/pub/irs-pdf/p974.pdf https://www.irs.gov/pub/irs-pdf/p974.pdf Form 8962: Premium Tax Credit https://www.irs.gov/forms-pubs/about-form-8962 https://www.irs.gov/forms-pubs/about-form-8962
- ryanwaggoner 8y ago
  This isn’t true at all. Solo 401ks and SEP-IRAs both allow tax-deferred savings for self-employed folks up to $55k per year, if you make enough (the amount you can contribute is a function of your profit).
  - sokoloff 8y ago
    Correct. My wife does this and the cap is something like 91 or 92% of gross profits. (There's a few types of tax that come out first, but it's over 90% that you can sock away if you choose.)
- mooreds 8y ago
  I ran a one person consulting company for a number of years. Both the simple IRA and the sep IRA are valid options that have a minimum of paperwork and let you save five figures of income, tax deferred. If I were on my own again, would definitely open one of these up. This is only for the USA, can't speak to options on other countries.
- dboreham 8y ago
  401(k), yes, but there are other functionally similar schemes that are usable by sole traders and small corporations. We have a SIMPLE IRA, for example.

jschwartzi 8y ago

The thing about 401ks in the US is that you have to be working for a corporation to get one. If you are a 1099 none of your retirement savings can be tax-deferred. IRAs are kind of a joke compared to 401k and a lot of the tax benefits for "small businesses" don't really matter if you're a sole proprietorship with no other employees.

scarface74 8y ago
The thing about 401ks in the US is that you have to be working for a corporation to get one. If you are a 1099 none of your retirement savings can be tax-deferred. https://money.usnews.com/investing/articles/2016-02-22/retirement-plan-options-for-1099-employees https://money.usnews.com/investing/articles/2016-02-22/retir...
maxxxxx 8y ago
It's the same stupidity with the rules for health insurance. Why are any of these tax benefits dependent on where you work? They should all be available to everybody. Easier for companies and better for employees. It's pretty crazy that important things like retirement savings or health insurance are decided by companies and not the employees.
- 2359623598 8y ago
  You need to read up on the US tax code, because you're completely losing out. In the current US tax system there's no reason why you would want to be a W2 instead of a 1099. Being a sole proprietorship, you as an individual can enroll in an ACA marketplace plan. Get a Bronze-level HDHP plan with HSA. That means the most out-of-pocket will be around $6K if a really bad emergency happens that requires surgery or you're incarcerated in a 'mental health' facility against your will, but _should_ be $0 if you take advantage of the free preventative stuff granted by the ACA and take your health seriously by eating right, exercise, learn basic first aid, and perform preventative maintenance on your organic machinery. You'll pay considerably less premiums and you'll be incentivized to never go to the scam artists that are doctors. ACA premiums and tax credit subsidies are based on your MAGI, which means if you're a 1099, you have extreme flexibility and precision in making sure your MAGI ends up right at the subsidy cliff, 150% of the poverty level. At the end of the year, when you tally your final income and figure out which of many ways to reduce your taxable income down to 150% poverty level, the IRS will pay you _more_ money as a _refundable_ credit than you even paid into the premiums in the first place, since the subsidy credit is based on the 2nd lowest Silver tier plan available in your location whereas you would have bought the much cheaper Bronze plan with HSA. Given the self-employed health care premium deduction (~5K), HSA contribution ($3.5K), IRA contribution ($5.5K), solo 401k contribution ($18K employee, $35K "employer"), and whatever miscellaneous deductions fit your specific situation, if you can't find a way to get your MAGI down you have no business complaining in the first place due to your extravagant income.
  - jdhn 8y ago
    This is fascinating. I take it you have to create your own C-corp or LLC in order for this to work?
    - 126825985 8y ago
      For the ACA Marketplace, the requirements for enrolling as an individual are something like you just can't be eligible for health insurance by an employer's rules with some caveats that you could apply for an appeal to enroll if your employer does not offer a plan that meets the Minimum Essential Coverage requirements based on benefits and affordability. Being self-employed, whether that is a straight passthrough entity such as your own identity as a sole proprietorship or LLC, or some more exotic structuring isn't really the issue. In fact, this could work even if you're a W2 employee who is not granted eligibility for health insurance coverage such as places with very draconian eligibility waiting periods or because you decided to work several part time jobs under the legal hourly limits before employers are required to provide health benefits. You wouldn't be able to use the Self-Employed Health Insurance Deduction, but you'll still be eligible for the Premium Tax Credit as long as you meet a list of requirements including MAGI in a certain range. The appeal of being a 1099 is that it's far easier to finely control your MAGI, be it for this ACA PTC or any other type of subsidy/credit/benefit that is tied specifically to MAGI/AGI and can thus be gamed into legally but artificially giving you income status as being near poverty levels. Of course, this is only really relevant for youngish people who are in an accumulation phase way before retirement and have frugal enough annual expenditures that you can sock away the vast majority of your income in tax-deferred accounts and still survive or have family that provide financial support anyways. There are also tradeoffs to consider in deducting traditional pre-tax contributions to retirement plans rather than Roth, but if you are in the situation that this scheme seems appealing for consideration, then there is a very good chance that you have somewhat unstable income streams, prefer your own working pace, or would even like to take breaks to go back to school/self-study/bootstrap_a_startup/whatever, that you could always smooth that out in future years by converting pre-tax to post-tax during times of relative famine. And if you're the type looking for early retirement going full throttle in your 20s/30s, it makes much more sense to defer taxes rather than pay upfront in Roth given your upcoming break/slowdown from the workforce. Of course, I'm not your tax attorney, so please read the various rules and regulations and figure applicability for yourself. :) For starters see: Pub 974: Self-Employed Health Insurance Deduction and PTC https://www.irs.gov/pub/irs-pdf/p974.pdf https://www.irs.gov/pub/irs-pdf/p974.pdf Form 8962: Premium Tax Credit https://www.irs.gov/forms-pubs/about-form-8962 https://www.irs.gov/forms-pubs/about-form-8962
ryanwaggoner 8y ago
This isn’t true at all. Solo 401ks and SEP-IRAs both allow tax-deferred savings for self-employed folks up to $55k per year, if you make enough (the amount you can contribute is a function of your profit).
- sokoloff 8y ago
  Correct. My wife does this and the cap is something like 91 or 92% of gross profits. (There's a few types of tax that come out first, but it's over 90% that you can sock away if you choose.)
mooreds 8y ago
I ran a one person consulting company for a number of years. Both the simple IRA and the sep IRA are valid options that have a minimum of paperwork and let you save five figures of income, tax deferred. If I were on my own again, would definitely open one of these up. This is only for the USA, can't speak to options on other countries.
dboreham 8y ago
401(k), yes, but there are other functionally similar schemes that are usable by sole traders and small corporations. We have a SIMPLE IRA, for example.