Self employed individuals are often instructed by their CPA to put money into a SEP IRA. This short video illustrates the faulty math behind this decision.
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Kelly O’Connor is the owner of Kelly D. O’Connor Financial ( a modern-day financial strategy company for those who believe the IRS tries really hard to take the fun out of being successful and prefer to investigate the tax-exempt strategies that exist using over-funded life insurance contracts. Kelly is a top producer in the insurance field. He is also involved in the creation, implementation, design and continued growth of the first member-only online tool kit for financial professionals, InsuranceAgentCentral.com ( This site has quickly become the “must have” for all financial experts who hold insurance licenses. He’s the founder and creator of Authentic Agent, a training system for insurance professionals looking to expand their production. He was a co-founder of Mountain Financial, LLC which quickly grew to several offices across the country (can’t remove the YouTube branding but so what). His first program for the insurance industry, Financial Caffeine, is still used today. Kelly also founded College Money Academy ( three years ago after being a highly sought after speaker in the charter school system in the state of Colorado. College Money Academy is the only online, video-based program that teaches parents how the leverage their kid and negotiate with any university in order to reduce the price for college. Following his program when it was time for his first-born child to go to school, Kelly negotiated a price of $3,400 per year for a $27,000 university. He regularly coaches parents how to accomplish similar results…he’s literally kept millions of dollars in family bank accounts through this service. He’s a father of four, step-dad of two and a husband of one beautiful woman (he added that line)!
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I like this video. It spells it out VISUALLY. It makes sense.
Are you assuming they’re lump sum withdrawal all the money? Sounds ridiculous.
I agree with the general premise of the the video that tax deferred plans kick the can down the road but don't eliminate your future tax obligation. Where I see the mistake here is that the distribution was considered taxed entirely at the marginal tax rate. In reality, a distribution from a traditional retirement plan will be taxed at the effective tax rate of the individual, not the marginal, because a portion of the distribution will be tax free as it covers deductions and exemptions. A portion of the distribution will be taxed at 10%, 15%, a big hunk will be taxed at 25% and then the portion that extends past 25% taxed at 33%. So while the tax saved may very well have been deferred at 33% the tax paid will be potentially as low as 20%, even with the same standard of living. And if one were clever, you could do a series of partial roth conversions… until say the effective rate had reached 25%. That'd represent a source of totally tax free future growth at a tax rate substantially below what the money would have been taxed at during the accumulation phase. This can be an especially powerful technique for early retirees. Now if the retirees are still pulling in fat paychecks from their business or have other revenue streams (side hustles I guess the current term is), then that will push the taxation rate of the IRA/401k distribution above the effective/average taxation rate and more towards the marginal rate, but it'll always be somewhere between the effective and marginal.
isn't it interesting that the statement 'there's a better way' is not discussed in any context. Let's have a 'conversation'. Sounds a whole lot like marketing speak. I wonder why they share NOTHING about how to get out of paying taxes to the government. Oh, is it probable that they are talking about using whole life insurance?
This is an excellent video. Thanks for making it.
Quick Question: Doesn't the $42,000 contribution to their SEP IRA also reduce your tax liability, which can be helpful for those of of us that could drop from one tax bracket to another? Basically, I'm asking..since they make $1,000,000 a year, wouldn't they reduce their tax liability to $958,000?