It's a new year and yet again there have been some changes made for retirement and social security. CPA Steve Levy joins Casey and Jarrod to discuss the Cost of Living Adjustments (COLA) for 2022.
It's a new year and yet again there have been some changes made for retirement and social security. CPA Steve Levy joins Casey and Jarrod to discuss the Cost of Living Adjustments (COLA) for 2022.
Announcer:
Hello, everyone. Welcome to The Millionaire Dentist Podcast, brought to you by Four Quadrants Advisory. On this podcast, we break down the world of dentistry finances and business practices to help you become the millionaire dentist you deserve to be. Please be advised, we do speak with an honest tongue and may not be safe for work.
Casey Hiers:
Hello and welcome. This is Casey Hiers, back at The Millionaire Dentist Podcast. Joining me in the studio, co-host Jarrod Bridgeman.
Jarrod Bridgeman:
Hey, how are you?
Casey Hiers:
And special guest, kind of our part-time co-host, Steve Levy.
Jarrod Bridgeman:
Pretty much.
Casey Hiers:
Brilliant guy, tons of information.
Steve Levy:
Hello.
Casey Hiers:
Basically, when Jarrod and I don't have much to talk about, we go, hey Steve, what you got? And he looked at us and he got excited and he goes, I actually have a topic that needs to be shared.
Steve Levy:
Absolutely.
Casey Hiers:
Well, thank you for joining us. So today, we're going to talk about the cost-of-living adjustments for retirement and social security. Cost-of-living inflation, those are hot topics so this goes along with it. And we appreciate having your tax mind join us today.
Steve Levy:
Absolutely.
Casey Hiers:
But before we dive in, there's a big game this weekend.
Steve Levy:
The Puppy Bowl.
Casey Hiers:
We can't call it the actual name because the clown show, Roger Goodell, will probably seek his minions on us.
Jarrod Bridgeman:
I am excited for the Puppy Bowl. Yes, absolutely.
Casey Hiers:
Anybody like the Rams, anybody like the Bengals, or what do we got here boys?
Steve Levy:
Well, I've been to Cinci (Cincinnati) a lot and I've seen how they really are passionate towards their Bengals and some of these guys. I actually placed a bet back in '89. The last time they were in the super bowl, I lost Ickey Woods. I lost because of the drive that the 49ers put on them. Really upset, but we go back a ways. So who are they?
Casey Hiers:
Oh boy, here we go. Yeah, I'm looking forward to it. Big game parties are always fun and getting together... I'm trying to find the spread. I like some low stake gambling myself. Not a gambling podcast.
Jarrod Bridgeman:
No. And we are based in Indiana where we are allowed to.
Casey Hiers:
Yeah, so it's fine. All right. Cost-of-living adjustments. What do our listeners need to know pal?
Steve Levy:
You can save up for your big game tickets in the future. There are some increases to the amounts that you can put away for retirement, which is great. You're putting away your compensation, you're getting your earnings, you're deferring your taxes. So the great news is that you get a bump up from the prior year for your deferral from $19,500 to $20,500. That's the new number and it should save you about $400.
Casey Hiers:
All right. So what, $19,500 to what?
Steve Levy:
$19,500 to $20,500.
Casey Hiers:
$20,500 is the new number?
Steve Levy:
That's correct.
Casey Hiers:
Gotcha.
Steve Levy:
Okay. Now, if you're 50 or older, that amount, there's a catch-up that you can bump up and that amount stayed at $60,500, unfortunately.
Jarrod Bridgeman:
That went up last year but not this year?
Steve Levy:
That's correct, so that's the first COLA increase.
Jarrod Bridgeman:
Real quick, just for someone...
Casey Hiers:
Cost-of-Living adjustment. Cola. I see what you did there. Nice.
Jarrod Bridgeman:
So for those of us that are not of the AARP age, so you can do your 20, $20,500. And then on top of that, the catch-up is $60,500?
Steve Levy:
That's a catch-up for those that are 50 and older.
Jarrod Bridgeman:
So we'd add...?
Steve Levy:
You would add that up.
Jarrod Bridgeman:
On top of the other one.
Steve Levy:
Correct. So the total would be $27,000 for those that are 50 and up.
Jarrod Bridgeman:
Okay.
Casey Hiers:
So for somebody's team or staff, this is good information too. I mean, hopefully, most practice owners listening are saving six figures for retirement, but if you have a 401k in your office, that's great news for your staff, right? For your team.
Steve Levy:
Absolutely. It's something that your offices and the staff in your offices are always looking for that potential deferral. Plus, the company often matches up to a certain point for their salary. Now that brings us to another increase, for the potential match. Now there's only so much in wages that can count towards the match. Typically, we have a 6% or it ranges depending on what the company does, but there's only so much compensation that can be factored into the match. So in 2021, that amount of compensation was $290,000. And in 2022, that amount bumped up $15,000 to $305,000. So, say it's a 6% match. Now you're getting to put away $900 more of deferred money of your wages.
Casey Hiers:
So a lot of times when you're setting income structure for practice owners, it used to be $285,000, right? Then it was $295,000. Now the number is $305,000 where basically from a retirement savings and tax management benefit perspective, if your right-sized income is correct, $300,500 as a base, W2 is a good number. And then from there, you would pay yourself in distributions that are right-sized for your practice.
Steve Levy:
Exactly.
Casey Hiers:
So that's where that number comes in.
Steve Levy:
Exactly. And that's typically what we'll advise is go all the way up if you can, to that high base so that you can max out your match, especially.
Casey Hiers:
Yeah. $305,000 W2 practice owner, and guys don't put your spouses making a $100,000, $150,000. I mean, we won't get into anything else, but let's... We see such mistakes with that, don't we?
Steve Levy:
Right. Absolutely. Just max it out, across the board if you can.
Casey Hiers:
Yeah. Very good. What else you got for us, Steve?
Steve Levy:
Well, with other COLA increases come...
Casey Hiers:
Cost-Of-Living adjustments. COLA, love it.
Steve Levy:
Come, social security, taxable wage base increases. And this bumped up quite a bit. It went up to $147,000, which was an increase of $4,200 from the 2021 amount, which means that more of your wages are going to be taxed by social security. Not only that, you're going to pay both your share and the employer will have to kick in their share too. So, that increase, assuming the same 6.2%,
Jarrod Bridgeman:
Let's say you make 300,000 a year.
Steve Levy:
Mm-hmm (affirmative).
Jarrod Bridgeman:
Now you're going to be able to get taxed just for social security on, how much?
Steve Levy:
Now it's $147,000, where it was more in a $140,000 to $143,000 range. And that'll cost about a $520 per employee to the social security administration.
Casey Hiers:
Steve, I want its tap into your legal and accounting mind. Is there some deal I can strike or write up where I say, I promise not to take any social security when I'm old, but I'd really like to stop paying into it now.
Steve Levy:
You know, that would be nice. It's kind of the law to do so. And those that aren't paying in, kind of get caught with, not only the social security tax but also penalties.
Casey Hiers:
So there's no above-board deal I can strike. Like I said I won't take any, I just don't... I don't want to pay anymore.
Steve Levy:
Well, if you want to remain a US citizen, then you know, that's your option.
Casey Hiers:
Well, It's like later this decade, social security is not looking so hot.
Steve Levy:
This is a way they say to replenish the funds by keep increasing, increasing. They also keep increasing the age that you can start claiming social security and also the age where you can maximize your benefits, so that's how they're trying to keep the coffers intact. Now, one more to talk about is... Now we're talking about deferrals and we're talking about the match and generally, that combination can't be more than $61,000. That's a bump up of $3,000 from 2021. So, you could also throw in profit share. We're not going to get into that, but it's a combination max on deferral, employer match, and profit share.
Casey Hiers:
Nice.
Jarrod Bridgeman:
So, at the end of the day, what's your takeaway of your feelings behind all the changes?
Steve Levy:
Well...
Casey Hiers:
How do you feel about COLA?
Steve Levy:
I love any kind of Cola. Really.
Jarrod Bridgeman:
RC?
Steve Levy:
RC is the best. Absolutely. Give me some tab, please, going back a ways. But it's kind of needed, these COLA situations. Now, obviously, people are paying more in regular expenses. And so they're not probably keeping up with their spending ability, but it's always good to encourage more and more retirement. So, that people aren't caught when it's time to retire.
Casey Hiers:
So, I shouldn't get into what we talked about before we started recording? All right. Hey, save more for retirement, please.
Jarrod Bridgeman:
I'll give it a shot.
Casey Hiers:
Well, Steve, I appreciate you bringing this to our listener's attention. Unfortunately, a lot of practice owners don't get this basic guidance from their CPA or external team. Thankfully, our clients obviously get this proactively, but you know, for folks out there, pass this along your other dental friends, that again, this information can absolutely help them, larger offices, smaller offices, really anybody with employees, this stuff is important, not just for the practice owner, but for your employees. And anytime they can save a little bit more for retirement, be a leader within your practice and share that information with them. And while this might seem minor or basic again, that's leadership, Hey guys, you can save $20,500 in the 401k now. And we would encourage you to do so. And, and to me that's important.
Steve Levy:
It really is. And staff more and more are asking for this.
Casey Hiers:
Yeah, no doubt. Well, thank you for bringing this to our attention, to our client's attention, and our listener's attention. And I'm going to be rooting for the Midwest team, even though I lived in Southern California for a stent.
Jarrod Bridgeman:
Well, I would like to remind everybody that we are going out and about to different cities throughout the rest of the year. If you want to find out if we're coming to your city, visit for fourquadrantsadvisory.com/events, and you can sign up and we'll let you know when we're going to be near you.
Casey Hiers:
I'll be in a good mood when I present. See you later. Oh, later this week.
Jarrod Bridgeman:
Yeah. Cause you'll have some food and cocktail maybe too.
Casey Hiers:
Well, that's post-presentation.
Jarrod Bridgeman:
Oh, dang. Okay.
Casey Hiers:
Host CE.
Jarrod Bridgeman:
I was going to start practicing. I'll give a presentation, but not now. So...
Casey Hiers:
Thanks, Guys.
Jarrod Bridgeman:
Thank you.
Announcer:
That's all the time we have today. Thank you to our guests for their insight and for sharing some really great information. And thank you to you. The listener for tuning in. The Millionaire Dentist Podcast is brought to you by Four Quadrants Advisory to see if they might be a good fit for you and your practice. Going over to fourquadrantsadvisory.com and see why year after year, they retain over 95% of their clients. Thank you again for joining us and we'll see you next time.
