Individual 401k and Defined Benefit Plans are the Ticket for High Income Earners
By David G. Eisenstein, Attorney
There’s nothing better than “residual income” in an MLM compensation plan…, or is there? With high monthly income earners becoming a part of the network marketing landscape, the issue becomes, “it’s not how much you make, but how much you make stick to you!” Yes, the MLM mantra has become build your business and you will be building a residual “permanent” income. You know, the kind of stream of income that keeps on flowing so that after working hard for five or six years building your organization you can “walk away and go drink daquiris” on a beach in the Carribbean. Well, if “residual income” was as common and as regular and as permanent as corporate types make it sound when holding forth from the front of the room, more of our big earners would be “making it stick” to themselves with much greater regularity than has been the case in our industry to date.
Most of us have witnessed first hand the reasons that the great promise of “residual income” has become an empty one all too often, such as perhaps the most common explanation, “the company quit on me, I didn’t quit on the company.” So what is the successful distributor who has amassed a solid monthly check and sizable downline organization to do to assure that the pot of gold will be at the end of the rainbow, even when the mere mortals in corporate fail to sustain the company’s successful edge, or the MLM gods for no one particular reason are not well pleased and turn thumbs down on the company’s fate, call it “luck of the draw,” and the company fails?
The best answer is a fairly simple one. The successful distributor who is making solid monthly checks but who is not amassing the net worth to go along with it should PAY HIMSELF OR HERSELF FIRST! What does that mean? The best way to pay yourself first is to set up and fund, early and often, a retirement plan. If you are making a lot of money from network marketing but still have a JOB, make sure you take advantage of whatever the employer has set up for you to participate in the company’s employee retirement plan.
If your sole means of income is your successful network marketing distributorship, assure your success as a multi-millionaire by setting up your own retirement plan. If your income is modest, you can put away $3,000 each into an IRA, or $6,000 for a husband and wife. Add another $500 per year to that for those of you who have reached age 50 and have some catching up to do. Payments into a Traditional IRA are tax deductible in the year you make them and they grow tax deferred until you begin pulling money out after age 59 ½ . At that point the money you withdraw is taxed at the level that applies due to your income tax bracket at that time. Additionally, if you have done well enough to invest some more, considering paying yourself first again by putting it into a Roth IRA in which you can put the same amounts away as applied to the Traditional IRA. With the Roth there is no tax deduction in the year of the investment into the account, but it grows tax free and you are not taxed when you pull the money out of the account.
Wait, though. It gets even better. If you are not employed at a JOB and you work as an independent distributor (self-employed) making a ton of money this year, and you want to be sure it’s going to stick to you, get yourself setup in the new Individual (Solo) 401k in which you can invest up to $40,000 yourself annually and your spouse (if self-employed) can put away the same amount. Tax deductible, tax deferred, with no income tax until you pull the money out after age 59 1/2. WOW!
Hold on. There’s more. For the ultra successful distributor who is making the big bucks on a monthly basis, but is about to get knocked for a loop tax wise at the end of the year, and thus is looking to max out on a tax preferred retirement plan, there is the Defined Benefits plan, whereby, (are you ready?) he or she can put away up to $160,000 per year (matched by the spouse, under the right circumstances)!
Paying into the tax qualified retirement plan that best fits your earning capacity, employment status, and level of desire to “pay yourself first” is the best, most effective means of how you make the money you have worked so hard to earn, “stick” to you.
