Tag Archives: IRA

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Money Matters | Which Retirement Plan Is Right for Your Business?

By Todd Harrett | Financial Advisor with Axiom Financial Strategies Group of Wells Fargo Advisors in New Albany

Todd Harrett, Financial Advisor with Axiom Financial Strategies Group of Wells Fargo Advisors in New Albany, Ind.

Todd Harrett, Financial Advisor with Axiom Financial Strategies Group of Wells Fargo Advisors in New Albany, Ind.

If you own a small business, there are many retirement plan alternatives available to help you and your eligible employees save for retirement. For most closely-held business owners, a Simplified Employee Pension Individual Retirement Account (SEP IRA) was once the most cost-effective choice. Then the Savings Incentive Match Plan for Employees (SIMPLE IRA) became a viable alternative. Today you may find that a defined benefit or 401(k) plan best suits your needs. To make an informed decision on which plan is right for your business, review the differences carefully before you choose.

Simplified Employee Pension Individual Retirement Account (SEP IRA). This plan is flexible, easy to set up, and has low administrative costs. An employer signs a plan adoption agreement, and IRAs are set up for each eligible employee. When choosing this plan, keep in mind that it does not allow employees to save through payroll deductions, and contributions are immediately 100% vested.

The maximum an employer can contribute each year is 25% of an employee’s eligible compensation, up to a maximum of $270,000 for 2017. However, the contribution for any individual cannot exceed $54,000 in 2017. Employer contributions are typically discretionary and may vary from year to year. With this plan, the same formula must be used to calculate the contribution amount for all eligible employees, including any owners. Eligible employees include those who are age 21 and older and those employed (both part time and full time) for three of the last five years.

Savings Incentive Match Plan for Employees (SIMPLE). If you want a plan that encourages employees to save for retirement, a SIMPLE IRA might be appropriate for you. In order to select this plan, you must have 100 or fewer eligible employees who earned $5,000 or more in compensation in the preceding year and have no other employer-sponsored retirement plans to which contributions were made or accrued during that calendar year. There are no annual IRS fillings or complex paperwork, and employer contributions are tax deductible for your business. The plan encourages employees to save for retirement through payroll deductions; contributions are immediately 100% vested.

The maximum salary deferral limit to a SIMPLE IRA plan cannot exceed $12,500 for 2017. If an employee is age 50 or older before December 31, then an additional catch-up contribution of $3,000 is permitted. Each year the employer must decide to do either a matching contribution (the lesser of the employee’s salary deferral or 3% of the employee’s compensation) or non-matching contribution of 2% of an employee’s compensation (limited to $270,000 for 2017). All participants in the plan must be notified of the employer’s decision.

Defined benefit pension plan. This type of plan helps build savings quickly. It generally produces a much larger tax-deductible contribution for your business than a defined contribution plan; however, annual employer contributions are mandatory since each participant is promised a monthly benefit at retirement age. Since this plan is more complex to administer, the services of an enrolled actuary are required. All plan assets must be held in a pooled account, and your employees cannot direct their investments.

Certain factors affect an employer’s contribution for a plan, such as current value of the plan assets, the ages of employees, date of hire, and compensation. A participating employee with a large projected benefit and only a few years until normal retirement age generates a large contribution because there is little time to accumulate the necessary value to produce the stated benefit at retirement. The maximum annual benefit at retirement is the lesser of 100% of the employee’s compensation or $215,000 per year in 2017 (indexed for inflation).

401(k) plans. This plan may be right for your company if you want to motivate your employees to save towards retirement and give them a way to share in the firm’s profitability. 401(k) plans are best suited for companies seeking flexible contribution methods.

When choosing this plan type, keep in mind that the employee and employer have the ability to make contributions. The maximum salary deferral limit for a 401(k) plan is $18,000 for 2017.  If an employee is age 50 or older before December 31, then an additional catch-up contribution of $6,000 is permitted. The maximum amount you, as the employer, can contribute is 25% of the eligible employee’s total compensation (capped at $270,000 for 2017). Individual allocations for each employee cannot exceed the lesser of 100% of compensation or $54,000 in 2017. The allocation of employer profit-sharing contributions can be skewed to favor older employees, if using age-weighted and new comparability features. Generally, IRS Forms 5500 and 5500-EZ (along with applicable schedules) must be filed each year.

Once you have reviewed your business’s goals and objectives, you should check with your Financial Advisor to evaluate the best retirement plan option for your financial situation.

This article was written by Wells Fargo Advisors and provided courtesy of Todd Harrett, Financial Advisor with Axiom Financial Strategies Group of Wells Fargo Advisors in New Albany, IN at 812-948-8475.  Visit our website at www.AxiomFSG.com.

Wells Fargo Advisors does not provide legal or tax advice. Be sure to consult with your tax and legal advisors before taking any action that could have tax consequences.

Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE

Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC and Wells Fargo Advisors Financial Network, LLC, Members SIPC, separate registered broker-dealers and non-bank affiliates of Wells Fargo & Company.

©2016 Wells Fargo Clearing Services, LLC.   All rights reserved.         1216-01966 [86913-v6] 1115 e6830

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Money Matters by Michelle Floyd | Involve Your Child in the Finances of College

By Michelle Floyd

The cost to attend a university continues to increase: between the 2011–2012 school year and the 2016–2017 academic year, tuition and fees rose by 13% at private, nonprofit, four-year institutions, reaching an average of $33,479, according to The College Board.*

If you’ve diligently saved over the years to help pay for your child’s education, now is the perfect time to bring him or her into the equation. “When it comes to financing school, students need to be involved in the process,” explains Tracy Green, a Life Event Services consultant at Wells Fargo Advisors.

By walking through the financial steps of paying for college together, you’ll help your son or daughter understand the overall expenses and learn valuable fiscal skills for the future, especially the importance of goal-based saving.

Green recommends following these five steps to get your child involved before mailing in that acceptance notification and deposit.

  1. Start with a conversation. Before your child even begins applying for college, have a discussion about finances, suggests Green. A good time to have this conversation tends to be during the student’s junior year of high school.

When you sit down together, ask your child about his or her upcoming goals. Talk about expenses for school, as well as who will be covering costs or how they might be split. If you or other family members have contributed to a 529 plan, show it to your child and go through the details of how it can be used.

  1. Set a budget. As a family, consider setting certain guidelines and limitations for the college experience. Perhaps you agree to cover the cost of tuition and room and board, but ask your child to pay for his or her entertainment expenses while on campus.

“Having those discussions may prevent future disappointment,” adds Green. If your son gets accepted into his dream school, for instance, but later learns the family won’t be able to pay for it and he doesn’t want to take out his own loans, the reality could be difficult to face.

  1. Look at financial aid packages together. With your child, fill out and submit forms for financial help, such as the Free Application for Federal Student Aid (FAFSA). Learn more at https://fafsa.ed.gov/. To identify additional types of financial aid that may be available, visit https://studentaid.ed.gov/sa/.

Some universities have a net price calculator on their websites. With this tool, you’ll be able to see what the overall cost for the school is and then subtract any financial aid packages available to identify what your expected expenses will be. Once you start receiving acceptance notifications, go through aid packages with your child to compare and contrast them so that you and your child have a clear vision of what the bottom line is and how different aid options are treated.

  1. Think about work. If you want your child to be responsible for paying for part or all of their schooling, a part-time job may be a good fit.

As a family, you’ll want to decide if it makes sense for your child to work while he or she is at school, or only during summer and winter breaks. “Some kids may have a heavy class load or extracurricular activities,” notes Green. If certain scholarships require your child to attain or keep a certain GPA, you’ll want to weigh the time spent away from academics against the amount of money your student will be earning from a part-time job.

In addition to helping cover college expenses, employment can offer other key benefits for your child, including the chance to manage an income, build a strong work ethic, and grow in self-worth. If working during the school year will put too much of a strain on your child, set savings goals together for his or her summer job. 

  1. Understand scholarship possibilities. If your child wants to attend a school that doesn’t fit into the budgeted amount you planned to spend, consider sitting down to talk about the situation. It may be time to look at other options, or your child may want to increase his or her efforts to identify and apply for scholarships to help cover some of the costs.

The site TuitionFundingSources.com, sponsored by Wells Fargo, provides a database of scholarships available. After looking through the options together, help your child set up a schedule to apply for ones that are the best fit, paying close attention to deadlines and other requirements. Some scholarships involve writing an essay, but the rewards offered could make the effort worthwhile. 

*https://trends.collegeboard.org/college-pricing/figures-tables/tuition-fees-room-and-board-over-time

 Please consider the investment objectives, risks, charges and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your Financial Advisor. Read it carefully before you invest.

This article was written by/for Wells Fargo Advisors and provided courtesy of Michelle Floyd, CFP®, Financial Consultant with Axiom Financial Strategies Group of Wells Fargo Advisors in New Albany, IN at 812-948-8475.
Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE

Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC, a registered broker-dealer and non-bank affiliate of Wells Fargo & Company.

© 2017 Wells Fargo Clearing Services, LLC. All rights reserved.   0317-00810

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Money Matters | Episode 4: My First Real Job and What to do with the Money

I have my first real job and my first real paycheck; What to do?  The answer may actually be your first real job.  The gents from Axiom Financial Strategies Group of Wells Fargo Advisors give us the inside track.
Money Matters: The Podcast is sponsored by Axiom Financial Strategies Group of Wells Fargo Advisors.  This monthly podcast is in addition to a monthly article titled, “Money Matters,” that is posted online at www.ExtolMag.com and www.axiomfsg.com.
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At Axiom Financial Strategies Group of Wells Fargo Advisors we sincerely appreciate our clients making opportunities like this possible. Without their support of our business, we would not be able to support programs like this.
Axiom Financial Strategies Group
of Wells Fargo Advisors
101 W Spring Street, Fifth Floor
New Albany, IN  47150
P 812.542.6475 | F 812.948.8732 | www.axiomfsg.com
At Axiom Financial Strategies Group of Wells Fargo Advisors, our team caters to a select group of family-owned businesses, entrepreneurs, individuals, institutions, and foundations, helping them build, manage, preserve, and transition wealth. We accomplish this while providing top-notch service through a team approach that puts our clients’ needs, goals, and interests first. To learn more visit our website at www.axiomfsg.com. Wells Fargo Advisors. Member SIPC.
The information provided is general in nature and may not apply to your personal investment situation. Individuals should consult with their chosen financial professional before making any decisions.
Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, Member SIPC, a registered broker-dealer and non-bank affiliate of Wells Fargo & Company.
CAR # for the podcast is 0417-02947
CAR # for the video is 0417-02942
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Money Matters by Michelle Floyd | Pay Yourself First

Fund Your IRA with Your Tax Refund

While most of us don’t intend to short change our retirement savings, competing priorities and unexpected expenditures can often get in the way of consistent retirement saving. An easy way to help fund your IRA is to have your tax refund deposited directly into your IRA. Because this represents money you’ve already paid out, it won’t be missed when you redirect those dollars.  And, if the refund dollars go directly to an IRA, you can avoid the temptation to splurge and spend that money on something else if it winds up in your checking account.

Many financial planners advise taxpayers to balance their paycheck withholdings so they break even – meaning they don’t overpay and then receive a refund at tax time. Using this strategy, you can make money that might be paid in taxes work for you throughout the year and avoid giving the government an interest-free loan. However, if you have trouble saving, a tax refund can be an effective form of forced savings.

Directing your tax refund to your IRA is easy and automatic. If you want your refund to go to just one account, you simply request a direct deposit of your refund on your tax return at the time of filing. If you want the refund to go to multiple accounts (e.g., IRA, checking, savings) you will need to complete IRS Tax Form 8888 when filing your taxes. Completing Form 8888 authorizes the IRS to transfer your tax refund to any number of IRAs or other savings or checking accounts via direct deposit.

While you’ll need to complete Form 8888 during tax preparation time, and with the advice of your tax advisor, here are some tips to help you:

  • If the deposit is into your IRA, check the “Savings” box under Lines 1–3 on Form 8888.
  • You must have an IRA already established at a financial institution in order to have your refund directed to this account.
  • You need to follow up with the financial institution that holds your IRA and specify which tax year your payment is for. Many providers will assume the payment is for the current calendar year unless you specify otherwise.
  • If you want your deposit to be credited as a prior year IRA contribution, you must verify that the deposit was actually made by the tax filing deadline for that particular year – generally, April 15.

 

Keep in mind that even if you already contribute to your retirement savings through a 401(k) or other employer sponsored plan at work, you are still eligible to contribute to an IRA to supplement those savings.

With corporate pension plans on the decline and Social Security making up a smaller share of most Americans’ retirement income, it’s important to take charge of your own retirement savings. Having all or a portion of your tax refund directed into an IRA is an easy way to help save for retirement. A Financial Advisor can help evaluate where you are on the path toward saving for retirement to help ensure you can live out your unique vision.

Our firm is not a legal or tax advisor.

This article was written and provided by Michelle Floyd, CFP®, Financial Consultant with Axiom Financial Strategies Group of Wells Fargo Advisors in New Albany, IN.  She can be reached via email at michelle.floyd@wfadvisors.com or phone at (812) 948-8475.  Visit our website www.AxiomFSG.com.

Investments in securities and insurance products are: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE

Wells Fargo Advisors is a trade name used by Wells Fargo Clearing Services, LLC, Member SIPC, a registered broker-dealer and non-bank affiliate of Wells Fargo & Company.

© 2016 Wells Fargo Clearing Services, LLC. All rights reserved. 0416-00668 [98729-v1BDC]