Tag Archives: retirement

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Money Matters | Retirement Plans Can Be SIMPLE

Sponsored Post by Todd Harrett

If you own a small business (or are self-employed), there are many retirement plan alternatives available to help you and your employees plan your financial future. One popular option for organizations such as sole proprietorship’s, partnerships, corporations, and non-profit organizations to consider is the SIMPLE (Savings Incentive Match Plan for Employees) Individual Retirement Account (IRA).

Unlike some retirement plans, there are specific criteria a business must meet to participate in a SIMPLE IRA plan. Here are the answers to some commonly asked questions about this type of retirement plan:

Can any business establish a SIMPLE IRA plan? Self-employed individuals and employers with fewer than 100 employees may adopt a SIMPLE plan. However, the business must not maintain any other employer-sponsored retirement plan where contributions are made or accrued during the calendar year in which the SIMPLE plan is effective. (This does not apply to plans that cover only union employees who are excluded from the SIMPLE plan.)

What is the deadline for establishing such a plan in order for it to qualify for the 2018 tax year? The IRS deadline for establishing SIMPLE IRA plans for the current year is October 1. After October 1, plans can only be established for the next tax year. An exception to October 1 exists if the business is a newly established company and has never sponsored a SIMPLE IRA plan.

Which employees are eligible to participate in this type of plan? An eligible employee is one who has received at least $5,000 in compensation from the employer during any two prior calendar years (does not need to be consecutive years) and who is reasonably expected to receive at least $5,000 compensation during the current year. In the plan’s initial agreement, the employer is able to reduce the amount of compensation and the number of years required. However, there is no required participation for this plan – eligible employees can choose whether or not they want to participate and contribute.

How much can employees contribute to the plan through salary deferral? The maximum salary deferral limit to a SIMPLE IRA plan for 2018 cannot exceed $12,500. If an employee is age 50 or older before December 31, then an additional catch-up contribution of $3,000 is permitted.

What are the maximum employer contribution limits for a SIMPLE IRA? 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 $275,000 for 2018). All participants in the plan must be notified of the employer’s decision. 

When must contributions be deposited? Employee deferrals should be deposited as soon as administratively feasible, but no later than 30 days following the last day of the month in which the amounts would otherwise have been payable to the employee. These rules also apply to self-employed individuals. The employer contributions deadline is the due date of the employer’s tax return, including extensions.

Can there be a vesting scheduled with a SIMPLE IRA? There is no vesting schedule with this type of plan – both employer and employee are immediately 100% vested.

How are withdrawals from SIMPLE IRAs taxed? Withdrawals from this type of account are taxed as ordinary income. However, if a participant is younger than age 59½ and makes a withdrawal within the first two years of plan participation, he or she will owe a 25% IRS penalty and ordinary income taxes on the amount withdrawn.  After the initial two years of plan participation, the 25% IRS penalty is reduced to 10% for pre 59½ withdrawals.  Exceptions to the 10% penalty on traditional IRAs are also exceptions to the 25% penalty for SIMPLE IRAs. Direct transfers to another SIMPLE IRA will not be subject to this penalty.

Can the assets in a SIMPLE IRA be rolled over? Participants are able to roll over funds from one SIMPLE plan to another at any time. After two years of participation, employees may roll assets to a traditional or SEP IRA without tax penalties.

As with any investment alternative, you should check with your Financial Advisor to evaluate the best option for your financial situation.

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 or legal consequences. Please keep in mind that transferring or rolling over assets to an IRA is just one of multiple options for your retirement plan. Each option has advantages and disadvantages, including investment options and fees and expenses, which should be understood and carefully considered.

This article was written by/for 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.

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.

© 2018 Wells Fargo Clearing Services, LLC. All rights reserved.    Car 0118-00640

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Money Matters | Focus on Year-End Tax Planning

 

Michelle Floyd, CFP, Financial Consultant

Michelle Floyd, CFP, Financial Consultant

Our company is committed to helping you succeed across all areas of your financial life.  Here are five considerations to think about when it comes to tax planning.

Five areas to consider at year-end:

  1. Analyze your investment portfolio.
  • Review your portfolio to help ensure your allocation still aligns with your goals.
  • Assess tax consequences if you have sold assets earlier in the year.
  • Review tax-loss selling strategies if you have capital gains but wish to keep exposure to a depreciated sector or security.
  1. Manage your taxes.
  • Evaluate the pros and cons of deferring taxable income, if you expect to be in the same or a lower tax bracket next year.
  • Talk to your CPA about increasing your tax deductions.
  1. Maximize your tax-saving opportunities.
  • Consider increasing your retirement savings for the year.
  • Find the right type of IRA for you.
  • If suitable for your circumstances, consider consolidating your assets.
  • Take advantage of an FSA or HSA for health care expenses.
  1. Protect what matters.
  • Review your insurance coverage to help make sure it is adequate for your needs.
  • Review your beneficiary designations and make any necessary adjustments due to life changes (i.e., marriage, divorce, birth of child/grandchild, death, etc.).
  1. Leave a legacy.
  • Review your estate plan to help ensure it is aligned with your wishes.
  • Think about creating or adding to a tax-advantaged college savings plan.
  • Consider developing a plan to complete charitable and family member gifts by year-end.

Taking the time to create, review, or update your investment plan can help you reach your short-term and long-term financial goals. Contact us to schedule a review of your financial situation.

Wells Fargo Advisors is not a legal or tax advisor. However, we will be glad to work with you, your accountant, tax advisor, and/or attorney to help you meet your financial goals.

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.  She can be reached at 812-948-8475.  Visit our website at 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.

© 2017 Wells Fargo Clearing Services, LLC. All rights reserved.   0817-02327

 

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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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Make It Count with Rodefer Moss & Co., PLLC | IRAs are a taxing decision

By Doug York, CPA & Partner, Rodefer Moss & Co, PLLC

When to contribute to your 2016 Individual Retirement Accounts is a taxing and spending decision. So, potentially, is determining how much to contribute. The deadline is April 18 for tax year 2016 IRA contributions. That’s three days beyond the normal April 15 tax day deadline because of Emancipation Day, a holiday in Washington, D.C.

Doug York CPA/Partner Rodefer Moss & Co, PLLC

Doug York
CPA/Partner
Rodefer Moss & Co, PLLC

To take advantage of growth in an IRA, it’s usually better to make your contributions as early in the tax year as possible.

But this isn’t always financially feasible, which makes the deadline reaching into the following year a benefit for retirement savings. How much should you contribute? Given the challenges of retirement, the need for consistent income, and a general desire to maintain a similar standard of living once you stop working, you will probably want to contribute as much as you can up to the allowable limit.

Time Magazine in March 2016, in an article on retirement planning, said that even as lifespans lengthen, some 56 percent of Americans have less than $10,000 in retirement savings. Only 18 percent had put away more than $200,000.

An IRA enables you to pay yourself during your growth and peak earning years so that you’ll be able to pay yourself as you ratchet back your work schedule or retire altogether. How much you contribute today will have direct bearing on your quality of life later.

 IRA contribution limits for tax year 2016 are $5,500 for taxpayers up to age 50, and $6,500 for taxpayers age 50 or older.

As Americans typically don’t save enough for retirement, the extra $1,000 gives people of greater age an opportunity to make up lost savings ground. The limit starts to phase out if your income is over $99,000 married or $62,000 single. Also you may not be able to contribute if you or your spouse has a 401(k) or other retirement plan.

Tax consequences come into play if you make IRA contributions above the allowable limits.

There is a six percent tax on IRA contributions that exceed the contribution limits. For example, if you’re older than 50 and put $7,500 in your IRA for 2016, you’ll be taxed $60 every year the extra contribution remains in your IRA.

IRA contribution limits don’t apply to rollover IRAs (putting your IRA money into another IRA plan). The rollover rules are expanded for military reservists called to active duty by allowing them up to two years to roll over a distribution.

Roth IRA contributions, as opposed to traditional IRAs, are made with money on which you’ve already paid taxes, making it tax-free when withdrawn. If you have both a Roth IRA and a traditional IRA, you are restricted to the same total $5,500 contribution limit as if you only had a traditional IRA. However, the phase-out doesn’t start until $184,000 for married couples and $118,000 if you’re single.

 When it comes to withdrawing IRA funds, another deadline exists.

If you turned 70½ in 2016, you have until April 18, 2017, to take your required minimum distribution. This is true for each IRA in which you participate. The IRS provides a worksheet on how to figure your minimum required distribution.

There’s a hefty 50 percent excise tax on all or part of any required minimum distribution you fail to withdraw from your IRA. Again, this doesn’t apply to a Roth IRA. IRA owners who’ve reached required minimum distribution age can avoid tax on up to $100,000 by electing to transfer funds to a charity. This benefit was made permanent last year.

 There are 13 days (maybe less by the time you read this) left in which to make these decisions, if you haven’t already.

As with IRAs and so many other financial instruments, there can be nuances atop nuances. Talk to your accountant or financial planner to think through the best strategy for your present and future.

 Rodefer Moss is a three-state accounting firm with offices in New Albany, Corydon, and Georgetown, Ind., Louisville, Ky., and four offices across Tennessee. The firm’s website is www.rodefermoss.com.