Roth conversions easier, but are they right?

When you are deciding whether to convert your IRA/401(k) to a Roth seek the advice of an objective financial professional. With the increasing tax environment we need to assess the value of a conversion now. It may be right for some and not for others.

Scrabble Series Roth IRA Ver2
Scrabble Series Roth IRA Ver2 (Photo credit:

So when might a Roth conversion make sense?Appleby said the following are some of the cases in which Roth conversions may make sense:

  • The IRA owner wants to leave a tax-free inheritance to his beneficiaries, and does not care how much it costs him to pay the taxes now, even if it would cost more if he pays the taxes instead of his beneficiaries paying the taxes.
  • The results of comprehensive Roth conversion analysis shows that a Roth conversion will very likely make good tax/financial sense.
  • The IRA owner is at the lower end of the tax-rate scale now, and will very likely be in a much higher tax-rate scale as his income increases including during retirement.
  • The IRA owner has enough deductions and tax credits to offset the tax bill that would be due on the Roth conversion.

There is no cookie cutter solution to the question, should I c3onvert my IRA/401(k) to a Roth? Each individual has unique circumstances and should the objective advice of an independent fiduciary.

Please comment or call to discuss how this affects you and your family.

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IRS raising limits on retirement contributions for 2013

Now is the time to maximize the contributions to your retirement accounts. The government is encouraging the conversion of qualified accounts to Roth accounts. Unless Americans become more responsible for their own retirement the government will take this over as well. Many are criticizing the over spending of the government, however perhaps we should look at the spending habits of all Americans. Individuals need a balanced budget and a saving strategy for the future.

Retirement (Photo credit: Wikipedia)

With many Americans worried about potential tax increases coming next year if the “fiscal cliff” remains unresolved, the extra boost in potential savings could be coming at a good time, said Garth Scrivner, a certified financial planner with StanCorp Investment Advisers in Albuquerque.“It’s kind of nice with the potential increases in taxes next year to have the ability to defer a bit more money,” Scrivner said. “We’re encouraging people at the end of the year to take an inventory of tax changes that are happening next year and, to the extent that they can, maximize the 401(k) limits.”

For those over 50 years old, the additional “catch-up” amount allowed will remain the same at $5,500, meaning the overall limit for such workers will be rising to $23,000 from $22,500.

In addition to raising the contribution limits, the IRS has also expanded how many people are eligible to contribute to Roth IRAs. For married couples, the upper income limit will rise to $188,000 from $183,000. For singles, the limit will increase to $127,000 from $125,000. (All amounts are adjusted gross income.)

Monthly Social Security benefits are also set to rise 1.7 percent, another move meant to keep up with inflation.

There are two other tweaks to look out for: The IRS is raising the limit on tax-free gifts to $14,000 from $13,000. And Americans living abroad will be able to exclude up to $97,600 in foreign earned income starting next year, a modest increase from the current $95,100.

The higher contribution limits toward retirement plans come as many Americans look for ways to juice their returns after seeing their portfolios battered in recent years.

Investors have enjoyed a pretty strong year in 2012, with the Standard & Poor’s 500-stock index rising about 13 percent. Despite concerns about the fiscal cliff, some analysts see signs that next year could include even more stock gains, driven by an improving housing market and rising consumer confidence.

But many workers saving for retirement still have a lot of ground to make up.

More than half of working households run the risk of being unable to maintain their standard of living when they retire, according to a report released in October by the Center for Retirement Research at Boston College.

By building a globally diversified portfolio and remaining disciplined, investors can reach their long term financial goals without anxiety. Many Americans are not saving for retirement because they do not know how to invest. Plan sponsors can eliminate this concern by automatically enrolling employees in a age appropriate portfolio.

Please comment or call to discuss how this affects you and your family.

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Where Have All of Britain’s Millionaires Gone?

Does this really surprise anyone?
Dr. Art Laffer developed the Laffer Curve which proves that when you raise tax rates, tax revenues go down and when you lower tax rates, tax revenues go up.
If the intent is to raise tax revenues to reduce the deficit, perhaps raising tax rates is NOT the answer.
Tax (Photo credit: 401(K) 2012)

Where have all the millionaires gone?That’s a question many Britons are asking now that new data show nearly two-thirds of the country’s million-pound earners have disappeared not even one year after a tax hike on the nation’s highest earners went into effect.

Britain’s Telegraph newspaper reports that just 6,000 Britons declared income over a million pounds ($1.6 million) to the nation’s tax authority, down from more than 16,000 in the 2009-10 tax year.

Former Labour Party Prime Minister Gordon Brown raised the top rate from 40% to 50% in 2010, shortly before losing the general election to Conservative Prime Minister David Cameron.

The closely watched wealth tax was a disappointment from the beginning, with the first monthly receipts last January bringing a half a billion pounds less than the same month in 2011.

The Telegraph reports the tax increase has so far cost the U.K. Treasury 7 billion pounds.

Please comment.

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Engaging Gen Y in Retirement Saving

Constant reminders are necessary for every generation to remain disciplined to a plan. Emotional financial decisions are seldom the most prudent. The Wall Street bullies need you to move your money at every crisis. You must remain disciplined and do not empower the Wall Street bullies.

Employee of the Month Reserved Parking Sign
Employee of the Month Reserved Parking Sign (Photo credits:

Gen Y has a very short-term view, so sponsors should focus communication efforts on short-term benefits. Even though it may be true investing today will result in $1 million at age 65, Gen Y employees are not sure they are going to work for their current employers for many years. Torabi said sponsors should relay to Gen Y that even though it may not be their final stop, they are building a career and establishing roots and relationships. They can also start building retirement that they can take with them. She added that sponsors should tell the younger workforce that if they do it now, they will be years ahead of peers. “If you tell them they’ll be $50,000 ahead of their best friend, that will get their attention,” she said.Gen Y is used to being rewarded, so retirement plan education should focus on the incentives, such as the company match contribution, according to Torabi. Companies can also offer breakfast or lunch during education meetings. “A free meal goes a long way when you’re young and struggling to pay bills,” she said.

Generation Y needs instant gratification so saving for retirement is a challenge. This will require constant contact with the participants. Employers need ways to attract and retain top talent and providing advice is very important.

Please comment or call to discuss how this affects you and your company.

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Is It Time to Consider a Cash Balance Plan?

Many small business owners and professionals have delayed saving for retirement for a variety of reasons. The cash balance plan or other hybrid defined benefit plans might be the solution. Depending on the demographics of your firm you could retain more tham 90% of the contributions to the plan. It is a win for your employees because you will contribute more for their retirement. You win because you can pack 20 years of saving into 10 years or less. Increasing your tax deductions while offering a benefit which will help attract and retain top talent.

English: The Frances Perkins Building located ...
English: The Frances Perkins Building located at 200 Constitution Avenue, N.W., in the Capitol Hill neighborhood of Washington, D.C. Built in 1975, the modernist office building serves as headquarters of the United States Department of Labor. (Photo credit: Wikipedia)

For a small but growing number of companies, cash balance plans offer a third alternative. Cash balance plans have existed for many years. However, until relatively recently, regulatory and legal uncertainty kept many companies from adopting these plans. Since cash balance plans have gotten the final stamp of approval from the IRS and the U.S. Department of Labor, their numbers have been increasing.Compared to the hundreds of thousands of 401(k) plans in existence, cash balance plans remain a relative drop in the bucket. According to the 2012 National Cash Balance Research Report published by Kravitz Inc., the number of cash balance plans increased 21% last year. The most recent IRS data from 2010 shows 7,064 active cash balance plans. Just ten years ago in 2001, that number was 1,337. However, the report found that growth of cash balance plans continues to outpace the growth in any other type of retirement plan.

Only through an analysis can we determine if the cash balance plan or other hybrid defined benefit plan is right for your firm.

Please comment or call to discuss if this is right for you.

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  • Are Defined-Benefit Retirement Plans Better for Small Businesses?
  • Retention levels higher for employers with defined benefit plans.
  • The 401(k) On Steroids
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Are Defined-Benefit Retirement Plans Better for Small Businesses?

The Pension Protection Act of 2006 has made is possible for many small business owners to pack 20 years of savings into 10. The regulation changing made make the defined benefit hybrid plans legal and very attractive. Although not for every business or professional firm when these plans work it is a win win for the employer and their employees.

President George W. Bush signs into law H.R. 4...
President George W. Bush signs into law H.R. 4, the Pension Protection Act of 2006, Thursday, Aug. 17, 2006. Joining him onstage in the Eisenhower Executive Office Building are, from left: Secretary of Labor Elaine Chao; Rep. Buck McKeon of California; Rep. John Boehner of Ohio; Senator Blanche Lincoln, D-Ark.; Senator Michael Enzi, R-Wyo., and Rep. Bill Thomas of California. (Photo credit: Wikipedia)

Imagine this scenario: Greg is a 55-year-old client who has owned a highly successful marketing firm for 20 years. He has three employees in their 20s and early 30s who make between $20,000 and $35,000 a year, while Greg takes home $200,000 a year. Greg is looking for a retirement plan that will allow the maximum contribution and provide the biggest tax deduction and savings. Greg has not saved as much for retirement as he would like because his focus has been getting his children through college. He is now ready to contribute as much as possible to a retirement plan, as he wants to retire in the next five to 10 years.How would you advise this client?

While small business owners typically use defined-contribution plans with an elective deferral feature to provide retirement benefits to employees, defined-benefit plans may be ideal for small-business owners over 50 who are interested in saving a substantial amount of money for retirement in a short time period.

Defined-benefit plans promise a specific annual retirement benefit based on the percentage of current income the business owner wants to have at retirement, or the percentage of current income he or she can comfortably afford to contribute, up to an annual maximum of $200,000. These plans are best suited for small business owners who are at least 40, earn $100,000 or more a year, plan to contribute more than $50,000 annually to their retirement and have five or fewer employees.

Sponsoring a defined-benefit plan for employees provides them with a determined monthly benefit upon retirement. Defined-benefit plans can be structured to reward employees who stay with the company while minimizing retirement benefits to those employees with short tenures. Participants are not taxed on the retirement benefit until they actually receive a distribution from the defined-benefit plan. An added benefit to the small business owner is that employer contributions provided to a defined-benefit plan are fully deductible as an ordinary business expense.

When considering sponsoring a defined-benefit plan, small business owners must also consider the costs and expenses associated with operating a defined-benefit plan. Such expenses include:

  • Funding the defined-benefit plan
  • Retaining an actuary to determine the amount of the employer contributions
  • Insurance premiums for the defined-benefit plan if the business has more than 26 employees

However, the advantages of defined-benefit plans often outweigh these expenses for small business owners in their late 40s, early 50s or older who meet the following criteria:

  • They want to maximize their annual retirement contribution and are seeking the maximum tax deduction
  • The company has stable cash flow
  • The company has no employees, few employees or a number of employees who are significantly younger than the owner

Small business and professional service firms have more options when saving for retirement than they are aware of. The Pension Protection Act of 2006 makes the hybrid defined benefit plan a great alternative for many business owners.

Please comment or call to discuss how this affect you and you company.

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The 401(k) On Steroids

When the demographics of a business are right the defined benefit hybrid plan is a great option for many small business owners as well as professional service firms. Assets in a qualified retirement plan provide asset protection from creditors and an accelerated saving rate, up to $250,000 deduction. Many small business owners and professionals are guilty of not saving enough for retirement. This option gives them the opportunity to catch up.

English: Retirement savings for various period...
English: Retirement savings for various periods with squirrel and nut analogy (Photo credit: Wikipedia)

Would an extra $2.5 million come in handy at retirement? Would you like to defer taxes on over $200,000 of current income each year? Would you like to see a higher proportion of your retirement plan expense go to yourself, or your key people if you own a business?Whether you are a realtor, consultant, physician, attorney, independent contractor, sole proprietor, owner or a partner in a small or large business, you can turbo-charge your retirement with a cash balance plan on top of your existing 401(k) plan. You can be a one person shop, or highly paid executive or professional in a large firm.

While not for everyone, the cash balance plan or other hybrid plans are a great way to accelerate your retirement savings

Please comment or call to discuss how this might be a great solution for you and you company..

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