Retirement Plans

Solve the Self-Employed Retirement Dilemma

 

Solve the Self-Employed Retirement Dilemma

Here’s how to figure out the best retirement plan for your situation

The challenges of self-employment seem endless. You are your own chief marketing officer, chief financial officer, chief executive and junior assistant. With all of the roles you play, it’s no wonder that you haven’t spent much time planning for retirement.

The good news is that the right retirement plan can address more than just your retirement—it can help lower your taxes and reduce the need to rely on a welfare system in your retirement years. And you don’t have to search alone for that plan: Your financial advisor can help you weigh your plan options and build an appropriate investment strategy once you choose a plan. And your accountant can calculate the potential tax savings this new retirement plan will generate.

So which plan is right for you? The first option you should consider is an IRA or a Roth IRA. Both offer tax advantaged growth, but in different ways: The IRA grows tax deferred, meaning your contributions are tax deductible but you won’t owe taxes on your savings until you start making withdrawals. Contributions to a Roth IRA are made after taxes, but you won’t owe any taxes when you take withdrawals.

Anyone can contribute to an IRA, but not everyone is allowed to make tax deductible contributions. For instance, if you already have a retirement plan in place, your contributions likely won’t be deductible. But if you have a retirement plan, you may still be able to contribute to a Roth IRA, which bases eligibility on income levels. (In 2018, the Roth IRA income eligibility limits phase out between $120,000 and $135,000 for single filers and eligibility limits phase out between $189,000 and $199,000 for married couples filing jointly.) For 2018, individuals can make annual contributions of up to $5,500 to both IRAs and Roth IRAs. If you’re over 50, your limit rises to $6,500 a year thanks to an extra $1,000 in catch-up contributions allowed for older individuals.

If you want to save more than an IRA or Roth IRA allows, consider a formal retirement plan such as a Simple IRA, SEP IRA or an Individual 401(k).

  • The Simple IRA is easy to establish. You can contribute a maximum of $12,500 annually if you are under 50 and $15,500 if you are over 50. In addition, you can contribute 3% of any W-2 wages. One note: The deadline to establish a Simple IRA is October 31, so don’t wait until the end of the year to open an account.
  • The next option is a SEP IRA. The annual limit for a SEP IRA is $55,000 or 25% of self-employment income if you are paying yourself a salary. The deadline to establish the SEP IRA is your tax filing deadline plus extensions. Therefore, you can put off starting a SEP IRA until well into 2019. For that reason we call it “the procrastinator’s retirement plan.”
  • The third option is the Individual 401(k). The annual contribution limit for this 401(k) is $55,000 if you are under 50 and $61,000 if you are over 50. The 401(k) can either be a traditional 401(k) (contributions are pre-tax, but withdrawals are taxed) or a Roth 401(k) (contributions are after tax money, but withdrawals are tax free).
  • There are no income limits for the Roth 401(k). The deferral is made up of two parts. The first part is the employee portion, which has a limit of $18,500 if you are under 50 and $24,500 if you are over 50. This deferral can either go into the 401(k), the Roth 401(k) or a combination of both. The remainder is the employer contribution, which has a limit of 25% of compensation.
  • The deadline to establish this plan is December 31 of this year. The employer contributions can be contributed later but employee deferrals need to be in as soon as they are withheld from your paycheck. Therefore, you can’t wait like the SEP.

How do these plans stack up? Let’s look at an example. Say you are self-employed and you pay yourself $50,000 in W-2 salary. Here are the limits for each plan.

Retirement Plan summary.PNG

What’s the verdict? The 401(k) is the big winner. The Simple IRA is a good option for those with lower incomes, while the SEP is good for those who tend to procrastinate.

If these contribution limits are not enough, then you might want to consider a Defined Benefit Plan, which can be paired with a 401(k). Contribution limits to Defined Benefit plans are based on actuarial calculations, but you could be able to contribute $200,000 or more each year.

As always, it is important to coordinate with your financial professional to see what plan is best for you. Please contact me if you’d like to explore your retirement savings options.

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice

What to Do After Inheriting an IRA

Here is a nice article provided by Kimberly Lankford of Kiplinger:

 

By Kimberly Lankford, Contributing Editor   

 

September 1, 2017

 

Heirs must begin taking withdrawals once they inherit an IRA, but how they choose to make those distributions can have a big impact on their account balance over time. 

 

Q. My mother just passed away at the age of 60. She has $110,000 in a traditional IRA, and my sister and I are the beneficiaries. The bank said it will have to open an IRA account for each of us and then distribute the $110,000 equally between us. Do we need to keep the money with that bank or can we transfer it to another brokerage firm? Also, when do we need to withdraw the money? I'm 39 years old.

 

A. Because you and your sister are non-spouse beneficiaries, the bank will open inherited IRAs for each of you and transfer the money directly into the two accounts (the options are different for spouses who are beneficiaries and can roll the money into their own IRAs). You can keep the IRA at that bank or transfer it to a different IRA custodian, such as a brokerage firm or mutual fund company. Money from an inherited IRA must be directly transferred from the old account to the new one, so check with the new administrator to find out what steps you need to take to do this. "The new IRA custodian must be willing to accept inherited IRAs," says Christine Russell, senior manager of retirement at TD Ameritrade. You may also have to complete special paperwork for the transfer.

 

As a non-spouse beneficiary, you have two options for taking the money: You can withdraw all the funds from the inherited IRA within five years, or you can start taking periodic payments by December 31 of the year following the year of your mother's death.

 

Given that you are only 39, you're probably better off taking periodic payments. That's because your required withdrawals will be smaller under this method, so you'll have more money left in the account to grow tax-deferred for years. 

 

The periodic payments for inherited IRAs are similar to required minimum distributions for IRA holders over age 70½, but they use a different life-expectancy table to calculate the annual withdrawals (Table 1 single life-expectancy table, in Appendix B of IRS Publication 590-B, Individual Retirement Arrangements).

 

Make sure the IRA custodian knows you want the periodic payment option. Otherwise, its IRA documents may require you to withdraw the money within five years, says Russell.

 

Whatever option you choose for withdrawals, the distributions will be taxable, except for any from nondeductible contributions. With an inherited IRA, though, you won't have a 10% penalty for early withdrawals before age 59½.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Marriage and Roth IRA Contributions

Here is a nice article by Kimberly Lankford of Kiplinger:

 

By Kimberly Lankford, Contributing Editor   

 

August 25, 2017

 

Newlyweds can suddenly become ineligible for Roth IRAs once their incomes are combined, although couples may still invest in them indirectly. 

 

Q. I'm getting married next month, and when we add up my income and my wife's, we'll earn more than the limit to contribute to a Roth IRA. But I'm below the income limit now, so can I contribute to a Roth before the wedding?

 

A. No. If you're married as of December 31, you're considered to be married for the full year for tax purposes -- no matter what the wedding date. That means you'll file your taxes as married – either jointly or separately -- for 2017. You'll also be subject to the joint income limits for Roth contributions for the full year. If you’re married filing jointly and your combined adjusted gross income is less than $186,000, then you both can contribute the full $5,500 to a Roth for the year (or $6,500 if you're age 50 or older). Once your joint income reaches $186,000 to $196,000, then you both can make reduced contributions. You can't contribute to a Roth at all if your joint income is more than $196,000. See IRS Publication 590-A, Individual Retirement Arrangements, for a worksheet to calculate your modified adjusted gross income for the Roth limits.

 

And you can't get around the Roth limits by filing taxes separately. The income limit is just $10,000 for married people filing separately if you lived with your spouse at any time during the year.

 

If you earn too much to contribute to a Roth, you can both put money instead in nondeductible traditional IRAs for 2017 and then convert them to Roths.. But you could be taxed on a portion of the rollover if you have any other money in traditional IRAs (the tax-free portion of the conversion is based on the ratio of your nondeductible contributions to the total balance in all of your traditional IRAs). See Converting Nondeductible IRA Contributions to a Roth for more information. 

 

If you had already contributed to the Roth for the year and now your income disqualifies you, you would still have time to undo the contribution. Otherwise, you would have to pay a 6% penalty on excess contributions. You could take the contributions (and any earnings on them) out of the Roth before the tax-filing deadline, or you could have your IRA administrator switch your 2017 Roth contributions (plus all earnings on that money) into a traditional IRA. If you made contributions to the Roth in earlier years, the administrator should calculate how much of the earnings in the account should be attributed to the 2017 contribution. You can keep the money from previous years' contributions in the account.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

10 Worst Jobs for the Future

Here is a nice article provided by Stacy Rapacon of Kiplinger:

 

By Stacy Rapacon, Online Editor | July 2017

 

The labor market is steadily improving, with unemployment at its lowest level in a decade, but some fields continue to experience a downward slide. For example, about 1.7 million manufacturing jobs were lost between January 2007 and January 2017 as some positions have been displaced by advancing technologies and others have moved overseas. And while it's true that manufacturing employment has rebounded a bit since the Great Recession ended, Josh Wright of labor market research firm Economic Modeling Specialists International (EMSI) says many of those added positions call for technical expertise that low-skilled manufacturing workers lack.

To help today's job seekers better grasp the realities of the labor market and avoid some dying professions, we analyzed 785 popular occupations, considering their pay rates, growth potential over the next decade and educational requirements. The bottom of our rankings are littered with jobs that pay little at present and are expected to shed positions in the future. Take a look at 10 of the worst jobs for the future, along with our suggestions for alternate career paths that offer better growth and pay prospects. 

Unless otherwise noted, all employment data was provided by Economic Modeling Specialists International, a labor market research firm owned by CareerBuilder. EMSI collects data from more than 90 federal, state and private sources, including the U.S. Bureau of Labor Statistics. The total number of jobs listed for each occupation is for 2016. Projected ten-year job growth figures represent the percentage change in the total number of jobs in an occupation between 2016 and 2026. Annual earnings were calculated by multiplying median hourly earnings by 2,080, the standard number of hours worked in a year by a full-time employee.

 

Textile Machine Worker

 

•Total number of jobs: 22,173

•Projected job growth, 2016-2026: -21.2% (All jobs: 8.6%)

•Median annual salary: $27,227 (All jobs: $43,233)

•Typical education: High school diploma or equivalent

 

The manufacturing industry is a tale of two job markets. Yes, there's a decline in many production jobs in the U.S., including among setters, operators and tenders of textile knitting and weaving machines (the specific occupation for which the above tabular data applies). But while such low-skill roles are dwindling, demand for certain skilled manufacturing jobs has been on the upswing in recent years. "The positions that have remained are a little more technical, they pay a little better, and we continue to hear employers saying they have a hard time finding manufacturing talent," says EMSI's Joshua Wright.

 

Alternate Career

Machinists have a particularly promising future, with their ranks growing by 11.9% by 2026. These workers use machine tools such as lathes, milling machines and grinders to make items ranging from simple bolts to titanium bone screws for orthopedic implants. While you can still get this gig with just a high school diploma, you also need specialized training, which you can receive on the job or through an apprenticeship program, vocational school or community or technical college. Machinists earn a median salary of $40,502 a year.

 

Photo Processor

 

•Total number of jobs: 23,853

•Projected job growth, 2016-2026: -19.7%

•Median annual salary: $27,324

•Typical education: High school diploma or equivalent

 

The rapid proliferation of digital photos and photo sharing through cyberspace are cutting demand for print pictures and the people who operate the big machines that process them. Plus, when the whim arises, advancing technology has allowed people to print their own photos at home.

 

Alternate Career

Photographers are seeing a better career outlook than photo processors. Over the next decade, the profession is expected to grow 12.0% to 155,286 jobs by 2026. Median earnings is currently about $30,690 a year. Portrait and commercial photographers (who may work for corporations to create advertisements) are likely to experience the greatest demand.

 

Furniture Finisher

 

•Total number of jobs: 20,113

•Projected job growth, 2016-2026: -0.7%

•Median annual salary: $28,698

•Typical education: High school diploma or equivalent

 

These woodworkers shape, finish and refinish damaged and worn furniture—a service less called for when online marketplaces and discount retailers are bringing down prices for new pieces. Furniture finishers also contribute to the production of new wooden products, handling the staining, sealing and topcoating at the end of the process. But as with many other manufacturing jobs, automation has reduced the number of workers needed to perform these tasks and limited the growth prospects for this occupation.

 

Alternate Career

If you can apply your handiwork more broadly, becoming a carpenter may offer a sturdier future. While this position suffered high employment losses over the past decade, which included the housing bust, it's expected to add more than 25,830 jobs, or 2.5%, by 2026. This job also pays more, with a median salary of $37,717 a year. 

 

Radio or TV Announcer

 

•Total number of jobs: 33,202

•Projected job growth, 2016-2026: -10.0%

•Median annual salary: $32,383

•Typical education: Bachelor's degree

 

More radio disc jockeys, talk show hosts and podcasters are under threat of being silenced. Consolidation of radio and television stations, as well as the increased use of syndicated programming, limit the need for these kinds of workers. Plus, streaming music services offer fierce competition to radio stations and their workers. On the upside, online radio stations may provide new opportunities for announcers.

 

Alternate Career

If you're committed to this career track, consider addressing even smaller audiences and becoming a party DJ or emcee. These other types of announcers make up a small field of just 17,326 workers currently, but are expected to grow their ranks 6.0% by 2026. They typically earn slightly less with a median $32,177 a year, but only require a high school diploma to get started.

 

Floral Designer

 

•Total number of jobs: 53,463

•Projected job growth, 2016-2026: -5.0%

•Median annual salary: $23,938

•Typical education: High school diploma or equivalent

 

For floral designers, the bloom has fallen off the rose. After a surge of new flower-shop openings in the 1980s and '90s, their numbers have fallen dramatically. Blame budget-conscious consumers, who are opting to buy loose, fresh-cut flowers from grocery stores instead of elaborate bouquets and arrangements from florists. Plus, the rise of the Internet has allowed some florists to operate more efficiently and reduce the number of brick-and-mortar shops.

 

Alternate Career

If your heart is set on a floral-focused future, apply for a position at a grocery store, where employment of floral designers is expected to grow 5%. Otherwise, consider casting your eye for arrangement from flowers to furniture. Positions for interior designers are expected to grow 6.0% by 2026. To take this path, you'll need additional education—usually a bachelor's degree—and possibly a license or certification, depending on your state and specialty. But you may also expect to earn more; interior designers have a median pay of more than $44,885 a year. If further education isn't in the cards for you, consider being a merchandise displayer. These positions are projected to increase by 12.1% this decade, typically pay about $26,557 a year and require just a high school education.

 

Gaming Cashier

 

•Total number of jobs: 23,111

•Projected job growth, 2016-2026: 2.0%

•Median annual salary: $22,970

•Typical education: High school diploma or equivalent

 

Casinos are becoming more popular and widespread as more states are allowing and building new gaming establishments. Unfortunately, many of those casinos are increasingly finding ways to use less cash in their operations. For example, many slot machines now generate tickets instead of spitting out coins. This change will contribute to the declining need for gaming cashiers in the future.

 

Alternate Career

Other gaming occupations have much better odds for success. Dealers and cage workers are expected to grow 8.7% and 12.0%, respectively, over the next decade. Unfortunately, and ironically, dealers don't rake in much cash; their median salary is just $19,552 a year. Cage workers do better with $25,854 annually. Another option is to apply your cashier skills outside the casinos. Opportunities are much more plentiful: Currently 3.6 million cashiers are working across the nation, and 6.2% more are expected to be added to the workforce by 2026. The pay isn't great with a median $19,337 a year, but no formal education is required either.

 

Legislator

 

•Total number of jobs: 56,514

•Projected job growth, 2016-2026: 1.5%

•Median annual salary: $20,500

•Typical education: Bachelor's degree

 

It's an ugly time to be in politics. The number of positions for local, state and federal legislators rarely changes, so competition can be fierce as we've all seen on the national stage. And despite what you might think about fat-cat politicos, government paychecks for the majority of elected officials are actually pretty light. On the bright side, opportunities to enter the field arise with every election, and pay for the top 10% in the field goes up to above $95,000 a year.

 

Alternate Career

You can still affect change by pursuing a career as a social and community service manager. (And you can always get back into politics from this career path; it worked for Barack Obama.) Like many of our best jobs for the future, this occupation benefits from the aging population. As boomers increasingly lean on social services, such as adult day care and meal-delivery programs, managers of such businesses will be in greater demand. In fact, the number of these managers is expected to grow 15.7% by 2026 from 149,920 currently. Plus, the median salary is much more generous at $62,349 a year. You need at least a bachelor's degree in social work, urban studies, public administration or a related field to get started. But reaching these managerial heights typically also requires relevant work experience of five years or more. And some employers prefer applicants with master's degrees.

 

Metal and Plastic Machine Operator

 

•Total number of jobs: 34,413

•Projected job growth, 2016-2026: -10.3%

•Median annual salary: $30,620

•Typical education: High school diploma or equivalent

 

Although metal and plastic are durable materials, the U.S. labor market for people who work with them is not quite as stable. Many of the old metal- and plastic-production jobs are now being done more efficiently by machines or more affordably abroad. Lower-skill positions that involve manually setting and operating machines—including plating and coating machines, to which the above tabular data applies—are becoming increasingly scarce.

 

Alternate Career

While less-skilled manufacturing jobs are declining, more high-tech positions within the industry are on the rise. Indeed, the number of operators of computer-controlled metal and plastic machines and programmers of computer numerically controlled metal and plastic machines are expected to grow by more than 17.5% each. The median salary is also better: The operators have a median salary of about $37,024 a year, and the programmers earn a median of more than $48,984 a year.

 

Door-to-Door Salesperson

 

•Total number of jobs: 77,462

•Projected job growth, 2016-2026: -20.3%

•Median annual salary: $21,486

•Typical education: No formal education

 

Better dramatized by sci-fi writer Philip K. Dick than playwright Arthur Miller, the death of the traveling salesman can be chalked up to advancing technology. When businesses are able to contact millions of customers online with the press of a button, going door-to-door has become a very inefficient way to push products. And the people once charged with doing so are being replaced by solicitations broadcast via websites, e-mail and social media outlets.

 

Alternate Career

Your sales skills are better applied in less-nomadic positions. For example, the number of insurance sales agents is expected to increase 10.6% to 651,215 by 2026. The median pay is about $47,872 a year, and the entry-level education requirement is just a high school diploma, though you will also need to get a license to sell insurance in the state where you work.

 

Print Binding and Finishing Worker

 

•Total number of jobs: 52,323

•Projected job growth, 2016-2026: -10.2%

•Median annual salary: $30,264

•Typical education: High school diploma or equivalent

 

Print may not be dead, but it seems to require much less upkeep these days. Far fewer workers are needed to bind and finish books and other publications than were employed a decade ago. The relatively good news is that the rate of loss seems to be tapering off now that the number of workers is so low. 

 

Alternate Career

Putting your finishing touch on another career path may be a safer move. Certain assemblers and fabricators—who put together finished products, such as engines, computers and toys, and the parts that go into them—have better prospects. Aircraft structure, surfaces, rigging and systems assemblers are projected to boost their ranks by 1.2% over the next decade. You need just a high school diploma to get started, and median earnings are $48,984 a year.

 

2016 Worst Job Rankings

•Thinkstock

•Door-to-Door Sales Worker

•Textile Machine Worker

•Floral Designer

•Sewing Machine Operator

•Print Binding and Finishing Worker

•Tailor

•Upholsterer

•Craft Artist

•Photo Processor

•Metal and Plastic Plating and Coating Machine Operator

 

Kiplinger updates many of its rankings annually. Above is last year's list of 10 of the worst jobs for the future. Keep in mind that ranking methodologies can change from year to year based on data available at the time of publishing, differences in how the data was gathered, changes in data providers and tweaks to the formulas used to narrow the pool of candidates.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

10 Small Towns With Big Millionaire Populations

Here is a nice article provided by Dan Burrows of Kiplinger:

 

By Dan Burrows, Contributing Writer | June 2017

 

Just 5.5% of the households in the U.S. qualify as bona fide millionaires. That means they have investable assets of $1 million or more, excluding the value of real estate, employer-sponsored retirement plans and business partnerships. Not surprisingly, the majority of these 6.8 million wealthy households can be found in big cities such as New York, Los Angeles and Chicago.

 

But it turns out some millionaires prefer to avoid the hustle and bustle of major metropolises. Phoenix Marketing International, a firm that tracks the affluent market, ranked 915 urban areas, both large and small, based on the percentage of millionaire households in each. Here are the 10 smallest cities and towns boasting the highest concentration of millionaires in the U.S.

 

Estimates of millionaire households provided by Phoenix Marketing International. This list is limited to so-called micropolitan statistical areas, which are defined as having at least one urban cluster with more than 10,000 residents but less than 50,000. Investable assets include education/custodial accounts, individually owned retirement accounts, stocks, options, bonds, mutual funds, managed accounts, hedge funds, structured products, ETFs, cash accounts, annuities, and cash value life insurance policies. Data on household incomes and home values are from the U.S. Census Bureau.

 

10. Gardnerville Ranchos, Nev.

 

Millionaire Households: 1,445

Total Households: 20,566

Concentration of Millionaires: 7.0%

Median Income for All Households: $58,535 (U.S.: $53,889)

Median Home Value: $272,000 (U.S.: $178,600)

 

Gardnerville Ranchos is a favorite hiding place for millionaires because of its proximity to Lake Tahoe, which has long been a getaway for the rich and famous. With everything from ski resorts to beaches, the Lake Tahoe area offers year-round activities for well-heeled tourists and full-time residents alike. Adding to the appeal for residents, Nevada is one of the most tax-friendly states in the U.S. thanks to no state income tax and modest property taxes. Carson City, capital of the Silver State, is just 20 miles to the north of Gardnerville Ranchos, and high-rollers can reach Reno’s casinos in an hour.

 

9. Truckee-Grass Valley, Calif.

 

Millionaire Households: 3,007

Total Households: 42,612

Concentration of Millionaires: 7.1%

Median Income for All Households: $54,177 

Median Home Value: $383,400

 

You’ll find the Truckee-Grass Valley area on the California side of Lake Tahoe, with Truckee proper situated near the shore of the famed lake itself and Grass Valley sitting farther to the west. Multiple bodies of water including Donner Lake, where the Donner Party met its gruesome demise, make the entire area a recreational haven for water sports. And the long, snowy winters are perfect for the numerous ski resorts in the vicinity of Truckee and Grass Valley. Another appealing aspect of the area for millionaires: It’s a straight shot down Interstate 80 to reach Sacramento, the state capital, and San Francisco. Less appealing: California ranks as the single worst state in the U.S. for taxes.

 

8. Concord, N.H.

 

Millionaire Households: 4,136

Total Households: 57,844

Concentration of Millionaires: 7.2%

Median Income for All Households: $68,566 

Median Home Value: $220,400

 

The New Hampshire state capital is home to a horde of state, county, local and federal agencies -- and the law firms and professional agencies that support them. Concord is also a major distribution, industrial and transportation hub. Tourism is a key contributor to the local economy, thanks to the nearby New Hampshire International Speedway, as is the state's increasing emergence as a center of high-tech manufacturing. Concord also benefits from being within easy reach of Manchester, the state's largest city, which is only about 15 miles to the south. And well-off residents seeking a break from quaint New England living can drive to Boston in less than 90 minutes. 

 

7. Vineyard Haven, Mass.

 

Millionaire Households: 589

Total Households: 7,995

Concentration of Millionaires: 7.4%

Median Income for All Households: $64,222 

Median Home Value: $660,800 

 

No surprise here. Vineyard Haven is a town on Martha's Vineyard. This island off the coast of Cape Cod is one of the most desirable summer vacations spots in the Northeast and has long been a favorite of the rich, the famous and the powerful. Indeed, former presidents Bill Clinton and Barack Obama have summered there. Jacqueline Kennedy Onassis long maintained a home on the island. Naturally, this tony locale is not easy on the wallet, as evidenced by the exorbitant real estate prices. It also can get a bit crowded. Martha's Vineyard has 15,000 or so year-round residents, but the population swells to more than 115,000 during peak summer months.

 

6. Easton, Md.

 

Millionaire Households: 1,190

Total Households: 16,006

Concentration of Millionaires: 7.4%

Median Income for All Households: $58,228

Median Home Value: $319,500

 

Tiny Easton, on the Eastern Shore of Chesapeake Bay, prides itself on its out-of-the-way feel, with country farms mixing with lavish waterfront estates. It has long been a retreat for the well-to-do of the Mid-Atlantic seeking antiques shops and solitude. Easton's proximity to the beach, abundance of parks and good schools make for an idyllic small-town experience for residents. At the same time, the town offers easy access to several major cities. It's only 30 minutes from Annapolis, the state capital, and Washington, D.C., and Baltimore can be reached by car in about 90 minutes (traffic willing). Maryland has the most millionaires per capita of any state in the U.S., according to Phoenix Marketing International.

 

5. Fredericksburg, Texas

 

Millionaire Households: 837

Total Households: 11,244

Concentration of Millionaires: 7.4%

Median Income for All Households: $54,859

Median Home Value: $238,300

 

It's not hard to understand the allure of Fredericksburg, since it's smack-dab in the middle of Texas Hill Country. This beautiful region of the Lone Star State has plenty to offer for both outdoorsy types and aesthetes alike. Residents can explore a landscape of rolling hills, spring-fed rivers and lakes, and vast fields of wildflowers. But they can also partake in fine dining, wine tasting, concerts and art shows. A good example that combines the two, while giving a nod to the area's rich history, is the LBJ Ranch Tour and Wine Tasting. (To be clear, LBJ stands for Lyndon Baines Johnson, 36th president of the U.S., not LeBron James.) Fredericksburg also benefits from its proximity to Austin, capital of Texas and a hub for high-paying tech companies, about 90 minutes away.

 

4. Edwards, Colo.

 

Millionaire Households: 1,520

Total Households: 19,685

Concentration of Millionaires: 7.7%

Median Income for All Households: $72,214

Median Home Value: $419,400

 

You can sum up the appeal of Edwards in one word: skiing. The nearby world-class resorts of Vail and Beaver Creek draw big-spending skiers hoping to see and be seen all winter long. But the area offers much more than pricey lift tickets and celebrity spotting. Fly fishing, hiking and whitewater rafting draw folks to town in the summer months. Either way, high-end restaurants, plush lodges and spas are just some of the ways millionaires can pamper themselves. But it's Colorado's status as a tax-friendly state for both retirees and working residents that helps make Edwards a good deal for year-round living. It’s a good thing, too, considering the high price of homes in the area.

 

3. Williston, N.D.

 

Millionaire Households: 1,166

Total Households: 14,913

Concentration of Millionaires: 7.8%

Median Income for All Households: $88,013

Median Home Value: $201,400

 

The city of Williston expanded rapidly in the first half of this decade, according to the Census Bureau, driven by the explosion in shale oil drilling that once gave North Dakota the fastest-growing economy in the nation. Located in the center of the oil-rich Bakken Formation, Williston soon found itself the home of millionaires minted by the fracking revolution. But it doesn't look like it will be making more soon. North Dakota has seen oil booms and busts before, but the prolonged downturn in prices has turned cities like Williston upside-down. Wages are down and jobs have dried up. Some folks reportedly are just pulling up stakes, taking a bite out of the local tax base. If there's a silver lining for Williston's remaining millionaires, at least North Dakota is one of the nation's more tax-friendly states.

 

2. Torrington, Conn.

 

Millionaire Households: 5,995

Total Households: 74,673

Concentration of Millionaires: 8.0%

Median Income for All Households: $70,667

Median Home Value: $248,300

 

Torrington is the largest town in Litchfield County, which has long been a popular retreat for Manhattan's wealthy and chic looking for a remote, mountainous retreat. (It’s an in-state draw for all the millionaires from Stamford, too.) As Vogue magazine says of the area: "There’s something for everyone: art galleries, outdoor activities, shopping, great food. With its covered bridges, forests, and rivers, the scenery is gorgeous. In fact, every season challenges the next for which is more beautiful." Although Torrington might be hidden in the northwest corner of the state, millionaires can't escape Connecticut's onerous tax bite. Real estate taxes are among the highest in the country, and the state has not only a gift tax but also a luxury.

 

1. Juneau, Alaska

 

Millionaire Households: 1,109

Total Households: 12,986  

Concentration of Millionaires: 8.5% 

Median Income for All Households: $85,746

Median Home Value: $323,500

 

Like Anchorage, another Alaskan city with a high concentration of millionaires, everything is more expensive in Juneau. Chalk it up to the remote location of Alaska’s capital, which is tucked away in the southeast corner of the state hard against the Canadian border. Groceries alone cost one-third more than the U.S. national average, according to the Council for Community and Economic Research's Cost of Living Index. And while it helps to be a millionaire to live in Juneau, it's increasingly hard to become one. Much of Alaska's wealth is tied to the energy business, and a prolonged slump in oil prices is taking a toll. Indeed, Alaska is in the midst of its worst recession in three decades. On the plus side, Alaska is one of the most tax-friendly states in the union. Not only is there no state income tax, but the government actually pays residents an annual dividend.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

11 Satellite Cities Poised to Thrive in 2017

Here is a nice article provided by David Payne of Kiplinger:

 

By David Payne, Staff Economist | March 2017, Nick Mourtoupalas also contributed to this report. 

 

It’s been a slow climb back from the Great Recession for the nation’s major metropolitan areas. Yet job seekers often overlook the small and medium cities located near or relatively near the big hubs. As the big metro areas recover, these smaller “satellite” cities benefit from spreading regional business growth, while offering lower housing and commuter costs, putting less of a squeeze on employee salaries than more expensive, congested places a few hours away.

 

That can mean both abundant job opportunities and budget-friendly home prices for folks looking to relocate. Check out these 11 up-and-coming satellite cities where the job markets are hot but the cost of living won’t eat all of your paycheck. All of these cities’ job markets have been growing faster than the national average, most have lower jobless rates than the national average, and all are expected to continue to outperform economically this year.

 

St. George, Utah

 

Close by: Las Vegas (100 miles SW), Salt Lake City (300 miles NE)

Employment growth in 2016: 6.1% (national growth: 1.8%)

Latest unemployment rate (Dec. 2016): 3.2% (national rate: 4.7%)

Median home price: $345,000 in the city, up 10% from last year ($235K to $300K in the suburbs)

 

St. George has seen five consecutive years of 5%-plus job growth. Much of that has come in professional and business services, health care, retail, manufacturing and hospitality services. Three of its biggest employers are SkyWest Airlines, Dixie Regional Medical Center and Sunroc, a regional building supplies company. Retirees wary of Vegas find the warm winters in the Utah desert to their liking here. One of the most scenic natural wonders in the country, Zion National Park, is just a 45-minute drive to the east.

 

Bend/Redmond, Oregon

 

Close by: Portland (170 miles NW)

Metro population: 114,000

Employment growth in 2016: 5.3%

Unemployment rate: 4.4%

Median home price: $360,000, up 9% from last year

 

On the east-facing slopes of the Cascade mountains, these twin cities have enjoyed robust job growth four years running. The trend is expected to continue. Tourism and the hospitality industry are integral to this region’s economy. Retirees like the outdoor activities (the east side of the Cascades gets more sunny days than the west side). Major employers include St. Charles Medical Center; Keith Manufacturing, makers of storage and conveying systems; and Sunriver Resort, an upscale vacation destination. The area is also seeing strong job growth in professional and business services, health care, retail, construction and manufacturing.

 

Cleveland, Tennessee

 

Close by: Chattanooga (40 miles SW), Atlanta (120 miles SE)

Metro population: 56,000

Employment growth in 2016: 4.9%

Unemployment rate: 4.4%

Median home price: $165,000, up 10% from last year

 

Home of Lee University, this less-famous Cleveland is quietly benefiting from strong growth in jobs in professional and business services, health care, retail and hospitality. Major employers include Whirlpool (it has a premium kitchen-appliances division and distribution outlet here), Tennova Healthcare and Amazon.com. Its 800 acres of industrial parks include manufacturing facilities and outlets for Volkswagen, Duracell, Mars and Bayer. It helps that Cleveland, with its views of the Great Smoky Mountains, is also in a state with no income tax.

 

Prescott/Prescott Valley, Arizona

 

Close by: Phoenix (100 miles S)

Metro population: 82,000

Employment growth in 2016: 4.6%

Unemployment rate: 4.2%

Median home price: $321,000, up 9% from last year

 

Prescott is a popular retirement and tourist alternative to the state capital. The area is cooler than Phoenix because its elevation is 4,000 feet higher, and the air is cleaner outside of the Phoenix basin. It is experiencing rapid job growth, driven by population growth. The biggest gains are in professional and business services, hospitality, health care and retail. Major employers include Yavapai Regional Medical Center; a Lockheed Martin training center; Superior Industries, which manufactures equipment for crushing, washing and conveying bulk materials; and Sturm, Ruger & Co., a firearms manufacturer which makes pistols here. Prescott is also home to Embry-Riddle Aeronautical University.

 

Savannah, Georgia

 

Close by: Charleston, S.C. (120 miles NE), Jacksonville, Fla. (170 miles S)

Metro population: 179,000

Employment growth in 2016: 4.0%

Unemployment rate: 4.9%

Median home price: $195,000, up 6% from last year

 

Gateway to the Atlantic Ocean just south of the South Carolina border, Savannah is not only a historic city with antebellum charm, but the fourth-busiest port in the United States. It saw a big jump in professional and business services jobs in 2016, along with strong growth in health care, retail and hospitality. The port authority is currently dredging the harbor to accommodate the biggest cargo ships, a project that will be completed in 2020. That means even more freight entering and leaving this already humming city. Major employers include Gulfstream Aerospace, Memorial Health, St. Joseph’s/Candler hospitals, Marine Terminals Corp. and SSA Cooper, a marine cargo handling outfit. Ft. Stewart/Hunter Army Airfield also anchors the local economy.

 

Reno/Sparks, Nevada

 

Close by: Sacramento, Calif. (130 miles SW), San Francisco (220 miles SW)

Metro population: 334,000

Employment growth in 2016: 4.0%

Unemployment rate: 4.2%

Median home price: $305,000, up 9% from last year

 

Near the California border and 20 miles from Lake Tahoe, Reno and Sparks benefit from tourism, hospitality and gambling. Business services, health care, construction and transportation are also major employers. The University of Nevada at Reno is the second-largest university in the state.

 

The area was jump-started economically when Tesla opened its gigafactory in January 2017, just a half-hour’s drive east of Reno. This is the largest facility in the world for making battery cells to power electric autos. It already employs more than 1,000 people. Tesla says it plans to add 1,000 more employees in early 2017, with a goal of a 6,500-person workforce sometime in 2018. The venture has attracted ancillary businesses such as Panasonic, which has plans to add 2,000 workers at its Reno operations in 2017. Other major employers include Renown Regional Medical Center, Peppermill Resort Spa Casino and International Game Technologies, a manufacturer of slot machines.

 

Athens, Georgia

 

Close by: Atlanta (75 miles W)

Metro population: 123,000

Employment growth in 2016: 4.0%

Unemployment rate: 4.8%

Median home price: $270,000; higher closer to the University of Georgia campus

 

The Athens area (Clarke County and Oconee County) is heating up as an alternative to big-city Atlanta, with the University of Georgia serving as both an incubator and hub of business development. Professional and business services and the hospitality industry are major drivers of job growth. Lots of construction jobs, too: Three new hotels have been added to the downtown area along with large student housing developments. Retirees, especially, are attracted to the educational pursuits and sports attractions that come with a college town, as well as major health care facilities. Other big employers include Athens Regional Medical Center, Caterpillar and Pilgrim’s Pride, which operates a local food processing plant.

 

College Station/Bryan, Texas

 

Close by: Houston (100 miles SE), Austin (110 miles W), Dallas (180 miles N)

Metro population: 187,000

Employment growth in 2016: 3.9%

Unemployment rate: 3.4%

Median home price: $230,000, up 6% from last year

 

Located virtually equidistant from Houston and Austin, College Station is home to Texas A&M University. It and neighboring Bryan are following the path of Austin (the Lone Star State’s capital, with its University of Texas campus) as the next up-and-coming regional center. Texas A&M has expanded enrollment from 40,000 to 60,000 in the past five years. Having a thriving university results in strong growth in jobs in professional and business services, health care, retail, hospitality and other services. The A&M Health Science Center and the veterinary school sponsor a facility for manufacturing vaccines, including 1 million inoculation doses for the avian flu. A bio corridor is developing around this and a GlaxoSmithKline facility. Sanderson Farms, one of the largest chicken suppliers in the United States, has a major processing facility just outside Bryan.

 

Salem, Oregon

 

Close by: Portland (50 miles N)

Metro population: 234,000

Employment growth in 2016: 3.5%

Unemployment rate: 4.3%

Median home price: $240,000, up 6% from last year

 

Salem is the capital of the Beaver State and a thriving satellite city in the fast-growing Willamette Valley. The area has become an affordable alternative to Portland, 90 minutes away during rush hour. Construction is also going strong, and 2016 saw a big jump in professional and business services jobs. Commercial real estate is booked solid. The Career Technical Education Center, a public-private partnership, has significantly improved graduation rates for its high school seniors.

 

Marion County is the largest food producer in the state, and a center for agricultural science and research. County voters approved a bond issue in 2014 to fund an agricultural extension service sponsored by Oregon State University. Other large employers include Salem Hospital; Willamette University; Norpac, a food processing company; Spirit Mountain Casino; and T-Mobile.

 

Boise, Idaho

 

Close by: Nothing really, but a satellite city nonetheless

Metro population: 324,000

Employment growth in 2016: 3.4%

Unemployment rate: 3.4%

Median home price: $245,000, up 10% from last year

 

Located in the southwest corner of the Gem State, Boise benefits as a regional alternative to Seattle, Portland, or Salt Lake City, all a six- to eight-hour drive away (but hey, this is the West, where folks are used to driving long distances).

 

Boise is the state capital, largest city in the state, and home of Boise State University, with its iconic blue-turfed football stadium. It’s also one of the least expensive large metros in the wide-open spaces of the West. Local industries that are hiring briskly include health care, construction, manufacturing and finance. Boise is big on both agribusiness and semiconductors, and has many tech start-ups. Clearwater Analytics, a local start-up, now has a 10-story building downtown. The great outdoors is always close by with the Rocky Mountains and ski resorts. Big employers include St. Luke’s health systems, Saint Alphonsus Regional Medical Center, Micron Technology, HP and the state government.

 

Spokane, Washington

 

Close by: Seattle (280 miles W)

Metro population: 304,000

Employment growth in 2016: 3.0%

Unemployment rate: 6.4%

Median home price: $195,000, up 11% from last year

 

Western Washington has Seattle; eastern Washington has Spokane, the number-two metro area in size but a more affordable alternative for newcomers to the Evergreen State. It is the home of Gonzaga University and is seeing robust job gains in professional and business services, health care, construction and transportation. Major employers include Providence Sacred Heart Medical Center & Children’s Hospital, Deaconess Medical Center and the 92nd Air Refueling Wing at Fairchild Air Force Base.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc. The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles. Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Your Plan's Vesting Schedule: Tailor It to Meet Your Needs

A retirement plan's vesting schedule, which establishes when employer contributions to the plan will be owned outright by the employee, plays a role in how effective the plan is in helping to attract and retain employees. Employers will want to carefully consider their goals and the available options when selecting a vesting schedule for their plan.

Common Vesting Schedules

The simplest schedule -- from an administrative perspective -- is to allow immediate vesting in 100% of the employer contributions allocated to the employee. However, immediate vesting offers little incentive for employees to stay with the company and therefore may become more counterproductive as the rates of employee turnover increase.

For this reason, sponsors concerned about employee retention often turn to a delayed vesting schedule. Instead of allowing 100% vesting up front, they seek to maximize employee retention by tying the vesting percentage to the participant's years of service.

Generally, for defined contribution plans, such as 401(k) plans, delayed vesting is available in two forms: "cliff" vesting and "graded" vesting. With cliff vesting, a participant becomes 100% vested after a specific period of service. With graded vesting, a participant becomes vested at a percentage amount that gradually increases until he or she accrues enough years of service to be 100% vested. (It should be noted that an employee's own contributions to the plan are always 100% vested, or owned, by the employee.)

vesting.png

Employers may choose a schedule that provides for vesting at a more rapid rate than those shown above, but they may not adopt a schedule that provides for less rapid vesting.

How do employers calculate years of service? A year of service is any vesting computation period in which the employee completes the number of hours of service (not exceeding 1,000) required by the plan. Typically, the vesting computation period is the plan year, but it may be any other 12-consecutive-month period.

Are all employer contributions subject to a vesting schedule? Several types of employer contributions must always be 100% vested. These include both non-elective and matching contributions in a SIMPLE 401(k) plan or a "safe harbor" 401(k) plan.

Can vesting schedules be changed? Generally, a vesting schedule may be changed, but the vested percentage of the existing participants may not be reduced by the amended schedule. Moreover, an employee with three or more years of service by the end of the applicable election period can choose to select the previous vesting schedule. The election period begins no later than the date of adoption of the amended schedule and ends on the latest of the following dates:

•  Sixty days after the modified vesting schedule is adopted;

•  Sixty days after the modified vesting schedule is made effective; or

•  Sixty days after the participant is provided a written notice of the change in vesting schedule.

What situations would cause vesting of an employee's entire balance? In certain circumstances, the participant's interest in a 401(k) plan is required by law to be 100% vested. These circumstances include attainment of normal retirement age (as defined in the plan), termination or partial termination of the plan, and complete discontinuance of contributions to the plan. Additionally, though not required by law, nearly all 401(k) plans provide for 100% vesting upon the participant's death or disability.


Required Attribution


Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.
 


The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.
 

When Employees Leave, but Plan Accounts Stay

Work force reductions may leave some employers with low-balance plan accounts owned by former employees. These accounts can be expensive to maintain and burdensome to administer. Below, you will find answers to commonly asked questions about handling these small accounts.

Can we just distribute small accounts to the former employees? Check your plan's provisions. Under federal law, plans can provide that, if a former employee has not made an affirmative election to receive a distribution of his or her account assets or to roll those assets over to an IRA or another employer's plan, the plan can distribute the account - as long as its balance does not exceed $5,000. For accounts valued at $1,000 or less, the plan can simply send the former employee a check for his or her balance. Distributions of more than $1,000 must be directly transferred to an IRA set up for the former employee. Accounts valued at $1,000 or less may also be rolled over for administrative convenience.

Should non-vested assets be included when determining whether a mandatory distribution can be made? You only have to include the value of the former employee's non-forfeitable accrued benefit. If the employee was not fully vested in any portion of the account when he or she left your employ, you do not have to count the non-vested portion.

What about rollovers? A plan may provide that any amounts that a former employee rolled over from another employer's plan (and any earnings on those rolled over assets) are to be disregarded in determining the employee's non-forfeitable accrued benefit. Thus, you may be able to cash out and roll over accounts greater than $5,000. Note that rolled over amounts are included in determining whether a former employee's accrued benefit is greater than $1,000 for purposes of the automatic rollover requirement.

What requirements do we have to meet when rolling over a small account? To fulfill your fiduciary duties as a plan sponsor, the following requirements must be met:

•  The rollover must be a direct transfer to an IRA set up in the former employee's name.

•  The IRA provider must be a state or federally regulated financial institution, such as an FDIC-insured bank or savings association or an FCUA-insured credit union; an insurance company whose products are protected by a state guaranty association; or a mutual fund company.

•  You must have a written agreement with the IRA provider that addresses appropriate account investments and fees.

•  The IRA provider cannot charge higher fees than would be charged for a comparable rollover IRA.
(Other fiduciary responsibilities apply.)

Are there rules for investing the rollover IRA? The investments chosen for the IRA must be designed to preserve principal and provide a reasonable rate of return and liquidity. Examples include money market mutual funds, interest-bearing savings accounts, certificates of deposit, and stable value products.

Do we have to provide disclosures? Yes. Before you cash out an account, you must notify the former employee in writing, either separately or as part of a rollover notice, that, unless the employee makes an affirmative election to receive a distribution of his or her account assets or rolls them over to another account, the distribution will be paid to an IRA. As long as you send the notice to the former employee's last known mailing address, the notice requirement generally will be considered satisfied. In addition, you must include a description of the plan's automatic rollover provisions for mandatory distributions in the plan's summary plan description (SPD) or summary of material modifications (SMM).

"For accounts valued at $1,000 or less, the plan can simply send the former employee a check for his or her balance."


Required Attribution


Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.
 


The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Defined Benefit Plans

The defined benefit plan is a powerful tax strategy for high income individuals with self-employment income. It's great for small business owners who want to catch-up on their retirement saving and save a tremendous amount on taxes. 

Click here to view our latest webinar on Defined Benefit Plans.

Click here to read a case study.
 
Why is a defined benefit plan a powerful tax strategy for high income individuals with self-employment income and small business owners?

The small business defined benefit (DB) plan is an IRS-approved qualified retirement plan that allows independent professionals and consultants, individuals with self-employment income and small business owners to make large contributions and accumulate as much as $1-2 Million in just 5-10 years. The contributions are deductible and can potentially reduce income tax liability by $40,000 or more annually. To read more about examples where a defined benefit plan would be beneficial click here The Defined Benefit Plan.pdf
 
New Flexibility in Defined Benefit Plans
 
Independent professionals and consultants, small business owners, and individuals with self-employment income often are so busy with their day-to-day responsibilities that they don't take the time to think about preparing for the day they finally retire. Since they aren't thinking about the future - at least not one that includes life beyond their daily work - they may not accumulate retirement savings sufficient to maintain their pre-retirement lifestyle. Business owners are also more likely to put the needs of their business ahead of their well-being... to read more click here New Flexibility in Defined Benefit Plans.pdf


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.



The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Own a Retirement Account? Keep Your Beneficiary Designations Up to Date

Many investors have taken advantage of pretax contributions to their company's employer-sponsored retirement plan and/or make annual contributions to an IRA. If you participate in a qualified plan program you may be overlooking an important housekeeping issue: beneficiary designations.

An improper designation could make life difficult for your family in the event of your untimely death by putting assets out of reach of those you had hoped to provide for and possibly increasing their tax burdens. Further, if you have switched jobs, become a new parent, been divorced, or survived a spouse or even a child, your current beneficiary designations may need to be updated.

Consider the "What Ifs"

In the heat of divorce proceedings, for example, the task of revising one's beneficiary designations has been known to fall through the cracks. While (depending on the state of residence and other factors) a court decree that ends a marriage may potentially terminate the provisions of a will that would otherwise leave estate proceeds to a now-former spouse, it may not automatically revise that former spouse's beneficiary status on separate documents such as employer-sponsored retirement accounts and IRAs.

Many qualified retirement plan owners may not be aware that after their death, the primary beneficiary -- usually the surviving spouse -- may have the right to transfer part or all of the account assets into another tax-deferred account. Take the case of the retirement plan owner who has children from a previous marriage. If, after the owner's death, the surviving spouse moved those assets into his or her own IRA and named his or her biological children as beneficiaries, the original IRA owner's children could legally be shut out of any benefits.

Also keep in mind that the law requires that a spouse be the primary beneficiary of a 401(k) or a profit-sharing account unless he/she waives that right in writing. A waiver may make sense in a second marriage -- if a new spouse is already financially set or if children from a first marriage are more likely to need the money. Single people can name whomever they choose. And nonspouse beneficiaries are now eligible for a tax-free transfer to an IRA.

The IRS has also issued regulations that dramatically simplify the way certain distributions affect IRA owners and their beneficiaries. Consult your tax advisor on how these rule changes may affect your situation.

To Simplify, Consolidate

Elsewhere, in today's workplace, it is not uncommon to switch employers every few years. If you have changed jobs and left your assets in your former employers' plans, you may want to consider moving these assets into a rollover IRA or your current employer's plan, if allowed. Consolidating multiple retirement plans into a single tax-advantaged account can make it easier to track your investment performance and streamline your records, including beneficiary designations.

Review Your Current Situation

If you are currently contributing to an employer-sponsored retirement plan and/or an IRA contact your benefits administrator -- or, in the case of the IRA, the financial institution -- and request to review your current beneficiary designations. You may want to do this with the help of your tax advisor or estate planning professional to ensure that these documents are in synch with other aspects of your estate plan. Ask your estate planner/attorney about the proper use of such terms as "per stirpes" and "per capita" as well as about the proper use of trusts to achieve certain estate planning goals. Your planning professional can help you focus on many important issues, including percentage breakdowns, especially when minor children and those with special needs are involved.

Finally, be sure to keep copies of all your designation forms in a safe place and let family members know where they can be found.

This communication is not intended to be tax or legal advice and should not be treated as such. Each individual's situation is different. You should contact your tax or legal professional to discuss your personal situation.


Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.



The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Consider the "Autopilot" Option for Your Plan

These days, it is vitally important for individuals to set money aside for retirement during their working years. Unfortunately, not every employee thinks so. Which explains why some employer-sponsored retirement plans have low participation rates. If your company's retirement plan participation rate disappoints you, there may be an easy fix. Why not put your plan on autopilot?

The Nuts and Bolts

Putting a retirement plan on autopilot simply means introducing an automatic enrollment feature. In other words, employees are automatically enrolled in the retirement plan unless they elect otherwise. A specific percentage of the employee's wages will be automatically deducted from each paycheck for contribution to the plan unless the employee opts out.

Once enrolled in the plan, employees can change their contribution rate and choose how to invest their contributions from the plan's investment menu. If they don't make their own investment selections, their contributions are automatically directed to a qualified default investment alternative (QDIA), which is typically a target date fund, a balanced fund, or an account managed by an ERISA-qualified investment manager. Employees whose contributions are invested in the default option can later switch into another plan investment, if desired.

Does It Work?

According to recent research, approximately 75% of employees participate in their employer's retirement plan.1 The same study found that 62% of plan sponsors offer an auto-enrollment feature, 97% of those offering auto enrollment are satisfied with their program, and that 88% of sponsors believe auto enrollment has had a positive impact on their plan participation rates.2

A Win-Win

Many employees are confused about retirement planning. Many want guidance. Automatic enrollment makes the tough decisions for them and starts them on the path to a more secure financial future. Having a robust retirement plan usually helps businesses attract and keep talented employees. Automatic enrollment may be just the enhancement you need to get more employees to participate in -- and appreciate -- the benefits of working for you.
 

Source:

1. & 2.  Deloitte Consulting, LLP, the International Foundation of Employee Benefit Plans, the International Society of Certified Employee Benefit Specialists, "Annual Defined Contribution Benchmarking Survey, 2015 Edition."


Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.


Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.



The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Turning the Page: Five Things Baby Boomers Need to Know About RMDs

The times they are a changin' for baby boomers. The generation that lived through and influenced the revolution in the retirement industry is now poised to begin withdrawing money from their retirement-saving vehicles -- namely IRAs and/or employer-sponsored retirement plans.

If you were born in the first half of 1946 -- you are among the first baby boomers who will turn 70½ this year. That's the magic age at which the Internal Revenue Service requires individuals to begin tapping their qualified retirement savings accounts. While first-timers officially have until April 1 of the following year to take their first annual required minimum distribution (RMD), doing so means you'll have to take two distributions in 2017. And that could potentially push you into a higher tax bracket.

This is just one of the tricky details you'll have to navigate as you enter the "distribution" phase of your investing life. Here are five more RMD consi derations that you may want to discuss with a qualified tax and/or financial advisor.

1.  RMD rules differ depending on the type of account. For all non-Roth IRAs, including traditional IRAs, SEP IRAs, and SIMPLE IRAs, RMDs must be taken by December 31 each year whether you have retired or not. (The exception is the first year, described above.) For defined contribution plans, including 401(k)s and 403(b)s, you can defer taking RMDs if you are still working when you reach age 70½ provided your employer's plan allows you to do so AND you do not own more than 5% of the company that sponsors the plan.

2.  You can craft your own withdrawal strategy. If you have more than one of the same type of retirement account -- such as multiple traditional IRAs -- you can either take individual RMDs from each account or aggregate your total account values and withdraw this amount from one account. As long as your total RMD value is withdrawn, you will have satisfied the IRS requirement. Note that the same rule does not apply to defined contribution plans. If you have more than one account, you must calculate separate RMDs for each then withdraw the appropriate amount from each.

3.  Taxes are still due upon withdrawal. You will probably face a full or partial tax bite for your IRA distributions, depending on whether your IRA was funded with nondeductible contributions. Note that it is up to you -- not the IRS or the IRA custodian -- to keep a record of which contributions may have been nondeductible. For defined contribution plans, which are generally funded with pretax money, you'll likely be taxed on the entire distribution at your income tax rate. Also note that the amount you are required to withdraw may bump you up into a higher tax bracket.

4.  Penalties for noncompliance can be severe. If you fail to take your full RMD by the December 31 deadline on a given year or if you miscalculate the amount of the RMD and withdraw too little, the IRS may assess an excise tax of up to 50% on the amount you should have withdrawn -- and you'll still have to take the distribution. Note that there are certain situations in which the IRS may waive this penalty. For instance, if you were involved in a natural disaster, became seriously ill at the time the RMD was due, or if you received faulty advice from a financial professional or your IRA custodian regarding your RMD, the IRS might be willing to cut you a break.

5.  Roth accounts are exempt. If you own a Roth IRA, you don't need to take an RMD. If, however, you own a Roth 401(k) the same RMD rules apply as for non-Roth 401(k)s, the difference being that distributions from the Roth account will be tax free. One way to avoid having to take RMDs from a Roth 401(k) is to roll the balance over into a Roth IRA.

For More Information

Everything you need to know about retirement account RMDs can be found in IRS Publication 590-B, including the life expectancy tables you'll need to figure out your RMD amount. Your financial and tax professionals can also help you determine your RMD.

The information in this communication is not intended to be tax advice. Each individual's tax situation is different. You should consult with your tax professional to discuss your personal situation.
 
Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or ot hers' use of the content.

© 2016 DST Systems, Inc. Reproduction in whole or in part prohibited, except by permission. All rights reserved. Not responsible for any errors or omissions.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

The views, opinion, information and content provided here are solely thos e of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

When To Take Social Security

What is the best way to take Social Security?

Figuring out how to make the most of your and your spouse’s Social Security is one of the most challenging retirement-planning decisions you may make in your lifetime. You may not only find yourself between a rock and a hard spot, but you can expect some blind curves and steep hurdles thrown in for good measure!

 

Collect Some Now or Collect More Later
First, there’s the rock: You may be tempted to begin taking Social Security as soon as you’re able. But the hard spot means that the earlier you begin taking it, the less monthly income you’ll receive over your lifetime, and the smaller your cost of living adjustments (COLA) will be over time. Longevity risk – the risk that you end up living a long time in retirement – could throw you additional blind curve. 

I know: You’re probably not used to thinking of “liv ing a long time” as a risk. But when you’re pushing the pencil around on your retirement planning, that’s exactly what it is. If you live to 95 or 100 years old, you could potentially spend 30–40 years in retirement, during which you’ll want to be able to depend on your retirement income to see you through. 

Let’s examine what those numbers might look like. Here are typical monthly payments you could expect under current circumstances:

 

If you begin taking Social Security at …

Expect to receive about …

Age 62

$750/month

Age 66

$1,000/month

Age 70

$1,320/month

 

As you can see, by waiting those eight extra years between age 62 and 70, your monthly payment amounts increase dramatically, by about 8 percent per year. Plus you receive future COLA increases on the higher amount. In short, unless you have compelling reasons to receive smaller monthly payments earlier on, longevity risk usually means you’re best off waiting.

 

Two Windows of Opportunity, Closing Fast
As if the question weren’t complicated enough, there’s a new hurdle, recently introduced. You may have heard the news that two key strategies for claiming your Social Security benefits are being eliminated following last fall’s passage of the Bipartisan Budget Act of 2015. These are: file-and-suspend strategies and restricted application for spousal benefits.

This Slott Report is one good source (of many!) that defines the terms and describes the impact of these legislative changes in more detail. Here’s one more by Michael Kitces of Nerd’s Eye View that includes a handy table summarizing the many moving parts.

For most investors, the strategies already are history, with two exceptions: First, if you are already using them, you are grandfathered in and can continue using them. Second, if you are 65 ½ or older as of October 30, 2015, you have until April 30, 2016 to employ these expiring options if they are advantageous to you. If you fall into that second group and you’ve not yet considered your opt ions, you have no time to waste.

 

We Can Help
Whether or not you qualify for taking advantage of these fast-closing windows of opportunity, there are a number of questions and calculations to consider when determining your next best steps. We encourage you to take advantage of an advisor who can help you identify your personal circumstances and “work” the financial planning software with you, to determine your own ideal strategy for navigating the shifting landscape that is Social Security planning.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No fo llow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

New Business Retirement Plan

I am starting my own business and I want to set up a retirement plan. What should I do?

As a firm that specializes in helping small business owners, we know how overwhelming it can be when you’re starting a business, and trying to take care of all of the related details. Presumably you are embarking on your new venture because you have a great idea you expect to profit from. To make the most of your efforts, it’s best to establish a retirement plan early on, so you can save and invest a portion of your proceeds in tax-favored accounts. 

These days, there is a wide and growing range of retirement plan solutions for the small business owner – as well as a wide and growing range of related requirements. Because selecting and implementing the best plan for you and your business depends on a number of specifics, we suggest speaking with a professional advisor to help you weigh the options and manage the operations. Following is an overview to get you started.

 

The Solo- or Owner-401(k) Plan
If you don’t have employees, a solo- or owner-401(k) may be the best way for you and your spouse to save money from your business profits, with two contribution opportunities from your dual role as employee and employer:

•    Your employee contribution allows you to save $18,000/year if you are under 50, and $24,000/year if you are 50 or older.

•    Your employer contribution allows you to save an additional 25% of your salary.

For example, if you pay yourself $100,000/year and you are 50 or older, you can contribute $24,000/year as an employee and $25,000/year as an employer (in addition to your salary), for a total of $49,000 annually. The maximum 401(k) contribution is $53,000 if you are less than 50 and $59,000 if you are 50 or older.

 

The SEP IRA

What if you and/or your spouse is employed at another company and maximizing the employee contribution there, but one or both of you are also running a small business of your own? You can set up a “self-employed” or SEP IRA for your separate business. The contribution limit for a SEP cannot exceed the lesser of 25% of your self-employed compensation or $53,000 per year. These are the guidelines for 2015 and 2016, and are subject to annual cost-of-living adjustments for future years.

 

Defined Benefit or Cash Balance Plan
If you want to save even more than described above, you can consider a defined benefit plan or a cash balance plan. The limits for these plans are around $200,000/year but it depends upon age and income. Typically, you set an annual contribution amount and there is a range around it. Y ou are required to contribute each year.

Defined benefit and cash balance plans are more complex to set up and administer, but if your situation calls for it (for example, you are older with high income), they can be a great way to save even more than you can in a 401(k) plan. They also can be paired with a 401(k) plan, but this limits the employer contribution part of the 401(k) plan.

 

Company 401(k) Plan
Once you have employees, you can consider a company 401(k) plan to help you save for your own retirement while providing an important benefit to your valued employees.

A company 401(k) plan is more complex, and the current regulatory environment may soon call for even higher levels of vigilance with respect to your fiduciary duties as the plan sponsor. If you are considering establishing one, we suggest aligning with a Registered Investment Advisor relationship that includes accepting the fiduciary role of acting as your plan’s 3(38) investment manager. This doesn’t relieve you of all fiduciary duty to your plan participants, but it helps you sensibly shift the investment management portion to a professional investment manager.

 

Getting Started
Regardless of which plan or combination of plans makes the most sense for you, there are a number of custodians who are set up to house the assets for you. For the relatively straightforward solo-401(k) or SEP IRA, there should be no additional set-up fees. If you are planning to establish a company 401(k), defined benefit or cash balance plan, expect additional administrative and management fees to apply.

Circling back to where we began, if you are considering launching or have recently launched a new business, we are ready to help with your retirement plan set-up. Please feel free to reach out to us if you have any questions.

 

Robert J. Pyle, CFP®, CFA is president of Divers ified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Make the Most of Your 401(k)

As more Americans shoulder the responsibility of funding their own retirement, many rely increasingly on their 401(k) retirement plans to provide the means to pursue their investment goals. That's because 401(k) plans offer a variety of attractive features that make investing for the future easy and potentially profitable.

 

What is a 401(k) plan?

A 401(k) plan is an employee-funded savings plan for retirement. For 2015, a 401(k) plan allows you to contribute up to $18,000 of your salary to a special account set up by your company, although individual plans may have lower limits on the amount you can contribute. Individuals aged 50 and older can contribute an additional $6,000 in 2015, so-called "catch up" contributions.

 

How are 401(k) plans taxed?

401(k) plans come in two varieties: traditional and Roth-style plans.

A traditional 401(k) plan allows you to defer taxes on the portion of your salary contributed to the plan until the funds are withdrawn in retirement, at which point contributions and earnings are taxed as ordinary income. In addition, because the amount of your pretax contribution is deducted directly from your paycheck, your taxable income is reduced, which in turn lowers your tax burden.

A Roth 401(k) plan features after-tax contributions, but tax-free withdrawals in retirement. Under a Roth plan, there is no immediate tax benefit. However, plan balances have the potential to grow tax free; you pay no taxes on qualified distributions.

 

Matching contributions

One of the biggest advantages of a 401(k) plan is that employers may match part or all of the contributions you make to your plan. Typically, an employer will match a portion of your contributions, for example, 50% of your first 6%. Under a Roth plan, matching contributions are maintained in a separate tax-deferred account, which, like a traditional 401(k) plan, is taxable when withdrawn. Total contributions, including employee and employer portions, cannot exceed $53,000 in 2015. Note that employer contributions may require a "vesting" period before you have full claim to the money and their investment earnings.

 

Distributions

Both traditional and Roth plans require that distributions be taken after 59½ (or age 55 if you are separating from service with the employer from whose plan the distributions are withdrawn), although there are certain exceptions for hardship withdrawals. If a distribution is not qualified, a 10% IRS additional federal tax will apply in addition to ordinary income taxes on all pretax contributions and earnings.

 

When you change jobs

When you change jobs or retire, you generally have four different options for your plan balance:

1.  Keep your account in your former employer's plan, if permitted;

2.  Transfer balances to your new employer's plan;

3.  Roll over the balance into an IRA;

4.  Take a cash distribution.

The first three options generally entail no immediate tax consequences; however, taking a cash distribution will usually trigger 20% withholding, a 10% additional federal tax if taken before age 59½, and ordinary income tax on pretax contributions and earnings.

 

Borrowing from your plan

One potential advantage of many 401(k) plans is that you can borrow as much as 50% of your vested account balance, up to $50,000. In most cases, if you systematically pay back the loan with interest within five years, there are no penalties assessed to you. If you leave the company, however, you may have to pay back the loan in full immediately, depending on your plan's rules. In addition, loans not repaid to the plan within the stated time period are considered withdrawals and will be taxed and penalized accordingly.

 

Choosing investments

Most plans provide you with several options in which to invest your contributions. Such options may include stocks for growth, bonds for income, or cash equivalents for protection of principal. This flexibility allows you to spread out your contributions, or diversify, among different types of investments, which can help keep your retirement portfolio from being overly susceptible to different events that could affect the markets.

 

401(k) Advantages

•  Pretax contributions and tax-deferred earnings on traditional plans

•  Tax-free withdrawals for qualified distributions from Roth-style plans

•  Choice among different asset classes and investment vehicles

•  Potential for employer-matching contributions

•  Ability to borrow from your plan under certain circumstances

A 401(k) plan can become the cornerstone of your personal retirement savings program, providing the foundation for your financial future. Consult with your plan administrator or financial advisor to help you determine how your employer's 401(k) plan could help make your financial future more confident.

 

Source:

Stock investing involves risk including loss of principal. Bonds are subject to market and interest rate risk if sold prior to maturity. Bond values will decline as interest rates rise and bonds are subject to availability and change in price. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund may seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund. Diversification and asset allocation do not ensure a profit or protect against a loss.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2016 Wealth Management Systems Inc. All rights reserved.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

When Changing Jobs, It Pays to Keep Track of Your 401(k)

Americans are on the move, not only in their leisure pursuits, but in their jobs as well. According to the Bureau of Labor Statistics, about 38% of U.S. workers change jobs every year. If your employment situation changes, do you know what your choices are for managing the money in your 401(k) account?

Generally, workers have four options available to them: leave the money in their former employer's plan, transfer the money into their new employer's 401(k) (if allowed), roll the money into an IRA, or take a cash distribution. What many individuals don't realize is that if they fail to choose one of those options -- and their account balance is small enough -- the decision can be made for them. Specifically, current law allows employers to force participants with vested balances of $5,000 or less out of their 401(k) plans into an IRA without their consent. Further, if the account balance is less than $1,000 when the participant separates from the employer, the plan is allowed to cash out the account, triggering taxes and penalties if the participant does not take action in a timely manner to redeposit the money in another retirement account.

How prevalent are these practices? According to the Plan Sponsor Council of America, more than half (57%) of 401(k) plans transfer account balances of between $1,000 and $5,000 to an IRA when a participant leaves the company and/or cash out those accounts with balances of less than $1,000.1

 

High Fees, Low Returns

According to one study conducted by the Government Accountability Office (GAO), the trouble with these so-called "forced-transfer" IRAs is that most balances decreased over time if not transferred out and reinvested, due to the fees charged and the low returns earned by the conservative investments they are required to invest in.2

Specifically, the GAO studied 10 forced-transfer IRA providers, including information about the fees they charged, the default investments they used, and the returns earned. The typical investment return (prior to fees) ranged from 0.01% to 2.05%. That coupled with account initiation fees ranging from $0 to $100 and subsequent annual fees of $0 to $115 "can steadily decrease a comparatively small stagnant balance," the study found. Further, when projecting these effects on a $1,000 balance over time, the GAO found that 13 of 19 balances decreased to $0 within 30 years.2

Given these circumstances, it is easy to see how a worker who changes jobs frequently and accumulates several forced-transfer IRAs could be putting his or her retirement savings in jeopardy. Consider the following tips to help keep your savings growing, not stagnating.

 

•  Make your wishes known -- an employer can only roll your account balance into a forced-transfer IRA if you provide no instructions as to what you would like to happen to your account balance.

•  Keep contact information current -- when leaving one job for another, be sure you provide up-to-date contact information to the 401(k) plan administrator.

•  Save more -- forced transfers only apply to low-balance accounts. By keeping your account above the $5,000 mark you ensure that it stays protected from any unintended or unwanted actions.

 

Source(s):

1.  U.S. News, "How to Avoid Being Forced Out of Your 401(k)," January 13, 2015.

2.  United States Government Accountability Office, "401(k) Plans: Greater Protections Needed for Forced Transfers and Inactive Accounts," November 2014.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2015 Wealth Management Systems Inc. All rights reserved.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

What Is a Custodial IRA?

A custodial IRA is an IRA managed by a parent or guardian for the benefit of a minor child, as long as that child works and has earned income. As with other types of IRAs, the maximum annual contribution for 2015 is $5,500 (indexed annually for inflation) and the underlying investments can be determined by the person managing the account, in this case the parent or guardian, prior to the child reaching majority age. A custodial IRA can be either a traditional IRA or a Roth IRA. 

Although an adult typically oversees the account, the funds belong to the minor child and must be turned over at the age of majority, which varies depending on the state. IRAs present tax benefits, and opening an account when a child is relatively young may enhance these advantages. As long as the money remains invested, contributions and investment earnings may potentially compound free of taxation. The longer the time period when contributions are made and the money can compound, the greater is the opportunity to build wealth. Required minimum distributions (RMDs) from traditional IRAs, which are taxed as ordinary income, are mandatory after age 70½. For Roth IRAs, RMDs are not required, and the assets could potentially compound for a lifetime. Restrictions, penalties, and taxes may apply. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted.

 

Withdrawals

The objective of an IRA is to save for retirement, but IRS rules permit penalty-free withdrawals for higher education expenses, a first-time home purchase, and other reasons. If your child has a custodial IRA, theoretically he or she could make withdrawals to help further these financial goals without paying a 10% early withdrawal tax. The amount of the withdrawal, however, may be subject to ordinary income taxes unless certain qualifications are met. See IRS Publication 590 for additional information.

It's important to understand that assets within a custodial IRA are considered an irrevocable gift and become the property of the child. A parent or guardian cannot reclaim the assets once the account has been established. Since the assets do belong to the child, the parent or guardian has no control over the child's ability to take non-qualified withdrawals once the child reaches the age of majority.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2015 Wealth Management Systems Inc. All rights reserved.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

 

Brush Up on Your IRA Facts

If you are opening an IRA for the first time or need a refresher course on the specifics of IRA ownership, here are some facts for your consideration.

 

IRAs in America

IRAs continue to play an increasingly prominent role in the retirement saving strategies of Americans. According to the Investment Company Institute (ICI), the U.S. retirement market had $24.7 trillion in assets at the end of 2014, with $7.3 trillion of that sum attributable to IRAs.1 Today, some 41 million -- or 34% -- of U.S. households report owning IRAs.2

Traditional IRAs, the most common variety, are held by about 25% of U.S. households, followed by Roth IRAs, which are held by 15.6% of households, and employer-sponsored IRAs (including SEP IRAs, SAR-SEP IRAs, and SIMPLE IRAs), which are held by 6% of households.2

 

Contributions and Deductibility

 

Contribution limits. In general, the most you can contribute to an IRA for 2015 is $5,500. If you are age 50 or older, you can make an additional "catch-up" contribution of $1,000, which brings the maximum annual contribution to $6,500.

Eligibility. One potential area of confusion around IRAs concerns an individual's eligibility to make contributions. In general, Internal Revenue Service guidelines state that you must have taxable compensation to contribute to an IRA. This includes income from wages and salaries and net self-employment income. If you are married and file a joint tax return, only one spouse needs to have compensation in most cases.

With regard to Roth IRAs, income may affect your ability to contribute. For tax year 2015, individuals with an adjusted gross income (AGI) of $116,000 or less may make a full contribution to a Roth IRA. Married couples filing jointly with an AGI of $183,000 or less may also contribute fully, up to $11,000 for the year. Contribution limits begin to decline, or "phase out," for individuals with AGIs between $116,000 and $131,000 and for married couples with AGIs between $183,000 and $193,000. If your income exceeds these upper thresholds, you may not contribute to a Roth IRA.3

Deductibility. Whether you can deduct your traditional IRA contribution depends on your income level, marital status, and coverage by an employer-sponsored retirement plan. For instance:3

 

•  If you are single and covered by an employer-sponsored retirement plan, your traditional IRA contribution for 2015 will be fully deductible if your AGI was $61,000 or less. The amount you can deduct begins to decline if your AGI was between $61,000 and $71,000. Your IRA contribution is not deductible if your income is equal to or more than $71,000.

•  If you are married, filing jointly, and you both are covered by an employer-sponsored retirement plan, your 2015 IRA contribution will be fully deductible if your combined AGI is $98,000 or less. The amount you can deduct begins to phase out if your combined AGI is between $98,000 and $118,000. Neither of you can claim an IRA deduction if your combined income is equal to or more than $118,000.

•  If you are married, filing jointly, and your spouse is covered by an employer-sponsored plan (but you are not), you may qualify for a full IRA deduction if your combined AGI is $183,000 or less. The amount you can deduct begins to phase out for combined incomes of between $183,000 and $193,000. Your deduction is eliminated if your AGI on a joint return is $193,000 or more.

•  If neither you nor your spouse is covered by an employer-sponsored retirement plan, your contribution is generally fully deductible up to the annual contribution limit or 100% of your compensation, whichever is less.

 

Keep in mind that contributions to a Roth IRA are not tax deductible under any circumstances.

 

Distributions

You can begin withdrawing money from a traditional IRA without penalty at age 59½. Generally, deductible contributions and earnings are taxable at the then-current rate. Nondeductible contributions are not taxable because those amounts have already been taxed.

You must begin receiving minimum annual distributions from your traditional IRA no later than April 1 of the year following the year you reach age 70½ and then annually thereafter.  If your distributions in any year after you reach 70½ are less than the required minimum, you will be subject to an additional federal tax equal to 50% of the difference.

Unlike traditional IRAs, Roth IRAs do not require the account holder to take distributions during his or her lifetime. This feature can prove very attractive to those individuals who would like to use the Roth IRA as an estate planning tool.

 

What's New for 2015?

Application of one-rollover-per-year limitation. Beginning in 2015, you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period regardless of the number of IRAs you own. However, you can continue to make unlimited trustee-to-trustee transfers between IRAs because these transfers are not considered to be rollovers. Furthermore, you can also make as many rollovers from a traditional IRA to a Roth IRA (also known as "conversions"). To learn more, see Publication 590-A.4

This communication is not intended as investment and/or tax advice and should not be treated as such. Each individual's situation is different. You should contact your financial professional to discuss your personal situation.

 

Source(s):

1.  The Wall Street Journal, "Battle Continues Over Fiduciary Rule for Retirement Investments," June 14, 2015.

2.  Investment Company Institute, "The Role of IRAs in U.S. Households' Saving for Retirement, 2014," January 2015.

3.  Internal Revenue Service, "Retirement Topics-IRA Contribution Limits," January 22, 2015.

4.  Internal Revenue Service, "IRS Publication 590-B, Distributions From Individual Retirement Arrangements (IRAs).

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2015 Wealth Management Systems Inc. All rights reserved.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.

Changing Jobs or Retiring? Don’t Forget Your Retirement Savings!

Choosing a distribution method from your retirement plan when you change jobs or retire can have significant tax implications.

Your retirement savings plan offers you several choices when you decide to change jobs or when you retire. This report explains some of the options you may be able to choose from in deciding how you want the money in your plan treated when one of these events occurs.

 

What Is a Distribution?

A distribution is simply defined as a payout of the amount of money that has accumulated in your retirement savings plan. This may include amounts you have contributed, the "vested" portion of any amounts your employer has contributed, plus any earnings on those contributions.

You will want to think carefully before making any decisions about the money in your retirement plan, as some choices may mean you have to pay more in income taxes on your distribution. It's also a good idea to talk with a tax advisor before picking a distribution election.

 

Some Distribution Options

Keep Money in Employer's Plan: Allows continued tax-deferral of any growth.

Make a Direct Rollover: Allows continued contributions and tax-deferral of any growth. Avoids potential taxes and penalty fees.

Take a Cash Distribution: Satisfies immediate need for cash. Substantial taxes and penalty fees may apply.

 

A Look at Some of Your Choices

You may be able to leave your money in the plan; move it to another retirement savings account, such as an IRA, or another employer's retirement savings plan if you're changing jobs; or take a cash distribution.

 

Keep Your Money in the Plan: You can leave your savings in your employer's retirement savings plan if your account balance was more than $5,000 when you left, depending on your plan's rules. Minimum distributions must begin after you reach age 70½, however. You'll continue to enjoy tax-deferred compounding of any investment earnings and receive regular financial account statements and performance reports. Although you will no longer be allowed to contribute to the plan, you will still have control over how your money is invested among the plan's investment options. You also may still be able to obtain information from the professionals who manage and administer your account.

When retiring, you might choose this option if your spouse is still working or if you have other sources of retirement income (such as taxable investment income). If you're starting your own business when you leave the company, keeping your retirement money in your former company's plan may help protect your retirement assets from creditors, should your new venture run into unforeseen trouble.

Example: Sue, 58, is retiring from her full-time job. Her husband is retiring and the family receives his pension and Social Security benefits, which will cover most of their current living expenses. Sue plans to work part-time at her church after "retirement" and does not expect to need her retirement savings for several more years. After consulting with a tax advisor, Sue decided that keeping her money in the company's retirement plan at least until she turns age 59½ will provide her with the greatest flexibility in the future.

 

Move Your Money to Another Retirement Account: You can move your money into another qualified retirement account, such as an Individual Retirement Account (IRA), or, if you're changing jobs, your new employer's retirement savings plan. With a "direct rollover," the money goes directly from your former employer's retirement plan to the IRA or new plan, and you never touch your money. With this method, you continue to defer taxes on the full amount of your plan savings. 1

Example: Bill is taking a new job at a different company. He elects to roll over balances from his existing plan into an IRA rather than transfer his assets into his new employer's 401(k) plan. This provides Bill with a much broader choice of investment options.

 

Take a Cash Distribution: You can choose to have your money paid to you in one lump sum, or in installments of a fixed amount or over a set number of years, depending on your plan's provisions. However, you may have to pay taxes on a cash distribution and, if you're under age 59½ (55 in some circumstances) at the time when you leave your job, you may also have to pay a 10% additional federal tax on early withdrawals.

 

Retirees Should Consider Tax Consequences

If you're retiring, you will want to take into consideration whether favorable tax rules apply to your lump-sum distribution. To qualify as a lump-sum distribution, you must receive all the amounts you have in all your retirement plans with a company (including 401(k), profit-sharing, and stock-purchase plans) within a one-year period.

Potentially favorable tax rules that may apply to a lump-sum distribution include the minimum distribution allowance and 10-year forward income averaging if you were born before January 2, 1936.

 

Ten-year forward income averaging: The taxable part of the distribution is taxed at special rates based on levels for single taxpayers in 1986.

Example: Ron, born in 1935, is retiring in three months. He met with a financial advisor to determine which distribution method would result in the greatest benefit after taxes. His advisor showed him that, under some assumptions about inflation and future rates of return, his best course would be to take a lump-sum distribution and use 10-year forward income averaging. Under other assumptions, he would benefit from leaving his money in the company plan or rolling it over directly into an IRA. There may be other distribution options available. Contact your plan administrator for information on all options available under your plan.

 

Withholding on Cash Payments

If you choose to physically receive part or all of your money (say, $10,000) when you retire or change jobs, this action is considered a cash distribution from your former employer's retirement account. The cash payment is subject to a mandatory tax withholding of 20%, which the old company must pay to the IRS as an advance payment of your eventual tax liability. If you are under age 59½ at the time you left the company, you could also be liable for a 10% additional federal tax on early withdrawal, and state taxes and penalties as well.

You can avoid paying taxes and any penalties on a cash distribution if you redeposit your retirement plan money within 60 days to an IRA or your new employer's qualified plan. However, you'd have to make up the 20% withholding from your own pocket in order to avoid taxes and any penalties on that amount. The 20% that had been withheld would be recognized as additional withholding when you file your regular income tax return at year end, and any excess over your total income tax bill would be refunded.

As with all retirement and tax planning matters, be sure to consult a qualified tax and financial planning professional to ensure that your planning decisions coincide with your financial goals.

 

Points to Remember

1.  A distribution is a payout of realized savings and earnings from a retirement plan. In general, you must begin taking distributions from your account by April 1 of the year following the year in which you turn 70½, unless you are still working for your employer.

2.  Your distribution options include keeping your money in your plan; enacting a direct rollover; or taking a cash distribution.

3.  If you keep your money in your plan you will no longer be able to make contributions, but you still maintain control over the investments and any growth continues to be tax deferred.

4.  In a direct rollover, you have your money moved directly to a qualified plan or IRA without physically receiving a cent. If you are under age 59½ at the time of separation from service, a direct rollover may be a good option, as it avoids the hefty taxes and penalties associated with a cash distribution.

5.  Although a cash distribution is perhaps the most enticing option available, consider that you must pay taxes on the money you receive at then-current rates. And if you are under age 59½ when you leave your employer, you may have to pay Uncle Sam 10% of your savings in additional taxes.

 

Source(s):

1.  Fees and investment expenses may be higher in an IRA than in an employer-sponsored plan. Rolling over employer stock from a retirement plan to an IRA may end up ultimately causing higher taxes on any potential gains on that stock. Also, if you plan to work past age 70½, an employer-sponsored plan may allow you to delay required minimum distributions.

2.  The tax rate applied to the distribution would be your actual marginal income tax rate plus any additional federal taxes. State taxes and penalties may also be due.

 

Required Attribution

Because of the possibility of human or mechanical error by Wealth Management Systems Inc. or its sources, neither Wealth Management Systems Inc. nor its sources guarantees the accuracy, adequacy, completeness or availability of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information. In no event shall Wealth Management Systems Inc. be liable for any indirect, special or consequential damages in connection with subscriber's or others' use of the content. 

© 2015 Wealth Management Systems Inc. All rights reserved.

 

Robert J. Pyle, CFP®, CFA is president of Diversified Asset Management, Inc. (DAMI). DAMI is licensed as an investment adviser with the State of Colorado Division of Securities, and its investment advisory representatives are licensed by the State of Colorado. DAMI will only transact business in other states to the extent DAMI has made the requisite notice filings or obtained the necessary licensing in such state. No follow up or individualized responses to persons in other jurisdictions that involve either rendering or attempting to render personalized investment advice for compensation will be made absent compliance with applicable legal requirements, or an applicable exemption or exclusion. It does not constitute investment or tax advice. To contact Robert, call 303-440-2906 or e-mail info@diversifiedassetmanagement.com.

 

The views, opinion, information and content provided here are solely those of the respective authors, and may not represent the views or opinions of Diversified Asset Management, Inc.  The selection of any posts or articles should not be regarded as an explicit or implicit endorsement or recommendation of any such posts or articles, or services provided or referenced and statements made by the authors of such posts or articles.  Diversified Asset Management, Inc. cannot guarantee the accuracy or currency of any such third party information or content, and does not undertake to verify or update such information or content. Any such information or other content should not be construed as investment, legal, accounting or tax advice.