Women and Financial Strategies

Thirty-eight percent of American women earn more money than their husbands.1 Yet only 14% of women are very confident they will have enough money to maintain their lifestyle once they retire.2

Although more women are providing for their families, when it comes to preparing for retirement, they may be leaving their future to chance.

Women and College

The reason behind this disparity doesn’t seem to be a lack of education or independence. Today, women are more likely to go to college and graduate than men.3 So what keeps them from taking charge of their long-term financial picture?

One reason may be a lack of confidence. One study found that, although 83% of women want to be more involved in their finances, only 37% felt confident about handling retirement planning on their own.4 Women may shy away from discussing retirement because they don’t want to appear uneducated or naive and hesitate to ask questions as a result.

Insider language

Since Wall Street traditionally has been a male-dominated field, women whose expertise lies in other areas may feel uneasy amidst complex calculations and long-term financial projections. Just the jargon of personal finance can be intimidating: 401(k), 403(b), fixed, variable.5 To someone inexperienced in the field of personal finance, it may seem like an entirely different language.

But women need to keep one eye looking toward retirement since they may live longer and could potentially face higher health-care expenses than men.

If you have left your long-term financial strategy to chance, now is the time to pick up the reins and retake control. Consider talking with a financial professional about your goals and ambitions for retirement. Don’t be afraid to ask for clarification if the conversation turns to something unfamiliar. No one was born knowing the ins-and-outs of compound interest, but it’s important to understand in order to make informed decisions.

Compound Interest: What’s the Hype?

Compound interest may be one of the greatest secrets of smart investing. And time is the key to making the most of it. If you invested $250,000 in an account earning 6%, at the end of 20 years your account would be worth $801,784. However, if you waited 10 years, then started your investment program, you would end up with only $447,712.

This is a hypothetical example used for illustrative purposes only. It does not represent any specific investment or combination of investments.

  1. Fivethirtyeight.com, February 5, 2015
  2. 2015 Prudential Research Study
  3. White House Council of Economic Advisers, 2015
  4. U.S. News and World Report, March 4, 2015
  5. Distributions from 401(k), 403(b), and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Caring for Aging Parents

Thanks to healthier lifestyles and advances in modern medicine, there are more Americans over the age of 65 than there have ever been. The U.S. Census Bureau estimates that by 2050, more than 20 percent of U.S. residents will be aged 65 and over, compared with 15 percent today.¹ As our nation ages, many Americans are turning their attention to caring for aging parents.

For many people, one of the most difficult conversations to have involves talking with an aging parent about extended medical care. The shifting of roles can be challenging, and emotions often prevent important information from being exchanged and critical decisions from being made.

When talking to a parent about future care, it’s best to have a strategy for structuring the conversation. Here are some key concepts to consider.

Cover the Basics

Knowing ahead of time what information you need to find out may help keep the conversation on track. Here is a checklist that can be a good starting point:

  • Primary physician
  • Specialists
  • Medications and supplements
  • Allergies to medication

It is also important to know the location of medical and estate management paperwork, including:

  • Medicare card
  • Insurance information
  • Durable power of attorney for healthcare²
  • Will, living will, trusts and other documents²

Be Thorough

Remember that if you can collect all the critical information, you may be able to save your family time and avoid future emotional discussions. While checklists and scripts may help prepare you, remember that this conversation could signal a major change in your parent’s life. The transition from provider to dependent can be difficult for any parent and has the potential to unearth old issues. Be prepared for emotions and the unexpected. Be kind, but do your best to get all the information you need.

Keep the Lines of Communication Open

This conversation is probably not the only one you will have with your parent about their future healthcare needs. It may be the beginning of an ongoing dialogue. Consider involving other siblings in the discussions. Often one sibling takes a lead role when caring for parents, but all family members should be honest about their feelings, situations, and needs.

Fast Fact: The state with the oldest population is Florida, with 19.06% of its population over the age of 65. Maine is second, with 18.24%.
Source: WorldAtlas.com, January 6, 2016

Don’t Procrastinate

The earlier you can begin to communicate about important issues, the more likely you will be to have all the information you need when a crisis arises. How will you know when a parent needs your help? Look for indicators like fluctuations in weight, failure to take medication, new health concerns, and diminished social interaction. These can all be warning signs that additional care may soon become necessary. Don’t avoid the topic of care just because you are uncomfortable. Chances are that waiting will only make you more so.

Remember, whatever your relationship with your parent has been, this new phase of life will present challenges for both parties. By treating your parent with love and respect—and taking the necessary steps toward open communication—you will be able to provide the help needed during this new phase of life.

  1. U.S. Census Bureau, 2016
  2. Note: Power of attorney laws can vary from state to state. An estate strategy that includes trusts may involve a complex web of tax rules and regulations. Consider working with a knowledgeable estate management professional before implementing such strategies.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

What’s So Great About a Rollover?

Changing jobs can be a tumultuous experience. Even under the best of circumstances, making a career move requires a series of tough decisions, not the least of which is what to do with the funds in your old employer-sponsored retirement plan.

Some people choose to roll over these funds into an Individual Retirement Account, and for good reason. About 30% of all retirement assets in the U.S. are held in IRAs, and 87% of traditional IRA owners funded all or part of their IRAs with a rollover.¹,²

Generally, you have three choices when it comes to handling the money in a former employer’s retirement account.

First, you can cash out of the account. However, if you choose to cash out, you will be required to pay ordinary income tax on the balance plus a 10% early withdrawal penalty if you are under age 59½.

Second, you may be able to leave the funds in your old plan. But some plans have rules and restrictions regarding the money in the account.

Fast Fact: 63% of U.S. households have some type of tax-advantaged retirement account.
2015 Investment Company Factbook

Or third, you can roll the money into an IRA. Why do so many people choose an IRA rollover? Here are a few of the major benefits:

Rollovers may preserve the tax-favored status of your retirement money. As long as your money is moved through a direct “trustee-to trustee” transfer, you can avoid a taxable event.³ In a traditional IRA, your retirement savings will have the opportunity to grow tax-deferred until you begin taking distributions in retirement.

An IRA rollover may open up your investment choices. When you stick with your former employer’s retirement plan, you are typically limited to the investments offered by the plan. With an IRA, you may have a much broader range of choices, giving you greater control over how your assets are allocated.

Rollovers can make it easier to stay organized and maintain control. Some people change jobs several times during the course of their careers, leaving a trail of employer-sponsored retirement plans in their wake. By rolling these various accounts into a single IRA, you might make the process of managing the funds, rebalancing your portfolio, and adjusting your asset allocation easier.

An IRA rollover may make sense whether you’re leaving one job for another or retiring altogether. But how your assets should be allocated within the IRA will depend on your time horizon, risk tolerance and financial goals.

  1. 2015 Investment Company Factbook
  2. Distributions from traditional IRAs and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.
  3. The information in this material is not intended as tax advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult a tax professional for specific information regarding your individual situation.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

What Is a Roth 401(k)?

While many people are familiar with the benefits of traditional 401(k) plans, others are not as acquainted with Roth 401(k)s.

Since January 1, 2006, employers have been allowed to offer workers access to Roth 401(k) plans.¹ And some have rolled out offerings as part of their retirement programs.

As the name implies, Roth 401(k) plans combine features of traditional 401(k) plans with those of a Roth IRA.2,3

With a Roth 401(k),contributions are made with after-tax dollars—there is no tax deduction on the front end—but qualifying withdrawals are not subject to income taxes. Any capital appreciation in the Roth 401(k) also is not subject to income taxes.

What to Choose?

Fast Fact: Roth 401(k) plans were made permanent by the Pension Protection Act of 2006.
Source: Investopedia, 2015

The choice between a Roth 401(k) and a traditional 401(k) comes down to determining whether the upfront tax break on the traditional 401(k) is likely to outweigh the back-end benefit of tax-free withdrawals from the Roth 401(k).4

Often, this isn’t an “all-or-nothing” decision. Many employers allow contributions to be divided between a traditional 401(k) plan and a Roth 401(k) plan—up to overall contribution limits.

Considerations

One subtle but key consideration is that Roth 401(k) plans aren’t subject to income restrictions like Roth IRAs. This can offer advantages to high-income individuals whose Roth IRA has been limited by these restrictions. (See accompanying table.)

Traditional
401(k)
Roth 401(k) Roth IRA
Contributions Contributions are made with pre-tax dollars Contributions are made with after-tax dollars Contributions are made with after-tax dollars
Income Limits No income limits to participate No income limits to participate For 2016, contribution limit is phased out between $184,000 and $194,000 (married, filing jointly), and between $117,000 and $132,000 (single filers)
Maximum Elective Contribution* Aggregate contributions are limited to $18,000 in 2016, ($24,000 for those over age 50)* Aggregate contributions are limited to $18,000 in 2016, ($24,000 for those over age 50)* Contributions are limited to $5,500 for 2016, ($6,500 for those over age 50)*
Taxation of Withdrawals Qualifying withdrawals of contributions and earnings are subject to income taxes Qualifying withdrawals of contributions and earnings are not subject to income taxes Qualifying withdrawals of contributions and earnings are not subject to income taxes
Required Distributions In most cases, distributions must begin no later than age 70½ In most cases, distributions must begin no later than age 70½ There is no requirement to begin taking distributions while owner is alive

* This is an aggregate limit by individual rather than by plan. The total of an individual’s aggregate contributions to his or her traditional and Roth 401(k) plans cannot exceed the deferral limit—$18,000 in 2016, ($24,000 for those over age 50).

Source: IRS, 2016

Roth 401(k) plans are subject to the same annual contribution limits as regular 401(k) plans—$18,000 for 2016, ($24,000 for those over age 50). These are cumulative limits that apply to all accounts with a single employer; an individual couldn’t save $18,000 in a traditional 401(k) and another $18,000 in a Roth 401(k).

Another factor to consider is that employer matches are made with pretax dollars, just as they are with a traditional 401(k) plan. In a Roth 401(k), however, these matching funds accumulate in a separate account that will be taxed as ordinary income at withdrawal.

Setting money aside for retirement is part of a sound personal financial strategy. Deciding whether to use a traditional 401(k) or a Roth 401(k) often involves reviewing a wide-range of factors. If you are uncertain about what is the best choice for your situation, you should consider working with a qualified tax or financial professional.

  1. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth 401(k) distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal also can be taken under certain other circumstances, such as a result of the owner’s death or disability. Employer match is pretax and not distributed tax-free during retirement. Generally, once you reach age 70½, you must begin taking required minimum distributions.
  2. Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.
  3. Roth IRA contributions cannot be made by taxpayers with high incomes. To qualify for the tax- free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal also can be taken under certain other circumstances, such as a result of the owner’s death or disability. The original Roth IRA owner is not required to take minimum annual withdrawals.
  4. The information in this material is not intended as tax advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult a tax professional for specific information regarding your individual situation.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Catch-Up Contributions

A recent survey found that 37% of people were very confident about having enough money to live comfortably through their retirement years. At the same time, 28% were not confident.¹

Congress in 2001 passed a law that can help older workers make up for lost time. But few may understand how this generous offer can add up over time.²

The “catch-up” provision allows workers who are over age 50 to make contributions to their qualified retirement plans in excess of the limits imposed on younger workers.

How It Works

Contributions to a traditional 401(k) plan are limited to $18,000 in 2016. Those who are over age 50—or who reach age 50 before the end of the year—may be eligible to set aside up to $24,000 in 2016.³

Setting aside an extra $6,000 each year into a tax-deferred retirement account has the potential to make a big difference in the eventual balance of the account. And, by extension, in the eventual income the account may generate. (See accompanying illustration.)

Catch-Up Contributions and the Bottom Line

This chart traces the hypothetical balances of two 401(k) plans. The blue line traces a 401(k) account into which the maximum regular annual contributions are made each year, but no catch-up contributions. The green line traces a 401(k) account into which the maximum regular and full catch-up contributions are made each year.

Upon reaching retirement at age 67, both accounts begin making payments of $4,000 a month.

The hypothetical account without catch-up contributions will be exhausted by the time its beneficiary reaches age 83.

This hypothetical example is used for comparison purposes and is not intended to represent the past or future performance of any investment. Fees and other expenses were not considered in the illustration. Actual returns will fluctuate.

Both accounts assume an annual rate of return of 5%. The rate of return on investments will vary over time, particularly for longer-term investments.Contributions to and withdrawals from both accounts have been increased 2% each year to account for potential 2% inflation.

Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.

  1. EBRI, 2015 Retirement Confidence Survey
  2. Economic Growth and Tax Relief Act of 2001
  3. IRS, 2016. Catch-up contributions also are allowed for 403(b) and 457 plans. Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Systematic Withdrawals in Retirement

Many of us grew up with the concept that making regular, periodic contributions to our retirement account was a sound investment strategy. The idea was that, in a fluctuating market, regularly investing a set amount would enable an individual to buy more shares when prices were low and fewer shares when prices were high.¹

Does this mean that taking regular, periodic withdrawals during retirement makes similar good sense?

Actually, it can be quite problematic.

Systematic withdrawals do the precise opposite of systematic investments by selling fewer shares when the price is high and more shares when the price is low. This, in effect, reduces the number of shares that may be able to participate in any subsequent market recovery.

Here’s an example.

In the accumulation phase, if a portfolio falls by 25%, it will require approximately a 33% return to get back to its pre-decline value.²

In the distribution phase, if you withdraw 5% of your portfolio for income and suffer the same 10% market decline, you would need to see an 18% market rebound to get back to pre-decline value.²

Sequence of Returns

In the accumulation phase, investors tend to focus on average annual rates of return, less on the sequence of the returns. If you’re a buy-and-hold investor, ignoring short-term fluctuations may be a sound long-term approach.

If you are in retirement, however, you absolutely care about the sequence of the annual returns.

For instance, comparable portfolios might deliver the same average annual return over a 20- or 30-year period, but they could have radically different outcomes in terms of account balance and income production. Generally speaking, negative returns in the early years of your retirement can potentially reduce how long your assets can be expected to last.

American writer H.L. Mencken once remarked that, “For every complex problem there is an answer that is clear, simple, and wrong.”³

Anticipating a lifetime of withdrawals from a defined asset pool over an indefinite period of time is a complex challenge for which there is no simple solution. Pursuing this challenge can require creative approaches and persistent vigilance.

  1. Dollar-cost averaging does not protect against a loss in a declining market or guarantee a profit in a rising market. Dollar-cost averaging is the process of investing a fixed amount of money in an investment vehicle at regular intervals, usually monthly, for an extended period of time regardless of price. Investors should evaluate their financial ability to continue making purchases through periods of declining and rising prices. The return and principal value of stock prices will fluctuate as market conditions change. Shares, when sold, may be worth more or less than their original cost.
  2. This is a hypothetical example used for illustrative purposes only. It is not representative of any specific investment or combination of investments.
  3. BrainyQuote, June 2015

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Your Changing Definition of Risk in Retirement

During your accumulation years, you may have categorized your risk as “conservative,” “moderate,” or “aggressive” and that guided how your portfolio was built. Maybe you concerned yourself with finding the “best-performing funds,” even though you knew past performance does not guarantee future results.

What occurs with many retirees is a change in mindset—it’s less about finding the “best-performing fund” and more about consistent performance. It may be less about a risk continuum—that stretches from conservative to aggressive—and more about balancing the objectives of maximizing your income with sustaining it for a lifetime.

You may even find yourself willing to forego return potential for steady income.

A change in your mindset may drive changes in how you shape your portfolio and the investments you choose to fill it.

Let’s examine how this might look at an individual level.

Still Believe

During your working years, you understood the short-term volatility of the stock market but accepted it for its growth potential over longer time periods. You’re now in retirement and still believe in that concept. In fact, you know stocks remain important to your financial strategy over a 30-year or more retirement period.¹

But you’ve also come to understand that withdrawals from your investment portfolio have the potential to accelerate the depletion of your assets when investment values are declining. How you define your risk tolerance may not have changed, but you understand the new risks introduced by retirement. Consequently, it’s not so much about managing your exposure to stocks, but considering new strategies that adapt to this new landscape.¹

Shift the Risk

For instance, it may mean that you hold more cash than you ever did when you were earning a paycheck. It also may mean that you consider investments that shift the risk of market uncertainty to another party, such as an insurance company. Many retirees choose annuities for just that reason.

The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contract. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies).

The march of time affords us ever-changing perspectives on life, and that is never more true than during retirement.

  1. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost.This is a hypothetical example used for illustrative purposes only.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

A Bucket Plan to Go with Your Bucket List

The baby boomers have re-defined everything they’ve touched, from music to marriage to parenting and, more lately, to what “old” means—60 is the new 50! Longer, healthier living, however, can put greater stress on the sustainability of retirement assets.

There is no easy answer to this challenge, but let’s begin by discussing one idea—a bucket approach to building your retirement income plan.

The Bucket Strategy can take two forms.

The Expenses Bucket Strategy: With this approach, you segment your retirement expenses into three buckets:

  • Basic Living Expenses—food, rent, utilities, etc.
  • Discretionary Expenses—vacations, dining out, etc.
  • Legacy Expenses—assets for heirs and charities

This strategy pairs appropriate investments to each bucket. For instance, Social Security might be assigned to the Basic Living Expenses bucket. If this source of income falls short, you might consider whether a fixed annuity can help fill the gap. With this approach, you are attempting to match income sources to essential expenses.

The guarantees of an annuity contract depend on the issuing company’s claims-paying ability. Annuities have contract limitations, fees, and charges, including account and administrative fees, underlying investment management fees, mortality and expense fees, and charges for optional benefits. Most annuities have surrender fees that are usually highest if you take out the money in the initial years of the annuity contact. Withdrawals and income payments are taxed as ordinary income. If a withdrawal is made prior to age 59½, a 10% federal income tax penalty may apply (unless an exception applies).

For the Discretionary Expenses bucket, you might consider investing in top-rated bonds and large-cap stocks that offer the potential for growth and have a long-term history of paying a steady dividend.¹,² Finally, if you have assets you expect to pass on, you might position some of them in more aggressive investments, such as small-cap stocks and international equity.³

International investments carry additional risks, which include differences in financial reporting standards, currency exchange rates, political risk unique to a specific country, foreign taxes and regulations, and the potential for illiquid markets. These factors may result in greater share price volatility.

The Timeframe Bucket Strategy: This approach creates buckets based on different timeframes and assigns investments to each. For example:

  • 1-5 Years: This bucket funds your near-term expenses. It may be filled with cash and cash alternatives, such as money market accounts. Money market funds are considered low-risk securities but they are not backed by any government institution, so it’s possible to lose money. Money held in money market funds is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Money market funds seek to preserve the value of your investment at $1.00 a share. However, it is possible to lose money by investing in a money market fund. Money market mutual funds are sold by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
  • 6-10 Years: This bucket is designed to help replenish the funds in the 1-5 Years bucket. Investments might include a diversified, intermediate, top-rated bond portfolio. Diversification is an approach to help manage investment risk. It does not eliminate the risk of loss if security prices decline.
  • 11-20 Years: This bucket may be filled with investments such as large-cap stocks that offer the potential for growth.²
  • 21+ Years: This bucket might include longer-term investments such as small-cap and international stocks.²

Each bucket is set up to be replenished by the next longer-term bucket. This approach can offer flexibility to provide replenishment at more opportune times. For example, if stock prices move higher, you might consider replenishing the 6-10 Years bucket even though it’s not quite time.

A bucket approach to pursue your income needs is not the only way to build an income strategy. But it’s one strategy to consider as you prepare for retirement.

  1. The market value of a bond will fluctuate with changes in interest rates. As rates rise, the value of existing bonds typically falls. If an investor sells a bond before maturity, it may be worth more or less that the initial purchase price. By holding a bond to maturity an investor will receive the interest payments due plus their original principal, barring default by the issuer. Investments seeking to achieve higher yields also involve a higher degree of risk.
  2. Keep in mind that the return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. Dividends on common stock are not fixed and can be decreased or eliminated on short notice.
  3. Asset allocation is an approach to help manage investment risk. Asset allocation does not guarantee against investment loss.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Choosing a Retirement Plan that Fits Your Business

One survey found that the most pressing financial concern facing 42% of small business owners is developing a retirement plan and exit strategy.¹ If you have yet to develop a retirement plan for your business, or if you’re not sure the plan you’ve chosen is the right one, here are some things to consider.

How much can my business afford to contribute?

The cost of contributions may be managed by the plan type.

A simplified employee pension plan (SEP) is funded by employer contributions only. SEP contributions are made to separate IRAs for eligible employees.²

Savings Incentive Match Plan for Employees of Small Employers (SIMPLE) IRAs blend employee and employer contributions.³ Employers either match employee contributions up to 100% of the first 3% of compensation, or contribute 2% of each eligible employee’s compensation.

A 401(k) is primarily funded by the employee; the employer can choose to make additional contributions, including matching contributions.⁴

A defined benefit plan is entirely funded by employer contributions.⁵

What plan accommodates high employee turnover?

The cost of covering short-tenured employees may be reduced by eligibility requirements and vesting.

With the SEP-IRA, employees at least 21 or older and employed in three of the last five years must be covered.

The SIMPLE IRA must cover employees who have earned at least $5,000 in any prior two years and are reasonably expected to earn $5,000 in the current year.

The 401(k) and defined benefit plan must cover all employees at least 21 years of age and who worked at least 1,000 hours in a previous year.

Vesting is immediate on all contributions to the SEP-IRA, SIMPLE IRA and 401(k) employee deferrals, while a vesting schedule may apply to 401(k) employer contributions and defined benefits.

Do I want to maximize contributions for myself (and my spouse)?

The SEP-IRA and 401(k) offer higher contribution maximums than the SIMPLE IRA. For those business owners who are starting late, a defined benefit plan may offer even higher levels of allowable contributions.

My priority is to keep administration easy and inexpensive.

The SEP-IRA and SIMPLE IRA are straightforward to establish and maintain. The 401(k) can be more onerous, but complicated testing may be eliminated by using a Safe Harbor 401(k). Generally, the defined benefit plan is the most complicated and expensive to establish and maintain of all plan choices.

 

  1. ThinkAdvisor.com, April 27, 2015
  2. Like a traditional IRA, withdrawals from a SEP-IRA are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions (RMDs).
  3. Like a traditional IRA, withdrawals from SIMPLE IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions (RMDs).
  4. Distributions from 401(k) plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, you must begin taking required minimum distributions no later than April 1 of the year after you reach age 70½.
  5. Distributions from defined benefit plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.

Is a SEP-IRA Right for Your Business?

If you’re like many small business owners, running your own business is an all-consuming endeavor.

In the face of everyday demands, choosing a retirement plan for your business can become a casualty. The idea of establishing a plan could evoke worries about complicated reporting and administration.

If this sounds familiar, then you may want to consider whether a Simplified Employee Pension (SEP) may be right for you.

A SEP can be established by sole proprietors, partnerships, and corporations, including S corporations.

The advantages of the SEP begin with the flexibility to vary employer contributions each year from 0% up to a maximum of 25% of compensation, with a maximum dollar contribution of $53,000 in 2016.

Employees Vested

The percentage you contribute must be the same for all eligible employees. Eligible employees are those age 21 or older who have worked for you in three of the last five years and have earned at least $600 (in 2016). Employees are immediately 100% vested in all contributions.

There are no plan filings with the IRS, making administration simple and low cost. You only need to complete Form 5305 SEP and retain it for your own records. This form should be provided to all employees as they become eligible for participation.

Unlike other plans, a SEP may be established as late as the due date (including extensions) of your business’ tax filing (generally April 15th) for making contributions for the prior year.

A Menu of Options

Each eligible employee will be asked to establish his or her own SEP-IRA account and self-direct the investments within the account, relieving you of choosing a menu of investment options for the plan.The rules for accessing these funds are the same as those governing regular IRAs.

Distributions from SEP-IRA and traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.¹

Unlike the self-employed 401(k), which is only available to business owners with no employees, you cannot take a loan from your SEP assets. Distributions from 401(k) plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Generally, once you reach age 70½, you must begin taking required minimum distributions.¹

The SEP earns the “simplified” in its name and stands as an attractive choice for business owners looking to maximize contributions while minimizing their administrative responsibilities.

1. IRAs have exceptions to avoid the 10% withdrawal penalty, including death and disability.

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2017 FMG Suite.