What Retirement Consultants Should Offer You

Planning for retirement should be an event that starts as early as possible in life. If you want to get some assistance in the matter, to get the best out of your money, than a consultant that specializes in retirement planning, may be the best choice for you.

A retirement planning consultant should first of all be able to advise you, as to the when and where you should invest your funds, in order to get the best returns. He should be able to pinpoint which ones out of all the options available in the investment market, is the best one for you.

Apart from this a consultant should also explain to you what the various adopted strategies might be. Just reading through a brochure or a leaflet is not enough for you to be able to make the best choice, for the money that will determine your future lifestyle. A consultant is exactly what you need.

When choosing a consultant, I would suggest that you always have a meeting with him beforehand, and talk to him to see how he feels. Some consultants even combine legal advice with financial planning as well as investment advice. You should always choose the individual with whom you can talk freely, and with whom you feel comfortable.

Don’t be fooled however, for a consultant is not there to do all the work for you. He’s there only to make your retirement plans a reality. You should always feel in control, and create your retirement plan just as you want it to be.

Planning for retirement does not necessarily have to be a complicated matter. Try writing down some basic facts like income, your office plan savings amount, as well as other investments you may already have. Think about what you would like your retirement life to be like, and discuss all your thoughts and plans with your advisor.

If you fail to plan, you are planning to fail. If you cannot do this by yourself, seek the assistance of a professional, but don’t just let it sit there, without doing anything.

Reference: http://projectstocks.com/2008/06/what-to-look-for-in-retirement-planning-consultants/

SOLO IRAs As A Retirement Option

We are living in a time of financial turmoil. If you want to take control of your future and your savings, then why not consider investing in a Solo IRA. This plan like the 401k plan, will also offer you immense tax savings as well as allowing you to take control of your future.
The most common type of IRA is the traditional one, which allows you to contribute up to a maximum of $ 5000 yearly. Apart from this, a traditional IRA also allows you to contribute from pre-taxed money if you don’t have an employer offered plan.

A Rollover IRA is created in the case that you loose your job or when your employer is taken over by another company. This plan will save you huge money in penalties that you would have to other wise pay, to withdraw funds from one plan to put them in another.

Finally a Roth IRA the money is taxed upon entrance into the plan, as opposed to being taxed upon withdrawal at retirement age. This gives rise to different rules, and so it’s best to consult your accountant or advisor, in case you decide to go for this option.

An IRA gives you the flexibility of making your own choices, as to where you want your money to be invested. You’re the boss! Profits received will be directly credited to the plan, and are not taxed at any point. With an IRA you may also choose to invest in real estate, and with the current rock bottom market prices, you will soon be building quite a portfolio.

With this plan, you are in control. You get to decide where the money goes, and how much you want to risk for your future.

Reference: http://projectstocks.com/2008/10/how-investing-in-solo-iras-can-protect-your-future/

Plan For Your Future With Retirement Planning Services

Efficient retirement planning is certainly an issue that is on top of ever relatively older employee. Given that today we cannot rely solely on the funds given to us by social services, we all have to think and find ways of planning for our retirement.

There are nowadays various options available on the market, aiming at making our money grow bigger, faster. If however you are not sure, what the best option would be for your circumstances, you may try and ask for proper retirement planning services.

Some individuals like to ask for recommendations from friends of family. However even though these may be trustworthy, there is still the risk that they will not give you good advice, simply because they are not professionals. A professional financial advisor on the other hand, will talk to you to see what your plans and dreams are, and then help you to make these dreams come true. This will make a great difference for you and your family in the future, since it will mean more comfortable living.

The first thing a professional will do is assess your financial condition as it is presently. He will consider your age and your income, to come up with the proper investment option.
This advisor will also ask you about your present income level, as well as other plans that are generating you income, or the possibility of promotions or other sources of income. The type of lifestyle you will expect when you retire is another important factor that you will be discussing.

If you want good advice, then make sure you talk comfortably and give the advisor all the details he asks for. Finally always do some research yourself, on plans and investment options. These people are there to give you advice, but some homework from your end is always best.

Reference: http://projectstocks.com/2008/06/secure-your-future-with-retirement-planning-services/

Help Your Money Grow For Your Retirement

Even though you mind be young, and retirement age seems a whole lifetime away you still have to start saving and investing now.

Unfortunately with the present economic situation and the rise in the cost of living, saving and investing for your retirement has become more difficult. Your company might offer you a retirement plan in which you can save monthly from your salary. But are these plans safe? After recent events people are not so confident anymore. Don’t worry however; you still have other options available.

Why not invest in the stock market? You may choose between mutual funds, bonds, stocks and shares and other money market account. Even though these don’t have the retirement label attached to them, it doesn’t mean they are not worthwhile. You just need to be patient, choose the best option and let your money grow over time without withdrawing.

Depending on social security is a big mistake. You should take care of your financial future yourself by starting saving now, before it’s too late. Don’t count on inheritances that might never come!

You should examine how able you are to take risk, and what investment choices best suit your risk profile. There are so many investments which however finally all funnel down into three categories, which are cautious, medium, or aggressive investment options.

If you have a high risk tolerance level, than you can go for the most aggressive and volatile investments such as high risk shares. Normally we say that the younger you are, the larger the risk you can take, when it comes to retirement investments, since you have a long way to go.
Once you determine your risk tolerance level, you should move to researching the investments that you want to go for. If you do not feel sure about this, then don’t forget it is money you’re dealing with at the end of the day, so better seek the services of a qualified advisor, who will be able to guide you along the way.

Reference: http://projectstocks.com/2009/06/investing-in-your-retirement-future-let-your-money-grow/

401k Plan Facts

Within the US there are a number of saving plans that help individuals to save money for their retirement. The 401k plan, which is named after the section in the Internal Revenue Code that regulates it, is one of the popular plans, which are provided by employers for their employees.

Within this plan an employee can save an amount of money monthly from his salary, which amount can be then matched by the employer. These contributions are made from pre-taxed income, therefore saving the contributor from lots of tax money. These funds will only be taxed on the way out of the plan, when the contributor reaches retirement age.

This plan will also give the opportunity to your employer to contribute from hi side, up to 50% of your monthly payment, thus matching your savings amount.

These 401k plans give the employer the chance to decide on behalf of the employee, where the saved funds will be going; whether they will be invested in stocks, bonds or other investment choices that the employer and his advisors may deem fit.

As regards regulation, you may find it interesting to know that this plan is regulated by a section within the US Labor department, which is called the Employment Benefits Security Administration. Employees who work for the government may not contribute funds in the 401k plan.

For these people as well as self employed individuals, other similar retirement plans are available. Even for employees of private companies, other options are available that will give the employee more flexibility, in that they can control where the money is invested.
As for withdrawals out of the 401k plan, it is very important to understand that no withdrawals are allowed before retirement age. This plan also does not allow the funds to be paid out or signed over to another person, as the funds are regulated by the United States pension laws.

This plan is definitely a good choice; however one should always get as much information as possible before making his decision.

Reference: http://projectstocks.com/2008/10/401k-retirement-plan-facts-you-might-not-be-aware-of/

Your retirement savings options

If you are looking for ways and means to invest money for your future, you will be glad to know that there are many options for you to choose from. The options can be narrowed down to the two most important savings vehicles, being the IRA and the 401k plan. These two accounts can be then divided in different types. The rules for both plans differ.

The 401k plan is a retirement plan which is employer based, and which carries the name of the tax code which regulates it. When contributing funds to this plan, you will be doing so from pre-tax income, and therefore saving lots of tax money.

The funds saved are then diversified into various stock options and funds, which you would have chosen beforehand. Your employer in this case will also have the option to match your savings amount, or a part of it. The funds will then be taxed when the times comes to withdraw, at pension age. At this point you will probably be in a lower tax bracket, thus saving lots of money in taxes.

IRAs are retirement accounts devised for individuals to invest on their own, as opposed to the 401k plan which is tied to your employer. In this plan you may invest up to $5000 yearly, and there is no way in which you can get the funds out before your retirement age. As opposed to the 401k plan, here the money is taxed on entry into the account.

Both accounts can help you maximize your retirement savings, especially if you decide to go for both, and balancing them out to reduce your taxes.

Reference: http://projectstocks.com/2009/06/how-to-invest-for-retirement/

Retirement Information for Baby Boomers

Retirement planning should be an important consideration for everyone, whether they are years away from their retirement and especially if retirement is just around the corner.
If financial topics make you feel uneasy, you still should put them on top of your learning list. Here are some easy to understand tips, regarding retirement especially for the baby boomers.

Tip #1

You should start by taking note of your current expenses, and think whether after your retirement you will want to live like you always have. If you think of retirement as travel, an expensive car and lots of days outdoors, you have to consider the expense that comes with this lifestyle. A retirement calculator is the perfect tool to help you assess this.

Tip #2


Make sure you know what benefits you will get from Social Security. This would normally sum up to be around 40% of your income before retirement. You should be receiving three statements yearly, which include a summary of the benefits you should expect when you retire.

Tip #3
Gather as much information as you can about employee benefits. Remember that information is power, and this will determine your future.

Tip #4

You should make it a point to invest in a 401k plan. This is an account that will save you lots of tax money, and which will also attract a contribution for your retirement from your employer.

Tip #5
If you do contribute funds into a plan, then no matter how bad your financial situation gets, do not make any withdrawals. This will result in you falling short, and not having the estimated sum of money when you retire.

Reference: http://freeretirementplanningadvice.com/home-and-family/5-baby-boomer-retirement-tips/

Fact or Fiction?

When it comes to retirement, even though there is nowadays plenty of information available everywhere you look, people somehow still come to believe in retirement myths, as the truth.

We are therefore going to cover in this article the most publicised myths that people believe in.

Myth #1

Retirement starts after your last day at work. This is a false statement since retirement should be seen as a new phase in one’s life. Like every change, this takes some accustoming to, and it will take you as long as twelve months to adjust and change your lifestyle.

Myth #2

If you think or rather hope that someone will be generous enough to take care of you when you retire, you might want to think again. Social Security will hardly pay your monthly bills, and if you are thinking that your children will take care of you, you should consider that life has changed, and this is increasingly difficult.

Myth #3

The next myth refers to monthly expenses, since most individuals believe that after retirement their costs will be low. You should consider the drying out of Social Security funding, and the fact that the cost of goods continues to rise. Considering that we can expect to live more than 20 years after we retire, this might be a recipe for disaster.

Myth #4

Some people believe that retirement is easy- not true. This period can even give rise to depression since after their retirement, people find out that all leisure and relaxation makes for quite a boring life.

Myth #5

Retirees think that retirement is great since they will get to be with their wife all day. This in reality needs some adjusting to, since couples usually don’t spend more than 20% of their time together. This is why in analysing divorce rates we find that the highest is for couples over 55 years of age.

Reference http://freeretirementplanningadvice.com/elderly-care/busting-the-top-retirement-myths/

Retirement Plan Fees

The American government is currently working hard to solve the lots of issues related to retirement plans and their regulations.

One of the issues being worked upon is fee disclosures to participants as well as plan sponsors. Many were expecting a regulation for the 408b plans that requires the plan provider to disclose all the fees for the sponsors. This however has not been established yet. The issue is still to be tackled well and something is still expected as regards this matter.
In fact, the two congress houses wish for a proper legislation governing fee disclosure. The Special Committee on Aging has presented the Defined Contribution Fee Disclosure Act 2009. This act would compel plan sponsors of defined contribution plans, to disclose the entire plan fees to the participants.

This legislation should make it easier for plan sponsors to negotiate fees with their participants. Participants on the other hand would be in a better position since they will know exactly what the cost of their plan is.

Of the entire proposed legislation package, the only part that did not come to the final stage was the changes to Section C of the Form 5500. If a plan has at least 100 participants, the plan needs to report implicit returns. The thing is that plan sponsors are having a hard time getting this information, in the case that his service provider did not provide it. This is still a bit of a gray area, where lot of time is used up in filling in this form, without any significant end result.

As for the advisors, it is believed that these new regulations that will stiffen the environment may encourage a trend in the industry. This trend assumes that with tightened regulations retirement plan advisors will shift to being fee-based.

Reference: http://www.planadviser.com/magazine/article.php/4242

Why the 403b market is different from the 401k

The 403b plans are regulated by a set of rules, which were composed in such a way that they reinvent all the plans that attract defined contributions. These plans are given by entities which are tax-exempt as are higher education institutions, school systems and other non-profit organizations.

The growing 403b plan market represents a very good business opportunity for financial advisors. It would however be a mistake for an advisor to assume that he may simple redirect from a 401k advice practice to a 403b tax-exempt field.

The K-12 sector and the higher education market do share many similarities; however there are also many and noteworthy differences to take into account. One significant difference between the two is that some higher education institution plans which offer contributions by the employer are governed by another legislation which is the ERISA, or the Employee Retirement Income Security Act. In fact it seems that plan sponsors sometimes set up a 401k plan, in order to keep their 403b plan, from being regulated by the ERISA.

This means that at the end of the day, the advisors who would like to enter the 403b plan market, will probably be working with plan that are governed by the ERISA, as well as with plans that are not. Advisors may also choose between the two which option, best suits their expectations.

Another major difference between K-12 plans and higher education plans is the presence of a union. In the higher education segment, there is a high degree of bureaucracy, since there are deans and heads of department to deal with. These people however will not have enough authority to effect changes, as well unions in the K market.

Reference: http://www.planadviser.com/magazine/article.php/4248

Plan rollovers and what plan sponsors look for

With the present financial situation, plan rollovers have become a very important factor for advisors who realize that the rollover sector is a way of boosting their firm’s asset base. Potentially there are good sums of money in the pipeline, with lots of financially fit clients seeking help and advice, since they are planning on leaving the plan that is offered by their employer.

The truth is that big money is being moved to IRAs from various qualified plans, and even bigger monies are expected in the future. Plan sponsors are however apprehensive about the fact that not everyone is getting a qualified advisor. Advisors are cherry picking the high net worth clients, and leaving the rest of the participants floating on their own.

In reality according to industry experts, plan sponsors who are thinking of going for a rollover solution, are looking for advisors that can give them three important things: first that the advisors will offer the same service to all the participants, notwithstanding their financial worth; that they offer a service model that quickly and efficiently deals with the assets not on the market; an open market place for the IRA providers, in such a way that no particular IRA providers are recommended.

With some careful decision making, and good cooperation between the plan sponsor and the advisor, the rollover can act as the missing link between individual wealth management, and advisory services.

Advisors are also provided with electronic systems and programs to help them with the record keeping process, to help them handle rollovers more efficiently and effectively.

Reference: http://www.planadviser.com/magazine/article.php/4249

Satisfied with your advisor?

When an advisor meets up with potential clients, the first thing they normally say is that they are doing well with their present advisor and they don’t wish to change. This is until however, the new advisor discusses with these individuals, what service they should expect from their advisor.

The point is that lots of people do not know what services their advisor should provide for them. Trying to compare the service of one advisor to another is not an easy task, and currently there is no benchmark in this sector against which to compare.

There are however five indications that can be used, to gauge the level of satisfaction you are getting from the relationship with your advisor.

1. First you should determine whether the advisor you are dealing with, has set any service goals, against which, his client may assess his service. Some advisors meet up regularly with their sponsors, and discuss with them the goals to be set for the coming financial year. The advisor will then set up a calendar which contains deadlines related to compliance as well as things that he will deliver.

2. Assess whether the sponsor is satisfied, with the fiduciary protection, which the advisor is providing him. The advisor should be able to identify a cautious process for decision making, for his plan sponsors, and he should be able to collect information needed and then assis his clients in making an informed decision.

3. You should assess whether the advisor has had any positive impact on the rate of employee participation and average deferrals.

4. A plan sponsor should be given all the fee-related information from the advisor. The advisor should therefore discuss all the fees with the sponsor, in an open line of communication.

5. Some sponsors are so happy with their advisors that they are willing to serve as a reference, to new and potential clients. References coming from previous clients who are satisfied with the service serve as a good gauge for the advisor.

Reference: http://www.planadviser.com/magazine/article.php/4250

CPA Retirement Plan options

An employer can offer you many benefits however the best one of all would be a retirement plan. This is a tool that employers use to attract as well as keep, employees who are highly qualified.

A CPA is able to offer a large number of retirement plans, whose specifications and features suit the needs of both individuals, as well as businesses.

CPAs offer three types of retirement plan, being the individual retirement plan – or IRA, the Corporate Retirement Plan as well as Retirement plans for the self employed.

Corporate retirement plans can be further classified into three categories:

• A simple IRA – which is like a retirement account for an individual. These are available in various types such as are the Simple IRAs, the traditional IRA, SEP IRA as well as the Roth IRA. Employers normally establish the simple IRA, while contributions made individually by participants go to a Simple or SEP IRA.

• A Simplified Employee Pension is a retirement plan which can be set up by both employers as well as self-employed persons.

• A Qualified Plan on the other hand, is set up by an employer, to provide retirement benefits for his employees and his beneficiaries.

• Finally a 401k plan is a plan that can take contributions by both the employee as well as the employer. This is applicable only for an individual who is a sole owner of a business, and his spouse.

When it comes to Individual retirement accounts, we find the traditional and the Roth IRA. The Roth IRA is the better option for the younger individual, or for someone who things that after retirement, he will be in a higher income tax bracket.

A Self-employed Retirement Plan follows the same rules as the corporate one. The major difference is that self employed persons or those who have a partnership, pay their tax on the 1040 as opposed to the Schedule C.

Reference: http://www.theking-ofcontent.com/351/cpa-retirement-plans-2/

401k Plan or IRA?

Saving for your retirement is not an option, it’s a necessity. When it comes to the where to save for your retirement, here you have the option.

Lots of people are facing an issue when it comes to choosing between an IRA and a 401k plan. So here is some information to help you solve this puzzle for the best. As far as tax is concerned, both a company provided 401k plan as well as a traditional IRA take the contributions before tax is charged to your salary, thus lowering the balance on which tax is charged.

The 401k plan does have an advantage however. In some companies the employer will match his employees’ contribution which would mean doubling your savings money. Other companies will offer you a percentage of your pay, and this is always something that you should take advantage of, because it is free money!

IRAs come in 2 types. The traditional IRA is the one we have mentioned above, where the contribution is tax deductible. The Roth IRA however, will invest your money post-tax. In this case however, on distribution upon retirement age, no tax is paid, and this is this plan’s major advantage.

So in short, the main 401k plan advantage is the match from the employer and the Tax advantage now, while the disadvantage would be related to the limited investment options that are available for your funds.

In an IRA, you will be responsible for all the investment choices and you will have to decided how much to invest, when and where. This makes this choice very flexible. The other advantage would be that you are able to control your tax liability by diversifying your savings into a Roth IRA and saving on future tax, or else going for a traditional IRA to lower your current tax liability.

Before making your decision, always assess your needs, as well as the risk you would like to take on your funds. Whatever choice you make, is always better than not saving at all.

Reference: http://cashmoneylife.com/2008/02/14/invest-401k-traditional-roth-ira/

Cashing Out The 401k Plan

If you are thinking of cashing out the funds that you saved in your 401k plan, then I suggest you think again. You might be going through financial difficulties right now, but in reality, if you cash your plan, it is going to cost you money both now, as well as in the future.

If you are in between jobs, or just waiting around for the next job to come by, then here are your options:

• Keep the funds in your old 401k plan

• Roll the plan over into the 401k plan, which your new employer offers.

• Roll it over into an IRA

• And finally you may cash your 401k plan, and suffer the penalties.

The best thing you could do before making your decision is consult your financial advisor or accountant. Cashing out your 401k plan, should be seen as the last resort in many cases.

Keep in mind that cashing out will cost you more, than using your credit cards to manage until the end of the month. Just to get an idea, if you decide to withdraw your 401k funds, you will have to firstly pay a hefty 10 percent penalty charge, which there is no way of getting around. You will also have to pay a tax percentage which runs around the 30 to 40 percent.

You should also consider that if you withdraw your saved funds, you will have to start from scratch, saving for your retirement age. If you’re in your forties or late thirties, then you might never accumulate again the required amount to see you through your retirement appropriately.

So at the end of the day, don’t just consider the charges and penalties, but also consider the effects that this withdrawal will have on your future.

Reference: http://hubpages.com/hub/Cash-Out-401k

Where to Rollover Your 401k Plan

If you are one of the unlucky ones who has lost your previous job or maybe changed employer, then you will have the sum of money that you were saving in your 401k plan at your disposal, and the best option for you to choose is a rollover.
This way you will be transferring your old 401k plan into a new retirement account, without paying taxes or penalties that go with withdrawals. The rollover may be into one of three accounts:

1. If your new employer offers it, then you may rollover to another 401k plan. The advantage of this option is that even though your saved balance is still low, you will still be able to invest the funds in options that might give you a better return in the long term. The disadvantages of this option are that you will loose flexibility, since your employer will make the investment choices and not you. In addition you may be subject to high fees.

2. The second option is a Brokerage IRA, which will provide you with lots of flexibility. In this account you will be able to choose from lots of investment options. You will also be able to purchase stocks and bonds individually as you desire. The disadvantage of this option is the cost, since every time you trade, you will have to pay a fee, which you wouldn’t pay in the 401k plan.

3. The final choice is a Mutual Fund IRA such as the one offered by Fidelity. This is definitely the cheapest way to invest in the options that these companies offer, and the other advantage is that if you meet some requirements, you won’t even pay an account fee! The disadvantage in this case is that you will be tied to the investment choices offered by this particular company. You will also be tied with the minimum investment amounts, which vary from one option to another, and you may end up buying in one fund, while saving to invest in another.

Reference: http://genxfinance.com/2009/01/15/how-to-roll-over-your-401k-when-you-leave-or-lose-your-job-the-401k-rollover/

Old 401k retirement plans

We all know by now that a 401k plan is a retirement account that we have with our employer, in which we save monthly payments or contributions from our salary.

Now at the moment, there are no limits imposed by law, as to the number of 401k plans that each employee can have at a given time. This means that you can have more than one account open, however you cannot contribute in all of your accounts. In fact, you can only contribute funds into one account, which is the one you have with your current employer.

Having more than one 401k plan accounts open, may not be the best thing to do. In fact you should try and consolidate all your old 401k plans, into the one you currently have. The same goes for an IRA. This way it will be much easier for you to watch your investments, and maintain control over your accounts.

If you are not sure whether you have an account opened with a previous employer, then you should follow the following steps in order to locate this:

• First start by contacting your old employers, and ask them to look at plan records, to check whether you had participated in their 401k plan. Prepare all the information they will ask you for such as social security number and date of employment.

• If you are not able to locate an old employer, then try and find an old 401k plan statement, and see whether this has any contact address for the administrating firm.

• The US government requires that a Form 5500 is filled and filed annually. You can therefore look for your employer’s name amongst these forms, on a free website.

Reference: http://www.401khelpcenter.com/faq/faq_39.html

Maximum 401k plan contributions and how soon they should be credited

The 401k plan is an account in which you can save monthly contributions, which will eventually accumulate into a lump sum, that you can make use of when you retire. The amount of money that you save will be then invested in various funds, to make the best possible growth.

The amount of money that you contribute in your 401k plan is not the same for everyone, and there is a maximum amount. The maximum amount of money that you can save, or defer, actually changes every year. In 2005 for example, the limit was $14,000. In 2006 it went up to $15,000, and from that year on it will increase by $500 yearly.

When it comes to how quickly your contributions, have to be allocated to your 401k plan by your employer, there are various government regulations. These regulations basically say that the contributions made by employees into their 401k plans, should be made at the earliest day possible. These also state that in no event, should these monthly payments be credited into the 401k plans, after the 15th day of the month, following which the contribution has been paid by the employee.

This means that for no reason should the payments be allocated after the 15th. The employer cannot however, wait until the 15th day of the month, to allocate the payments. If there is a possibility that the funds go in after only two days, then the employers should do the transfers immediately. This rule is here to protect participants and not for employers to abuse, and leave the surplus funds to be shown in their books.

Reference: http://www.401khelpcenter.com/faq/faq_main.html

401k plan withdrawals, charges and exceptions

The current economic turmoil that we are going through at the moment has resulted in lots of people changing employers. This in turn has aroused various questions that relate to 401k plans, and the effects that a change in employer will cause. So here are a few guidelines to help out.

If you have a 401k plan with your previous employer and you need to get cash money out of it, all you need to do is to contact your former employer, and ask him to send you the required forms to be filled in. As an ex-employee, you can ask any time, to have your 401k funds cashed out.

What you should consider is whether this is the right option or not. Unless you are over 59 and half years of age, then you will be subject to a 10% penalty over the amount of money that you withdraw. Apart from this, your ex-employer will also retain an amount of money from the lump sum you need - that amounts to 20%, and send it as a down payment on income tax to our friends at the IRA.

If you are thinking whether there is a way around the penalty charges, the reality is that there isn’t. This penalty was set in place exactly for this reason which is, in order to put off people from spending their retirement money before they reach retirement age.

There are however some exceptions. If you are 55 years of age or over, and you are retiring early from the company who is sponsoring your 401k plan, then you are able to take monthly payments from your savings with no penalty. You will however pay income tax on the monthly payments.

The other exception is substantially equal periodic payment, which allows you to withdraw a given amount of money regularly from the 401k plan, for five years or until you reach 59 and half years.

Reference: http://www.401khelpcenter.com/faq/faq_main.html

Tax and your 401k Loans

It is a common misconception that when you start saving money in a 401k plan, you will be paying income tax twice.

This is in fact sometimes claimed to be one of the reasons why, individuals should not opt for a 401k plan, as the vehicle that will help them save money for their retirement. The claims suggest that when saving in this plan, you will be paying tax first when making loan payments into the plan, and secondly when you come to take the money out, that is when you retire.

This is not true. A loan from your 401k plan, will not incur taxes, more than any other type of loan that you may possibly take from a financial institution. If you do take a loan from your 401k plan, then you will be paying it off from income, which is after-tax. Furthermore, contributions that you make into your 401k plan, as well as all the earnings to gather throughout the years, will only be taxed once; that is when the money is withdrawn, or distributed.

In short this means that withdrawing funds from your 401k plan or from any other source will not cost you more in tax money.

In economics we have a cost which we call the opportunity cost; which is the next best opportunity which you do not choose. In this case the opportunity cost would denote the money or earning that you would have made, if you would have left the saved money in the plan, and taken a loan from another source.

Reference: http://www.401khelpcenter.com/faq/faq_29.html

Rollovers and Transfers from 401k plans

If you are one of the many employees who has been hit by the economic recession then this does not mean the end of your 401k plan.

If you have changed employer recently, and your new employer offers you a 401k plan, then you can make a transfer, without incurring any penalties. The first thing that you need to do is ask your new employer whether the 401k plan he offers, can take rollovers from other plans.
If his answer is yes, then what you need to do is ask for instructions relating to where the funds from the old 401k plan can be sent. Next you should have a word with your old employer, and ask for a form which is necessary to complete the transfer from one account to another. It is good to know that the transfer will be completed without your incurring and charges or penalties.

If you are changing employer, you may decide to keep the old 401k plan and open a new one with your new employer. The only restriction is that the amount that you keep in the old plan, should not be less than $5000. If the balance is less than that, then the plan sponsor may give you the option to transfer your saved balance into either an IRA, or the 401k plan that you will open with your new employer.

If you are not changing employer, but maybe your employer decided to trade the 401k plan he used to offer for a new one, which you don’t like you will end up a bit stuck. This is because 401k plans only allow you to make rollovers, unless you have terminated your employment.

If therefore your employer decides to switch plan, you will have to rollover the lump sum of money you have saved in the old one, into the new version.

Reference: http://www.401khelpcenter.com/faq/faq_main.html

Hardship Withdrawals From Your 401k Plan

Hardship withdrawals represent amounts that can be withdrawn from your 401k plan, much like a loan. Even though this withdrawal is allowed by the law, it does not mean that your employer will allow such a withdrawal from the 401k plan that he provides. Some companies do, while others simply don’t. The first thing you have to do therefore is check with your company’s Human Resources Department whether such a withdrawal is allowed.

According to the regulations provided by the IRS with regards to 401k plans, hardship withdrawals may be allowed only in certain circumstances as follows:

• You need to withdraw, due to a serious and pressing financial need
• You do not have other means by which to meet this need
• The amount taken should not exceed, the amount that you need
• You have already taken all the non taxable loans that the 401k plan offers
• You have no means by which to contribute more funds into the 401k plan, for the six months after your withdrawal.
The IRS considers the following reasons as acceptable, for a contributor to make a hardship withdrawal:
• For the reimbursement on medically related expenses
• For the employee to purchase his main residence
• To pay for education expenses such as tuition or room cost and board, for the next 12 months.
• To make payments that will prevent you from being evicted from your home, or to prevent your property from being foreclosed
• To cover any funeral expenses, as well as to repair the main residence.

These withdrawals are always subject to income tax, as well as a penalty. Only contributors who are over 59 and a half years or age, are exempt from the 10% penalty. The amount of money that you withdraw does not have to be paid back into the account.

Reference: http://www.401khelpcenter.com/faq/faq_main.html

Facts about the 401k plans

A 401k plan may be defined as an investment account, into which you can save a monthly contribution out of your salary. This contribution can be then matched, or we might say doubled, by your employer.

It is good to note that the money saved in a 401k plan is not liable to income tax. The money that you will be saving monthly will be spread in various investments of your choice, in order to give you a return, which is greater than that, which a normal savings account can give you.
There are however different plans on the market, and you have to make sure you get a good deal. You should be looking for features such as:

• daily valuation of the assets
• employer’s match
• minimal fees
• ease of getting a valuation
• a good number of investment options available
• the availability of loan withdrawals.

Also make sure that the provider does not put a maximum amount of contributions that can be made into the account, and make sure that you will be given all the necessary information such as prospectus, newsletters and other informative means that will help you understand better your plan’s performance.

In the unfortunate event that you loose your job, all is not lost. You will have the option of transferring your savings into another account, such as is the IRA. Your previous employer should be able to supply you with all the necessary forms. The best way of doing this is to open the IRA account, before you close your 401k plan, since you will be able to fill in all the account details, on the provided forms.

Reference: http://www.401khelpcenter.com/faq/faq_main.html

401k plans by Fidelity Investments

The 401k plan offered by Fidelity Investments is a type of investment account, which offers its owners a tax free environment in which they can deposit their savings.

The employer will then match a certain amount of money, to the amount deposited by the employee. An employee has the option of depositing up to 15 thousand dollars yearly, and a maximum of 20 thousand dollars yearly, in case the individual is over 50 years of age. All contributions made into this plan, can be deducted from your income tax.

401k Fidelity investment accounts are normally offered by larger companies, which will be able to get a better deal with a broker. The investment options will however be somewhat restricted. Other investment plans, such as regular brokerage accounts or IRAs do not normally have this problem.

In the event that you are offered the opportunity of contributing into a 401k plan by Fidelity Investments, then you should invest as much money as you can afford, as frequently as possible, and as early as you can manage. Don’t forget that the more money you save in this plan, the greater will be your employer’s match. This is the fastest and easiest way for you to double your investment!

You should also remember that Fidelity 401k plans are tax-free, which is the reason why some investment options may be better than others. Real estate indexes for example, can be one of the best choices for young people, since this index will generate a good amount of gain. Bonds on the other hand might be a better option for the last years of a 401k plan.

Reference: http://www.job-employment-guide.com/fidelity-investments-401k.html

The 401k recession as portrayed by 60 minutes

60 minutes a popular CBS show has come up with a portrayal on 401k plans that can be defined as a bit shallow.

60 minutes portrayed a picture that shows that because of the recession people have been loosing their jobs, their retirements saving portfolios have been destroyed, and so their dreams of a relaxed retirement have to be deferred. This is sadly all true however there are ways and means of projecting this.

Steve Kroft was interviewing job seekers at a job fair, and curiously enough they happened to have their 401k plan statements with them! The whole 13 minute section did come out with some interesting points: First, people investing in 401k plans have lost money and second, there are hidden fees in the 401k plan. The 401k plan segment still did come out with some interesting learning points.

As we said people have lost money. This is not only true for 401k plans however, it is true for all the other investments. People who have lost their jobs, as well as small business owners have suffered. So it does not make sense claiming that only the 401k plans are letting down their investors.

We have also mentioned the fees issue. It is true that hidden fees are a problem within retirement plans, but 60 minutes have decided to just stop at listing them, instead of putting them in a constructive context.

The old style pensions’ popularity has been constantly declining, however these plans were better suited for the average American, since the worker would get a good idea about what money they will be getting. Employers however were eager to get them out of the way, thus reducing their costs as well as business risk.

The solution to this problem is consumer education and luckily more effort is being made to inform contributors about how their retirement plan works. If you have a 401k plan or a 403b plan, from a previous employer, then you can very easily transfer these funds without paying tax, into an IRA account. You will therefore have more control, and more choice. It is important however to consult a financial planner to assist you in choosing the right plan for you.

Reference: http://www.keyfeeonly.com/2009/04/23/60-minutes-the-401k-recession/

Retirement Planning or Guess Work?

Planning for your retirement is a very important matter that should be handled with extreme caution. Your retirement plan will determine the standard of living that you will be enjoying, when you retire.

Unfortunately it seems that most people don’t realize the importance of retirement planning, and instead of asking a qualified financial planner, to determine how much money they will need to save to retire, they just guess.

Yes you heard right; as much as 44% of the total number of American employees, just guess the amount of money they need to save until they retire. 26% say that they work on an estimate by themselves, while 18% ask for advice from a financial planner. Other workers totaling around 9% try to read up as much information as they can to make an informed guess, and others use online tools that help them calculate this sum.

The survey that came up with the above mentioned percentages also revealed that employer retirement plans are considered as a main resource for retirement income.
In fact, as much as 4 employees in 10, say that they contribute money in an employee-sponsored retirement plan, and they expect that the money that they would have accumulated, will provide their main source of income when they retire.

Workers, who have been saving for their retirement in a retirement plan, IRA or other pension plan, expect to receive major returns from their savings, in the form of retirement income. Non-savers on the other hand, mention social security, and also employment as their major source of income, after they retire.
Reference: http://www.planadviser.com/article.php/4188

Laid Off? Don’t Give Up On Your Retirement Plan

We all know that the world’s economy is far away from showing signs of recovery. Sales are low, and unemployment keeps rising, even from big corporations.

If you are one of the unlucky individuals who has lost his job to this recession, and are left with only your 401k plan as your savings, then you should aim at keeping this savings amount. Here’s how:

If you were employed by a big corporation who used to sponsor your retirement plan and have been laid off, the company who has terminated your employment might allow you to keep your 401k plan. Your former employer would have hired a plan administrator, who may retain your saved funds, such that your total savings may continue growing. Make sure you check with the administrator for the plan restrictions.

You also have another option, which is to roll over your saved funds, into a new IRA or a Roth IRA. Furthermore your new employer may be able to rollover your saved funds into a new 401k plan account. Obviously your new employer would need to sponsor your new 401k plan for this option.

Now in the case that your 401k plan had less than $5000 balance, the plan administrator would be legally required to issue you with a check that covers the account balance. When you receive this check, you would have up to 60 days, to transfer the money into a new 401k plan, or else a personal IRA, thus avoiding tax consequences.

All the above are worthwhile options that you can easily adopt. Whatever happens, closing your 401k plan should be the last option that comes to mind. Remember that the funds that you saved in the 401k plan, including the match that your employer provided you are all tax-free funds.

If you still want to cash your 401k plan, keep in mind that early withdrawal attracts heavy penalties, and your income tax rate may increase up to around 25%. The best option is always to keep the funds in the account, and when you are in a better financial position, you may continue where you left off, instead of having to start saving for your retirement from scratch.

Reference: http://howtobuystockonline.com/how-to-manage-your-retirement-plan-after-a-layoff

The Various CPA Retirement Plans

A retirement plan is one of the most beneficial allowances that is offered by employers, which helps in attracting as well as maintaining employees that are considered to be highly qualified.

CPA offers a number of retirement plans that vary in specifications, to positively satisfy the needs of both individuals as well as businesses. Retirements can be split into 3 categories: 1. Retirement plans for corporations; 2. IRAs; 3. Retirement plans for the self-employed.

Corporate Retirement plans

Corporate Retirement Plans can be further split into 4 types:

The Simple IRA – These retirement plans are set up by employers and they come in various types like Roth IRAs, traditional IRAs or SEP IRAs. On this retirement plan individuals make their own monthly contribution, the maximum amount of which is $10,000 yearly. Individuals who are 50 years old or more, may also make additional contributions, called catch-up contributions.
SEP- The Simplified Employee Pension is a retirement plan which is also set up by the employer, and can also include individuals who are self-employed. This plan is a good retirement vehicle since employers are able to save money for their retirement, apart from that saved for the employees.

Qualified Plan – This plan differs from the above mentioned types, and is not even subject to the same set of rules. This plan may be a defined contribution or a defined benefit plan and enables employers to make tax deductions for the plan contributions. The maximum amount of money that can be contributed into this plan is $42,000.

The Individual 401k plan – This plan accepts contributions both from the employee as well as the employer. This plan may only be set up for a business owner and his spouse.
Individual Retirement Accounts

A person who is in a high earning tax bracket should go for a traditional IRA, while the Roth IRA is better for younger individuals, or individuals who think that after retirement, they will be in a higher tax bracket.

Self Employed Retirement Plans

This plan is driven by the same rules as the corporate plan, with however, one difference. The owner’s contribution is not on partnership tax return or schedule C, but on 1040.


Reference: http://www.deskscript.com/104/cpa-retirement-plans-2/

Public or Private Sector Retirement Plan

The recession and the deep economic recession that the United States is facing, has aroused many doubts in people minds regarding various sectors of the economy. This includes the pension sector.

Many people are in fact arguing that the private sector should not be trusted with important things such as managing retirement plans. This people claim that the government would do a far better job in managing these important issues, which will have a long-term effect on the economy, as well as people’s lives.

The Social Security however lectures against this belief. The Financial Times has compared, is association with Megan McArdle, the financial support of the pension plans of the private sector, to the pensions that are provided to the employees who work in the public sector.

Megan McArdle indicates that the Pension Benefit Guaranty Corporation – regulating and insuring pensions – states that private plans have a total deficit, read around $10 billion, and covered as much as thirty four million workers. These figures are as at September 2008. Since this date the figure has most probably multiplied. In fact to date the underfunding that is covering a number of workers, in the region of 22 million, reads something that is very close, if not more than a trillion dollars.

This is a very big deficit, that when calculated would result in an underfunding of $295 for each employee. As you can probably guess, this is not a good thing. Things however could get a lot worse. If you compare this deficit to plans that are provided by the public sector, it turns out that a private sector employee is better off. Employee deficits in the public sector read $45,500 for each employee.

Reference: http://andrewgbiggs.blogspot.com/2009/04/public-versus-private-pension.html

IRS Efforts Regarding 403b Plans

The IRS is consistently trying to equate 403b plans with 401k plans that we are mostly aware of. They have a plan in mind, which they have released during the 403b summit that was held in Florida.

The Summit was in fact opened by an IRS Tax law specialist, who said that the IRS is debating the issue of a new procedure related to draft revenue. This would mean a significant step in the development of 403b plan regulations. It is estimated that these regulations will be released by the first quarter of 2010.

This date will be a milestone for the 403b plans, as on this date the 403b plan that will be moving towards a new epoch.

According to Mr. Architect, the spokesperson who opened the summit in Florida, the IRS has already released the following:

• A draft set of procedures which describes how the agency intends to progress the new 403b plan.

• A sample of the 403b plan language that will support the projected model.

• A call for comments from the public, regarding the model 403b plan they propose. All comments should be received until the first of June 2009.

Mr. Architect also predicts that the models or prototypes will be coming from retailers, who predict that they will have about 30 plans running on the new 403b model. When this model will be approved, then the plan sponsors, who will be adopting the plan, will be able to sign an agreement, which would lay out the ways in which they will adopt the plan provisions set out in the prototype, to make the new plan work more efficiently.

Finally Mr. Architect concluded by saying that the urges plan sponsors and plan advisers to meet up, thus maximizing the relief provided by the IRS for the transition period, which would be December 2009.

Reference; http://www.planadviser.com/compliance/article.php/4116

Saving on Tax Money

Everyone is interested in learning about the ways and means of saving on tax money. Each and every year we dread that payment and we all dream that some angel would come along and tell us his little tax saving secrets. Well, maybe your dream has become a reality!

There are various ways to save money, if you know the tricks, and if you think you can’t do this on your own then why not employ a tax consultant to help you out? If you simply have a look online, you will find numerous articles providing useful information regarding the numerous ways in which you can save on tax money. Always make sure that the approach you decide to go for validates the end result.

It could be that presently while you are reading through this article, the tax environment is comparatively low. But do you really think that this situation will remain unchanged in the coming years? You must be prepared such that if and when the taxes rates will go up, you have a ready plan that will help you save on tax money.

Keep in mind that in the very long term of 30 years or more, when you will need your savings for your retirement, it is very likely that the tax rate will be higher than it is today. If you seek the advice of a professional tax consultant, he will point you towards saving your money in a 401k plan. This is retirement plans which offers multiple tax advantages, and in which employers sometimes match the employees’ savings amount.

You should make the best of this feature, and make sure that your employer is contributing close to the maximum possible amount since this would give you a very good mark-up on the money saved. If on the other hand, your employer won’t give any contribution at all, then you should consider investing in a Roth IRA instead of an employee sponsored retirement plan.

http://www.letsmakemoneysavemoney.com/knowing-how-to-save-on-taxes/

Adolescents Seeking More Financial Education

According to a recent survey, young employees are seeking more financial education and assistance from their employers, than what is actually being provided. It seems that a large percentage of younger employees, are not at all customary with the benefits of the plans that their employers are offering.

Over half of the adolescents surveyed would like to have more guidance regarding the benefits and workings of the retirement plan that their employer offers, however unfortunately only 30% of employers offer assistance.

According to this survey adolescent employees would also like to have more guidance in matters that relate to debt management and purchasing a home; advice regarding budgeting and advice on where it is best to save for retirement and also assistance as regards savings for a child’s future education.

This survey has also concluded that only half of adolescents are totally financially independent from their parents, and the others are either unemployed or else have decided to live with their parents in order to save money, since living on your own is quite expensive.

When it comes to financial education re budgeting etc, more than half of the adolescents surveyed accredit their parents for their knowledge and also for financial advice. Many also admit that they do not feel competent enough to deal with important financial decisions on their own.

The results of this survey also identify a worrying trend regarding the payment of credit card bills, since only 33% of surveyed individuals completely pay their credit card balance at end of month.

Most adolescents request to have a better background knowledge regarding finances, than what is offered by their parents. They demand more education; even through the scholastic system, that enables them to acquire enough knowledge in such a way, that they will feel confident in the financial decisions they take. The majority of adolescents would also like to see incentives, which will encourage their employers to provide employees with the financial education they need.

Reference: http://www.planadviser.com/research/article.php/4025

IPP or RRSP?

If you are undecided whether to go for an IPP or an RRSP, then read on for here are the basic details of an IPP plan.

IPP

An IPP is a retirement plan that normally consists only of one or two contributors. This plan consists of a combination of assets which will provide income on the retirement of a single individual.

This type of retirement plan is normally set up for the benefit of a small business owner, or a partnership, but it may be also used for a business’ key employees.
Further details:

• An actuarial study should be completed every 3 years to establish funding needs for the subsequent 3 years.
• A yearly contribution is made by the company, for the employee. This contribution is eligible for tax deduction for the company.
• In the even that the employee retires before age 65, then he may also take advantage of terminal funding.
• Once reaching retirement age, the employee has 3 alternatives. 1. He may either choose to withdraw a pension from his savings amount. 2. He may commute his pension thus becoming accountable for his retirement income. 3. He may buy an annuity with his savings.
• Payments on this plan do not end with the passing away of the retiree’s spouse, but will go to the employee’s estate.

Plan benefits

IPP contributors will have an advantage over RRSP contributors, in times when the market is giving a weak performance, since legislation says that if the plan assets are less than what is required to meet earnings obligations, then the company may increment the contributions in order to increase the asset base.

The IPP is also a creditor protected plan and this feature provides supplementary advantages to professionals as well as small business owners.

Reference: http://familywealthmanager.blogspot.com/2009/04/ipp-vs-rrspbusiness-ownerstake-note.html

A Short IRA History

The IRA knows its origins in the year 1974, when Employee Retirement Income Security Act was passed. This act provided amongst other things, for the realization of the IRA. The IRA back then however, was not exactly like the one we have today.
Originally IRA contributions were not deducted from pre taxed income, and the limits were of just $1500 or 15% of the total income of the household, whichever is the lowest.

The goals of the IRA were to:

• Provide a retirement plan for individual who were employed by companies, which did not provide them with a retirement option.
• To preserve the position of plan assets as being tax-deferred, upon termination of employment.

This retirement option, which was then offered solely through banks, became popular immediately, and attracted billions of dollars in contributions. Another law called the Economic Recovery Tax Act, then made the IRA even more available, since is allowed it to be offered to everyone under the age of 70 and a half.
During the years contributions were allowed to increase, and after that some restrictions were introduced that limited the amount of contributions that could be made by people who were earning less than $35,000 if single, or less that $50,000 when married.

During the years other changes have taken place that allow non working spouses to make contributions to the IRA, and catch up contributions were also allowed for people aged 50 or over.

More recently however, owners of a traditional IRA were given the option to switch to a Roth IRA, irrespective of their income level. In addition to the release from this income cap, taxpayers that decide to switch to a RIRA, are also permitted to divide taxation on the funds that will be converted between 2010 and 2011.

Reference: http://bfponline.com/weblog/682/history-of-the-individual-retirement-account-ira/

Take The Best Advantage of Your Retirement Plan

If you want to make the best out of your 401k plan, or your IRA then you first need to clearly understand the early withdrawal rules of both these plans. This guide will provide you with the guidance you need and will answer all your questions. It is an indispensable read, which will allow you to tap into the potential of your retirement plan, before you reach sixty.

Saving lots of money in taxes is a good idea that interests anyone. Individuals sometimes make early withdrawals out of these plans, for a variety or reasons such as retiring early, maybe paying off a mortgage or to cover college fees for their children. If you want to make a withdrawal, and avoid paying taxes, you should clearly understand the rules and regulations that govern this plan.

When is comes to types of plans, we all know that there are various, and that each and every one of them, has different rules. Don’t worry though, because this incredibly handy and informative book will go through all of them.

This book will also provide you with essential information that regards the setting up of an SEPP plan. This stands for Substantially Equal Periodic Payment plan, and will allow you to make the withdrawals you need, while escaping the 10% tax that goes with withdrawing.

This book also covers how you should borrow money from your retirement plan, and what or rather what not needs to be reported to the IRS. You will also find lots of helpful and easy to follow examples and other tax planning tips right through the book. So enjoy saving your tax money!

Reference: http://retirewell.findfastr.com/retirement-planning/how-to-tap-your-ira-or-401k-and-escape-tax-the-60-minute-guide-to-the-early-withdrawal-rules

Simple Facts About SIMPLE IRA

A SIMPLE IRA plan is a retirement option, that offers the employer a very simple way of matching his employees’ contributions. Within this plan, an employee can make monthly contributions by way of a small salary deduction, towards his retirement fund, and the employer may also match this contribution, or make a non elective one.

A SIMPLE IRA plan cannot be set up by just any employer. Only employers who have a total of 100 or less employees, who have earned a total of $5000 during the previous year, may choose to opt for this plan.

Tax exempt employers and government entities, are also allowed to maintain a SIMPLE IRA plan. Establishing a SIMPLE IRA plan is simple and requires only three steps:

1. You must adopt the model of the SIMPLE IRA plan, through either Form 5305-SIMPLE or 5304-SIMPLE. You may also use a prototype plan which has been approved by the IRS
2. All the employees who are eligible to make contributions must be given adequate information about the plan in which their contribution will be deposited.
3. A SIMPLE IRA account needs then to be set up for each employee with a bank or another financial institution.

A SIMPLE IRA needs to be set up between the following dates: January 1 and October 1, and is to be maintained on a calendar-year basis. Further more, if an employer maintains another qualified plan, under which his employees receive an allocation of contributions, then the employer cannot make contributions under the SIMPLE IRA plan. This fact is however subject to some exceptions.

Reference: http://www.irs.gov/retirement/article/0,,id=111420,00.html

Facts About the SIMPLE 401k plan

A SIMPLE 401k plan is a plan is an intersection between a traditional 401k plan and a SIMPLE IRA, and offers you the best features of both plans.

The highlights of a SIMPLE 401k plan are the following:

• While an employer who decides to adopt a traditional 401k plan for his business requires hiring costly professionals for testing purposes, a SIMPLE 401k plan does not require any tests. This therefore makes it cheaper, and more attractive especially to small businesses.
• As with the traditional 401k plan, loans are allowed from a SIMPLE 401k plan. This feature makes the plan very appealing since participants as well as employers, like the idea of being able to borrow funds from their own account.
A SIMPLE 401k plan also has some disadvantages, as listed below:
• Contributions made into a SIMPLE 401k plan have to be immediately vested, and this may result in high staff turnover
• On a SIMPLE 401k plan, the contribution limits are lower than the ones on a traditional 401k plan. While on a traditional 401k plan an employee may defer up to 25% of his total salary, on a SIMPLE 401k plan he can contribute up to a maximum of 3%.
• If an employer decides to set up a SIMPLE plan, unfortunately he cannot then set up a traditional 401k plan, for employees who are not entitled to contribute in the SIMPLE plan.
Regarding eligibility:
• A SIMPLE 401k plan may be adopted by the same employers who are eligible for the traditional 401k plan, with only one difference. An employer needs to have a maximum of 100 employees to be able to adopt this plan.
• As regarding employees, every employee who is 21 years of age, and has been employed for minimum 1 year, is eligible.

Reference: http://www.investopedia.com/articles/retirement/04/052604.asp

SIMPLE 401k or SIMPLE IRA

As a business owner, choosing a retirement plan for your employees should be one of the most important financial decisions you may take. This is so because a retirement may be a factor that helps you attract and maintain employees.

Both the SIMPLE 401k plan and SIMPLE IRA are targeted for businesses which employ a maximum of 100 employees. So what should you choose? Both plans offer advantages as well as disadvantages, which will help you ascertain which the best option for your business is:

• Employers, who choose to go for the SIMPLE 401k plan, may also choose to maintain another plan, for those employees who are not eligible for the SIMPLE 401k. Adversely, if an employer opts for a SIMPLE IRA, he will not be allowed to have any other plan, not even for non eligible employees.
• The SIMPLE 401k plan requires employees to be 21 years of age and employed for at least 1 year to be eligible to make contributions. A SIMPLE IRA on the other hand, has no age limits.
• Neither plan is required to perform non-discrimination testing, and both plans are subject to a 60 day notice.
• On the IRA loans are not allowed, while on the SIMPLE 401k plan, the employer may choose to include the loans option for his employees.
• Contributions for both plans should be immediately and fully vested.
• For both plans, the employees will make a contribution from pre taxed income, with the employer having the option to match. The payments are however subject to different capping rules, which may have different results.
• When an employer decides in favour of making matching contributions, on the IRA he will have the option of decreasing his match to less than 3%, but more than1%, for every 2 years out of 5. SIMPLE 401k plans do not offer this option.

Reference: http://www.investopedia.com/articles/retirement/04/060904.asp

The Basic Points in Establishing a 401k Plan

When you are planning on opening a 401k plan, there are certain points you need to think about and work through. One of these would be whether you want to take care of setting up the plan yourself, or whether you want to talk to a retirement professional to help you get the job done. Here are the four action points for you:

First you need to have a written plan. This will assist you in your daily operations. Before writing the plan document, you need to decide what type of 401k plan is best for you. These are your options:

• A traditional 401k plan offers you the maximum flexibility of all the options. An employer has the option to match the participants contributions on this plan, and the contributions made by participants are from pre-taxed income.
• A safe-harbour 401k plan is comparable to the above; however in this case employer contributions should be fully vested when paid. Tax rules for this plan are less complex than those for the traditional plan
• The simple 401k plan was produced for owners of small businesses, to enable them to have a retirement plan that is cost efficient. The simple plan is for small businesses employing 100 individuals or less.

Your second step is to make sure that the assets of the 401k plan are held in trust, thus benefiting only the participants and not the business profits.

You must also develop a good record keeping system, to keep track of all payments being made in and out of the plan, investments chosen, earnings made and expenses paid from the plan.

Finally you should also provide your employees with adequate information regarding the benefits they have and the requirements of the plan. A summary plan description is a very good way of providing all the necessary information to the participants.

Reference: http://www.irs.gov/retirement/article/0,,id=119612,00.html

Small Business Owners’ Worries

Studies show that as much as half of the total amount of small business owners is worried, that they will not have enough money for their retirement. They comment that in the event that they will need medical attention or to pay for recovering from a serious illness, they won’t have enough money.

Almost all of the small business owners said that they are not planning on stopping work completely when they reach retirement age, but rather cut back on the working hours. Some individuals also state that even though they have passed retirement age, they are still working full time and always looking out for new opportunities.

It is a fact that most small business owners are choosing not to retire completely, however it is also true, that an increasing number of individuals who wish to retire, simply don’t afford to, since they are concerned that after their retirement, they won’t be able to maintain the standard of living they were used to.

Since 2003, Wells Fargo Company Limited, a company that provides a diverse range of financial services, has been studying the trends of small business owners, and set up a Small Business Index. This index basically studies the ratings of small business owners in their currents financial situation, and compares this with the perception of how their business should perform within the next 12 months.

After conducting the studies, the vice president of this company stated that it is very important for small business owners, to plan ahead for their retirement, even though they don’t plan on stopping from work completely.

Reference: http://www.401khelpcenter.com/press_2008/pr_wellsfargo_012908.html

Retirement Tips For the Self Employed

A large number of self employed business owners, find it very hard to start a retirement plan. They are many times at a loss, about what type of retirement plan would be suited for them and their small business. As a self employed individual, you may either choose to open a solo 401k plan, or else a Simplified Employee Pension.

If you want to go for the simplest option, then you should aim towards opening a SEP. This plan is available very easily from most mutual companies or brokerage institutions. As for investment choices, these are normally comparable to the IRAs.

In comparison however, you may be able to contribute more money into a solo 401k plan since SEPs allow you to save up to a maximum of 20% of your business income. To clarify, this is calculated as being business income, less half of the tax of self employment. The figure rounds up to about $45,000. In 401k plans on the other hand, you can save $15,500 and another 20% of the business income as defined above. In addition to this, you may also make catch-up contributions of up to $5000, if you are aged 50 or over.

Now since the $15,500 mentioned above is not calculated as part of the income savings, this means that you will be able to save a higher percentage all in all into a 401k plan. If you already have a regular 401k plan with an employer, and have some freelance earnings, then the contributions made into the solo 401k plan, will be reduced by the contributions made into the regular 401k plan you already have. This however does not affect the 20% business income, so you are still ahead of a SEP.

The only issue is that solo 401k plans are not available from many investment firms, and the fees will very considerably from one to the other. You just need to choose what you want; whether it’s simplicity, or a plan that will allow you to save a significant amount of money.

Reference: http://www.kiplinger.com/columns/ask/archive/2007/q0801.htm

Available Solutions Reversing Start-Up Costs

Department of Labor statistics have uncovered a trend in 401k plan participation. It seems that 64% of workers employed by large or medium sized business are participating in a retirement plan, whilst only 34% of workers employed by small businesses are participating in such plans.

Small businesses state that they are not offering retirement plans, due to their expensive nature. Owners worry about the costs of setting up as well as maintaining and administering such plan. Start-up charges have always been an issue for such small business who intended to start a 401k plan for their employees. Nowadays however, the EGTRRA has helped in minimizing this problem, thus opening the doors to employees who wanted to start saving for their retirement. This law has put into operation a form of credit, that helps employers offset the costs of starting up a 401k plan, and adequately educating their employees about its benefits and the way it works.

As a business owner, you are able to claim credit for costs that you have incurred during the tax years after December 31, 2001. These costs have to be related to the start-up of a retirement plan such as SEP, the SIMPLE or the qualified plan options. The credit you will get, will be equal to 50% of the cost you have paid in setting up and administering the plan, up to a maximum amount of $500 per tax year, for the first three years of the plan.

To be eligible for this credit, you need to have 100 employees or less receiving a salary of at least $5000 from your end.

Reference:
http://www.401khelpcenter.com/401k/small_business_tax_credit.html

The Benefits of 401k Plans

A 401k plan is a retirement plan, in which company employees save money for their retirement. This came about since social security cannot be the only source of income that retirees live on when they retire.

The 401k plan is administered by a company and both employees as well as the employers may contribute funds into the 401k plan. Employers are not however legally bound to match their employees’ contributions.

Apart from the reason why 401k plans exist, their biggest advantage is that the contributions that employees make into the plans come from pre-taxed income. Therefore contributors are not paying tax on the amount they save. The same goes for the interest. The interest earned on the contributions is not taxed, until that is, you take the money out – normally when you retire.

Even then, only the funds that you withdraw from the account will be liable to tax. However it is important to keep in mind, that since when you retire you will have less income, it follows that the tax rate that you will be paying on withdrawing the funds, will be lower than what you are paying now.

When the economy was working fine a few years ago, employers were commonly matching the contributions that their employees were making into their 401k plans. This meant that as an employee, you were getting a 100% mark-up, in the amount of money you were saving. Unfortunately though, since the economy has slipped into recession, these generous employer packages have become few and far between.

The fact is that, even without the employers matching your contributions, saving in a 401k plan is still worth it and will most definitely be an important factor in your future. So if your employer does offer this plan, don’t miss out!

Reference: http://greatgifts.mangacite.com/2009/03/28/a-401k-plan-benefits-you-in-many-ways/

Retirement Planning Tips

Some people have been saving for their retirement, since their first day of work. Others have never given the topic a second thought. Neither one of these scenarios is unusual. Retirement planning can be a very touchy subject for many, however a few tips might be what you need to start you off.

The first thing you need to do is sit down and make some calculations. You should have a goal in your mind, about when you want to retire. This target will make you work harder to achieve your goal. You then have to establish an estimate of the amount of money you will need to save by this date. If you have a look on the internet, you will find many available tools that will help you in this.

Secondly, make sure you know what social security benefits you can avail yourself from. This can be easily done; just have a very good look at the statement that Social Security sends you around your birthday.

Ask your boss whether your company offers any retirement plans. If they don’t examine what options are available; fix an appointment with your tax advisor to enquire about IRAs and ask for advice from a licensed financial planning officer. The more information you have, the better the decision you will make. Don’t forget that this will determine your standard of living after you retire.

Always keep your common sense and do not fall for any investment scams. Always consider what your living situation will be in the future. Don’t wait until you can’t go up the stairs, to decide to relocate to another house. Study the cost of living in different cities that you would consider living in. This may be helpful when you are planning for retirement, and it might even save you money!

Planning for retirement might seem very complicated. If you take some time to plan your future, this will ensure that you will still have a decent standard of living, after you retire. So don’t put it off. Start planning today.

Reference: http://senioradults.mixed-themes.com/?p=285

Questions and Answers to Financial Planning

What is Financial Planning?

This is a service offers by a licensed individual, that will assist you and guide you through any financial decisions you face. The service includes setting goals for the future, planning for your financial future, allotting your portfolio into investments as required and exploring different investment options.

Is Financial Planning really necessary?

This service will allow you to organise your financial situation, in such a manner that you plan for your future, maximize the return you are getting for your money, spread your portfolio to spread the risks, reduce tax liability and therefore achieve financial peace of mind.

Can’t I do this alone?

Some people probably could. But will you? Most professionals find it difficult to sit down and realistically think about their financial future. They claim that they do not have the time, or that there are so many options available that they don’t know where to start. Also frequent tax legislation changes make it difficult to keep abreast.

What would this plan include?

It will analyze your cash flow; assess your portfolio and debts; analyse your estate planning; make income tax projections; plan for your retirement; evaluate insurance needs; analyze educational funding; and analyze your business if applicable.

What is my function in the process?

You just need to provide the most accurate information you can. Your planner has to understand your goals, dreams and your attitude.

Are fees for Financial Planning tax deductable?

Yes, but subject to limitations.

How can I measure the worth of this service?

After the planner provides you with his recommendations, you can compare the plan’s costs, to the projected gains. Over the long term, the gains should exceed by far the cost of preparing the plan.

Will this plan make me rich?

This plan can’t make you rich quickly. What is can do is help you save more of the money you earn, and make your funds work harder for you.

Reference: http://www.dmozonline.com/free-articles/eight-questions-about-financial-planning.html

Are You Missing a Plan Participant?

Employers will learn that sometimes, finding a missing 401k plan participant is a very difficult task.

The IRS has come out with a statement P-1-187, which gives information on how to make use of its letter forwarding program, which is for companies, individuals and federal agencies who need to locate missing persons.

The steps are as follows:

1. Write a covering letter addressed to the IRS disclosure office found in the area where the petitioner is located. This should include the reason why assistance is required, a list with the details of the persons who need to be located, and the details of the person to whom the IRS is to send the acknowledgement letter.

2. With the covering letter you must attach letter addressed to the individuals who cannot be located, that includes instructions for the receiver to voluntary contact the sender. It’s important to include disclaimer statement as per IRS guidelines.

3. The IRS office, upon receiving a valid request, will then look through its records, and if an address for the missing person is found, they will forward the letter in their own envelope. If the letter is returned as undeliverable, it will then be destroyed but the requestor will have no knowledge of this.

This program is free however for requests involving more that 50 missing persons, there is a program at a cost, from the Disclosure office at Washington DC.

Another option would be the National Registry, where you will be able to register the names of any missing persons that have not claimed their retirement money.

Reference: http://www.401khelpcenter.com/401k/missing-plan-participant.html

401k Plan Audit

DOL rules currently state that contributions made by employees into 401k plans, are converted to plan assets, from the earliest possible date in which these payments can be divided from the general assets, but not later than 15 days after date of receipt. This is a bit unclear and subject to interpretation.

The regulations provide however no assistance regarding how the employer should establish whether he is in compliance to the rule or not. The fact is that small employers will think that they are in compliance with the general rule, since they transfer the funds by not later than the 15th day. In reality however the DOL may determine that under the general rule, since the business is small and has only a single payroll system, he is able to separate the funds at a much sooner date.

DOL investigators normally assume that 401k plan contributions for small employers should be segregated within just 7 days from the payment date. If the employer is found in breach of this 7 day presumption, he should in this case contest the interest earnings that are to be assessed against him, and try to press as much as he can the time line forward. We must not forget that this is not the general rule but only a presumption and you may contest also that the general rule states that every business has to be taken separately.

An employer may want to place out a time line that documents the concrete steps to segregate the contributions, and also the time required for each step, and this might include:
• The time needed to calculate the contributions
• Manually processing loans for each payroll
• Verifying the calculations
• Communicating the amounts to the payables dept.
• Time required for financial institution to receive the check and process the transaction
• Time needed to provide investment firm with allocation instructions to participants.

Late deposits will be subject to interest rates which vary. They also have to deliberate reimbursing the participants for any lost earnings and where there is a breach, a penalty of 20% will also be charged to the employer. Since DOL investigations are under way, it might be a good idea for employers to review their procedures and compliance.

Reference: http://www.401khelpcenter.com/401k/perdue_401k_deposits.html

401k Plan Audit Papers

If you’re up for an audit on your 401k plan, then the Department of Labour or the Internal Revenue Service will be asking you for a list of items, that should be available at all times.

Items requested both by DOL and IRS:

• The 401k plan document and any amendment that have been made; trust agreement
• A duplicate of the most current determination letter
• Duplicates of the Form 5500/5500-C; the annual report of the Employee Benefit plan; copies of schedules including schedule A,B and schedule SSA if pertinent; copies of all attachments such as notes to the financial statements.
• Any existing endorsements and fidelity bonds
• Reports from the administrators, and trustees including journals and minutes to investment committee meetings.

The IRS will require:

• Duplicates of the Form 5500/5500-C and the Annual Report of the Employee Benefit Plan for the year successive to the years under present scrutiny.
• Duplicates of the Form 1120, the minutes to the activities that take place with the trust as well as the plan; a copy of the 7004 form.
• A duplicate of the employer’s Form W2P, a statement for the receivers of any annuities, retirement payments, pension payments or IRA payments; a duplicate of the Form 1099R; a record of the total amount distributed from profit sharing, Individual Retirement Arrangements and Retirement Plans, for the years under scrutiny.
• Any cancelled checks that verify the contributions of the years under study.
• Any schedules that demonstrate whether the 401k plan met the ADP and also the ACP tests.
• Employees’ records that specify employees’ details.
• Payroll records
• Allocation schedules of participants
• When applicable a copy of the consent declarations from spouses.

The DOL will ask for:

• A summary of the plan description
• A summary of the plan’s annual reports
• Insurance policy if held
• A list of the service providers and plan managers and their contracts
• Any correspondence that relates to the plan
• Account statements that have been recently provided for the participants
• Papers that show the contributions for the employee that are due from each payroll
• A statement of the investment policy
• All the documents relating to loans if any such as application and promissory notes
• Details and documents about all property held including vehicles, equipment, land and buildings.
• Documents that relate to any other real estate investment.


Reference: http://www.hollandhart.com/newsitem.cfm?ID=521

Questions to Ask Plan Vendors

If you are considering changing your 401k plan vendor, then there are a number of questions you should ask, and also a number of areas you should cover before going ahead.

The key areas you should consider are the following:

Service:

• Make sure that your account representative operates from an office close by, and not some 3 states away. Don’t forget that it is easier to arrange for participant educational seminars when the provider is close by.
• Ask about call centre hours, and what service they will be able to offer you
• Is there any web support and how user friendly is it?
• Make sure that the paperwork such as the statements that participants get, as well as your reports suit your needs and are easy to go through
• Confirm the regularity of retirement distributions
• Confirm the efficiency with which contributions, as well as transfers are recorded.

Compatibility:

Ask for references for plan sponsors of similarly sized plans, who have had positive and negative experiences with the provider you are looking at. Remember that not all the providers are suitable for a small plan, where the sponsor might need more service.

Fees:

401k plan fees may be calculated in various ways such as the number of participants, the amount of plan assets, execution of transactions and you may also have fixed charges. See what works best for you and your participants.

Compliance:

Confirm that the charges relating to compliance with the IRS regulations are built into the base of the new plan. In the case that there are no extra costs, you are better off asking your accountant to handle the situation.
Blackout Periods

We all know that balancing all the accounts takes its fair share of time. However you should always ask for a reasonable estimate of how long the blackout period will last.

Reference: http://www.401khelpcenter.com/changing_vendors.html

When to hire an attorney

401k plan participants are nowadays demanding more information; employers and company officers as well as the government are all demanding clarity and there is a general awareness in the retirement plan market.

As awareness rises from all the parties involved, it is important to compliant with the legal regulations. Appointing an advisor to assist you in complying with the ERISA is a very crucial choice. The advisor should have the correct knowledge and expertise, to help you in navigating though certain particulars of your position. It is of the utmost importance to find an advisor that provides you with the necessary attention and best solutions.

ERISA/employee benefits attorneys, offer their clients a very beneficial service that limits the extent of possible liability and also protects the employees’ rights. An employee benefits attorney should be involved in the following situations:

• In any area of merger, purchase or dispossession
• When a company reviews its employee benefit plan
• To reassess all the features of fiduciary decisions, or decisions which may affect the qualification of a plan
• To design plan documents
• To discuss the impact of any new legislation
• When the work force is substantially reduced
An experienced ERISA attorney should be involved in the following situations:
• During a merger of a present Money Purchase Plan with an already active 401k plan
• For compliance and planning related to PPA
• To determine what the fiduciary liability problems are
• Planning for blackout periods and any oversights that occur during auditing or stock taking
• To provide advice to the plan participants
• To explain the 401k plan fees
• When there are possible withdrawal liabilities arising from pension plans with multi employers.


Reference: http://www.401khelpcenter.com/when_to_hire_attorney.html

The Basic Facts on Catch-Up Contributions

Catch-up contributions are extra payments that people aged 50 or over can make into their retirement plans. Before a participant can make catch-up contributions however, certain limits must be met:

• The annual deferral limit
• The plan’s deferral limit
• Or the annual ADP limit

Studies show that a majority of the present 401k plan options, offer the facility of paying catch-up contributions; the figure is about 93% of plans. Legally however, a plan does not necessarily need to offer catch-up contributions.

If as a provider, you would like to make provisions for catch-up contributions, than probably your plan has to be amended. It is best to confirm with your legal counsel or your record keeper, to ascertain what exactly your particular plan needs.
Catch-up contributions like normal contributions are to be made out of payroll deductions, and as an employer you don’t need to match your employees’ contributions. It would be wise to inform them of your decision, if you’re not going to match.

As regards to paperwork, catch-up contributions are to be shown together with the normal contributions, on the same W2 form. When conducting ADT testing, catch-up contributions are not to be included. Same goes for tests determining the minimum amount of contribution that is needed for a top-heavy plan.

When determining balances available for loans, catch-up contributions should be treated like the normal contributions.

Finally if as an employer, you allow catch-up contributions on one plan, then the same option needs so be offered on all the other plans that permit elective deferrals.

Apart from this you should also consider issues that regard the implementation of catch-up contributions on your system.


Reference: http://www.401khelpcenter.com/catch-up_contributions.html

401K Plans – The Details

A 401k plan is an arrangement where an employee can decided to have a part of his or her salary, deposited into a retirement plan. The contribution is taken from the employee’s pre-tax income (some plans do however accept after-tax contributions).

The contributions made are then invested in a wide range of investments like stocks and shares, bonds and government stocks. Employers may, at their discretion and without legal obligations, match their employees’ contributions. The 2005 maximum annual contribution that may be done by an employee was $14,000. An employee aged 50 or over, has the option of making additional contributions, to catch up.

This amendment was made by the EGTRRA in 2001, and allowed catch-up contributions of up to $1,000 in 2002, $2,000 in 2003, $3,000 in 2004, $4,000 in 2005, $5,000 in 2006, and indexed thereafter.

All the above mentioned pre-tax contributions, and also the gains that are made on the 401k plan account, are only liable to tax when the funds are withdrawn. Also, according to the Growth and Tax Relief Reconciliation Act of 2001, an individual may contribute up to a maximum of $15,000 up to the year 2006, and from that point onwards the contributions

401k plans apply to employees who work in the private sector. There are other plans similar to the 401k plans, that in turn applies to employees who work in the public sector (457 plans), and for those who are employed in the nonprofit sector of the industry(403b plans).

In 1986, Congress had passed some amendments, and encouraged the employers of the private sector, to have more confidence in the 401k plans which have been a matter of regulatory and legal disagreements for years.

Since this time, the 401k plans have becoming the most popular and the most expanding type of retirement plan.

Reference: http://www.401khelpcenter.com/tracking/history_of_401k.html

Collective Trust Funds

The Collective Trust Funds have been around since 1927 and at this time, they were already an esteemed investment, inside the retirement plan society. CTFs are investments which provide various positive benefits since they are not subject to tax, and they are a mutual investment that is composed of assets of stock bonuses, retirement assets and trusts that are not subject to income tax.

The story wasn’t however so plain sailing since in the 1980s, the retirement plan sector began to change. CTFs have been used as investment vehicles in the first 401k plans. When the new plans came around in the 1980’s these began investing in mutual funds, since the latter offered expedient answers and also features that were more appealing for retirement plans.

Until the late 1990s mutual funds were doing much better than CTFs, and the majority of CTFs stayed in the defined contribution market, which was made up of funds that offered stable values and slow moving indexes.

CTFs have however made a comeback a few years ago; when in 2003 the market began again to change. The recovery occurred when plan sponsors began looking for funds that carried a lower fee. The flexible qualities of CTFs also helped in their revival.

Lately CTFs are also being used in retirement plans that can be defined as less traditional. The CTFs expansion possibilities are more promising that those for mutual funds, within the market for retirement plans. As we move along, more and more investment management firms are looking at CTFs, and re including them in their portfolios.

Reference: http://www.401khelpcenter.com/401k/ctf_overview.html