CenterPoint Blog - Retirement

Financial Planning Tips

mikebosma — Sat, 17 Jul 2010 00:00:00 GMT

Review Your Savings Plan

Establish or review your savings plan to begin accumulating assets for your life goals. Professional guidance will be helpful in reviewing investment alternatives.

Review Your Retirement Plan

Establish or review your retirement plan. Explore the availability of deferred compensation programs through your employer, such as 401(k) and 403(b) plans. Begin contributing as soon as you are eligible.

Review January's Budget vs. Actuals

Compare January income and expenditures with your budget. Make adjustments as appropriate to your February expenditures. Make sure you have invested your planned savings amount for January.

Collect Your Tax Information

Verify that you have received all necessary forms W-2 and 1099 and a statement showing the year-end balance of IRA and Keogh plans. Contact the appropriate company for any that have not been received. For those that have been received, make certain that the amounts agree with your records.

Although taxes for personal returns are not due until April 15, it is best to get an early start since additional follow-up may be necessary.

The foregoing is provided by the Bosma Group which specializes in serving small and medium sized businesses. The Bosma Group was founded with the vision of allowing emerging businesses access to same world-class expertise formerly only available to Fortune 1000 companies.

A SIMPLE Retirement Plan for the Self-Employed

mikebosma — Sat, 10 Jul 2010 00:00:00 GMT

Out of all the types of retirement plans available to small business owners, the SIMPLE plan is the easiest to setup and least expensive to manage.

These plans are intended to encourage small business employers to offer retirement coverage to their employees. SIMPLE plans work well for small business owners who don't want to spend time and high administration fees associated with more complex retirement plans.

SIMPLE plans really shine for self-employed business owners, here's why...

Self-employed business owners contribute both as employee and employer, with both contributions made from self-employment earnings.

SIMPLEs calculate contributions in two steps:

1. Employee out of salary contribution
The limit on this "elective deferral" is $11,500 in 2009, after which it can rise further with the cost of living.

Catch up. Owner-employees age 50 or over can make a further $2,500 deductible "catch up" contribution as employee in 2009.

2. Employer "matching" contribution
The employer match equals 3% of employee's earnings.

Example: An owner-employee age 50 or over in 2009 with self-employment earnings of $40,000 could contribute and deduct $11,500 as employee plus a further $2,500 employee catch up contribution, plus $1,200 (3% of $40,000) employer match, or a total of $15,200.

The SIMPLE plan is good for the home-based business and can be ideal for the moonlighter - the full-time employee, or the homemaker, with modest income from a sideline self-employment business.

With living expenses covered by your day job (or your spouse's job), you could be free to put all your sideline earnings, up to the ceiling, into SIMPLE retirement investments.

A Truly Simple Plan

The SIMPLE plan really is simpler to set up and operate than most other plans. Contributions go into an IRA you set up. Those familiar with IRA rules - in investment options, spousal rights, creditors' rights - don't have a lot new to learn.

Requirements for reporting to the IRS and other agencies are negligible. Your plan's custodian, typically an investment institution, has the reporting duties. And the process for figuring the deductible contribution is a bit simpler than with other plans.

What's Not So Good About SIMPLEs

Other plans can do better than SIMPLE once self-employment earnings become significant.

Example: If you are under 50 with $50,000 of self-employment earnings in 2009, you could contribute $11,500 as employee to your SIMPLE plus a further 3% of $50,000 as an employer contribution, for a total of $13,000. A Keogh 401(k) plan would allow a $25,500 contribution.

With $100,000 of earnings, it would be a total of $14,500 with a SIMPLE and $35,500 with a 401(k).

Because investments are through an IRA, you're not in direct control. You must work through a financial or other institution acting as trustee or custodian, and will in practice have fewer investment options than if you were your own trustee, as you could be in a Keogh.

It won't work to set up the SIMPLE plan after a year ends and still get a deduction that year, as is allowed with SEPs. Generally, to make a SIMPLE plan effective for a year it must be set up by October 1st of that year. A later date is allowed where the business is started after October 1; here the SIMPLE must be set up as soon thereafter as administratively feasible.

There's this problem if the SIMPLE is for a sideline business and you're in a 401(k) in another business or as an employee: The total amount you can put into the SIMPLE and the 401(k) combined can't be more than $16,500 (2009 amount)-$21,500 if catch up contributions are made to the 401(k) by one age 50 or over.

So someone under age 50 who puts $8,000 in her 401(k) can't put more than $8,500 in her SIMPLE, in 2009. The same limit applies if you have a SIMPLE while also contributing as an employee to a "403(b) annuity" (typically for government employees and teachers in public and private schools).

How to Get Started in a SIMPLE

You can set up a SIMPLE on your own by using IRS Form 5304-SIMPLE or 5305-SIMPLE, but most people turn to financial institutions.

SIMPLES are offered by the same financial institutions that offer IRAs and Keogh master plans.

You can expect the institution to give you a plan document and an adoption agreement. In the adoption agreement you will choose an "effective date" - the beginning date for payments out of salary or business earnings. That date can't be later than October 1 of the year you adopt the plan, except for a business formed after October 1st.

Another key document is the Salary Reduction Agreement, which briefly describes how money goes into your SIMPLE. You need such an agreement even if you pay yourself business profits rather than salary.

Printed guidance on operating the SIMPLE may also be provided. You will also be establishing a SIMPLE IRA account for yourself as participant.

Keoghs, Seps and SIMPLES Compared

Keogh	SEP	SIMPLE
Plan type: Can be defined benefit or defined contribution (profit-sharing or money purchase)	Defined contribution only	Defined contribution only
Owner may have two or more plans of different types, including a SEP, currently or in the past	Owner may have SEP and Keoghs	Generally, SIMPLE is the only current plan
Plan must be in existence by the end of the year for which contributions are made	Plan can be set up later--if by the due date (with extensions) of the return for the year contributions are made	Plan generally must be in existence by October 1st of the year for which contributions are made
Dollar contribution ceiling (for 2009): $49,000 for defined contribution plan; no specific ceiling for defined benefit plan	$49,000	$22,000
Percentage limit on contributions: 50% of earnings, for defined contribution plans(100% of earnings after contribution). Elective deferrals in 401(k) not subject to this limit. No percentage limit for defined benefit plan.	50% of earnings (100% of earnings after contribution). Elective deferrals in SEPs formed before 1997 not subject to this limit.	100% of earnings, up to $11,500 (for 2008) for contributions as employee; 3% of earnings, up to $11,500 for contributions as employer
Deduction ceiling: For defined contribution, lesser of $49,000 or 20% of earnings (25% of earnings after contribution). 401(k) elective deferrals not subject to this limit. For defined benefit, net earnings.	Lesser of $49,000 or 25% of eligible employee's compensation. Elective deferrals in SEPs formed before 1997 not subject to this limit.	Same as percentage ceiling on SIMPLE contribution
Catch up contribution 50 or over: Up to $5,500 in 2009 for 401(k)s	Same for SEPs formed before 1997	Half the limit for Keoghs, SEPs (up to $2,750 in 2009)
Prior years' service can count in computing contribution	No	No
Investments: Wide investment opportunities. Owner may directly control investments.	Somewhat narrower range of investments. Less direct control of investments.	Same as SEP
Withdrawals: Some limits on withdrawal before retirement age	No withdrawal limits	No withdrawal limits
Permitted withdrawals before age 59 1/2 may still face 10% penalty	Same as Keogh rule	Same as Keogh rule except penalty is 25% in SIMPLE's first two years
Spouse's rights: Federal law grants spouse certain rights in owner's plan	No federal spousal rights	No federal spousal rights
Rollover allowed to another plan (Keogh or corporate), SEP or IRA, but not a SIMPLE.	Same as Keogh rule	Rollover after 2 years to another SIMPLE and to plans allowed under Keogh rule
Some reporting duties are imposed, depending on plan type and amount of plan assets	Few reporting duties	Negligible reporting duties

Please contact us if you are interested in exploring retirement plan options, including SIMPLE plans.

Living Trust 101

mikebosma — Thu, 08 Jul 2010 00:00:00 GMT

A trust, like a corporation, is an entity that exists only on paper but is legally capable of owning property. A flesh and blood person, however, must actually be in charge of the property; that person is called the trustee. You can be the trustee of your own living trust, keeping full control over all property legally owned by the trust.

There are many kinds of trusts. A "living trust" (also called an "inter vivos" trust) is simply a trust you create while you're alive, rather than one that is created at your death under the terms of your will.

All living trusts are designed to avoid probate. Some also help you save on death taxes, and others let you set up long-term property management.

Do I need a living trust?

Property you transfer into a living trust before your death doesn't go through probate. The successor trustee, the person you appointed to handle the trust after your death, simply transfers ownership to the beneficiaries you named in the trust.

In many cases, the whole process takes only a few weeks and there are no lawyer or court fees to pay. When the property has all been transferred to the beneficiaries, the living trust ceases to exist.

Is it expensive to create a living trust?

The expense of a living trust comes up front. Many lawyers would charge relatively little for drafting your will, in hopes of getting your estate later as a client. They may charge more for a living trust.

Some people have chosen to use a self-help book or software program, to create a Declaration of Trust (the document that creates a trust) yourself. They may consult a lawyer if they have questions that the self-help publication doesn't answer. But there's always the danger of problems they don't see, that a lawyer could help avoid if consulted.

Is a trust document ever made public, like a will?

A will becomes a matter of public record when it is submitted to a probate court, as do all the other documents associated with probate, inventories of the deceased person's assets and debts, for example. The terms of a living trust, however, need not be made public.

Does a trust protect property from creditors?

Holding assets in a revocable trust does not shelter them from creditors. A creditor who wins a lawsuit against you can go after the trust property just as if you still owned it in your own name.

After your death, however, property in a living trust can be quickly and quietly distributed to the beneficiaries (unlike property that must go through probate). That complicates matters for creditors; by the time they find out about your death, your property may already be dispersed, and the creditors have no way of knowing exactly what you owned (except for real estate, which is always a matter of public record). It may not be worth the creditor's time and effort to try to track down the property and demand that the new owners use it to pay your debts.

On the other hand, probate can offer a kind of protection from creditors. During probate, known creditors must be notified of the death and given a chance to file claims. If they miss the deadline to file, they're out of luck forever.

Do I need a trust if I'm young and healthy?

Probably not. At this stage in your life, your main estate planning goals are probably making sure that in the unlikely event of your early death, your property is distributed how you want it to be and, if you have young children, that they are cared for. You don't need a trust to accomplish those ends; writing a will, and perhaps buying some life insurance, would be simpler.

Can a living trust save taxes?

A simple probate-avoidance living trust has no effect on either income or estate taxes. More complicated living trusts, however, can greatly reduce your federal estate tax bill if you expect your estate to owe estate tax at your death.

The foregoing is provided by the Bosma Group which specializes in serving small and medium sized businesses. The Bosma Group was founded with the vision of allowing emerging businesses access to same world-class expertise formerly only available to Fortune 1000 companies.

Taxes on Early Distributions from Retirement Plans

mikebosma — Tue, 27 Apr 2010 23:02:00 GMT

Payments that you receive from your IRA or qualified retirement plan before you reach age 59 1/2 are normally called "early" or "premature" distributions. These funds are subject to an additional 10 percent tax and must be reported to the IRS.

There are a number of exceptions to the age 59 1/2 rule if you make an early withdrawal. Some exceptions apply only to IRAs, some only to qualified retirement plans, and some to both.

In addition to the 10 percent tax on early distributions, you generally must include the distribution in your income. If you received a distribution from an IRA, other than a Roth IRA, to which you made any nondeductible contributions, the portion of the distribution attributable to those contributions is not taxed. If you received a qualified distribution from a Roth IRA, none of the distribution is taxed. If you received a distribution from any other qualified retirement plan, the portion of the distribution attributable to your cost, not including pre-tax contributions, is not taxed.

A "rollover" is a way to avoid paying tax on early distributions. Generally, a rollover is a tax-free transfer of cash or other assets from an IRA or qualified retirement plan to another eligible retirement plan. An eligible retirement plan is a traditional IRA, a qualified retirement plan, or a qualified annuity plan. You must complete the rollover within 60 days after the day you received the distribution. The amount you roll over is generally taxed when the new plan pays you or your beneficiary.

For more information, call us or see IRS Publication 560, Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans).

Financial Planning - Helping You See the Big Picture

Scott Tiras — Wed, 31 Mar 2010 15:00:00 GMT

Do you picture yourself owning a new home, starting a business, or retiring comfortably? These are a few of the financial goals that may be important to you, and each comes with a price tag attached. That's where financial planning comes in. Financial planning is a process that can help you reach your goals by evaluating your whole financial picture, then outlining strategies that are tailored to your individual needs and available resources.

Financial Planning Dos and Don'ts

mikebosma — Fri, 12 Mar 2010 01:00:00 GMT

Here are a few financial planning suggestions that can add to your peace of mind.

Pre-Retirement Checklist

mikebosma — Fri, 26 Feb 2010 15:28:00 GMT

As you approach retirement, there are various matters that you should take care of.