The Power of your Financial Personality

We all know how important an engine is for a winning race car. A successful racing team understands what’s under the hood of their car and how to make it perform to the highest level.  In the same way, it is important we understand our own ‘financial’ engine and how it performs.  We call this engine our financial personality. Discovering our financial personality and understanding how it affects our decisions is critical to financial success.  

Many organizations will tell you that you need to behave in a certain way if you are going to be successful financially.  Attempting to change who you are is not only frustrating, but is not in line with God’s will for your life.  Learning to work within your personality is the key to financial success. 

Romans 12:4-8 tells us that we were each created with different gifts and talents that make us unique. You should not try to change who God made you, or attempt to change others.  Rather, you should use the talents God gave you to become the person He designed.   

In counseling singles and couples over the years, we have seen four universal traits that drive financial decisions and behaviors. The first two contrasting traits drive how we think about money.  Most people are either spontaneous or analytical.  Spontaneous people are more emotionally driven in their thought process.  Analytical people like to think and ponder before making a decision.   

The second two contrasting traits tell how we behave towards money.  Cooperative people like to make sure all sides are heard before making a decision.  Assertive people have no problem telling individuals what they want regardless of conflicting opinions.  By combining these traits, we have found people generally fall into one of four financial personalities.   

Read through the four personality types below and see which one you identify with the most.  Remember, there is no right or wrong personality and each one has its own strengths and weaknesses. 

Statesmen are a combination of cooperative and analytical traits. They are generally tactful with people and tend to be comfortable with their finances. They like to set goals but may be too passive when it comes to executing those goals. They easily adapt to other points of view.  Statesmen are conservative savers and investors.  They plan for tomorrow but not at the sacrifice of today.   

Cruise Directors are both spontaneous and cooperative. They generally have a charitable heart toward others and are givers. They also tend to be somewhat impulsive and get pleasure out of spending money. They generally have no desire to get wrapped up in financial planning and are not driven by specific financial goals. Cruise Directors think about today and don’t worry much about tomorrow.  

Litigators are assertive and analytical. They are calculated risk-takers and disciplined savers. They tend to set goals and plan for their financial future. Given their assertive style, they tend to take charge of their money.  Family members may see them as overbearing or rigid.  Litigators plan for tomorrow, sometimes at the sacrifice of today. 

Race Car Drivers combine assertiveness and spontaneity. This allows them to multi-task with the ability to make ends meet. They tend to have an entrepreneurial spirit but can be emotionally drained by the challenge of juggling their personal finances.  Race car drivers are generally risk takers.  While very financially active, race car drivers tend to struggle with consistent financial progress.  They tend to think about tomorrow but may not be able to get past the issues of today. 

When you understand your financial personality and that of your spouse, if married, communicating about finances is easier and more effective.  Better communication leads to a more solid financial plan that works long term and you will begin to make financial decisions that work for you! To learn more you can contact Mike Haswell at 770.995.7593 or visiting www.storingtreasures.com

Do you want my gross or my net?  

I have had the opportunity to sit down with many individuals and couples regarding their finances. Invariably, we will get the question, “Do you want me to put down my gross salary or my net take-home pay on the spending plan?” Our response is, “If you want to us to help you with all of your finances, we need to start with your gross salary.” 

You see, we tend to forget that many of our financial decisions have already been made when that check is deposited into our account. We also tend to forget that we can make a difference in our overall financial lives if we would review these taxes and deductions on a regular basis. So much is taken from our checks that we might be paying for areas that are just not needed or can be obtained elsewhere for less money. Here are some examples of items you will want to review the next time you review your pay stub.  

*** Taxes- One of the most famous quotes of our time is, “There is nothing certain in life but death and taxes.”  The problem with taxes is that we think of it as a once a year exercise. The fact of the matter is we have control over the amount of taxes deducted on a monthly basis.  We have become so used to paying this out of our paychecks that we think nothing of the $100s of dollars that flow into the government’s hands from our paychecks each month. Americans received an average tax refund of $2,427 in 2007 and many are struggling to make ends meet each month. In our years of counseling, we have seen many examples of tax refunds that are seen as a windfall when they could best be used for systematic savings or to pay down debt on a monthly basis. One of the first questions we ask counselees is how much of a tax refund they receive.  If they are struggling to make ends meet and are getting back $750 or more in a refund, our recommendation is to go to their Human resource office and increase the number of exemptions on their W-4. www.Quicken.com also has some calculators to help you in determining how many exemptions to set given your situation. Get those dollars back in your paycheck now and stop giving the government an interest free loan on YOUR money. 

 *** Tax-advantaged accounts and savings plan- Another important consideration is how those deductions that are designed to help you (flexible spending accounts, dependent care accounts, 401-Ks) also have excellent tax advantages. Each time you put money into one of the accounts listed above, you reduce the amount of your income that is taxed. Here is an example: John makes $60,000/ year and contributes 10% of his income to a 401-K ($6,000); $1,500 of his income to a flexible spending account; and $1,000 of his income to a dependent care account.  That is a $8,500 reduction and a taxable income that is now $51,500 instead of $60,000. For John who is in a 28% tax bracket, that amounts to $2,380 in tax savings. Talk to your human resource department about these deductions and the overall benefits for your family. 

*** Life/disability insurance- Typically, companies have very good plans for group life and disability coverage for employees.  The concern comes in when we try to assess total life and disability coverage for a family. Typically, most people really don’t understand their disability and life coverage and what they will cover and for whom. Take a minute now to pull out your paycheck, company handbook and all other life and disability policies you have. Make sure you have adequate coverage (and that you understand what those little initials on your check stand for) and that you are not either over-insured or have gaps in important coverage. 

By taking time to review your paycheck, you will better understand your financial situation and how you can have an immediate impact on your financial future.  

For more information on how to analyze your expenses and Christian financial principles, you can purchase our workbook, Storing Treasures on our newly renovated web site:  www.storingtreasures.com or you can call Mike Haswell at 770 995 7953

Atlanta CPA Helps Georgia Business Owners Plan for Retirement 

John, Quick questions for you: Is maximum contribution for a SEP IRA 25% of Pay? Thanks!

 The maximum SEP IRA for 2009 as I understand it is up to 25% of your W-2 maximum of $245,000 or a 2009 SEP IRA of $49,000. However there are many options to explore. I suggest that we get together with a financial planner to discuss your present financial affairs, your long term goals, the right retirement plan for your business and the right investments reflecting both your risk tolerance and investment needs. 

Retirement Plan Options for Your Georgia Based Business

Great news! Your business is going to survive and even flourish. Your dreams have been realized. You are part of an elite group of people who have taken the step of becoming a business owner and have been successful. Your hard work and efforts have paid off. You have diligently worked for years readying yourself, your finances, your marketing ideas, and your family and now it is time to start thinking about those beautiful years of your life when you might opt to retire.

So whether you are thinking of retiring to the beaches and history of Charleston, South Carolina or the location of your dreams, it is time to think of the long-term future. What your retirement will look like, where you will go, how you will live, and the peace and comfort you achieve in life will be determined not only by the success of your business, but how you plan ahead. Being a God of order, He planned carefully, choosing and laying the heavens and earth in order. He did not leave anything to chance and neither should you. Though we are all called to store up our treasures in heaven and not here, we are also called, just as was Joseph was in the Old Testament, to use wise and judicious judgment planning for our lives ahead.

In setting up a retirement account there are a myriad of possibilities giving the business great flexibility, but also limiting the business owner’s ability to fund only their own retirement fund and not those of their employees.

Generally speaking there are two types of savings plans, one of which is qualified monies, which simply means that the IRS recognizes these as a tax-deductible retirement plan. The other plan type is a non-qualified, which represents monies that you can save which is not tax deductible upon investment. These would typically be monies that you would fund personally out of your personal dollars for which Uncle Sam will not let you deduct your initial investment.

All of the fund types described below are qualified plans. As your business grows, you might find that different plan types will match your business needs over time. Though you will not want to change plans from year to year—in fact in some plans you are statutorily prohibited from changing—you might want to consider revisiting your initial decision and changing to a new plan down the road. The recaps of the plans listed are general and are not intended to be a full and complete disclosure of the nuances and IRS regulations regarding specific plans. Specific percentages, dollar limits, age considerations, and vesting are considerations of all of the plans, but they are not listed here due to their likelihood of change and the indexing for inflation which regularly occurs.

As one would expect, the plans do have specific forms and procedures to follow, and many of them have formal documents to execute to set up the plan, and annual tax returns for the plan to file to maintain compliance. You will want to be sure to work closely with your CPA and financial adviser to ensure that you have a full and complete understanding of the plan that you ultimately select for your business.

SEP IRA

A SEP IRA is a company paid plan that is well suited for those businesses that want to pay all contributions to an employee’s plan. A company, based upon the business owner’s discretion, elects what to fund as a percentage of each employee’s pay that qualifies. Most employees, whether part or full time, are qualified to participate, and the percentage of contribution is statutorily limited. Employees are immediately vested and accordingly own the monies contributed by the company to the plan.

SIMPLE IRA

A SIMPLE IRA acts like 401K plans, which most of us are familiar with. Employees contribute money to the plan from their payroll/wages, and the company is also required to do a relatively modest matching percentage of each employee’s compensation.

These plans are a relatively new entrant into tax law, and were established so small businesses could offer substantive benefits to their staff without the burdens of a SPD/Originating Plan Document to set up a plan, and the “top heavy” testing which a 401K requires. All monies taken out of an employee’s paycheck and forwarded to a retirement account of any type are immediately vested and owned by the employee. However, they are subject to the tax law and guidelines of any established plans and their contracted documents.

401-K Plans

The 401-K retirement plan was added to tax law decades ago to assist companies in bridging the distance between the added complexity of profit sharing plans and what was available at the time. 401K’s are typically best suited if you have over thirty employees and all desire more of a contribution than a SIMPLE IRA will allow. Unlike a SIMPLE IRA a 401K will require a comprehensive plan document, a plan administrator and trustee, testing to ensure the highly paid employees are not unduly being benefited, and annual tax returns. Solely because of these administrative burdens many firms do not start a 401K until the staff size and profitability of a business warrants otherwise.

Profit Sharing

Profit Sharing plans are generally available to all employers regardless of size, and allow companies to share with their employees the fruits of their labors in a formal qualified plan. A Profit Sharing plan is paid for exclusively by the employer, and comes with a large administrative burden needed to manage the initial set up, compliance, and annual filings.

Because the plan is employer paid, a company has the ability to have an employee earn/vest in the contributions over time, giving the employee an additional incentive to stay at their present place of employment. This helps cut down on a business’s turnover rate. As with all plan variables, vesting has to occur within the confines and guidelines of IRS rules and regulations. Generally, most employers do not consider a profit sharing plan unless they are very profitable or their total employment approaches or exceeds a thousand employees.

Defined Benefit, Age-Weighted, 401K Profit Sharing/Safe Harbor, and other plans

Though there are several other qualified plans available under the tax code, they are not listed here due to their lack of popularity, limited application, and complexity. The above recap lists those that are most commonly used but it is not exclusive. There are many other options available which might be more suited to your individual needs and use. Walking through these options and the careful evaluation of these are a critical part of the process in which your CPA and financial adviser can assist.

All of the guidelines and generalities listed above are just that. Though there are hard and fast rules in the set up and administration of a qualified plan, the application and suitability are up to an individual business owner to decide. In setting up all retirement accounts you should work hand in hand with both your CPA and your financial adviser to ensure that your short term and long term needs are assessed. This will also have the added advantage of gaining the insight of each professional’s wisdom, which will help you more aptly, select a plan most suited to the needs of your business and employees.

Whether you are close to retirement or still many years away. Our comprehensive planning helps many to make the wisest choice in selecting a retirement plan that is best suited to your business. By working with financial advisers with an understanding of tax law and your needs we are able to help guide you through this complex process. To help ensure your long-term successes, call us today.

John Dillard is an Christian Speaker/Author and Certified Public Accountant in Duluth, GA. To See how he takes Christ along with him to work visit http://www.hiscpa.com/ and for his latest book Overcoming Life’s 9/11’s: Job’s Journey and a Voice of One: Nehemiah’s Prayer visit http://www.john-dillard.com/ or call John Dillard CPA today at 770.814.9304 (All Rights Reserved) Dare to Attempt Something so Great for the Kingdom of God that it is doomed to failure, lest Christ be in it!  

Contact HIS CPA PC (A Christian CPA Firm) today.

We advise clients on: IRS representation, Offer in Compromise, Tax Problems, Incorporation in Georgia, Corporate and Personal Income Tax Returns, Part-time CFO, Virtual Controller, Business Planning, Offer in Compromise, Back Taxes, Bookkeeping. 

Helping Americans Do a Better Job of Saving for Retirement 

Over the past 20 years, the 401(k) plan has gradually replaced the traditional pension plan as a primary source of retirement income for many American workers. This trend has shifted the responsibility for accumulating a source of retirement income from the employer to the employee. 

Unfortunately, not all American workers with access to a 401(k) plan participate in it—and when they do, many are overwhelmed by the decisions they are forced to make. Between low participation rates and uninformed investment choices, many Americans are expected to reach retirement age with a nest egg that may fall woefully short of what they will need to maintain their preretirement standard of living.

Addressing the Shortfall

Enter the Pension Protection Act of 2006 (PPA). Some of the PPA’s most significant provisions were crafted in response to the perception that American workers were not preparing adequately for their retirement years—and that American employers needed better tools to help employees do so. The PPA clarified and standardized automatic enrollment to give plan sponsors protection from potential violations of state laws when choosing to automatically enroll employees in their 401(k) plan. The PPA also addressed the issue of how to invest the assets of automatically enrolled employees by creating a “safe harbor” for the selection of a qualified default investment alternative (QDIA) by employers. With this measure, employers generally bear no additional responsibility for investment selection if they choose a default option that meets the safe-harbor criteria, and if certain notices and other information are given to participants. Together, automatic enrollment and QDIAs are becoming powerful solutions for the challenge of employee inaction. 

Turning Inertia to Advantage

With automatic enrollment, employees are enrolled in the plan as soon as they become eligible. When an existing plan adds an automatic enrollment feature, the employer can choose to include only new hires as they become eligible, or it can also include previously eligible employees who have not yet joined the plan. Upon enrollment, the employee has 90 days to opt out of the plan and have any money that may have already been deferred returned. If the employee does not elect to opt out, a percentage of his or her salary—typically starting at a minimum of 3%—will be contributed to the plan from each paycheck. Effectively, automatic enrollment takes advantage of the same inertia that prevents many employees from participating in a plan. 

An Opportunity to Grow

Once an employee has been automatically enrolled, the next question is how to invest the employee’s contributions. While employers have had to resort to default investments in the past, in many cases those investments were aimed at preserving capital, not growing it. But with the PPA’s safe-harbor provision for QDIAs, plan sponsors can now select default investments that will give participants an opportunity to grow their assets at a rate necessary to fund their retirement without creating more liability for the plan sponsor. 

The PPA’s most significant provisions are beginning to weave their way through the fabric of our retirement landscape, as more plans automatically enroll more employees into diversified investments, which in turn provide greater opportunity for capital appreciation. While there has been much progress, there is still a long way to go. Given the tremendous shortfall in retirement savings and the loss of guaranteed retirement income from pension plans for millions of people, only time will tell if the PPA’s provisions are enough to help American workers adequately fund their retirement.  

Retirement Savings Need Work

According to the 2007 Retirement Confidence Survey from the Employee Benefit Research Institute and Mathew Greenwald & Associates, Inc., only 20% of respondents age 55 or older have saved more than $100,000 for retirement. Here are some other sobering findings from this study: 

• Nearly one-third of respondents over age 55 said they have less than $25,000 in retirement savings
• 43% of all respondents said they have not done a retirement-needs calculation
• Approximately four in 10 respondents were forced to retire before they intended to retire
• 75% of respondents underestimated their estimated lifespan 

Different Types of QDIAs

Qualified default investment alternatives (QDIAs) are investment strategies or services that can take a number of different forms. Here are three of the most popular: 

1)     A combination of investments that takes into account the individual’s age or retirement date (example: a life-cycle or targeted-retirement-date portfolio)

2)     A mix of investments that takes into account the characteristics of the group of employees as a whole, rather than each individual (example: a balanced portfolio)

3)     An allocation of contributions among existing plan options to provide an asset mix that takes into account the individual’s age or retirement date (example: a professionally managed account) 

To learn more contact Mr. Jeff Shoup, Vice President – Wealth Management and a Financial Planning Specialist at Morgan Stanley Smith Barney. You can contact Mr. Shoup at 404-842-2236 and visit their web site at http://fa.smithbarney.com/the_shoup_group

Securing Retirement Income in a Turbulent Market: Look Beyond the Numbers 

Today’s challenging economic environment has forced many Americans to review their retirement planning goals with a more critical eye. While most core principles about retirement planning still hold true no matter the environment, a few may require some slight modifications. And given the turbulent times we’re facing, who couldn’t use a roadmap to help plan and execute a successful retirement strategy?

 When it comes to retirement planning, we all want to know what “the number” is: That magic dollar figures that, when reached, means you’re set in retirement. Sure, knowing your number—and reaching it—is good, but it’s only part of the equation. Mastering the accumulation phase without factoring in the distribution phase could render all your hard work saving toward your number moot. 

Instead, you should think about retirement in terms of income needs. The accumulation of, say, $300,000 is not meaningful for living in retirement unless you can translate that figure into a yearly or monthly income stream. You need to be able to pay your monthly food, rent and utility bills, as well as health-care expenses—and have enough left over to live the way you want to live in retirement.

When you consider your retirement income needs, make sure you also factor in that some of your assets have a built-in tax liability. In other words, view your retirement assets with a “tax lens” on so you can see their true economic value. You can’t pay your rent or utility bills with before-tax dollars, so it’s important to understand what you’ll be left with after taxes before concluding you’re saving enough. 

Longevity risk and investment risk are other items the number approach does not consider. So to use the same example, you’ve reached your $300,000 number, but how do you know that a sufficient amount will be there 20 years later? If the assets decline to $200,000 in the next year, what does that mean for your future? Are there ways to manage these longevity and investment risks? By translating the number into an income stream, you can better see what a decline in asset value will mean to the longevity of your assets. 

The message here is that retirement planning should be done considering income needs. If you base it purely on accumulation, or reaching “your number,” you won’t adequately define your retirement planning goals or manage retirement planning risks. By choosing strategies that mitigate the risks of poor investment return or of outliving your assets, you will substantially reduce your plan’s risk of failure.

This article provides general information for the subject matter covered.  It is not intended to render legal or tax advice.  An individual’s particular circumstances should be discussed with a personal tax or legal advisor. The Prudential Insurance Company of America, 751 Broad Street, Newark, NJ  07102-3777

Provided courtesy of Cornerstone Financial Partners, LLC.   For more information, contact  Richard L. McDonald, Tim Thornberry, ChFC or John Winters, MBA, CLTC, who offer investment advisory services through Prudential Financial Planning Services, a division of Pruco Securities, LLC.  They can be reached at 770-730-6100. Cornerstone Financial Partners, LLC is not affiliated with Pruco. 

Social Security: Sooner or Later?

In a recent survey, 60 percent of workers aged 55 and older gave an incorrect answer when asked the age at which they will become eligible for full Social Security benefits.¹

Not only is it important for you to know when you become eligible, it’s also important to understand the implications of taking benefits early, at full retirement age, or later.

Under current rules, individuals born in 1937 or earlier qualify for full Social Security benefits at age 65. The age for full benefits ratchets up for those born between 1938 and 1942. Full-benefit age then rises to 66 for those born between 1943 and 1954, and it increases incrementally for those born between 1955 and 1959. Individuals born in 1960 or later will qualify for full benefits at age 67.²

People who retire before reaching their “full retirement age” can choose to take a reduced Social Security benefit starting at age 62 or can delay benefits up to age 70 and receive a higher payout. Before deciding which option is appropriate for you, consider the following.

· If you choose to delay benefits, you’ll have to rely on your savings for income during the early years of your retirement. This could deplete your portfolio and reduce your returns in later years.

· If you are in good health and have family members who lived well into their 80s and 90s, delaying benefits may provide you with a greater lifetime Social Security benefit. If you’re in poor health or have a history of illness in your family, it might be wise to take benefits early.

These are just some of the factors to consider when determining when to start taking Social Security benefits. Call so we can discuss the timing that is appropriate for you.

1) Employee Benefit Research Institute, 2006
2) Social Security Administration, 2006 

To conatct Ms Meredith C. Moore, LUTCF, CLTC call 770.587.0281

Atlanta CPA Small Business Financial Tune-up 

Small businesses are often created in a flurry of activity. According to the U.S. Small Business Administration, over 50 percent of small businesses fail in the first year and 95 percent fail within the first five years.  [www.sba.gov; 2005]A few make it beyond this start-up period, usually due to managed growth and access to commercial credit. Of these successful small businesses, a small percent grow into public companies—the Microsofts and IBMs of tomorrow. A smaller percentage still remains in the hands of the original owners and is eventually transitioned to younger-generation family members at the owners’ death, disability, or retirement.

Wherever your small business lies on the business lifecycle, it may be time for a Financial Tune-Up. Like the name implies, a financial tune-up is a fresh look at how well your small business is working for you, the owner. Here’s a short list of things to consider. 

Type of business entity—Many small businesses start out as unincorporated sole proprietorships. The advantages are ease of formation and simplicity of operation. The disadvantages are exposure of personal assets to business liabilities and reporting net business earnings on your personal income tax return. If your business has grown since you started out, it may make sense to consider a operating under a different business form. Some types of business entities popular with small business owners—limited liability companies, S corporations, and regular C corporations—protect the individual business owner’s personal assets from claims of business contractual and tort creditor. Furthermore, some of these other business forms offer tax advantages to small business owners that are not available to sole proprietors. For example, unincorporated sole proprietors pay self-employment taxes of 15.3 percent on net income up to $106,800 (2009). By comparison, an S corporation owner/employee is subject employment tax withholding on his or her compensation. However, net earnings over and above a reasonable salary are included in income, but are not subject to employment taxes. 

Retirement plan—When is the last time you considered whether your employer-sponsored retirement plan was the best plan for you?  Or, if you don’t have an employer-sponsored retirement plan, when is the last time you evaluated the benefits of starting a plan? The landscape for employer-sponsored retirement plans has changed considerably over the past few years and you may be missing out on a great opportunity for both you and your employees. One change has been an increase in the maximum allowable contribution for employer-sponsored defined contribution plans such as profit-sharing plans and Simplified Employee Pensions (SEPs). Did you know that in 2009, your business can deduct the lesser of 25 percent of your salary (20 percent of net earnings for an unincorporated individual) or $49,000? If your business sponsored a 401(k) plan, you and your employees could save as much put away as much as $16,500 pre-tax from salary in 2009, and up to $5,500 more if the participant will be age 50 or older in 2005. 

Health Insurance Plan—Rising health insurance costs remain a major concern for many small business owners, but there are new options on the scene that lower costs through tax incentives. The newest and perhaps most promising is the Health Savings Account that were part of the massive Medicare changes legislated by Congress in December of 2003. With an HSA, employees –and their employers, if they choose –contribute pre-tax dollars to an account earmarked for out-of-pocket health expenses. In addition to not paying tax on contributions, participants also pay no tax on earnings that accumulate in the HSA. Moreover, money not withdrawn to pay for medical care is carried over to the next year and continues growing tax-deferred. And, provided money in the account is used for health-related expenses or to pay health insurance premiums, the participant pays no tax when withdrawals are made. Single participants can contribute up to $3000 pre-tax, while married couples can contribute up $5,950 for a family plan. And for participants over age 55, there is a catch-up provision of $1,000.  There is the only catch—not everyone is eligible for a Health Savings Account. To qualify, you can only be covered by a high-deductible medical insurance policy, either through your employer or one you purchase yourself as a self-employed person. “High-deductible” means the policy must not pay benefits until you have accumulated at least $1,150 worth of out-of-pocket medical expenses that year. The family deductible must be at least $2300. 

Life and Disability Insurance–Small businesses often find it challenging to attract and retain human resources. Employee benefits offerings such as life and disability income insurance are often necessary to compete with the “big boys.” Group plans provide affordable coverage without the need for individual underwriting. These coverages can be offered as an employee benefit paid for solely by the employer, an employer-sponsored plan paid for by the employee, or a combination plan. Furthermore, employer-paid premiums are generally deductible and are excludible from employee income (only the cost of the first $50,000 of group life insurance is tax-free to the employee). If you haven’t considered these plans recently, you’ll find that the market has changed significantly. An emphasis on rehabilitation and returning disabled employees to work has helped keep group disability income premiums in check. And, group life plans with supplemental individual coverage are commonly used to meet the needs of highly-compensated executives and owners. 

Key-Person Insurance—Small businesses routinely insure their premises, equipment, and inventory. Less common is the business that insures its most valuable assets, its key employees. If you haven’t increased the amount of existing key person life and disability coverage to keep pace with increasing profits and business lines of credit or to reflect the addition of new key employees, there’s no better time to do so than now. As employees age and/or become health-impaired insurance becomes more expensive or outright unavailable. When it comes to acquiring key person insurance, the sooner you act the better. 

Business Succession Planning— When business owners think about wealth transfer, they usually think about the transfer of their business or its value. Typically, businesses have only three options available to them at the death of an owner. These include the following:

• Sale of the business to an outsider
• Retention of the business for family members or other surviving owners
• Liquidation of the business 

Liquidation of the business is typically what happens in the absence of a business succession plan. Lacking a plan, the owner’s executor is forced to sell business assets piecemeal. This results in loss of “going concern” value—the “goodwill” of a successful business due to its customer, supplier, and lender relationships. 

This means that business succession planning usually comes down to the decision to sell or retain the business. The decision is not an easy one. If your business has experienced growth, if you’ve brought a family member into the business, or if you are approaching retirement, it makes sense to revisit your business succession plan. 

A tune-up can be as painless as an oil change and lube job, or it can uncover some major work. But the benefit of a tune-up is that it puts you in control and minimizes the chance of getting stranded on a lonely road at night. A financial tune-up offers the same benefit—it prevents you from getting stranded without adequate retirement benefits, attractive employee benefits, or an up-to-date business succession plan.

###

This article provides general information for the subject matter covered.  It is not intended to render legal or tax advice.  An individual’s particular circumstances should be discussed with a personal tax or legal advisor. The Prudential Insurance Company of America, 751 Broad Street, Newark, NJ  07102-3777

Provided courtesy of Cornerstone Financial Partners, LLC.   For more information, contact  Richard L. McDonald, Tim Thornberry, ChFC or John Winters, MBA, CLTC, who offer investment advisory services through Prudential Financial Planning Services, a division of Pruco Securities, LLC.  They can be reached at 770-730-6100. Cornerstone Financial Partners, LLC is not affiliated with Pruco.  Other products and services may be offered through a non-Pruco entity.

Retirement Plan Sponsors: Could Your 401(k) Benefit from a Roth Feature?

Retirement plan sponsors have a dizzying array of options available to them as they attempt to create a meaningful benefits package for their participants.  One optional feature that may be well worth considering is the Roth 401(k).  A Roth 401(k) combines features of a traditional 401(k) with those of a Roth IRA.  Like the traditional 401(k), the Roth 401(k) allows participants to make contributions via salary deferrals.  However, like a Roth IRA, contributions are made on an after-tax basis and participants may take tax-free distributions at retirement, as long as certain holding requirements are met.  The Roth 401(k) was authorized under the Economic Growth and Tax Relief Reconciliation Act of 2001 (“EGTRRA”) and the IRS issued final regulations for Roth 401(k) plans, effective January 3, 2006.  The Pension Protection Act of 2006 (“PPA”) made the Roth 401(k) permanent by withdrawing the sunset provision that would have eliminated the Roth 401(k) feature by 2011. If interested, plan sponsors have the ability to amend their existing traditional 401(k) plan to offer Roth 401(k) accounts as an additional option for participants.  

Plan Requirements An existing traditional 401(k) plan must make a formal amendment to the plan’s documents to allow explicitly for designated Roth 401(k) contributions.  Operationally, Roth 401(k) contributions and earnings are maintained in a separate account from the traditional 401(k) contributions and earnings.  Plan participants must make an election for a portion or all of their salary deferral contributions to be treated as a contribution to the Roth 401(k) account. 

Contributions Unlike contributions to a traditional 401(k) plan that are made with pre-tax dollars, contributions to a Roth 401(k) plan are made on an after-tax basis. The maximum contribution amount to a Roth 401(k) account is the same maximum as in a traditional 401(k).  For the 2009 tax year, federal laws permit a maximum annual contribution of $16,500 ($22,000 for participants age 50 and older), although employers may impose a lower limit.  A plan participant may make any combination of Roth and/or traditional 401(k) contributions up to that limit.  Employee Roth contributions are eligible for an employer match, but all matching dollars are allocated to a pre-tax account and are not made as additions to the Roth “account”.  Also, any forfeiture amounts credited to a plan participant are added to the traditional 401(k) account rather than the Roth 401(k) account. 

Tax-free Distributions Like the assets in the traditional 401(k), Roth 401(k) assets accumulate tax-free.  However, unlike the traditional 401(k), qualified distributions may be taken tax- and penalty-free from the Roth 401(k) account. Qualification requires that withdrawals are made after the account holder has attained age 59 ½ (or in the event of death or disability) and that a minimum of five years has elapsed from January 1 of the year of the first contribution to the Roth 401(k) account.  If both of these requirements are met, the distributions from the Roth 401(k) account will be tax- and penalty-free.  Non-qualified distributions (taken prior to satisfying the qualification requirements) of any investment earnings will be taxable and both contributed amounts and any investment earnings may be subject to the 10% early withdrawal penalty. 

Rollovers After the participant has separated from service, distributions from the Roth 401(k) account may be rolled over into another Roth 401(k) or Roth 403(b) or to a Roth IRA.  It is important to note, regarding the 5-year holding period, that while moneys transferred from one Roth 401(k) to another Roth 401(k) carry forward the original holding period start date, distributions rolled into a Roth IRA do not – the five year rule applicable to the Roth IRA will restart as of the date amounts are rolled over from the Roth 401(k).  In some cases this may not present a problem because the rules for Roth IRAs allow the IRA owner to withdraw his or her “basis” (i.e., the after-tax amount originally contributed to the Roth 401(k)) tax-free, even in the event of a nonqualified distribution.  In the case of a rollover of a qualified distribution, the entire amount of the rollover becomes basis in the Roth IRA and can, therefore, be withdrawn tax-free. 

No Eligibility Requirements Based on Income Limits Any employee eligible to participate in the traditional 401(k) is likewise eligible for the Roth 401(k).  Unlike Roth IRAs where single individuals with more than $110,000 in adjusted gross income (married couples who have more than $160,000 in adjusted gross income) are ineligible for contributions, there are no income limitations on participating in the Roth 401(k).  For some plan participants, this fact alone may make participation in the Roth 401(k) more attractive; if they are ineligible to participate in a Roth IRA, the Roth 401(k) may be their only option to save for tax-free distributions. 

Required Minimum Distributions Required Minimum Distributions (“RMD”) are generally required to be taken annually from assets held in a retirement account, starting when participants reach age 70 ½.  One exception to this rule is the Roth IRA, which does not require RMDs.  However, the Roth 401(k) account does not share in this exception – generally, RMDs must be taken annually as long as there are assets held in the Roth 401(k) account. If the Roth 401(k) holder rolls his/her Roth 401(k) assets to a Roth IRA after separation from service, the RMD rules will not apply (however, the five year holding period for those assets will restart).

Participant Choice Your plan participants may find making the traditional versus Roth 401(k) decision difficult.  Unfortunately, there is no easy answer.  Each individual must attempt to analyze the value of receiving a current income-tax deduction when contributing to a traditional 401(k) versus the benefit of contributing to a Roth 401(k) and having the potential for no taxation on future distributions from the plan. Part of the decision hinges on whether personal income tax rates will rise or fall in the future – not an easy forecast to make.   

Many plan participants may elect to split contributions between their traditional 401(k) and a Roth account.  If an employee qualifies for a Roth IRA, he or she can make after-tax contributions to the Roth and pre-tax contributions to the traditional 401(k).  If not, then the plan participant can split contributions between the traditional and Roth 401(k) options. 

Implementing the Roth 401(k) If you decide that a Roth 401(k) plan may be appropriate for your business, you should speak with your current plan provider about implementing this feature for your plan.  

Jeff Shoup is a Financial Advisor at Morgan Stanley Smith Barney located in Atlanta, GA and may be reached at 404-842-2236. 

Morgan Stanley Smith Barney LLC and its affiliates do not provide tax or legal advice. To the extent that this material or any attachment concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.   Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor.  © 2009 Morgan Stanley Smith Barney LLC.  Member SIPC.

Your retirement savings plan offers you several choices when you decide to change jobs or when you retire.  A distribution is a payout of realized savings and earnings from a 401(k) or other retirement plan. In general, you must begin taking distributions from your account by April 1 of the year following the year in which you turn 70 1/2.  When you leave a company your distribution options may include:  keeping your money in your plan, enacting a direct rollover, or taking a cash distribution. Each option has different consequences.

If you keep your money in your plan, you will no longer be able to make contributions, but you will still maintain control over the investments and your money will continue to grow tax deferred. You could rollover to your new employer’s qualified retirement account without physically receiving any funds.

Similarly, in a direct rollover, you could move your money directly to an IRA. This option allows for you to benefit from the advise of a financial advisor.  A flurry of new investment products, the emergence of foreign investing, the shift from company-funded pension plans to employee-driven retirement plans and uncertainty about Social Security has all contributed to the increased need for qualified financial advice. No matter what your level of investment experience or sophistication, you may benefit from developing a relationship with a financial advisor.  A qualified financial advisor is trained to analyze your personal financial situation and prepare a program designed to help you meet your financial goals and objectives. It might be helpful to think of your financial advisor as a kind of doctor for your financial health.  If you are under 59 at the time of separation from service, a direct rollover may be a good option, as it avoids the penalties associated with a cash distribution from a qualified plan.

Those tempted to take a cash distribution from a qualified plan should consider the taxes and penalties that apply to this type of distribution. You must pay taxes on the money you receive at then-current rates, and if you are under age 59 at the time of separation from service, you may also have to pay a 10% penalty, making this option viable only if the funds are immediately necessary.

Whatever option you choose you will want to think carefully before making any decisions about the money in your retirement plan, as some choices may mean you have to pay more in income taxes on your distribution.  Speak with a tax advisor before picking a distribution election.                            ___________________________________________________________________

                           Securities offered through Harbor Financial Services, LLC Member NASD/SIPC,  Clearing Raymond James & Associates  Robin Grier Financial Services, Inc is not an affiliate or Subsidiary of   Harbor Financial Services, LLC

The Journey to Retirement

With summer here many of us are planning our summer get away.   We take a lot of time to make sure that we get where we want to go and are able to enjoy the things we look forward to all year.  We work hard all year and deserve to have a nice vacation.   Planning is essential to being sure that our vacation is what we want it to be.  Planning for your retirement is also very essential to insuring that you reach your goals and dreams in retirement.   Unfortunately, many people never take the time to prepare for retirement.  We can think of retirement as 20 to 30 years of unemployment.  So we must have a plan to be sure that we can fund our dreams for retirement.  Imagine for a moment that you are 70 years old.  What do you want to be doing?  Is it spending time with your grandchildren, family and friends?  Is your dream to travel the world or to work at a favorite charity?  Whatever your dreams may be you have to prepare all along the way for the journey.  Unfortunately many people spend more time planning their yearly vacation than they do the journey to retirement. 

                                          Planning:  The key to success.

In life, we pass through several phases, each with different requirements.  For example, the financial needs of a young married couple are not the same as those of a retired couple.  That is why continuous long term planning is essential.  Typically, there are three basic financial steps most people take in life.  These include:

1.      Wealth Accumulation – the building of a solid, diversified financial foundation from which to expand over time.  During this phase, allocation of money for a home, investments, life insurance and educational expenses is coordinated with tax planning strategies to ensure that current and future income is utilized effectively. 

2.      Wealth Conservation – the inclusion or a variety of investment strategies and further diversification, designed to preserve and grow assets to help ensure adequate funds for current living expenses and future retirement needs.

3.      Wealth Distribution – the proper allocation of assets to heirs.  Good estate planning should provide for the orderly transfer of assets while avoiding unnecessary tax burdens. 

In addition to the complexities and changing priorities that occur over a lifetime, fluctuating economic conditions, taxes and inheritance laws also affect a financial plan.  A qualified financial advisor has the expertise to thoughtfully design a plan with your circumstances in mind, helping you develop a plan for a long-term financial strategy for you to reach your individual goals and dreams.   Take the time today to develop your personal plan for the journey to retirement.  Robin can be reached at 770-887-2772, or by email at rgrier@harborfs.com. 

This material is not intended to replace the advice of a qualified attorney, tax adviser, investment professional, or insurance agent. Before making any financial commitment regarding the issues discussed here consult with the appropriate professional adviser.              

   Securities offered through Harbor Financial Services, LLC Member NASD/SIPC,     Clearing Raymond James & Associates,   Robin Grier Financial Services, Inc is not an affiliate or Subsidiary of Harbor