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Choosing a Retirement Plan that Fits Your Business

One survey found that 79% of small business owners expect at least some of their retirement income to come from tax-advantaged retirement savings accounts.1 If you have yet to develop a retirement plan for your business, or if you’re not sure the plan you’ve chosen is the right one, here are some things to consider.

How much can my business afford to contribute?

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

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

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

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

What plan accommodates high employee turnover?

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

With the SEP-IRA, only employees who are at least 21 years old and have been employed in three of the last five years must be covered.

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

The 401(k) and defined benefit plan must cover all employees who are at least 21 years of age. Under the SECURE Act, these retirement plans are open for employees who have either worked 1,000 hours in the space of one full year or to those who have worked at least 500 hours per year for three consecutive years.

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

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

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

My priority is to keep administration easy and inexpensive.

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

1. Gallup, March 16, 2017. Most recent survey available.


2. Like a Traditional IRA, withdrawals from a SEP-IRA are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Under the SECURE Act, in most circumstances, once you reach age 72, you must begin taking required minimum distributions.


3. Like a Traditional IRA, withdrawals from a SIMPLE IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty. Under the SECURE Act, in most circumstances, once you reach age 72, you must begin taking required minimum distributions.

4. Under the SECURE Act, in most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 72. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty.

To learn more about CapSouth Wealth Management and the services we provide, contact our office at 800.929.1001 or visit our website at www.capsouthwm.com

CapSouth Wealth Management – Dothan, AL, McDonough, GA, Charlotte, NC

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with CapSouth Wealth Management. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Copyright 2019 FMG Suite.

CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent Registered Investment Advisory firm. CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences.

9 Facts About Retirement

9 Facts about RETIREMENT

Retirement can have many meanings. For some, it will be a time to travel and spend time with family members. For others, it will be a time to start a new business or begin a charitable endeavor. Regardless of what approach you intend to take, here are nine things about retirement that might surprise you.

  1. Many consider the standard retirement age to be 65. One of the key influencers in arriving at that age was Germany, which initially set its retirement age at 70 then lowered it to age 65.1
  2. Every day between now and the end of the next decade, another 10,000 baby boomers is expected to turn 65. That’s roughly one person every 8 seconds.2
  3. In 2018, people aged 65 and older accounted for 15% of the population in the U.S. By 2060, they are expected to represent more than one in four Americans.3
  4. Ernest Ackerman was the first person to receive a Social Security benefit. In March 1937, the Cleveland streetcar motorman received a one-time, lump-sum payment of 17¢. Ackerman worked one day under Social Security. He earned $5 for the day and paid a nickel in payroll taxes. His lump-sum payout was equal to 3.5% of his wages.1
  5. Sixty-seven percent of retirees say they are confident about having enough money to live comfortably throughout their retirement years.4
  6. People aged 65 and older account for 34% of all prescription medication use and 30% of all over-the-counter medication use. Nearly nine of 10 adults aged 65 years and older say they have taken at least one prescription drug in the last 30 days.5,6
  7. Fifty-nine percent of retirees were dependent upon on Social Security as a major source of their income. The average monthly Social Security benefit at the beginning of 2019 was $1,461.1,4
  8. Centenarians – in 1980 there were 32,000 of them. Today there are more than 86,248 And 79% of them are women.7
  9. Seniors age 65 and over spend a lot of time watching TV, on average, over 4 hours a day.8

Conclusion

These stats and trends point to one conclusion: The 65-and-older age group is expected to become larger and have more influence in the future. Have you made arrangements for health care? Are you comfortable with your investment decisions? If you are unsure about your decisions, maybe it’s time to develop a solid strategy for the future.

To learn more about CapSouth and the services we provide, contact our office at 800.929.1001 or visit our website at www.capsouthwm.com

CapSouth Wealth Management – Dothan, AL, McDonough, Ga, Charlotte, NC

1. The United States Social Security Administration, 2019
2. Forbes, 2018
3. The United States Census Bureau, 2018
4. Employee Benefit Research Institute, 2019 Retirement Confidence Survey
5. Medscape, 2019
6. UptoDate.com, 2019
7. The United States Census Bureau, 2018
8. U.S. Bureau of Labor Statistics, 2018

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with CapSouth Wealth Management. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Copyright 2019 FMG Suite.

CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent Registered Investment Advisory firm. CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences.

How Will Working Affect Social Security Benefits

In a recent survey, 68% of current workers stated they plan to work for pay after retiring.1

And that possibility raises an interesting question: How will working affect Social Security benefits?

To answer that question requires an understanding of three key concepts: full-retirement age, the earnings test, and taxable benefits.

Full Retirement Age

Most workers don’t face an “official” retirement date, according to the Social Security Administration. The Social Security program allows workers to start receiving benefits as soon as they reach age 62—or to put off receiving benefits until age 70.

“Full retirement age” is the age at which individuals become eligible to receive 100% of their Social Security benefits. For example, individuals born in 1955 can receive 100% of their benefits at age 66 years and 2 months.2

Earnings Test

Starting Social Security benefits before reaching full retirement age brings into play the earnings test.

If a working individual starts receiving Social Security payments before full retirement age, the Social Security Administration will deduct $1 in benefits for each $2 that person earns above an annual limit. In 2019, the income limit is $17,640.3

During the year in which a worker reaches full retirement age, Social Security benefit reduction falls to $1 in benefits for every $3 in earnings. For 2019, the limit is $46,920 before the month the worker reaches full retirement age.4

For example, let’s assume a worker begins receiving Social Security benefits during the year he or she reaches full retirement age. In that year, before the month the worker reaches full retirement age, the worker earns $65,000. The Social Security benefit would be reduced as follows:

In this case, the worker’s annual Social Security benefit would have been reduced by $6,026 because he or she is continuing to work.

Taxable Benefits

Once you reach full retirement age, Social Security benefits will not be reduced no matter how much you earn. However, Social Security benefits are taxable.

For example, say you file a joint return and you and your spouse are past the full retirement age. In the joint return, you report a combined income of between $32,000 and $44,000. You may have to pay income tax on as much as 50% of your benefits. If your combined income is more than $44,000, as much as 85% of your benefits may be subject to income taxes.

There are many factors to consider when evaluating Social Security benefits. Understanding how working may affect total benefits can help you put together a program that allows you to make the most of all your retirement income sources—including Social Security.

What’s Your Full Retirement Age?

Those born in 1942 or before were already eligible for full Social Security benefits at age 65. For those born between 1943 and 1960, full retirement age increases incrementally until it reaches 67.

Retirement Age

Source: Social Security Administration, 2019

1. Employee Benefit Research Institute, 2018
2,3,4. Social Security Administration, 2019

To learn more about CapSouth and the services we provide, contact us at 800.929.1001 or visit our website at www.capsouthwm.com

CapSouth Wealth Management – Dothan, AL, McDonough, GA, Charlotte, NC

The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, LLC, is not affiliated with CapSouth Wealth Management. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security. Copyright 2019 FMG Suite.

CapSouth Partners, Inc., dba CapSouth Wealth Management, is an independent Registered Investment Advisory firm. CapSouth does not offer tax, accounting or legal advice. Consult your tax or legal advisors for all issues that may have tax or legal consequences.

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