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Tag: 401K

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.

8 Mistakes that Can Upend Your Retirement

Retirement

Pursuing your retirement dreams is challenging enough without making some common, and very avoidable, mistakes. Here are eight big mistakes to steer clear of, if possible.

  1. No Strategy: Yes, the biggest mistake is having no strategy at all. Without a strategy, you may have no goals, leaving you no way of knowing how you’ll get there—and if you’ve even arrived. Creating a strategy may increase your potential for success, both before and after retirement.
  2. Frequent Trading: Chasing “hot” investments often leads to despair. Create an asset allocation strategy that is properly diversified to reflect your objectives, risk tolerance, and time horizon; then make adjustments based on changes in your personal situation, not due to market ups and downs.1
  3. Not Maximizing Tax-Deferred Savings: Workers have tax-advantaged ways to save for retirement. Not participating in your employer’s 401(k) may be a mistake, especially when you’re passing up free money in the form of employer-matching contributions.2
  4. Prioritizing College Funding over Retirement: Your kids’ college education is important, but you may not want to sacrifice your retirement for it. Remember, you can get loans and grants for college, but you can’t for your retirement.
  5. Overlooking Healthcare Costs: Extended care may be an expense that can undermine your financial strategy for retirement if you don’t prepare for it.
  6. Not Adjusting Your Investment Approach Well Before Retirement: The last thing your retirement portfolio can afford is a sharp fall in stock prices and a sustained bear market at the moment you’re ready to stop working. Consider adjusting your asset allocation in advance of tapping your savings so you’re not selling stocks when prices are depressed.3
  7. Retiring with Too Much Debt: If too much debt is bad when you’re making money, it can be deadly when you’re living in retirement. Consider managing or reducing your debt level before you retire.
  8. It’s Not Only About Money: Above all, a rewarding retirement requires good health, so maintain a healthy diet, exercise regularly, stay socially involved, and remain intellectually active.

1. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. Asset allocation and diversification are approaches to help manage investment risk. Asset allocation and diversification do not guarantee against investment loss. Past performance does not guarantee future results.
2. 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.”
3. The return and principal value of stock prices will fluctuate as market conditions change. And shares, when sold, may be worth more or less than their original cost. Asset allocation is an approach to help manage investment risk. Asset allocation does not guarantee against investment loss. Past performance does not guarantee future results.

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 2020 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.

Inherited Accounts Under the CARES Act

Tucked into the gigantic “Coronavirus Aid, Relief, and Economic Security” (“CARES”) Act were two key changes you should know about, regarding required minimum distributions (RMDs). Both were designed to give people more control over their money and to help manage selling investments during an emergency.[1]

One provision allows retirees to forego taking RMDs from Individual Retirement Accounts (IRA) or 401(k)-style plans this year.

The other provision allows people who have inherited 401(k)s, IRAs or Roth IRAs to suspend distributions in 2020 (while RMDs don’t apply to people with Roth IRAs, they do apply to investors who inherit Roth accounts).

Let’s take a look at a couple of examples.

  • Let’s say an account holder has been taking RMDs from an inherited account for a number of years using the life-expectancy method set by the Internal Revenue Service.  The account holder can forgo a distribution in 2020, and resume distributions in 2021.
  • Suppose an account owner passed away on January 1, 2020, and left the IRA to an adult child. The new 10-year rule would start in 2021. The beneficiary would have until the end of the 10th year to withdraw the entire account.[2]

Important Note: If you have already taken a distribution from an IRA or 401(k)-style plan this year, you may be able to roll the funds back into the plan. But if you have already taken a distribution from an inherited IRA, you may not be allowed to put that money back. Keep in mind, the CARES Act is a 335-page bill, and some of the provisions are open to interpretation. Please contact your tax or legal professional to understand how it might impact your situation.

Big picture, these rule changes are meant to help Americans who may be struggling with the economic, emotional, or physical toll of COVID-19. In a tough time, these provisions of the CARES Act give account owners some flexibility that may provide some relief.

To further discuss inherited accounts under the CARES Act, contact CapSouth at 800.929.1001. To learn more about CapSouth Wealth Management and the services we provide, contact a local CapSouth office or visit our website at www.capsouthwm.com.

Investment advisory services are offered through CapSouth Partners, Inc., dba CapSouth Wealth Management, an independent registered Investment Advisory firm. Information provided by sources deemed to be reliable.  CapSouth does not guarantee the accuracy or completeness of the information.  This material has been prepared for planning purposes only and is not intended as specific tax or legal advice.  Tax and legal laws are often complex and frequently change.  Please consult your tax or legal advisor to discuss your specific situation before making any decisions that may have tax or legal consequences.

This article contains external links to third party content (content hosted on sites unaffiliated with CapSouth Partners). The policies and procedures governing these third-party sites may differ from those effective on the CapSouth company website, as outlined in these Disclaimers. As such, CapSouth makes no representations whatsoever regarding any third-party content/sites that may be accessible directly or indirectly from the CapSouth website. Linking to these third-party sites in no way implies an endorsement or affiliation of any kind between CapSouth and any third party, including legal authorization to use any trademark, trade name, logo, or copyrighted materials belonging to either entity.

[1] The Wall Street Journal, March 25, 2020.

[2] Forbes.com, March 30, 2020. Under the SECURE Act, your required minimum distribution (RMD) must be distributed by the end of the 10th calendar year following the year of the Individual Retirement Account (IRA) owner’s death. Penalties may occur for missed RMDs. Any RMDs due for the original owner must be taken by their deadlines to avoid penalties. A surviving spouse of the IRA owner, disabled or chronically ill individuals, individuals who are not more than 10 years younger than the IRA owner, and children of the IRA owner who have not reached the age of majority may have other minimum distribution requirements.

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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