Have you considered a SIMPLE plan for your business?

September 28, 2012

Many sole proprietors and small business owners agree on the following two issues: they pay too much in taxes and they have difficulty attracting and retaining good employees. One way to address both of these issues is to have your business sponsor a retirement savings plan. If you’re self-employed or own a small business and don’t currently have a retirement plan in place, consider setting up a SIMPLE plan.

SIMPLEs (Savings Incentive Match Plans for Employees) are available in two forms – SIMPLE IRAs and SIMPLE 401(k)s. SIMPLE plans are generally available only to small businesses that don’t maintain any other retirement plan. If your business has more than 100 employees, you won’t be eligible for a SIMPLE.

Most businesses will find the IRA version preferable to the 401(k) form of SIMPLE. Here’s how SIMPLE IRAs work. Eligible employees (including yourself) can elect to have a portion of their earnings withheld each pay period, limited to $11,500 in annual deferrals ($14,000 for those aged 50 or older). The employees then direct how the deferrals will be invested within their own SIMPLE IRAs. Amounts withheld for the SIMPLE IRA reduce the employee’s taxable income and grow tax-deferred.

The costs to set up and administer a SIMPLE IRA are minimal. However, as the employer, you’re required to make contributions into your employees’ SIMPLE IRAs on their behalf. You have the option of contributing either 2% of the wages of every eligible employee or making matching contributions up to 3% of the wages of those employees who participate in the plan.

Generally, the deadline for businesses to establish a SIMPLE plan for 2012 is October 1, 2012. To find out more about SIMPLE plans, give us a call.

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Do your beneficiary choices need updating?

December 30, 2011

Are your beneficiary designations up to date? Do you even know which accounts have beneficiaries and who you’ve designated? It’s easy to lose track. But it’s important to keep them current. Here’s why.

When you designate a beneficiary for an account, that person inherits the assets in the account, regardless of what your will might say. That’s why updating your will periodically might not be enough. Typically, you’ll have beneficiaries for each of your IRAs, your 401(k) or other retirement plans, annuities, and insurance policies.

Your designations could be out of date just because of life’s changes. Since you made your initial choices, you might have married, had children, or divorced. Some of the beneficiaries you chose could have died, divorced, or married. Their circumstances could have changed so you no longer want them to be the beneficiary.

Also, the tax laws change frequently, and they can have an impact on your choices. Choosing the wrong beneficiary, or failing to name a contingent beneficiary, can affect the long-term value of your IRA assets after you die. That’s why it’s important to review your choices with tax consequences in mind.

Here’s how to update your designations. At a minimum, you should have copies of your beneficiary designations in one place. If you don’t, call the trustees of your retirement accounts and your insurance agent, and request copies.

Then review the documents and decide what changes you’d like to make. Make an appointment to review your decisions with your tax and estate planning advisor. Discuss matters such as naming secondary beneficiaries and naming your estate as a beneficiary (sometimes not a good idea).

Finally, send your changes to the account trustee, ask for a confirmation, and keep copies in your records. For any assistance you need, contact our office.

Leave a Comment » | December 2011 | Tagged: , , , , , | Permalink
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Tax tips when you change jobs

June 24, 2011

Planning to change employers this year? As you look forward to starting your new job, you’re probably not thinking about taxes. But actions you take now can have an impact next April – and beyond.

 Here are three tax-smart tips:

 * Roll your retirement plan. You may be tempted to cash out the balance in your employer-sponsored plan (such as a 401k). But remember that distributions from these plans are generally taxable.

 Instead, ask your plan administrator to make a direct rollover to your IRA or another qualified plan. If you’re under age 59½, this decision also avoids the additional 10% penalty on early distributions. Bonus: Your retirement money will continue to grow tax-deferred.

 * Adjust your withholding. Assess your overall tax situation before you complete Form W-4 for your new employer. Did you receive severance pay, unemployment compensation, or other taxable income? You might need to increase your withholding to avoid an unexpected tax bill when you file your return.

 * Keep track of your job-related expenses. Unreimbursed employment agency fees, résumé preparation costs, and certain travel expenses can be claimed as itemized deductions.

 Are you moving at least 50 miles to your new job? You may be able to reduce your income even if you don’t itemize. Eligible moving expenses are an above-the-line deduction.

 More tax issues to consider when you change jobs include stock options, employment-related educational expenses, and the sale of your home. Give us a call. We’ll be happy to help you implement tax-saving strategies.

 

Leave a Comment » | June 2011 | Tagged: , , , , | Permalink
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Where you hold an investment matters

December 17, 2010

You’ll probably be reviewing your investment portfolio at year-end for tax and rebalancing purposes. As part of your review, check to be certain you are holding your specific investments in the right type of account. Your goal is to hold investments that produce ordinary taxable income in tax-deferred accounts and to hold those that produce tax-free or tax-favored income in your regular taxable accounts.

Consider this situation. If you hold tax-free municipal bonds in a tax-deferred retirement account, you are “sheltering” interest income from taxes that never would be taxed in the first place. Withdrawals from the retirement account will be taxed as ordinary income at ordinary income rates, and that includes interest from the municipal bonds. The result is that normally tax-exempt earnings eventually become subject to income tax.

Another example: Long-term capital gains are taxed at lower rates than interest income. So investments generating interest might be better held in retirement accounts, while investments generating capital gains might be better held in taxable accounts. Remember, withdrawals from retirement accounts (other than Roth IRAs) are taxed at ordinary income rates even if the income comes from long-term capital gains.

Tax-deferred retirement plans should outperform an investment account that is exposed to annual taxation. But if you’re not careful where you hold specific types of investments, you could end up with less rather than more income.

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Don’t forget: Distributions from retirement plans are required again

October 29, 2010

Required minimum distributions from retirement plans are back for 2010. After a one-year hiatus, taxpayers age 70½ and older (and those who inherited a retirement account) are again required to take taxable annual distributions. 2010 distributions must be taken by December 31 or a 50% penalty could apply.

If you turn 70½ this year, you could wait until April 1, 2011, to take your first distribution. In deciding, consider the likelihood of higher tax rates next year and the fact that a delay means you’ll have two taxable distributions for 2011.

Don’t leave your decision until the last minute. Your plan trustee will need time to execute your instructions. For assistance in reviewing your options and the tax consequences, give us a call.

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Financial issues the second time around

August 10, 2010

Over five million people will exchange marriage vows each year. Among the starry-eyed newlyweds walking down the aisle will be a number of middle-aged folks tying the knot for the second time around. These couples face some unique financial planning issues. If you’re marrying again in your 40s, 50s, or beyond, here are some suggestions you should consider.

* Enter into a prenuptial agreement. These agreements are not just for the rich and famous. They make sense for many people who bring assets into a marriage and wish to preserve their legal rights in those assets.

* Obtain retirement plan waivers. The law provides that your spouse is entitled to your 401(k) account and survivor benefits from your company’s pension plan in the event of your death. If you don’t want your new mate to receive these assets, he or she must sign a written waiver that renounces rights to them.

* Properly title your assets. If you and your spouse plan to co-own property, be careful how it is titled. Assets titled in “joint tenancy with rights of survivorship” automatically pass to your spouse if you die first. By contrast, if you title assets as “tenants in common,” you can leave your portion of the property to anyone you wish. Consult with your attorney.

* Maintain separate bank and brokerage accounts. Think twice before commingling assets since it can be difficult to determine property rights in the case of death or divorce. However, as a matter of practicality, you’ll probably want to maintain at least one joint bank account to cover routine household expenses.

* Update your will and trusts. Wills and trusts can give you a great degree of flexibility in disposing of property at death. For example, if you and your spouse own a home together, you can provide that your spouse gets to live in the home until he or she dies, at which time your interest in the property is to pass to your children. This is another issue to discuss with your attorney.

For assistance with this or any of your financial concerns, give us a call.

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Do some midyear planning if you want lower taxes for 2010

July 13, 2010

Summer’s here, and probably the last thing on your mind is tax planning. The problem is that if you wait until December, there’s little time for changes to take effect. But if you take the time to plan now, you still have six months for your new tax strategies to make a difference on your 2010 tax return. So set aside some time for tax planning. Begin by pulling out your 2009 income tax return.

* Review your income and deductions. Did you lose any credits or deductions because your income was above a certain threshold amount? If so, what can you do to keep this year’s income below the threshold?

* Evaluate your investment portfolio. By now you should have an idea whether you’ll be selling any investments this year. Taking losses by pruning your portfolio can be an effective way to manage income.

* Build a retirement fund and cut taxes too. Take advantage of the deductible contributions allowed for IRAs, SIMPLEs, SEPs, and 401(k) plans, especially if you’re 50 or older.

* Check out education tax breaks. If you or your children are in college, review the education tax breaks that are available. Among the breaks: a deduction for student loan interest, education savings accounts, Section 529 plans, and the Hope and lifetime learning tax credits.

* Don’t overpay your taxes. Finally, if you received a large refund on last year’s taxes, consider reducing your withholding for this year. To adjust your withholding, file a new Form W-4 with your employer.

If you’d like to sit down together to discuss tax-cutting strategies that fit your individual situation, please call us.

Leave a Comment » | July 2010 | Tagged: , , , , , | Permalink
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Act now, pay later with a Roth conversion

April 27, 2010

Are you thinking of converting your traditional IRA, SEP IRA, SIMPLE IRA, or other qualifying retirement plan to a Roth IRA this year?

 Depending on your tax bracket and financial situation, acting in 2010 could be a good idea. One reason: For conversions made this year, a change in the law provides a one-time “act now, pay later” option.

 * How it works. You instruct the custodian of your retirement plan assets to convert all or part of your account to a Roth during 2010. Normally, the amount you convert is treated as ordinary income on your 2010 federal income tax return — and you can still choose to report it that way.

 However, for 2010 conversions only, you have another alternative: You can include the conversion income on your 2011 and 2012 returns instead. You will report no income from the conversion on your 2010 return, 50% on your 2011 return, and 50% on your 2012 return.

 * What’s the catch? As you begin your planning, you’ll want to take into account estimated future tax rates. Why? Because you’re deferring the income from the conversion, not the tax on that income. In other words, you’ll pay federal income tax on the conversion in future years at the rates applicable to those years.

 In addition to potential changes in tax law, you’ll need to consider your personal financial outlook. Expected – and unexpected – increases in income may put you in a higher tax bracket.

 The opportunity to defer income is only one of the many factors to keep in mind as you determine whether a Roth conversion makes sense for you. Please call for a review of your options.

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