Are You Ready for the 2019 Changes to Hardship Distribution Rules?
Hang on to your hats because a lot of what you thought you knew about hardship distributions is changing in 2019. That's right. Tucked away neatly in the Bipartisan Budget Act of 2018 were some surprising changes to the hardship rules for 401(k) plans.
Happily, the allowable reasons for taking a hardship distribution will not change. See below for a breakdown of the updates.
6 Month Rule No Longer Applies
Previously, employees who took a hardship distribution were required to wait 6 months before they could resume contributions to their plan. Beginning in 2019, that will no longer be the case. Now, this makes no real sense to me. I get it. Life happens, but if things are bad enough that you're taking a hardship distribution, how do you have the money to contribute to your 401(k)? But as usual, no one asked my opinion when they wrote these updates.No More Loan First Rule
Currently if your plan offers loans, the IRS requires plan participants to take the maximum loan amount before they could qualify for a hardship distribution. That will not be a requirement under the new law.Earnings and Employer Match Are Eligible
Effective 2019, both contributions, earnings, employer Qualified Matching Contributions, and employer Qualified Non Elective Contributions will be eligible for a hardship withdrawal. Plan sponsors should also be aware that these rules will not take effect automatically. They will require an update to the plan document. Your friendly neighborhood TPA should be happy to help you sort through all the details. If for some reason they aren't happy to help, call us. As always, remember, it's YOUR retirement we're talking about. The more you know and understand, the better off you will be. Best Regards,PRESIDENT
MBA, QKA, CBC
New Year, A Whole New Look (Plus Some Dates You Need to Know)
SRC Launches New Website
We're excited to announce that the new Stones River Consulting website is live! We hope that you'll find the new version of the site to be more user-friendly and informative and less... well, less like most other financial firm websites. We wanted our site to represent the real us and not be just another corporate site. Thanks to the wonderful team at Ellis Pond, we believe that's what we've accomplished. Be sure to check out the About page to read a very special profile of our favorite SRC staffer Maggie.2018 Defined Contribution Plan Deadlines
There are a lot of deadlines to keep track of for Defined Contribution Plans. We've compiled a list of the most important of those below to make it easier for you to stay on track.MARCH
- March 15 - ADP/ACP Corrective Distributions of excess contributions and earnings due to participants for plans with 12/31 plan year-end.
- March 15 - 2017 Employer Profit Sharing and Matching contributions due for plans with 12/31 plan year-end in order to take tax deduction (with no corporate tax extension).
APRIL
- April 1 - Initial age 70 1/2. Minimum Required Distributions due to participants who are no longer active or 5% owners who turned age 70 1/2. in 2017.
- April 15 - 402(g) distributions of excess deferral amounts to participants.
JULY
- July 31 - Form 5500 (Annual Return/Report of Employee Benefit Plan) and Form 8955-SSA due to DOL for plans with 12/31 plan year-end. (Due seven months after plan year end.)
SEPTEMBER
- September 15 - 2017 Employer Profit Sharing and Match contributions for those sponsors who filed a corporate tax extension.
OCTOBER
- October 15 - Extended deadline for filing Form 5500 and Form 8955-SSA.
DECEMBER
- December 1 - Deadline to deliver QDIA, Auto-Enrollment, and Safe Harbor Notices to participants.
- December 31 - Age 70 1/2. Required Minimum Distributions Due to participants who have begun receiving distributions.
Best Regards,
President
MBA, QKA, CBC
Auto-Enroll and Auto-Increase Plans
The Future of Retirement Planning?
We have a retirement crisis in this country. Today, too few people have retirement plans, and those who do save for retirement are not saving enough. It is not uncommon for people to live will into their 80s or even 90s and it's vital to have adequate savings. Our recommendation for most Americans is to save a minimum of 1520% per year for retirement. What are most Americans saving? A recent survey showed that a shocking 36% of Americans have saved NOTHING for retirement. That's right, absolutely nothing. So, what's the solution to this crisis? Many in the financial planning community and some in the government are looking toward auto-enrollment and auto-increase plans as a way to increase not only the number of people saving for retirement, but also the amount they are saving each year. These types of plans began to gain momentum with the Pension Protection Act of 2006. You can design a plan to have either an auto-enroll element or an auto-increase element or both so that employees are automatically enrolled once they meet eligibility and their contributions are automatically increased once per year. If you want to be aggressive in your plan design, you should do both. If you choose to implement these types of plans, you should partner with a good TPA to ensure they are set up and run properly.What Are Auto-Enrollment and Auto-Increase Plans?
Auto-Enrollment Plans
Autoenrollment plans are exactly what their name implies. You are automatically enrolled in your employer's retirement plan once you have met certain eligibility requirements. If you haven't previously selected a plan, you'll be placed in your company's default plan. Typically the starting rate of contribution is 3%. However, studies show that you can go up to 6% without raising the optout rate. Here's an example:Moe Howard works for XYZ Corp. He's been there for 12 months and has met all of his company's eligibility requirements. He is now automatically enrolled in their retirement plan with a contribution of 3% for the first year. If Moe doesn't want to be enrolled, he must notify his company in writing that he wishes to opt out. The time limit to opt out is typically 90 days.
Auto-Increase Plans
Autoincrease plans are similar to auto enrollment plans except that they include a provision within the plan to automatically increase the amount of your contribution on a specified date every year or on the anniversary of your enrollment. The amount of increase is typically 1% annually not to exceed 10%. Like with the autoenrollment plans, you have the option to opt out of these increases by notifying your benefits department in writing. Let's continue with the above example.It has now been a year since Moe enrolled in XYZ Corp's retirement plan. Since the company's plan has an auto-increase provision, Moe's contribution will increase by 1% this year unless he notifies the benefits department in writing that he wishes to maintain his current contribution amount.The general consensus among government officials and those in the financial industry is that something must be done to ensure that more Americans are saving for retirement and that they are saving enough. With everyone's busy lives it's so easy to put retirement planning at the bottom of the todo list. Auto-enrollment and auto-increase plans are favored because they don't require us to think about saving; they just make sure we do it. A recent survey of 7,545 participants regarding auto-increase plans found that 55% of respondents said they would like to have an auto increase option as part of their retirement plan. Another 29% said they were unsure and needed more information. And the remaining 16% were against the idea of an auto-increase. In theory these types of plans are a good way to increase both enrollment and contributions. In fact, a Vanguard study looked at 2,000 401k plans representing approximately 2 million participants. They found that participation in retirement plans that include an autoenroll element is around 80%. And, most people don't even miss that extra 1% that gets added with the autoincrease plans. Auto-enrollment and auto-increase plans may be the wave of the future. And, there could be tax incentives on the horizon for implementing them. Having these kinds of features in your plan makes it so easy to save retirement thereby helping increase the likelihood of success. The key will be finding the right mechanisms to make them work seamlessly within all departments at large corporations and for small businesses alike. Remember it’ retirement we’re talking about. The more you know and understand, the better off you will be.
Best Regards,
President
MBA, QKA, CBC
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Participant Education: The Missing Piece of the Puzzle
You've heard me say it before and you'll definitely hear me say it again. There's a retirement crisis in this country. Not enough people have access to 401k plans. Of those that do have access not enough are actually participating in the plan. And, those that are participating don't contribute enough.
In 2013, the average savings rate for Americans was 4.5%. Compared to Germany's 9.9% or France's 15.4%, we are clearly in the back of the pack in this race. In fact, as a nation, we aren't even saving half of the the minimum recommended. Most economists recommend saving at least 10%.
Something needs to change, and I believe we need to start with participant education. For financial advisors and their staff, the emphasis should shift from explaining the inner workings of SmallCap, MidCap and LargeCap mutual funds to the general power of saving. It's time to start teaching people to be savers not investors.
In a recent survey, 62% of Americans say they could use help with financial planning. But only 25% of those have actually received the help they need. Every participant in 401k should have access to a financial advisor.
So, why are they not getting the education they need to make sound financial decisions? How can we change this?
Increases in government incentives for retirement planning and autoenroll and autoincrease plans are two important parts of the solution. But, the missing piece of the puzzle lies in participant education. Specifically, financial advisors need to reach out to businesses, both large and small, to provide educational tools that are tailored to their employees. A one size fits all approach to participant education is not going to cut it.
According to the 2010 census, there were 18,500 companies in the United States with 500 or more employees. However, during that same time period, there were 27.9 million small businesses. Approximately, 99.7% of all businesses are classified as small businesses, and this group employs over 120 million Americans. According to recent Government Accountability Office testimony, only 14% of small employers with fewer than 100 employees sponsor a plan in which workers can save for retirement.
Let's Change the Statistics
STEP 1: Establish an EPS - Education Policy Statement
Most businesses already have an IPS Investment Policy Statement in place, why not develop a similar plan that lays out how the company plans to help its employees learn about investing? When your Junior turns 16, you don't just hand him the keys to the BMW and turn him loose. You spend time with him explaining the rules of the road. The same is true of learning to successfully save for your future. If more companies had an EPS, America would have much more successful rates of retirement savings.STEP 2: Set Up Mandatory Quarterly Enrollment Meetings.
Have financial advisors standing by to answer questions from employees, enroll new members, and review investment strategies. Many employees don't realize they have access to advisors through their companies 401k plans.STEP 3: Game Theory - Interactive apps that bring game play into the learning process.
We need games and apps for every age range, not just for kids. How many people do you know who don't have at least one game on their phone? Not many. Why not create games for learning to save and invest? People retain more information through games than any other learning method. The discussion must focus on successful OUTCOMES. Some of that comes from more engaged advisors, but one of the real keys to better outcomes is better participant education. Remember it’ retirement we’re talking about. The more you know and understand, the better off you will be.Best Regards,
President
MBA, QKA, CBC
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Domo Arigato, Mr. Roboto: The Rise of the Robo-Advisor
There's a shiny new toy on the wealth management shelf, and I, for one, am not all that impressed. You may have heard the buzz about robo-advisors from investment sites like Betterment, Wealthfront and even big firms like Vanguard and Charles Schwab. These online tools have really taken off with the millennial generation. In fact, in the first three months after their launch one site had nearly $3 billion in investments. So should you trust a machine to manage your hard earned money?
Let's chat...
What Is A Robo-Advisor?
Roboadvisor is really just a jazzed up term for a computerized algorithm. These types of investing formulas have been around for years, but now they're backed by welldesigned websites and marketing campaigns. These tools allow users to go online, enter some VERY basic information and then hand over their investment choices to a computer with no real choice in what you're money is being invested in. Issues may occur with this strategy for a few different reasons. Inexperienced investors may not truly understand how to determine their risk tolerance or even the different types of investments and may enter information that isn't accurate. A human financial advisor can walk you through the entire process and make sure you know what your options are.What About the Cost?
You'll likely hear a lot of talk about how these online investing tools are low in cost compared to a human financial advisor. Most robo advisors charge a percentage fee based on the size of the portfolio. While this may appear cheaper at the onset, you may find hidden fees for services including minimum initial deposits, single stock diversification, direct indexing, tax loss harvesting, fractional shares, and even for speaking with an actual human advisor.You Can't Build A Relationship With A Computer
One of the benefits touted by robo-advisor firms is actually, in my opinion, one of the biggest cons. They assert that taking the emotion out of investing will yield better longterm results. But let's be honest. there are few topics more emotional than your financial future. The last time I checked, robots weren't capable of getting to know the person behind the dollar amount. Unlike a human financial advisor, robots can't talk to you about your hopes and dreams and the fears that may be holding you back. I have a strong relationship with my own financial advisor, and I encourage you to develop the same with yours. A while back, I decided to invest in some silver coins. And, I bought quite a few of them. I mentioned this new tactic to my advisor. He knew that was a bit out of character, so he asked me to tell him the REAL reason behind my new coin collection. That's definitely not the kind of service you'll receive from a robot. You should know by now my feelings about the retirement crisis in this country. So if using a robo-advisor will get people to start saving then I suppose that's better than nothing. Remember it’ retirement we’re talking about. The more you know and understand, the better off you will be.Best Regards,
President
MBA, QKA, CBC
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Calling It Quits: How to Properly Terminate A 401(k) Plan
There are a variety of reasons why you may need to terminate a 401k retirement plan. Maybe the business has run its course and it's time to shutter the doors. Maybe the company is small and just can't afford the matching contributions any longer. Maybe the company was bought out by another company that already had a 401k plan in place. Or, in the case of an LLC, maybe the partnership is being dissolved.
Whatever the reason, terminating a 401k plan is a legal process and must be completed properly to avoid finding yourself on the IRS or Department of Labor naughty list.
Start by amending the 401k plan document to ensure that all language is up to date. Once that's done, it's time to notify the plan participants. Depending on the type of plan you have, a 30day written notice to all participants in the plan (whether they still work for you or not) may be required. It's a good idea to include a distribution election form so participants can decide how they would like to receive their distribution.
Everyone becomes 100% vested in the plan. Pay attention. EVERYONE, even employees who left the company years ago if they haven't transferred or forfeited their balance, becomes 100% vested in the plan. Got it? Great! Time to process those distributions. In order to terminate the plan, every penny must be distributed. Let me repeat that. There must be a ZERO balance to terminate the plan.
Once all the assets have been distributed from the plan and the balance is ZERO, you'll need to file your final Form 5500 paperwork and your final tax return. This is not to be confused with the Eighties song The Final Countdown. Depending on the type of plan document you have, you might want to file for termination approval from the IRS.
These are the BASIC steps required to terminate a 401k retirement plan. You should always use a TPA for this process to avoid the unpleasantness of Uncle Sam knocking on your door with a list of fines and penalties. You can use your plan's current TPA or hire one as a consultant specifically for this process.
Remember it’ retirement we’re talking about. The more you know and understand, the better off you will be.
Let's get down to it.
Start by amending the 401k plan document to ensure that all language is up to date. Once that's done, it's time to notify the plan participants. Depending on the type of plan you have, a 30day written notice to all participants in the plan (whether they still work for you or not) may be required. It's a good idea to include a distribution election form so participants can decide how they would like to receive their distribution.
Everyone becomes 100% vested in the plan. Pay attention. EVERYONE, even employees who left the company years ago if they haven't transferred or forfeited their balance, becomes 100% vested in the plan. Got it? Great! Time to process those distributions. In order to terminate the plan, every penny must be distributed. Let me repeat that. There must be a ZERO balance to terminate the plan.
Once all the assets have been distributed from the plan and the balance is ZERO, you'll need to file your final Form 5500 paperwork and your final tax return. This is not to be confused with the Eighties song The Final Countdown. Depending on the type of plan document you have, you might want to file for termination approval from the IRS.
These are the BASIC steps required to terminate a 401k retirement plan. You should always use a TPA for this process to avoid the unpleasantness of Uncle Sam knocking on your door with a list of fines and penalties. You can use your plan's current TPA or hire one as a consultant specifically for this process.
Remember it’ retirement we’re talking about. The more you know and understand, the better off you will be.
Best Regards,
President
MBA, QKA, CBC
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Is Your Plan Protected?
A Basic Overview of Fidelity Bonds
A vital part of plan administration is making sure that you meet the requirements of the ERISA (Employee Retirement Income Security Act). At its core, an ERISA bond's purpose is to protect the assets of your retirement plan against losses caused by fraud. Basically, an ERISA or fidelity bond is a kind of insurance to protect retirement plan participants against shady dealings so they aren't left with nothing. No one wants to believe they could be fooled by a smooth talker, but it does happen occasionally. It's sound practice to review the adequacy of your retirement plan's fidelity bond coverage annually. Yes, every year. Why? For starters, proper fidelity bond coverage is required by the Department of Labor (DOL). Trust me, you don't want to run afoul of the DOL. Since this housekeeping item is so important, let's do a short Q & A to make sure you're up to speed.What is ERISA
ERISA stands for Employee Retirement Income Security Act of 1974. It's the legislation that governs the operations of retirement plans.What is the Bonding Requirement?
ERISA bonds must cover a minimum of 10% of the total plan assets during the preceding year. If no plan funds were handled in the preceding year, the bond should cover 10% of the estimated amount to be handled for the current year. The minimum required bond is $1,000 and the maximum required bond is $500,000. For easy math, let's say you had a million dollars in plan assets, your minimum fidelity bond amount would be $100,000. Generally speaking, these bonds are inexpensive, so you can always buy more than you need to cover increases in plan assets. You can use the Annual Report (IRS Form 5500 Schedule H or I) from the prior year to determine the amount handled and multiply that number by 10% to figure out your required bond amount. Or, you can call your TPA and they should be happy to lend a hand. If they aren't, call me. Small plans (under 100 participants) must meet special bonding requirements in order to avoid an independent audit. At least 95% of plan assets must be "qualifying plan assets" and the amount of the bond cannot be less than the value of the non qualifying assets. Assets held at a bank, financial institution, insurance company, or brokerdealer, mutual funds, employer securities, and loans are examples of qualifying assets. A limited partnership and Japanese Block Art are examples of nonqualifying assets.How Do I Know If A Bond Is In Place?
You can contact your insurance agent or legal advisor to find out if you have a bond in place that covers your retirement plan. Your friendly neighborhood TPA will be happy to help you as well. You may obtain a bond through a surety company approved by the Treasury Department. Each July, the Federal Register publishes a list of approved companies.Are There Penalties For Not Having A Bond?
There is no prescribed penalty for not purchasing a bond. However, there is a general penalty the DOL can impose on a plan that does not comply with ERISA. This penalty is $5,000 and/or up to one year in jail. The first step will likely be a letter asking you to provide proof of your bond. ERISA violations aren't usually high on the government's list of things to enforce, but it is the law so you should comply. If you don't have a fidelity bond, you must reflect that on your tax form. Of all the things you can get in trouble over, do you really want not complying with ERISA requirements to be it? I say, nope. When you think of all the things you are responsible for as a plan administrator, this is one of the easier things to take care of. Your TPA is a great resource for help with ensuring your ERISA bond info is correct and up-to-date. Remember it’ retirement we’re talking about. The more you know and understand, the better off you will be.Best Regards,
President
MBA, QKA, CBC
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New Tool For Advisors
SRC Now Offering Access to the 401(k) Sales Champion Workshop
I honestly strive to be a resource for financial professionals, and I'm constantly searching for tools to make their busy lives easier. For many, learning and growing their client list are top priorities. I recently learned of a program called the 401(k) Sales Champion Workshop that I believe will be a valuable resource for many of you.What Is the 401(k) Sales Champion Workshop?
The 401(k) Sales Champion Workshop is an online 401(k) sales and service professional development tool designed specifically for advisors. The workshop discusses best practices to grow and improve your 401(k) business and covers 109 topics through 36 short video segments. The topics are supported by 30 etools that are geared toward helping you along your sales journey from initial contact to ongoing service. If you're anything like me, you have the attention span of a golden retriever. That's one of the reasons I like this program. The video tutorials are short and to the point, which allows you to quickly gain a few important notes and then put them into action. As part of the program, you will also have access to timesaving templates, profiling questions, voicemail and email messages, and statements to overcome objections so you can dive deeper and build your 401(k) business. There's even a sophisticated calculator called Production Analysis Manager (PAM) that projects your net compensation building and managing a group retirement plan business.
How Do I Access the Workshop?
It's easy. First, contact us to receive your login credentials. Once you've received those, you can access the workshop content at any time from any device.What About the Cost?
Not a penny. I'm footing the bill for this one because I truly want to be a resource for you. I want to give back to the community that's been so kind to me. I want you to be able to grow your business and provide excellent service to your clients. Call me crazy, but I believe if Americans have access to knowledgable, friendly and trustworthy financial advisors who understand how to help them prepare for retirement, they'll get on board and start saving. Retirement crisis averted... or at least improved.A Little About the Workshop's Creator...
The 401(k) Sales Champion Workshop is based on the personal sales and coaching experiences of Chris Barlow, founder and managing director of KnowHow 401(k). Chris has been active in the group retirement plan marketplace for over 30 years working as an advisor, sales trainer, wholesaler, national sales manager and strategic director for some of the top companies in financial services. Everyone at Stones River Consulting is excited about the launch of this workshop and we want it to be a huge hit, so shoot me an email for your login credentials, check it out, and let me know what you think. Remember it’ retirement we’re talking about. The more you know and understand, the better off you will be.Best Regards,
President
MBA, QKA, CBC
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The Updates Are In…
IRS Announces 2018 Contribution Limits...
Every year in or around October, Uncle Sam releases cost of living adjustments for retirement account contributions. This year because of the talk about the new tax bill, there was some concern in the financial community about whether or not deferral rates would be lowered. But here’s the kicker. Congress gives us these tax breaks to encourage retirement savings, but lowering the deferral rates would do just the opposite. Lowering the deferral rates would be a big blow to the average American trying to save for their retirement by contributing to their company 401k. I had the honor of meeting with Senator Bob Corker’s staff to express concern over these proposed changes. Thankfully, the powers that be saw the light and those reductions didn’t happen.So What Changed For 2018? Here Are the Highlights...
401(k)
Employees who choose to participate in their company’s 401(k), 403(b) and 457 plans will be allowed to contribute up to $18,500 in 2018. That’s a bump of $500 from 2017.401(k) and 457 Plan Catch-Up
The catch-up contribution limit for employees who are 50 or older in these plans holds steady at $6,000 for 2018. The limit on the annual benefit for those participating in a defined benefit plan goes up $5,000 to $220,000 in 2018.Defined Contribution Plans
Total annual contributions (annual additions) to all of your accounts in plans maintained by one employer (and any related employer) are capped at $55,000 for 2018 creeping up just $1,000 from 2017. Remember that Uncle Sam also limits the amount of your compensation that can be considered when determining employer and employee contributions to $275,000 in 2018. That’s up $5,000 from in 2017.Income Caps
The income caps for Highly Compensated Employees and Key Employee (Officers) remain the same at $120,000 and $175,000. And, the base taxable wage for Social Security gets a small bump to $128,700 for 2018. Need all this info in one easy-to-read chart? Your friendly neighborhood TPA has you covered. Check it out below.
Remember it’ retirement we’re talking about. The more you know and understand, the better off you will be.
Best Regards,
President
MBA, QKA, CBC
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Required Minimum Distributions…
You’ve been socking away money for thatt blissful day when you can finally say, “I’m retired!”. And, at least part of that money probably went into an account before you paid taxes on it.
“This is great,” you thought. “I’m saving all this money tax-free!”
Wrong! When you made that deal with the Devil otherwise known as Uncle Sam, he said you could save that money tax-deferred. Not tax-free. You didn’t really think you would get away without paying taxes on that money, did you?
Uncle Sam always get his money! For qualified investment accounts, it’s called an RMD and Uncle Sam will come to collect when you turn 70 1/2.
What is an RMD?
Simply put, RMD is short for Required Minimum Distribution, and it’s the minimum amount the IRS requires you to withdraw from your qualified retirement accounts every year once you reach the age of 70 1/2. You must follow the rules set forth for RMDs if you contribute to a retirement plan with pre-tax money. The following plans are subject to an RMD:- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- Employer Sponsored Profit-Sharing Plans
- 401(k) Plans
- 403(b) Plans
- 457(b) Plans
When do you have to take your RMD?
The IRS requires you to begin taking your RMD when you turn 70 1/2. You must take your first RMD no later than April 1st following the year in which you turn 70 1/2. All subsequent RMDs must be taken no later than December 31st of that year.HERE’S AN EXAMPLE:
Let’s say you turn 70 1/2 on June 4, 2014. You can take your first RMD any time between that day and April 1, 2015. This covers your RMD for 2014. Your next distribution is due before December 31, 2015, and it will cover your RMD for 2015. Yes, that’s two in one year, but you’ll only have to do it once a year before December 31st every year after that until you die or your account hits zero.z It’s important to point out here that you have two options for your first RMD. You can take it in the calendar year in which you turn 70 1/2 or wait and take it before April 1st the following year and take two distributions in one year. Your decision to wait and take two distributions in the second year, or take your first distribution in the year you turn 70 1/2 would be made based primarily on your tax situation. To determine how much your RMD will be, your advisor or plan administrator will take your prior year’s December 31st IRA account balance, look up your age on the appropriate table (like the one below), and divide your account balance by the factor (remaining distribution period) based on your age.EXAMPLE:
You had $100,000 in your IRA on December 31, 2013. You turn 70 in January 2014 and decide to take your first distribution before the end of the year in which you turn 70 1/2. In this example that would be still be 2014. $100,000 / 27.4 = $3,649.63 This is the amount you must withdraw for the calendar year in which you turn 70 1/2. No matter which method your choose, PLEASE DON’T WAIT UNTIL THE LAST MINUTE TO TAKE YOUR RMD! There’s paperwork involved. And trust me, you don’t want the IRS angry with you if you slip up and forget about it. Keep reading to find out why.What are the penalties for missing the due date?
If you’ve read this far, I’m sure you understand that taking your RMDs on time is important. But just in case you haven’t, let me point out that the penalty for not taking a required minimum distribution is a tax of 50% on the amount that was not withdrawn in time. Yep, you read that right, 50%. So, please contact your financial advisor and get your RMD scheduled.The Dreaded D’s: Death and Divorce
Your marital status is set on January 1st of each plan year. So, if you’re married as of January 1st this year, you will still use the RMD rules for a married person even if things go badly and you get divorced later in the year. The same is true if your spouse passes away during the year. Divorces and deaths are not officially recorded on your IRA until the next year. This can have an impact on a number of calculations for your RMD, particularly the life expectancy calculation. Your RMD is calculated based on either your life expectancy or a joint life expectancy while your spouse is still living. Check with your plan administrator or financial advisor if either of the dreaded D’s happen to you.Can you get out of taking an RMD?
The short answer is no. But, there are certain circumstances that will allow you to DELAY your RMD. If you are still working and contributing to your retirement plan when you reach age 70 1/2, you may defer your RMD each year until you retire. There is a caveat here. This exception does not apply to you if you own more than 5% of the company you work for. You must meet all three of these qualifications to delay your RMD.One last thing...
Maybe you’ve been an extra zealous investor (and I hope you have) and you have contributed money to more than one qualified retirement account. You must calculate an RMD amount for each plan separately. You have options regarding which account you would like to take your distribution. You can go ahead and take the RMD amount you calculated from each account or you may take the combined amount in a distribution from one plan. This is called aggregation and should be discussed with your advisor. Remember it’ retirement we’re talking about. The more you know and understand, the better off you will be.Best Regards,
president
MBA, QKA, CBC
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PPA Restatement: Why Do I Have…
You’ve been socking away money for thatt blissful day when you can finally say, “I’m retired!”. And, at least part of that money probably went into an account before you paid taxes on it.
“This is great,” you thought. “I’m saving all this money tax-free!”
Wrong! When you made that deal with the Devil otherwise known as Uncle Sam, he said you could save that money tax-deferred. Not tax-free. You didn’t really think you would get away without paying taxes on that money, did you?
Uncle Sam always get his money! For qualified investment accounts, it’s called an RMD and Uncle Sam will come to collect when you turn 70 1/2.
What is an RMD?
Simply put, RMD is short for Required Minimum Distribution, and it’s the minimum amount the IRS requires you to withdraw from your qualified retirement accounts every year once you reach the age of 70 1/2. You must follow the rules set forth for RMDs if you contribute to a retirement plan with pre-tax money. The following plans are subject to an RMD:- Traditional IRAs
- SEP IRAs
- SIMPLE IRAs
- Employer Sponsored Profit-Sharing Plans
- 401(k) Plans
- 403(b) Plans
- 457(b) Plans
When do you have to take your RMD?
The IRS requires you to begin taking your RMD when you turn 70 1/2. You must take your first RMD no later than April 1st following the year in which you turn 70 1/2. All subsequent RMDs must be taken no later than December 31st of that year.HERE’S AN EXAMPLE:
Let’s say you turn 70 1/2 on June 4, 2014. You can take your first RMD any time between that day and April 1, 2015. This covers your RMD for 2014. Your next distribution is due before December 31, 2015, and it will cover your RMD for 2015. Yes, that’s two in one year, but you’ll only have to do it once a year before December 31st every year after that until you die or your account hits zero.z It’s important to point out here that you have two options for your first RMD. You can take it in the calendar year in which you turn 70 1/2 or wait and take it before April 1st the following year and take two distributions in one year. Your decision to wait and take two distributions in the second year, or take your first distribution in the year you turn 70 1/2 would be made based primarily on your tax situation. To determine how much your RMD will be, your advisor or plan administrator will take your prior year’s December 31st IRA account balance, look up your age on the appropriate table (like the one below), and divide your account balance by the factor (remaining distribution period) based on your age.EXAMPLE:
You had $100,000 in your IRA on December 31, 2013. You turn 70 in January 2014 and decide to take your first distribution before the end of the year in which you turn 70 1/2. In this example that would be still be 2014. $100,000 / 27.4 = $3,649.63 This is the amount you must withdraw for the calendar year in which you turn 70 1/2. No matter which method your choose, PLEASE DON’T WAIT UNTIL THE LAST MINUTE TO TAKE YOUR RMD! There’s paperwork involved. And trust me, you don’t want the IRS angry with you if you slip up and forget about it. Keep reading to find out why.What are the penalties for missing the due date?
If you’ve read this far, I’m sure you understand that taking your RMDs on time is important. But just in case you haven’t, let me point out that the penalty for not taking a required minimum distribution is a tax of 50% on the amount that was not withdrawn in time. Yep, you read that right, 50%. So, please contact your financial advisor and get your RMD scheduled.The Dreaded D’s: Death and Divorce
Your marital status is set on January 1st of each plan year. So, if you’re married as of January 1st this year, you will still use the RMD rules for a married person even if things go badly and you get divorced later in the year. The same is true if your spouse passes away during the year. Divorces and deaths are not officially recorded on your IRA until the next year. This can have an impact on a number of calculations for your RMD, particularly the life expectancy calculation. Your RMD is calculated based on either your life expectancy or a joint life expectancy while your spouse is still living. Check with your plan administrator or financial advisor if either of the dreaded D’s happen to you.Can you get out of taking an RMD?
The short answer is no. But, there are certain circumstances that will allow you to DELAY your RMD. If you are still working and contributing to your retirement plan when you reach age 70 1/2, you may defer your RMD each year until you retire. There is a caveat here. This exception does not apply to you if you own more than 5% of the company you work for. You must meet all three of these qualifications to delay your RMD.One last thing...
Maybe you’ve been an extra zealous investor (and I hope you have) and you have contributed money to more than one qualified retirement account. You must calculate an RMD amount for each plan separately. You have options regarding which account you would like to take your distribution. You can go ahead and take the RMD amount you calculated from each account or you may take the combined amount in a distribution from one plan. This is called aggregation and should be discussed with your advisor. Remember it’ retirement we’re talking about. The more you know and understand, the better off you will be.Best Regards,
president
MBA, QKA, CBC
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What the Heck is a Roth 401(k)?
As of January 1, 2006, U.S. employers have been free to amend their 401(k) and 403(b) plan documents to allow employees to elect Roth IRA type tax treatment for a portion or all of their retirement plan contributions. This type of plan is called a Roth 401(k).
Similar to Roth IRAs, these Roth employersponsored plans allow you to contribute money on an aftertax basis, so you do not have to pay taxes when you begin withdrawals during retirement. In addition, the earnings within the plan have the potential to grow tax-free.
Distributions from your Roth elective deferral contributions will generally be tax free in retirement, if you have met the qualified distribution requirements of being at least 59 1/2 years old and have maintained the Roth elective deferral account for at least five years.
Sounds great, right?
Let's look into some of the pros and cons to see if a Roth 401(k) is right for you.
Essentially, the major difference between a traditional 401(k) and a Roth 401(k) is the affect it has on your paycheck. Contributions to regular 401(k) plans are made with pretax money, which means that your taxes are based on your salary minus your contributions, instead of your full salary. So, your taxes are lower, and your take home pay is higher.
By comparison, Roth 401(k) contributions are made with aftertax money, which means that you do not receive this tax break during your working years. So, your taxes are higher, and your take home pay is lower. But, when you retire, your contributions have grown tax-free.
Today's businesses have a variety of workers and having a choice for contribution plans just makes sense. Not every method of saving for retirement is right for every employee. If your current 401(k) provider doesn't offer a Roth 401(k) plan option, ask your administrator to add it.
Remember it's YOUR retirement we're talking about. The more you know and understand, the better off you will be. And, as always, please speak with your financial advisor to discuss which options are best for you.
Essentially, the major difference between a traditional 401(k) and a Roth 401(k) is the affect it has on your paycheck. Contributions to regular 401(k) plans are made with pretax money, which means that your taxes are based on your salary minus your contributions, instead of your full salary. So, your taxes are lower, and your take home pay is higher.
By comparison, Roth 401(k) contributions are made with aftertax money, which means that you do not receive this tax break during your working years. So, your taxes are higher, and your take home pay is lower. But, when you retire, your contributions have grown tax-free.
Today's businesses have a variety of workers and having a choice for contribution plans just makes sense. Not every method of saving for retirement is right for every employee. If your current 401(k) provider doesn't offer a Roth 401(k) plan option, ask your administrator to add it.
Remember it's YOUR retirement we're talking about. The more you know and understand, the better off you will be. And, as always, please speak with your financial advisor to discuss which options are best for you.
Best Regards,
President
MBA, QKA, CBC
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Don’t Leave A Mess For 2017
5 Steps to Year-End Retirement Plan Housekeeping
Ready or not here it comes. YEAR END. I know, I know. Your list is long and your time is short. But, it's time for your retirement planning yearend check up. There are a few things all plan sponsors should think about as part of their end of the year work. It's important for you and your employees to have the resources to retire, so you have a few housekeeping items to attend to. Not to worry, I'll break down the big ticket items for you here.Year-End Retirement Plan Housekeeping List
Send out the proper annual notices.
There are several instances that require that you send an annual notice. If you have any of the following, you should check in with your TPA for assistance on sending out the proper annual notice to your employees. Safe Harbor Plan - A safe harbor 401(k) plan requires the employer to provide timely notice to eligible employees informing them of their rights and obligations under the plan, and certain minimum benefits to eligible employees either in the form of matching or nonelective contributions. Auto-Enroll or Auto-Increase Plan - If your plan uses automatic enrollment or automatic contribution increases, the IRS requires you to notify all employees who are eligible for the plan between 30 and 90 days prior to the beginning of each plan year. Talk with your TPA for exact requirements of your particular plan. Qualified Default Investment Alternative (QDIA) - There is often confusion around the notice requirements for these plans. IRS regulations state that defaulted participants and beneficiaries (both active and terminated) who have failed to direct their investments should receive a notice. Your TPA is up to speed on the regulations surrounding these plans, please don't hesitate to contact them for support. Operators are standing by!Take Required Minimum Distributions (RMD).
For those staff members age 70.5 or older, it's vital to ensure they are aware of the requirements for taking a distribution from their account. Timing is especially important in this case because there are deadlines and penalties associated with missing them. Traditional IRAs, SEP IRAs, SIMPLE IRAs, Employer Sponsored ProfitSharing Plans, 401(k) Plans, 403(b) Plans and 457(b) Plans are all subject to an RMD. Your TPA should be able to help you with gathering all the information you need for the RMD, if they haven'g already done so.Plan A Meeting With Your Investment Advisor.
It's always smart to sit down with your investment advisor to review the investments in your fund. Checking up on your fund's progress is part of the due diligence necessary for your plan. Remember to document the meeting and all the topics discussed. You should do a status review on the performance of the fund, which will help you decide if you need to make any changes. Are all of your files in compliance? Are the funds performing well? Do any funds need to be addressed or changed?Review Your Plan's Fidelity Bond.
This is an easy one. Your plan's fidelity bond should be 10% of your plan's assets.Look Ahead.
Is their anyone who is about to become eligible to enroll in the plan? Did you hire anyone or fire anyone? Give your TPA a heads up. You do year-end tax planning in December, and it's the perfect time to do your year end retirement plan housekeeping. Taking a day to knock it out will not only ensure your plan is running smoothly, but also help prevent accusations of improper plan management. It's all about covering your... bases. This may seem like a lot to add to your plate, but your financial advisor and TPA are here to help you. It's their job and they should be happy to do it. They have all the records and info you need to tackle this to-do list, so make the call and start checking items off now. Remember it’ retirement we’re talking about. The more you know and understand, the better off you will be.Best Regards,
President
MBA, QKA, CBC
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Stones River Consulting Is Turning 4!
By now you should know that I love to fill your inbox with numbers and stats, so
here's one I'm excited to say SRC is going to beat...
According to the Small Business Administration, 50% of businesses fail in the first five years.
I am humbled and honored by the trust my clients have placed in me over the past four years.
We are growing daily, and I look forward to serving you for many successful years to come.
Again, I say THANK YOU!
Best Regards,
President
MBA, QKA, CBC
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New Year, A Whole New Look (Plus Some Dates You Need to Know)
SRC Launches New Website We're excited to announce that the new Stones River Consulting website is live! We hope that you'll find the new version of the site to be more user-friendly and informative and less... well, less like most other financial firm websites. We...
Auto-Enroll and Auto-Increase Plans
The Future of Retirement Planning? We have a retirement crisis in this country. Today, too few people have retirement plans, and those who do save for retirement are not saving enough. It is not uncommon for people to live will into their 80s or even 90s and it's...
Participant Education: The Missing Piece of the Puzzle
You've heard me say it before and you'll definitely hear me say it again. There's a retirement crisis in this country. Not enough people have access to 401k plans. Of those that do have access not enough are actually participating in the plan. And, those that are...
Domo Arigato, Mr. Roboto: The Rise of the Robo-Advisor
There's a shiny new toy on the wealth management shelf, and I, for one, am not all that impressed. You may have heard the buzz about robo-advisors from investment sites like Betterment, Wealthfront and even big firms like Vanguard and Charles Schwab. These online...
Calling It Quits: How to Properly Terminate A 401(k) Plan
There are a variety of reasons why you may need to terminate a 401k retirement plan. Maybe the business has run its course and it's time to shutter the doors. Maybe the company is small and just can't afford the matching contributions any longer. Maybe the company was...
Is Your Plan Protected?
A Basic Overview of Fidelity Bonds A vital part of plan administration is making sure that you meet the requirements of the ERISA (Employee Retirement Income Security Act). At its core, an ERISA bond's purpose is to protect the assets of your retirement plan...
New Tool For Advisors
SRC Now Offering Access to the 401(k) Sales Champion Workshop I honestly strive to be a resource for financial professionals, and I'm constantly searching for tools to make their busy lives easier. For many, learning and growing their client list are top priorities. I...
The Updates Are In…
IRS Announces 2018 Contribution Limits... Every year in or around October, Uncle Sam releases cost of living adjustments for retirement account contributions. This year because of the talk about the new tax bill, there was some concern in the financial community about...
Don’t Leave A Mess For 2017
5 Steps to Year-End Retirement Plan Housekeeping Ready or not here it comes. YEAR END. I know, I know. Your list is long and your time is short. But, it's time for your retirement planning yearend check up. There are a few things all plan sponsors should think about...
Stones River Consulting Is Turning 4!
By now you should know that I love to fill your inbox with numbers and stats, so here's one I'm excited to say SRC is going to beat... According to the Small Business Administration, 50% of businesses fail in the first five years. I am humbled and honored by the trust...
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