Posts Taged 401k

What Does the SECURE Act Mean for Annuities and Your 401(k)?

Your retirement plans require review and tweaking from time to time. Sometimes, you need to take a step back and review because of life changes on your end. Other times, outside factors, like changing retirement legislation require your attention.

If you’ve been following the news, you’ve probably heard about the SECURE Act. This is a proposed retirement reform that’s poised to be signed into law and will have an impact on some of your retirement planning activities, should it become law.

While there are a few main areas where the SECURE Act will make a difference in your retirement planning, one big component of this reform is how it’ll impact annuities and 401(k) planning. If you’re curious about how this could change your retirement portfolio or open new investment opportunities, read on to see how you may be able to anticipate the effects of this reform.

Annuities and the 401(k) Mix

Currently, many 401(k) providers don’t add annuities to their plans because annuities are considered a riskier investment and place an unwelcome amount of liability in the provider’s hands. Annuity payouts can fail to materialize, which hurts the investors relying on them as part of their retirement package. Under current laws, plan providers have the fiduciary responsibility to cover the loss of an annuity, which makes them an unpopular part of the 401(k) mix.

Under certain provisions of the SECURE Act, the responsibility for a failed annuity shifts from the retirement plan provider to the insurance company that offers the annuity. With this shift in liability, we may see more annuities pop up in different retirement packages.

What are the Prospective Benefits to Investors?

If you’re looking to add new investments to your retirement portfolio or are investing for the first time, you probably want to know: what’s in it for me?

Annuities can be an option for investors looking for a long-term plan to payout over a certain period of time. Investors who don’t have a whole lot set away in retirement accounts may enjoy the prospect of reliable monthly income, especially if they don’t have other investments that may provide a similar payout.

What are Some Potential Problems to Look For?

As an investor, you want to be aware of the investments that comprise any retirement package that you invest in. If your employer offers annuities as part of your investment options, you should be able to trust that they are worthy of your consideration. However, there is a certain risk that employers will not have the insight to provide annuity options that are particularly beneficial for you as an investor.

There’s also a likelihood that annuities as part of the 401(k) mix will incur extra fees on the investor’s end, as annuity plans tend to come with certain expenses that are often passed onto the consumer. Additionally, as part of the 401(k) mix, annuities may add more limitations to the amount of money you can draw from your retirement account or the age at which you can take these withdrawals.

Have You Reviewed Your Retirement Plan?

An essential factor in choosing your retirement portfolio mix is understanding your options and making decisions that are best suited to meeting your future financial goals. There’s never a bad time to review your existing retirement plan to monitor its performance and change your investment mix, if necessary.

If you’re new to retirement planning and want to learn more about how to invest for your long-term financial planning, contact Jacob Sturgill Financial today for a consultation!

Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value.

What are the Benefits of Providing a Company Retirement Plan?

When you’re working through your strategy for adding a retirement plan to your employee benefits strategy, you may wonder what the benefits of providing this perk are for your business and bottom line. Even though you may want to offer a stellar package that attracts top talent or sets your business apart from your competitors, it can be hard to see how else your company might benefit long-term from such an offering.

However, you’ll find that offering a generous package can be a win-win scenario for your employees and for your business. Read on to learn more about the perks of your business providing a company retirement plan.

Benefits for You as an Employer:

When you choose to offer a company retirement plan, you can benefit in a direct way through the ability to invest in the plan for yourself. Saving for retirement through a company plan allows you to participate in a plan that you might not otherwise have access to.

You can also benefit from company tax breaks and incentives from the federal government when you choose to divert income into employee retirement funds. In fact, you can deduct your employer contributions from your current taxes, which can contribute positively to your company’s tax strategy.

Direct financial benefits aside, one of the biggest perks to offering a retirement plan is your ability to set your brand apart as an employer that provides competitive benefits for attracting new employees. If you find yourself competing for top talent or are working in an industry that’s not particularly well-known for going above and beyond when it comes to employee perks, you could find yourself in an enviable position just for adding an attractive retirement plan to your benefits lineup.

Even better? If your retirement plan is tied to company profitability, your employees may be more motivated to work hard and push productivity in order to build their retirement income.

Benefits for Your Employees:

Of course, one of your ultimate goals in establishing a retirement plan for your employees is to help them succeed in planning their financial futures. To this end, you should consider their financial well-being and ability to make long-term plans a significant benefit to your brand.

Even though it requires extra research and investment to establish and maintain a company retirement plan for your employees, you should consider this an investment in your employees’ overall happiness and job satisfaction. Both of these factors can contribute a significant return on your investment; after all, happy employees can be very motivated employees.

When you offer a company retirement plan, you open more savings options for your employees than they might achieve through using a personal IRA investment vehicle alone. Not only can they (and you, as a part of the plan) enjoy the savings benefits of the package, but you and your employees can enjoy the tax benefits of setting aside income for retirement.

Are You Ready to Talk Company Retirement Plans?

Another benefit of choosing a company retirement plan is that you and your employees will gain the opportunity to work closely with the financial advisor associated with your plan. Even if you have questions beyond the scope of your retirement plan, you now have a trusted professional to whom you can turn for personalized financial guidance.

If you’re ready to look into your options for adding a retirement plan to your company’s benefits package, contact Jacob Sturgill today to get a personalized look at your brand’s needs and to receive recommendations for moving forward with your retirement planning!

For Plan Sponsor Use Only – Not for use with Participants or the General Public.

This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

Should I Set Up a Traditional 401(k) for my Business?

When you are a small business owner interested in offering a retirement plan for your business you have plenty of options to choose from. 401(k) plans are one of the many ways in which small business owners can help themselves and their employees save for retirement.

However, 401(k) plans are not the right answer for every employer, nor are they ideal for every employee.

Is a 401(k) plan right for your business? Consider the following factors when reviewing your company’s retirement benefits package.

How Many Employees Does Your Business Have?

The good news is there are plans for business of every size. If you have employees, consider if you are willing to contribute to your employees’ accounts. Employer contributions are tax-deductible from current taxes; some plans give more flexibility than others in regards to these contributions while others do not require an employer contribution at all.

What are Your Primary Goals?

When you consider offering a retirement plan for your employees, it’s important to think about what you would like to accomplish and what is most important to you.

Are you looking for a retirement plan that allows for flexibility in plan rules and employer contributions? You may find that that a 401(k) plan meets your needs, since this plan allows you discretionary employer contributions, as long as they fit within certain parameters. 401(k) plans also have higher contribution limits than many other plans and can be a great fit if your goal is to save as much as possible for your own retirement.

If your main priority is finding a retirement option that is easy to set up and administer, a 401(k) plan may not be the idea retirement option for your employees. Depending on the number of employees you have, how much they earn, and the contributions you’d like to make, you may consider a SIMPLE IRA or SEP IRA as alternatives.

Have You Considered Alternative Retirement Investment Options?

Even if you think that a 401(k) plan is the ideal investment option for your business, you may want to consider other retirement investment options before making a final decision. Here are some other retirement options you might want to think through:

  • Solo 401(k) – Easier to set up than a 401(k) plan and can be ideal for a solo entrepreneur; contributions cannot exceed the lesser of 100% of compensation or $56,000
  • Defined Benefit Pension Plan – Can be flexible for the older solo business owner or employer who wishes to contribute a mandatorily set amount for employees’ plans
  • SEP IRAs – One of the easiest plans to administer; contributions cannot exceed the lesser of 25% of compensation or $56,000
  • SIMPLE IRA – Easy to set up and administer; employee contributions cannot exceed $13,000 and require mandatory employer contributions of 2%-3%
  • SIMPLE 401(k) – Similar to a SIMPLE IRA, but offers the loan options of a 401(k) plan
  • Safe Harbor 401(k) – Another option that is easier to set up and administer than a 401(k); employee contributions cannot exceed $19,000 and require mandatory employer contributions of 3%-4%

To learn more about your business’s retirement investment options, contact Certified Financial Planner, Jacob Sturgill, for a personalized approach to uncovering your retirement investment priorities and to review your potential options.

For Plan Sponsor Use Only – Not for Use with Participants or the General Public.
This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

Should I Rollover a Dormant 401(k)

When you’re looking through your investments, you may come across accounts that you don’t quite know what to do with anymore. Sometimes, these are older investments from past employer plans or ones that simply got lost in the shuffle as you reprioritized your savings plan at one point or another.

If you have a dormant account from a previous employer, you may be wondering what you should do with it.

First, Understand Your Options

A plan participant leaving an employer typically has four options (and may engage in a combination of these options), each choice offering advantages and disadvantages.

  1. Leave the money in his/her former employer’s plan, if permitted;
  2. Roll over the assets to his/her new employer’s plan, if one is available and rollovers are permitted;
  3. Roll over to an IRA;
  4. Cash out the account value.

Here are some things to consider as you work through your decision process.

Are You Getting What You Need from Your Plan?

The first thing you should determine is whether you’re getting what you need out of your 401(k). If the plan is well managed and meets your needs, then keep it. If the plan isn’t well-managed or meeting your needs, you may want to consider rolling your assets over into an active 401(k) or IRA.

Do You Want the Option to Contribute to the Plan?

If you want to make future contributions, you’ll want to roll over the assets to a new 401(k) or IRA, since you can’t contribute to a dormant account.

Contributions to a traditional IRA may be tax deductible in the contribution year, with current income tax due at withdrawal. Withdrawals prior to age 59 ½ may result in a 10% IRS penalty tax in addition to current income tax.

Do You Have a Loan Against Your 401(k)?

You may want to leave your assets alone if you have a loan against your 401(k). Should you withdraw your assets, your loan will be paid off immediately but you may be stuck with taxes and an added 10% penalty.

Does Your 401(k) Hold Company Stock?

If your 401(k) is has a company stock component, you may be better off to take advantage of the Net Unrealized Benefit and roll the stock into a taxable brokerage account to avoid tax penalties.

Now, Consider Your Age:

Your age may impact your withdrawal options, due to certain penalties involved with removing 401(k) funds prematurely. However, even if you fall along the younger end of the spectrum, you still have options for releasing your funds from a dormant 401(k), should you choose this route.

Are You Under 59.5 and Want to Take Advantage of Your 401(k) Funds?

If you choose this option, you’ll incur a 10% penalty on withdrawal. Instead of paying this fee, consider whether one of the following situations might suit you better:

  • Take a Loan – While you can’t take a loan from a dormant 401(k), you can convert your funds to an active 401(k) and take a loan from that account.
  • Hardship Withdrawal – This is another option that’s available through an active 401(k), rather than a dormant one. Depending on your circumstances and what you require the funds for, you may qualify for a hardship withdrawal from your funds if you roll them over to an active 401(k).
  • Rollover to an IRA – And of course, you can roll your 401(k) funds into an IRA and take withdrawals from that account when you need them. Your income will be taxable as regular income, but you may still incur a 10% penalty.

Are You Over 59.5 and Want to Take Advantage of Your 401(k) Funds?

If you are over 59.5, you can withdraw funds from your dormant 401(k) and they’ll be taxed as normal income. You won’t need to worry about incurring the 10% penalty.

Did You Leave Your Employer at Age 55?

If you left the employer through whom you acquired the now-dormant 401(k) at age 55, you may want to consider leaving the account alone for the time being, as you may qualify for a “separation from service distribution” payout penalty-free.

Some Final Thoughts

As you can see, there are plenty of variables that come into play when considering what to do with a dormant 401(k). If you have questions about your retirement accounts or are curious about your retirement investment options email or call Jacob Sturgill.