Archive for the ‘Retirement Plan’ Category

Manage Your Business’s Ethical Framework After You’re Gone

Tuesday, November 18th, 2014

While the reasons for drafting an ethical will may seem more personal than business-related, an ethical will can be an effective way for business owners to pass along their vision for the future of their company after they are gone.

A properly drafted last will and testament is critical to ensure your estate’s financial well-being. Perhaps equally important is your responsibility to manage your intellectual assets, including knowledge and ethical values. An ethical will, also known as a legacy letter, is a way for you to pass along information to family, friends, colleagues and even communities.

Ethical wills have been around for many centuries. They were very prevalent in Medieval Times, but lost much of their popularity in modern times. Over the past couple of decades, they have regained their popularity.

While a last will and testament details how a person’s possessions will be distributed after death, an ethical will is a way to pass on a person’s values, hopes, dreams and life lessons – among other viewpoints. Though an ethical will is not a legal document, Business Week has described it as an aid to estate planning.

What should I include in my ethical will?

  • Your personal values – the importance of honesty, integrity and personal responsibility.
  • Your views on work ethic, dedication to one’s chosen profession and work-life balance.
  • Your views on charitable giving and community responsibility.
  • How to develop and cultivate personal and business relationships.
  • Your hopes and dreams for your spouse, children and other family members.
  • Anything that you have learned in life and would like to pass on to others.

When should I draft my ethical will?

  • Marriage
  • Birth of a child
  • Children leaving for college
  • When drafting a succession plan for your business
  • End of life
  • Or anytime

An ethical will can be an integral part of your overall estate plan, so consider putting one together today!

By Cathy Troyer, CPA (New Philadelphia office)

 

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Retirees Get Cranky Over Tax Returns

Tuesday, November 4th, 2014

Tax preparation and tax payments often become MORE complicated in retirement. Why? Because retirement taxation is new for a retiree so there’s a learning curve. Here are a few cliff notes to help new retirees navigate these uncharted waters:

Social Security

The money you receive from Social Security will likely be taxable. Fifteen percent of your Social Security benefit is a return on your lifetime payroll deductions and your employer’s match. Eighty-five percent of your Social Security is the excess benefit payment, or “growth,” in your benefit account and, thus, your untaxed benefit. That 85 percent may be taxable depending on the amount of your other income. This calculation is complex and the tax is difficult to avoid, but it is possible.

IRA Distributions

You must take your IRA distributions when you have reached the age of 70-½. The Required Minimum Distribution (RMD) can be managed and will impact your taxable Social Security. Planning is essential.

Capital Gains

As your lifetime investments are sold to help pay for retirement, capital gains is another obstacle to overcome. Here are a few tips to make them more manageable:

  • It may take a little time, but document when you bought those investments and what you paid for them. Once your record is complete, give the information to your broker to record in your investment account statement.
  • If you own your investments directly, gather them up and put them into an investment account to simplify your tracking, cost barriers, tax preparation and estate administration.

Itemized deductions

The good news is that you have likely paid off your mortgage. The bad news is that you may no longer exceed the standard deduction to itemize. So then why do you keep tracking medical bills if you can’t itemize? “Bunching” deductions may be a planning option. For example, every OTHER year, I have my Mom pay her real estate taxes, Ohio tax estimates and charitable contributions she made during the year. Then I have her prepay next year’s real estate taxes, charitable contributions and Ohio estimated taxes in December. That doubles her itemized expenses and raises her total above the standard deduction. Then, I have her take an additional IRA distribution equal to the excess itemized deductions. That excess distribution equates to a tax-free payment because it is offset by the excess itemized expenses! This option is available to you too!

Estimated tax

You are required to calculate and pay your income tax by managing your social security and IRA retirement tax withholding, along with quarterly tax estimate payments. You must project and declare your taxable income by April 15 in the new-year. And remember, there are NO excuses for not paying them on time.

Complexities You Can Avoid

  1. Watch those managed stock accounts. The amount of programmed buying and selling creates more work for your CPA and will raise your tax preparation fee. Ask yourself if that activity really did make you more money after the incurred income tax and preparation fee. If it didn’t, revisit your managed stock accounts.
  2. Understand the publicly-traded LLCs recommended by your broker and know that you may need to extend your tax return because of the K-1 you will receive to report the income. Your preparation fee will be raised as well. Again, if you didn’t make any money after the incurred taxes and preparation fee, is it really worth it to continue?

The transition into retirement is not easy. Unfortunately, your money management and tax filing won’t be easier either. Our tax experts are always happy to answer any question you may have. Email Rea & Associates to learn more about your options for managing your retirement.

Author: Lee Beall, CPA (Dublin office)

 

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You Can’t Know Enough: The Importance of Knowing Your Fiduciary Responsibility

Friday, July 25th, 2014

You may find that the spotlight isn’t for you. But as the fiduciary of your company’s retirement plan, the spotlight is all on you. The Department of Labor (DOL) has placed a major emphasis on fiduciary responsibility in the past few years and continues to push the matter in its initiatives. So it’s important that you understand what you’re responsible for.

To meet your fiduciary responsibilities as a retirement plan sponsor, you need to understand the fiduciary standards of conduct as adopted by the Employee Retirement Income Security Act (ERISA). With these fiduciary responsibilities, there is also potential liability. Fiduciaries that don’t follow the basic standards of conduct may be personally liable to restore any losses to the plan. Pretty serious, right? To help ease your mind, here’s what you need to know.

Identifying Your Plan Fiduciaries

A plan’s fiduciaries will ordinarily include the named trustee in the document, investment advisors and all individuals exercising discretion in the administration of the plan. Under ERISA regulations, fiduciaries are responsible for:

  • Loyalty to the plan participants – acting in their exclusive best interest
  • Prudence – documenting expertise and a decision-making process
  • Following the plan documents
  • Diversifying plan assets
  • Paying only reasonable expenses for necessary services

Mitigating Your Risk As A Fiduciary

As a fiduciary of your business’s retirement plan, you should consider these items and answer these questions to ensure that you comply with ERISA regulations:

  • If participants in your plan make their own investment decisions, have you provided sufficient information for them to exercise control in making those decisions? Regulations under ERISA list the information and process required to be provided to participants in order to legally shift the responsibility for making investment decisions to the participants. Are you making the required participant fee and fund performance disclosures required annually by ERISA of all plans permitting participant investment direction?
  • How frequently do you deposit participants’ contributions in the plan, and have you made sure it complies with the law? Participant contributions, including loan repayments, are required to be remitted on a timely, consistent basis. Not remitting these funds in a timely manner is considered a misuse of plan assets, which is a prohibited transaction. Not meeting this requirement creates penalties for the plan sponsor.
  • If you’re hiring third-party service providers, including investment advisors, have you looked at several providers, given each potential provider the same information, and considered whether the fees are reasonable for the services provided? It’s required that you receive fee and service disclosures from all plan service providers, and you should also receive written acknowledgements from service providers serving in a fiduciary capacity. Here are some other items to consider relating to third-party service providers:

1. Have you documented your service provider hiring process?
2. Are you prepared to monitor your plan’s service providers, including investment fund performance?
3. Do you have a process in place to determine that the fees paid to service providers remain reasonable for the services provided?

  • Have you reviewed your plan document in light of current plan operations and made necessary updates? Have you provided participants with an updated summary plan description (SPD) or summary of material modifications (SMM)? Plans are required to operate according to the provisions stated in the plan document and these provisions must be communicated to participants. Changes are generally permitted, but again are required to be communicated to participants. If the plan is not operating in accordance with the written plan document, the plan could be disqualified, which would result in negative tax implications for you, the plan sponsor, and the participants.
  • Are individuals handling plan assets covered by a fidelity bond as required by ERISA?  Have you considered purchasing fiduciary insurance to mitigate the personal risk of loss to those employees you identified that are serving as plan fiduciaries? While a fidelity bond and fiduciary insurance are slightly different, both are a form of coverage to provide protection in regards to plans. The bond insures the assets of the plan in the event of employee misconduct and the fiduciary insurance provides personal protection to fiduciaries in the event of any claims for alleged errors, omissions, or breach of fiduciary duties.

Being a plan fiduciary comes with enormous responsibility. Don’t take your fiduciary responsibilities lightly. If you’re interested in learning more about what you’re responsible for as a retirement plan fiduciary, consider registering for a FREE seminar all about knowing your fiduciary responsibility. Rea & Associates has partnered with the Human Resources Association of Central Ohio (HRACO) to provide an all-day seminar dedicated to helping fiduciaries understand their responsibilities. The seminar will feature speakers from the Internal Revenue Service (IRS) and the DOL. It will be held on Tuesday, August 26 from 8:30 a.m. to 4:30 p.m. at BMI Federal Credit Union Event Center in Dublin, Ohio. More details, including a schedule, can be found here. Click here to register for this free event.

Fiduciary Responsibility Help

If you need assistance navigating the responsibilities of being a fiduciary, contact Rea & Associates or speak with one of our financial advisors.

Author: Paul McEwan, CPA, MT, AIFA (New Philadelphia office)

 

Looking for more articles about fiduciary responsibility? Check out these articles!

What Are The Responsibilities of a Fiduciary?

How Can I Make My Benefit Plan Audit A Smoother Process?

Will You Be Ready For Retirement?

 

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What You Should Know Before Dipping Into Your 401(k)

Friday, May 16th, 2014

Got a 401(k) plan? Have you ever withdrawn money from your 401(k) account? If so, you’re part of the growing number of Americans using their 401(k) accounts to fund other areas of their lives. A recent Bloomberg article explains that more and more Americans are turning to their 401(k) accounts rather than to other means, such as a loan, to help cover any unexpected financial needs that come up.

Historically, Americans have used their homes as a source of additional money. According to the article, when home values rose, homeowners refinanced or took out second mortgages. But due to the housing collapse back in 2008, many homeowners don’t have these options anymore – so they turned to their 401(k) accounts. What many people don’t realize is that depending on their 401(k) plan, they could be penalized for either taking an early withdrawal and/or not putting that money back into their account in the appropriate amount of time.

Shocking 401(k) Withdrawal Statistics

The Bloomberg article cites an IRS report that states the agency collected $5.7 billion in withdrawal penalties in 2011. In other words, Americans withdrew nearly $57 billion from their retirement accounts. That’s $5.7 billion that the IRS would otherwise not have banked on receiving. And what’s the federal government doing with this “extra” income? Funding federal agencies and projects.

Think Before You Dip

Before you turn to your retirement plan for help, you should be aware of some things. It may seem like an easy option, but the IRS actually has some rules that you have to meet before taking money from your 401(k). One of the following conditions must occur before you can take money out without being penalized:

  • You lose your job
  • You claim disability
  • You or your spouse dies
  • You turn 59 ½ years old

401(k) Withdrawal Based on Financial Hardship

If you don’t meet the criteria listed above, but are facing a financial hardship, you may also be able to take an early withdrawal from your retirement account. The IRS’ hardship rules require you have one of the following needs to qualify for a hardship withdrawal:

  • Medical expenses for you or your immediate family
  • Financial assistance in the purchase of your primary residence (this excludes mortgage payments)
  • Tuition or other educational fees (maximum of 12 months) for you or your immediate family
  • Prevent the eviction of you from your primary place of residence
  • Burial or funeral expenses for deceased parent, spouse or other immediate family member
  • Expenses for the repair of damage to your principal residence

The amount of money you take can’t be more than the amount you actually need to cover your hardship. It’s important to note that your early withdrawal due to a financial hardship is subject to state and federal taxes, and is also subject to a 10 percent early withdrawal penalty if you are under age 59 ½. So keep all of these considerations in mind when deciding whether to dip into your retirement account.

401(k) Withdrawal Help

If you’re not sure if a retirement withdrawal is the best route to go, contact Rea & Associates. Our team of Ohio retirement plan services professionals can help you determine if you’re eligible and what you need to do to minimize your tax liability from a withdrawal.

Author: Steve Renner, QKA (New Philadelphia office)

 

Looking for more information related to 401(k) or retirement plan withdrawals? Check out these blog posts:

Will I Be Penalized for a Hardship 401(k) Withdrawal?

Raiding Your 401(k)? It’ll Cost You

What Are The Rules For Taking A Distribution from My 401(k) Plan?

 

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DOMA’s Effect On Retirement Plans And Beneficiary Forms

Monday, May 12th, 2014

Last June, the U.S. Supreme Court, in United States v. Windsor, ruled that Section 3 of the federal Defense of Marriage Act (DOMA) is unconstitutional. As you may recall, DOMA Section 3 states, “In determining the meaning of any Act of Congress, or of any ruling, regulation, or interpretation of the various administrative bureaus and agencies of the United States, the word ‘marriage’ means only a legal union between one man and one woman as husband and wife, and the word ‘spouse’ refers only to a person of the opposite sex who is a husband or a wife.”

By holding Section 3 of DOMA unconstitutional, qualified retirement plans must now treat the relationship of same‐gender married couples as a marriage in order to maintain the plans’ tax‐qualified status. The term “spouse” includes an individual married to a person of the same-gender if the individuals are lawfully married under state or foreign law.

The IRS recognizes a valid same-gender marriage even if the married couple is living in a state that does not recognize same-gender marriages. The term “spouse” doesn’t include individuals who have entered into a registered domestic partnership, civil union, or other similar relationship that is not defined as marriage.

Important DOMA Information for Plan Sponsors

  • Participants (and their spouses) who are in same-gender marriages generally must be treated as married for all purposes under a retirement plan. This was effective as of June 26, 2013.
  • As of September 16, 2013, your plan must recognize same-gender marriages that were lawfully performed under the laws of the 50 states, D.C., U.S. territory or a foreign jurisdiction.
  • States that currently recognize same-gender marriages include: California, Connecticut, Delaware, Hawaii, Illinois (law will take effect on June 1, 2014), Iowa, Maine, Maryland, Massachusetts, Minnesota, New Hampshire, New Jersey, New Mexico, New York, Rhode Island, Vermont and Washington.
  • Depending on whose retirement plan provider plan document you use, you may want to contact the provider to ensure that your retirement plan complies with these new rules. In general, amendments to such plans are due by the end of the plan’s remedial amendment period, or December 31, 2014.
  • As a plan sponsor, you have no obligation to notify current or former participants of the new rules.
  • All qualified plans must recognize same-gender marriages for all plan purposes. This would include provisions applicable to beneficiary designation, death benefits, applicable spousal consent requirements regarding distributions and loans, rollovers, etc.

Retirement Plan Help

Now is the perfect time to update beneficiary forms for all participants in your plan. It’s important you keep a current copy of each participant’s beneficiary form in his or her personnel file. If you need assistance with this, contact Rea & Associates. Our Ohio benefit plan services team can help you determine what you need to do to keep in compliance with IRS and DOL regulations.

Author: Andrea McLane, QKA (Dublin office)

 

Looking for more posts about retirement plan best practices? Check these out:

What Are The Rules For Taking A Distribution from My 401(k) Plan?

What Should Plan Sponsors Ask Their Investment Advisors?

What Are The Responsibilities of a Fiduciary?

 

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