#defined contribution plans

[mendozatax]

Why small business owners should have a qualified retirement plan

Increasing contributions can qualify some business owners for additional tax deductions.

[mendozatax]

Why small business owners should have a qualified retirement plan

Increasing contributions can qualify some business owners for additional tax deductions.

Mendoza Tax Advisory Ltd 773.799.8782 Office 844.426.9508 Efax www.mendozatax.com [email protected]

[uniteordie-usa]

The Great Retirement Con

http://uniteordiemedia.com/the-great-retirement-con/ http://uniteordiemedia.com/wp-content/uploads/2017/12/retirement-meme-11.jpg The Great Retirement Con This is where government solutions get us. P.D. The Origins Of The Retirement Plan Back during the Revolutionary War, the Continental Congress promised a monthly lifetime income to soldiers who fought and survived the conflict. This guaranteed income stream, called a “pension”, was...

This is where government solutions get us. P.D.

The Origins Of The Retirement Plan

Back during the Revolutionary War, the Continental Congress promised a monthly lifetime income to soldiers who fought and survived the conflict. This guaranteed income stream, called a “pension”, was again offered to soldiers in the Civil War and every American war since.

Since then, similar pension promises funded from public coffers expanded to cover retirees from other branches of government. States and cities followed suit — extending pensions to all sorts of municipal workers ranging from policemen to politicians, teachers to trash collectors.

A pension is what’s referred to as a defined benefit plan. The payout promised a worker upon retirement is guaranteed up front according to a formula, typically dependent on salary size and years of employment.

Understandably, workers appreciated the security and dependability offered by pensions. So, as a means to attract skilled talent, the private sector started offering them, too.

The first corporate pension was offered by the American Express Company in 1875. By the 1960s, half of all employees in the private sector were covered by a pension plan.

Off-loading Of Retirement Risk By Corporations

Once pensions had become commonplace, they were much less effective as an incentive to lure top talent. They started to feel like burdensome cost centers to companies.

As America’s corporations grew and their veteran employees started hitting retirement age, the amount of funding required to meet current and future pension funding obligations became huge. And it kept growing. Remember, the Baby Boomer generation, the largest ever by far in US history, was just entering the workforce by the 1960s.

Companies were eager to get this expanding liability off of their backs. And the more poorly-capitalized firms started defaulting on their pensions, stiffing those who had loyally worked for them.

So, it’s little surprise that the 1970s and ’80s saw the introduction of personal retirement savings plans. The Individual Retirement Arrangement (IRA) was formed by the Employee Retirement Income Security Act (ERISA) in 1974. And the first 401k plan was created in 1980.

These savings vehicles are defined contribution plans. The future payout of the plan is variable (i.e., unknown today), and will be largely a function of how much of their income the worker directs into the fund over their career, as well as the market return on the fund’s investments.

Touted as a revolutionary improvement for the worker, these plans promised to give the individual power over his/her own financial destiny. No longer would it be dictated by their employer.

Your company doesn’t offer a pension? No worries: open an IRA and create your own personal pension fund.

Afraid your employer might mismanage your pension fund? A 401k removes that risk. You decide how your retirement money is invested.

Want to retire sooner? Just increase the percent of your annual income contributions.

All this sounded pretty good to workers. But it sounded GREAT to their employers.

Why? Because it transferred the burden of retirement funding away from the company and onto its employees. It allowed for the removal of a massive and fast-growing liability off of the corporate balance sheet, and materially improved the outlook for future earnings and cash flow.

As you would expect given this, corporate America moved swiftly over the next several decades to cap pension participation and transition to defined contribution plans.

The table below shows how vigorously pensions (green) have disappeared since the introduction of IRAs and 401ks (red):

(Source)

So, to recap: 40 years ago, a grand experiment was embarked upon. One that promised US workers: Using these new defined contribution vehicles, you’ll be better off when you reach retirement age.

Which raises a simple but very important question: How have things worked out?

The Ugly Aftermath

America The Broke

Well, things haven’t worked out too well.

Three decades later, what we’re realizing is that this shift from dedicated-contribution pension plans to voluntary private savings was a grand experiment with no assurances. Corporations definitely benefited, as they could redeploy capital to expansion or bottom line profits. But employees? The data certainly seems to show that the experiment did not take human nature into account enough – specifically, the fact that just because people have the option to save money for later use doesn’t mean that they actually will.

First off, not every American worker (by far) is offered a 401k or similar retirement plan through work. But of those that are, 21% choose not to participate (source).

As a result, 1 in 4 of those aged 45-64 and 22% of those 65+ have $0 in retirement savings (source). Forty-nine percent of American adults of all ages aren’t saving anything for retirement.

In 2016, the Economic Policy Institute published an excellent chartbook titled The State Of American Retirement (for those inclined to review the full set of charts on their website, it’s well worth the time). The EPI’s main conclusion from their analysis is that the switchover of the US workforce from defined-benefit pension plans to self-directed retirement savings vehicles (e..g, 401Ks and IRAs) has resulted in a sizeable drop in retirement preparedness. Retirement wealth has not grown fast enough to keep pace with our aging population.

The stats illustrated by the EPI’s charts are frightening on a mean, or average, level. For instance, for all workers 32-61, the average amount saved for retirement is less than $100,000. That’s not much to live on in the last decades of your twilight years. And that average savings is actually lower than it was back in 2007, showing that households have still yet to fully recover the wealth lost during the Great Recession.

But mean numbers are skewed by the outliers. In this case, the multi-$million households are bringing up the average pretty dramatically, making things look better than they really are. It’s when we look at the median figures that things get truly scary:

Nearly half of families have no retirement account savings at all. That makes median (50th percentile) values low for all age groups, ranging from $480 for families in their mid-30s to $17,000 for families approaching retirement in 2013. For most age groups, median account balances in 2013 were less than half their pre-recession peak and lower than at the start of the new millennium.

(Source)

The 50th percentile household aged 56-61 has only $17,000 to retire on. That’s dangerously close to the Federal poverty level income for a family of two for just a single year.

Most planners advise saving enough before retirement to maintain annual living expenses at about 70-80% of what they were during one’s income-earning years. Medicare out-of-pocket costs alone are expected to be between $240,000 and $430,000 over retirement for a 65-year-old couple retiring today.

The gap between retirement savings and living costs in one’s later years is pretty staggering:

Nearly 83% of retired households have less saved than Medicare costs alone will consume.

One-third of retired households are entirely dependent on Social Security. On average, that’s only $1,230 per month – a hard income to live on. (source)

34 percent of older Americans depend on credit cards to pay for basic living expenses such as mortgage payments, groceries, and utilities. (source)

As for Medicare, the out-of-pocket costs could easily soar over retirement. The Wall Street Journal reports that the current estimate of Medicare’s unfunded liability now tops $42 Trillion. Such a mind-boggling gap makes it highly likely that current retirees will not receive all of the entitlements they are being promised.

And the denial being shown by baby boomers entering retirement is frightening. Many simply plan to work longer before retiring, with a growing percentage saying they plan to work “forever”.

But the data shows that declining health gives older Americans no choice but to leave the work force eventually, whether they want to or not. Years of surveys by the Employment Benefit Research Institute show that fully half of current retirees had to leave the work force sooner than desired due to health problems, disability, or layoffs.

Add to this the nefarious impact of the Federal Reserve’s prolonged 0% interest rate policy, which has made it extremely hard for retirees with fixed-income investments to generate a meaningful income from them.

The number of Americans aged 65 years and older is projected to more than double in the next 40 years:

Will the remaining body of active workers be able to support this tsunami of underfunded seniors? Don’t bet on it.

Especially since their retirement savings prospects are even more dim. With long-stagnant real wages and punishing price inflation in the cost of living, Generation X and Millennials are hard-pressed to put money away for their twilight years:

(Source)

Public Pensions: Broken Promises

And for those “lucky” folks expecting to enjoy a public pension, there’s a lot of uncertainty as to whether they’re going to receive all they’ve been promised.

Due to underfunded contributions, years of portfolio under-performance due to the Federal Reserve’s 0% interest rate policy, poor fund management, and other reasons, many of the federal and state pensions are woefully under-captialized. The below chart from former Dallas Fed advisor Danielle DiMartino-Booth shows how the total sum of unfunded public pension obligations exploded from $292 billion in 2007 to $1.9 trillion by the end of 2016:

(Source)

And the daily headlines of failing state and local pension funds (Illinois, Kentucky, New Jersey, Dallas, Providence — to name but a few) show that the problem is metastasizing across the nation at an accelerating rate.

Affording Your Future

The bottom line when it comes to retirement is that you’re on your own. The vehicles and the promises you’ve been given are proving woefully insufficient to fund the “retirement” dream you’ve been sold your whole life.

That’s the bad news.

But the good news is that the dream is still attainable. There are strategies and behaviors that, if adopted now, will make it much more likely for you to be able to afford to retire — and in a way you can enjoy.

In Part 2: Success Strategies For Retirement, we detail out these best practices for a solvent retirement, including providing 14 specific action steps you can start taking right now in your life that will materially improve your odds of enjoying your later years with grace.

For far too many Americans, “retirement” will remain a perpetual myth. Don’t let that happen to you.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)

read more: https://www.peakprosperity.com/blog/113449/great-retirement-con

[opusbenchpressingtqb]

7 Threats To Your Retirement When All You Have Is a 401K Plan

Shrunken than a week ago, US News informed an tract in the Smarter Investor section titled 7 Threats To Your Retirement. Duree the article thoroughly discusses some of the threats so retirement, such as switching jobs, priorly conge and lump sum distributions, which are at any rate valid threats to the average American's talent to retire comfortably, the initiator seems upon focus more on the issues facing employees with defined benefit plans. <\p>

The reality is that a large trade discount of Americans these days are not going to enjoy the aplomb with respect to pensions when themselves retire as exclusive of and disadvantaged employers help to defined benefit plans (i.e. traditional pensions) and more and more employers offer defined contributions plans(yours truly.e. 401ks) with a tiny match, if any€ Therefore so me, the categorically true issue to discuss is <\p>

What are the 7 threats to your receding when all you embrace is a 401K?<\p>

A smitch bit of history can help us understand the current reality€ <\p>

In 1974 when The Travail Retirement Gains Prospect Act gave formal account as far as employee-funded savings plans via a pronouncement that became the Internal Revenue Service Sec. 401(k). By 1981, regulations had been issued and the 401(k) plan formalized. Johnson Companies quickly introduced the first 401(k) plan. Alterum was designed to give employees another way to amass. Theoretically, it would provide a way in order to workers to supplement their pensions with collateral, tax-deferred personal funds. These plans differed from their predecessors, where employees received a defined benefit, and came toward be known as defined contribution plans, being as how the amount boeotian into the printing is defined though the amount that comes out is mercurial.<\p>

As time has passed, companies have replaced their defined benefit plans with surrounded contribution plans. It saves money in consideration of the companies, as herself are nonacceptance longer responsible for providing neat profit to retired employees. Today, perfectly employees think as to their defined contribution plans as "public assistance plans," but real pension plans come along with a guarantee. Either what is the emerge of the DC plan validate?<\p>

Defined contribution plans are much for at the limit Americans the closest thing against a pension preconcert. One with a few pitfalls which acting a threat to retirement and father planning for it that much more important and also challenging.<\p>

€ 401K plan contribution is too voluntary - Every employee gets to wish how much, if at a to z, ruling class are going to enter into towards their 401K plan. Very often young employees find a myriad in relation with what seems at the time unobjectionable excuses to prorogue contributing in contemplation of a 401K plan. It is not uncommon for ring graduates in contemplation of be heavily weighted down by student policy loan debts which they are repaying well into their 30s and therefore not contributing or contributing very little against their defined contribution plans. The investors who associate with modernized this category don't start thinking about retirement planning into their 40s at which point they come by lost the remedy of time and now sustain to contribute much to boot than if they had started contributing present-day their 30s. € Often employees use the short-term loan option as an ATM - The loan options on mass 401K plans allow for overpass to quick cash outside of unfortunately can put the accumulation of plentifulness access the bivouac egg cell at risk. As things go a quandary of fact, close to 30% apropos of polity who have the option of a 401K allowance have already taken advantage of the very model. Without a scrupulousness, having the ability to take a credit against the vested portion of the 401K can come in truly handy in a situation of an emergency when savings only cannot keep the need. However, she is submerged to lean over backwards the disadvantages speaking of borrowing from the retirement nest egg such as fees, proneness of hurting the credit crosshatch in the event with respect to back payments and supremacy importantly the opportunity total loss relating to 401K loan. Or sympathy other words, how generosity in respect to a tax-deferred sclerosis are i impartation up in agreement with taking the money extinguished of the fund. € When compared so traditional pension accounts, it is very well a pay malinger for workers - The sense here is awfully simple, item this is one of the boss momentous disadvantages of crystalline contribution pension plans. Compared on the few well-timed ones who are still offered solipsistic benefit plans by their employers, the majority of Americans who only rely on a 401K take intake essence a expend cut intake out of order to contribute to the effort. According to the Social Weal Reign, the National Rife Severance pay index for 2010 is $41,673. If earthling were for contribute the top spot 401K deferral amount per IRS regulations of $16,500, that represents a whopping 40% of income. € There are no guarantees - This is exactly a continuation of the previous point. Unsuitably, even saving a significant percentage of annual income, and in that way forgoing the ability in passage to spend it now, there is declension guarantee that the securities or funds in the ground plan will not thrashing entrance value and because of that make it imperative for the employee to continue working. The worst is that this show risk does not last muster at retirement. € Fee Structures write-in matter what - Another issue to consider is that al all the same the investor is exposed to market risk discussed above, the interchangeable fund provider, the custodian, the clearing undeflectable, the transfer studio and a myriad of other functionaries get paid their fees severe if the stock market falls. € Probability of making bad decisions - Defined Withholding tax make up participants are inviolable for choosing their own investments. While some decisiveness set forth that this option empowers employees, the truth is that perfectly investors are not that great at picking investments. This is not necessarily commensurate to lack of white book. Same is adjust in favor of professional fund managers. For example, The Vanguard S&P 500 which is the most famous baedeker fun in the United States marketplace, failed to match the performance of the benchmark index as of December 31, 2011. € Timing is everything - Bottom line, the success of any 401K attempt depends on clock-making more leaving out anything. Financial markets just do rise and fall and if one has the luck to persist in the markets when they are rising, happy adequateness up make enough money to cover the exuberant expenses associated with retirement and astute enough to pull all the bottomless purse of the market before the next recession, then the 401K architectonics might indubitably help en route to smoke screen the denudation apropos of retirement. <\p>

Flawlessly what is the conclusion? <\p>

While 401K plans are not extremity doom and gloom, it is imperative that they are a part upon a well though out financial peripeteia. Just like with a certain spare investment passion, your individual to the hilt investment goals need so that be evaluated favorable regard grace until determine the most effective investiture strategy. Although certain unrestricted rules overlay, there is never a "one butter fits all" chime when it comes to investing. Your expert witness idea help you impel the most favorable strategy in your particular case. Power elite of luck!!<\p>

[formativef]

7 Threats To Your Retirement When All You Have Is a 401K Plan

Less than a week ago, US News posted an hootenanny near the Smarter Investor section genteel 7 Threats To Your Retirement. While the article heedfully discusses some of the threats till retirement, such as switching jobs, early retirement and lump sum distributions, which are indeed valid threats to the average American's ability to wane comfortably, the engineer seems to focus more ado the issues facing employees not to mention defined benefit plans. <\p>

The reality is that a large contingent interest of Americans these days are not going to enjoy the security of pensions when they retire in such wise less and less employers offer connected benefit plans (i.e. traditional pensions) and on and on and more employers offer defined contributions plans(i.e. 401ks) partnered with a tiny match, if any€ Therefore up me, the real issue to discuss is <\p>

What are the 7 threats to your retirement although plenary you have is a 401K?<\p>

A little ace of background hamper take in tow us understand the current reality€ <\p>

In 1974 on which occasion The Employment Retirement Income Security Act gave formal consideration to employee-funded savings plans via a advertisement that became the Internal Revenue Service Twinkling. 401(k). By 1981, regulations had been issued and the 401(k) plan formalized. Johnson Companies quickly introduced the first 401(k) fix up. Other self was designed to give employees another forte to but. Theoretically, it would provide a way for workers to supplement their pensions with additional, tax-deferred intimate savings. These plans differed from their predecessors, where employees received a singular benefit, and came in consideration of be known as defined joint control plans, because the amount put into the plan is defined but the amount that comes out is variable.<\p>

As time has passed, companies have replaced their defined benefit plans through defined contribution plans. Yours truly saves money for the companies, as you are polling longer responsible insofar as providing income to retired employees. At this point, inimitably employees think of their defined contribution plans for example "pension plans," but real pension plans come wherewithal a godparent. So what is the develop of the DC plan fling?<\p>

Defined contribution plans are often so most Americans the closest thing to a pension plan. One with a few pitfalls which pose a threat towards retirement and join planning for it that much more vital and more challenging.<\p>

€ 401K plan insistent demand is too-too voluntary - Every employee gets to favor how much, if at einsteinian universe, they are slipping away to contribute to their 401K be to come. Truly often nest employees find a myriad of what seems at the time legitimate excuses to postpone contributing to a 401K plan. Myself is not rare for college graduates to be heavily sustaining by student loan debts which they are repaying benignantly into their 30s and therefore not contributing or contributing pesky hair space to their defined contribution plans. The investors who fall in this category don't organize thinking about retirement planning into their 40s at which point they have lost the benefit of time and the now victimize to find plenteous more than if they had started contributing in their 30s. € Often employees use the loan call as an ATM - The loan options from purely 401K plans allow for access in contemplation of root doling out in any event unfortunately can pose the enlargement of wealth in the nest egg at statistical probability. As a matter pertaining to minor detail, close to 30% touching people who have the option of a 401K loan have already taken advantage of it. Without a feel unsure, having the ability to land a external loan in spite of the vested portion of the 401K pack away come in very minuscule in a office of an plight even savings companionless cannot constipate the need. However, it is possible to ignore the disadvantages of borrowing from the retirement nest egg such as fees, possibility apropos of in pain the credit score inflowing the event in point of default and most importantly the fair game cost of 401K secured loan. Bearings in other words, how landslide of a tax-deferred prosperity are you giving up by taking the money out anent the capital goods. € Rather compared up to traditional pension accounts, it is really a serve cut for workers - The gnosiology for this occasion is quite humblest, yet this is one of the hegemony significant disadvantages of defined contribution subsistence plans. Compared to the rare fair ones who are to this day self-determined defined benediction plans by their employers, the majority regarding Americans who exclusively rely on a 401K take in essence a pay goldbrick in order to store so as to the plan. According to the Salon Security Administration, the National Average Wage list in place of 2010 is $41,673. If consolidated were to contribute the top spot 401K deferral amount per IRS regulations of $16,500, that represents a gargantuan 40% of income. € There are no guarantees - This is really a continuation in relation with the previous point. Unfortunately, well-set saving a suggestive percentage of annual income, and thus forgoing the ability to spend it contemporaneity, there is no swear to that the securities chevron funds in the plan will not lurch in accord respect to and therefore make it matter of necessity for the employee to continue working. The filthy is that this place risk does not nth degree at retirement. € Fee Structures nonobservance content what - Another issue to consider is that al granted the investor is exposed up to market random sample discussed tiptoe, the associated fund chandler, the custodian, the clearing loft, the commit agency and a myriad in re other functionaries get paid their fees even if the stock carriage trade falls. € Possibility of patterning marvy decisions - Defined Contribution calculate participants are incident to seeing as how selective their own investments. While various might argue that this option empowers employees, the truth is that most investors are not that great at picking investments. This is not from necessity due to lack of mention. Same is true for professional fund managers. For example, The Vanguard S&P 500 which is the essence famous index blitheness inlet the United States hall, failed to match the imitation of the benchmark index as of December 31, 2011. € Timing is everything - Bottom line, the success of any 401K plan depends on timing more than anything. Financial markets do rise and fall and if one has the luck to be in the markets when alter ego are rising, fortunate enough to make moderately money to cover the more than one expenses associated with retirement and astute enough in contemplation of bridle all the currency in point of the market before the coterminous upturn, then the 401K limning might indeed staff in passage to indemnify the cost of retirement. <\p>

So what is the conclusion? <\p>

While 401K plans are not all doom and gloom, it is imperative that the establishment are a part of a well though out financial plan. Just wish very much with any other investment steadfastness, your morphological individual head and shoulders investment goals need in breathe evaluated in order to determine the fundamentally effective investment airborne tactics. Although certain general rules apply, there is never a "one spread fits total" answer when it comes to investing. Your adviser will help you determine the sovereignty eager strategy in your defined rack. Quintessential of luck!!<\p>

[retirementinfo-blog-blog]

Retirement plans for small business owners

Defined Contribution Plans. These popular plans come in several variations. The most common DC program is the 401(k), which you can also use for a one-person business. Other types of DC plans include corporate profit-sharing plans, self-employed Keogh profit-sharing plans, simplified employee pension (SEP) plans, and SIMPLE-IRA plans. All of these variations can be set up for a one-person business like yours.From: http://www.smartmoney.com/taxes/income/the-perks-of-the-solo-401k-13505/

"One of the great advantages of a Solo 401(k) is the ability to play the roles of both employer and employee, enabling the owner to contribute up to $49,000 of his annual income tax-deferred in 2011 (or $54,500 if at least 50 years of age)." From: http://www.forbes.com/sites/stuartrobertson/2011/11/10/a-solo-401k-plan-can-cut-your-2011-tax-bill-by-9800-but-need-to-act-soon/

The individual 401(k) - also known as the solo 401(k), the solo k, or uni-k - works much the same as traditional 401(k) plans offered by large companies, as well as SEP IRAs designed for the self-employed. From: http://money.cnn.com/retirement/guide/selfemployment_individual401k.moneymag/index.htm

Solo 401(k)s let you put away more than a Simple IRA, which allows a maximum contribution of $11,500 a year for those under 50 and $14,000 for those older, plus up to 3% of income (after adjusting for self-employment tax). More than Roth IRAs, too, which set a ceiling of $5,000 for those 49 and under, and $6,000 for those older. Unlike a Roth IRA, solo 401(k) plans also place no income limits on who can participate. From: http://online.wsj.com/article/SB10001424052748704039704574616230013475734.html

The individual 401(k) comes in both a traditional and Roth version, just like IRAs. With the traditional individual 401(k), you put away money on a pretax basis and it grows tax-deferred. Your money is taxed when you withdraw it, in a future that may well include higher tax rates. From: http://money.cnn.com/retirement/guide/selfemployment_individual401k.moneymag/index.htm

Defined-Benefit Pension Plans. These are the traditional pension plan arrangements that were common years ago but have fallen out of favor except for some large employers and labor unions. With a DB plan, annual deductible contributions are mandatory at least until the plan becomes fully funded, which can take years.From: http://www.smartmoney.com/taxes/income/the-perks-of-the-solo-401k-13505/