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Jun 17

Retirement Plan Options for Small Businesses

By Advice

The SECURE Act and CARES Act may complicate the decision.

Provided by the American Wealth Management Team

As a small-business owner, figuring out retirement choices can be a little intimidating. How do you pick the most appropriate retirement plan for your business as well as your employees?

There are three main types of retirement plans for small businesses: SIMPLE-IRAs, SEP-IRAs, and 401(k)s. Read on below to learn more about each type of retirement plan. Also, keep in mind that recent legislative changes that occurred with the passing of the SECURE Act and CARES Act may complicate the decision.

SIMPLE-IRAs.

SIMPLE stands for Savings Incentive Match Plan for Employees. This is a traditional IRA that is set up for employees and allows both employees and employers to contribute. If you’re an employer of a small business who needs to get started with a retirement plan, a SIMPLE-IRA may be for you. While this plan doesn’t require an employee to contribute, employers must contribute 2% of their employee’s salary to a retirement fund. If you do choose to offer a matching contribution to your employee’s SIMPLE-IRA plan, you can match up to 3% of your employee’s compensation. Employees can also participate in a SIMPLE-IRA plan by having automatic deductions go straight from their paycheck to their SIMPLE-IRA.1,2,3

Distributions from SIMPLE-IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. However, during the 2020 calendar year, the CARES Act allows eligible participants to take an early distribution of up to $100,000 without paying the 10% penalty. Generally, once you reach age 72, you must begin taking required minimum distributions.

For a business to use a SIMPLE-IRA, it typically must have fewer than 100 employees and cannot have any other retirement plans in place. There are also no filing requirements required by the employer.2

SEP-IRAs.

SEP plans (also known as SEP-IRAs) are Simplified Employee Pension plans. Any business of any size can set up one of these types of retirement plans, including a self-employed business owner. This type of retirement plan may be an attractive option for a business owner because a SEP-IRA does not have the start-up and operating costs of a conventional retirement plan. It also allows for a contribution of up to 25% of each employee’s pay. This is a type of retirement plan that is solely sponsored by the employer, and the contribution to each employee’s SEP-IRA must be the same amount. Employees are not able to add their own contributions. Unlike other types of retirement plans, contributions from the employer can be flexible from year to year, which can help businesses that have fluctuations in their cash flow.4

Much like SIMPLE-IRAs, SEP-IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. The CARES Act applies to SEP-IRAs too. Generally, once you reach age 72, you must begin taking required minimum distributions.

401(k)s.

401(k) plans are funded by employee contributions, and in some cases, with employer contributions as well. In most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 72. Withdrawals are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. As of right now, the CARES Act exemptions apply only in the 2020 calendar year.5

Because of the recent legislative changes, resulting from the passage of the SECURE Act and the CARES Act, let’s talk further about which of these plans may work best for you and your business.5

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This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Investment advice offered through American Wealth Management (“AWM”), a SEC-registered investment adviser. Certain personnel of AWM may also be registered representatives of M.S. Howells & Co. (“MSH”), Member FINRA/SIPC, a registered broker-dealer, and therefore, may offer securities through MSH. AWM and MSH are not affiliated entities.

Citations.
1 – IRS.gov, January 15, 2020
2 – IRS.gov, January 8, 2020
3 – IRS.gov, January 9, 2020
4 – IRS.gov, January 15, 2020
5 – U.S. Chamber of Commerce, February 20, 2020

Jun 02

Making a Charitable Contribution

By Advice

There are benefits and limitations when you decide to donate stock.

Provided by DJ Lee, CFA

Why sell shares when you can gift them?

If you have appreciated stocks in your portfolio, you might want to consider donating those shares to charity rather than selling them.

Why, exactly? Donating appreciated securities to a tax-exempt charity may allow you to manage your taxes and benefit the charity. If you have held the stock for more than a year, you may be able to deduct from your taxes the fair market value of the stock in the year that you donate. If the charity is tax-exempt, it may not face capital gains tax on the stock if it sells it in the future.1

Keep in mind this article is for informational purposes only. It’s not a replacement for real-life advice. Make sure to consult your tax, legal, and accounting professional before modifying your gift-giving strategy.

When is donating stock a better choice than gifting cash or just selling the shares? There are several reasons to consider donating highly appreciated stock to a tax-exempt charity. For example, you may own company stock and have the opportunity to donate some shares. There also are potential tax benefits to consider if you donate appreciated securities that you have owned for at least one year.2

If you sell shares of appreciated stock from a taxable account and subsequently donate the proceeds from the sale to charity, you may face capital gains tax on any potential gain you realize, which effectively trims the tax benefit of cash donation.3

When is donating cash a choice to consider?

If you provide the charity with a cash gift, there may be some limitations. Cash gifts are deductible up to 50% of adjusted gross income. As an example, if a donor in the top 37% federal tax bracket gives a 501(c)(3) non-profit organization a gift of $5,000, the net cost can work out to just $3,150 with $1,850 realized in tax savings. A donor may also need to consider the possible implications of state taxes in addition to federal.2

If you donate shares of depreciated stock from a taxable account to a charity, you can only deduct their current value, not the value they had when you originally bought them.3

Remember the tax rules for charitable donations. If you donate appreciated stock to a charity, you may want to review I.R.S. Publication 526, Charitable Contributions. Double-check to see that the charity has non-profit status under federal tax law, and be sure to record the deduction on a Schedule A that you attach to your 1040.4,5

If your contribution totals $250 or more, the donation(s) must be recorded – that is, the charity needs to give you a written statement describing the donation and its value and whether it is providing you with goods or services in exchange for it. (A bank record or even payroll deduction records can also denote the contribution.)

If your total deduction for all non-cash contributions in a tax year exceeds $500, then complete and attach Form 8283 (Noncash Charitable Contributions) to your 1040 when filing. If you donate more than $5,000 of property to a charity, you will need to provide a letter from a qualified appraiser to the charity (and by extension, the I.R.S.) stating the monetary value of the gift(s).4,5

Gifting cash or securities to an organization is a wonderful opportunity. But keep in mind that tax rules are constantly being adjusted, and there’s a possibility that the current rules may change. Make certain to consult your tax, legal, and accounting professionals before starting a new gifting strategy if you intend to use the gift as a tax deduction.

 

If you have questions about your finances, take advantage of American Wealth Management’s 1- hour no-cost financial consultations. Submit this form to us and we will contact you to schedule a video call with one of our advisors.

American Wealth Management Reno, Nevada

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DJ Lee is an Investment Adviser Representative of American Wealth Management (“AWM”), an SEC‐registered investment adviser. Any opinions or views expressed by Mr. Lee are solely those of Mr. Lee and do not necessarily reflect the opinions or views of AWM or any of its affiliates, or any other associated persons of AWM. Any such views are subject to change without notice. You should not treat any opinion expressed by Mr. Lee as investment advice or as a recommendation to make an investment in any particular investment strategy or investment product. Mr. Lee’s opinions and commentaries are based upon information he considers credible, but which may not constitute research by AWM. Mr. Lee does not warrant the completeness or accuracy of the information upon which his opinions or commentaries are based.

Neither Mr. Lee nor AWM has any duty or obligation to update the information contained herein. Further, no representations are being made, and it should not be assumed, that past investment performance is an indication of future results. Moreover, wherever there is the potential for profit there is also the possibility of loss.

This article is for informational and educational purposes only and should not be used for any other purpose. The information contained herein does not constitute and should not be construed as an offering of advisory services or an offer to sell or solicitation to buy any securities or related financial instruments in any jurisdiction. Certain information contained herein concerning investment product types, economic trends and performance is based on or derived from information provided by independent third‐party sources. Neither Mr. Lee nor AWM can guarantee the accuracy of such information and neither Mr. Lee nor AWM have independently verified the accuracy or completeness of such information or the assumptions on which such information is based.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – Fidelity.com, October 9, 2019

2 – Forbes.com, October 19, 2019

3 – Schwab.com, August 13, 2019

4 – Vanguardblog.com, September 19, 2019

5 – IRS.gov, March 3, 2020

May 04

Business Continuity Plans: Prepare now to better protect your business

By Advice, News

As a business owner, you’ve worked hard for your success. The long hours, the difficult decisions, and the sacrifices you have made have led to where you are today. The last thing you want is to suffer a disruption to your business. However, in the event that you do experience an unavoidable mishap­, it may be smart to have a Business Continuity Plan (BCP) in place.

What is a Business Continuity Plan (BCP)?

A BCP is a document that maps out a business’ system of prevention and recovery from potential threats or disruptions. A sound BCP ensures that personnel and assets are protected and empowered to take quick action in the event of a disaster. It is important to remember that a BCP should be conceived in advance and may involve input from key stakeholders and personnel.1

What is considered a “business disruption”?

In general, a “disruption” is anything that causes a business to suffer a loss due to unforeseen events, such as damage to one’s facility, the breakdown of essential machinery, a supplier failing to deliver essential goods or a technology-related malfunction.2

What are the components of a BCP?

A BCP should be unique to your business, but there are some common factors consistent among all continuity plans. Creating a business continuity plan includes four steps:

  1. Conduct a business impact analysis to identify time-sensitive or critical business functions. Be sure you have the resources to support those tasks.
  2. Identify, document, and implement processes that are essential to the recovery of your business.
  3. Create a continuity team and compile a step-by-step plan that they can enact during a business disruption.
  4. Make certain your team is trained and ready. This may take the form of testing or other exercises to evaluate the strength and viability of your recovery strategy.3

Be prepared. A BCP is only helpful if it’s put in place early and updated regularly. Some time, care, and training now may help your business weather a storm down the road. Don’t delay; start putting your business continuity plan together soon.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.
Investment advice offered through American Wealth Management (“AWM”), a SEC-registered investment adviser. Certain personnel of AWM may also be registered representatives of M.S. Howells & Co. (“MSH”), Member FINRA/SIPC, a registered broker-dealer, and therefore, may offer securities through MSH. AWM and MSH are not affiliated entities.
Citations.
1 – Ready.gov, 2020
2 – Investopedia.com, 2019
3 – Ready.gov, 2020
Jan 17

Retirement: You’ve Got This!

By Advice

Prepared for retirement?

Not everyone is financially prepared for retirement. Earlier this year, the Employee Benefit Research Institute estimated almost 41 percent of American households will run short of money in retirement. That’s an improvement over 2014 when almost 43 percent of 35- to 64-year-olds were unprepared.1

Here is some good news:

Many Americans are doing better financially in retirement than they expected.2

Each year, T. Rowe Price conducts a survey of Americans who participate in or are eligible to participate in employer-sponsored 401(k) plans. The results have consistently confirmed retirees’ experience exceeds workers’ expectations.2

For instance, people who have been retired for 10 or more years were asked, “Given your savings, income, and expenditures, which of the following statements are true of your retirement?” The answers may be surprising to some:2

  • 81 percent have enough money to pay for healthcare
  • 72 percent live as well as or better than when they were working
  • 66 percent will be able to leave money to family members or charity
  • 28 percent will be able to help out younger family members with tuition/housing
  • 11 percent will work at least part-time in retirement
  • 10 percent will run out of money

While retirement has a different story for everyone, the survey found satisfied retirees tended to have more income than unsatisfied retirees:2

  • Median household income: $90,000 vs. $65,000
  • Average household debt: $15,000 vs. $24,000
  • Money in retirement accounts: $370,000 vs. $281,000

Even when you have set aside significant savings and investments, transforming accumulated wealth into a steady stream of income that will support you throughout retirement can be challenging. Many strategies for generating retirement income include one or more of the following resources:

Social Security:

Nine out of 10 Americans receive Social Security benefits in retirement. It’s a steady source of income that is periodically adjusted for inflation. The average monthly benefit in June 2019 was $1,471.3, 4

Retirement plan savings:

A fair number of American workers have set aside savings in defined contribution plans, like 401(k), 403(b), or 457 plans. When it’s time to retire, talk with an investment professional before taking any action. Taking the right steps can ensure you don’t lose tax advantages or pay too much in taxes when you take plan distributions.3

Pensions:

Just 17 percent of Americans working in the private sector have pension plans that will provide steady income after retirement. If you have a pension, the amount of income will be determined by your tenure, earnings, and retirement age. If you’re not sure whether your employer offers a pension, talk with the Human Resources department.5

Other retirement accounts:

Many people own traditional IRAs, Roth IRAs, and other types of retirement accounts that can provide income during retirement. Distributions from traditional IRAs are usually taxed as ordinary income, while distributions from Roth IRAs are tax-free, as long as certain conditions are met.*6

Stocks and bonds:

Many people have savings invested in stocks and bonds. Some stocks pay dividends and some bonds pay interest. Both can be sources of retirement income.7

Health Savings Accounts (HSAs):

If you have high-deductible health insurance, then you may qualify for an HSA. It provides an opportunity to save pre-tax money in an account that can be used to pay qualified medical expenses today or in retirement. You can invest the savings in your HSA, too.8

Inheritance:

Receiving an inheritance from parents or loved ones is less common than many people think. The most recent research from the Bureau of Labor Statistics found from 1989 to 2007, just 21 percent of American households received an inheritance. If you’re one of the lucky few, the assets you receive can be used to generate income in retirement or leave a legacy for your heirs.9

Guaranteed income sources:

Having a stable and predictable income is a high priority for many retirees. The 2019 Retirement Confidence Survey reported income stability is a higher financial priority than conserving wealth for two out of three retirees. There are a variety of products in the market that offer guaranteed income.10

Home equity:

Your home is probably one of your most valuable assets. Your equity – the difference between the value of your home and what you owe on your home – could be a source of retirement income. Home equity loans and reverse mortgages can help you access home equity without selling your home.11

The first step in building a retirement income strategy is deciding what you want life in retirement to be like. Once you know, you can estimate costs and develop a plan. Typically, a sound retirement income strategy will have guaranteed income, flexibility, and growth potential.

*Distributions from Roth IRAs generally will be tax-free and penalty-free, as long as the account has been owned for five or more years and the owner is age 59½ or older.

Sources:
1 https://www.ebri.org/content/retirement-savings-shortfalls-evidence-from-ebri-s-2019-retirement-security-projection-model
2 https://www.troweprice.com/content/dam/fai/Collections/DC%20Resources/helping-workers-prepare-for-successful-retirements/DCSystemSuccess.pdf
3 https://www.finra.org/investors/learn-to-invest/types-investments/retirement/managing-retirement-income/sources-retirement-income
4 https://www.ssa.gov/news/press/factsheets/basicfact-alt.pdf
5 https://money.usnews.com/money/retirement/articles/a-guide-to-getting-a-pension
6 https://www.investopedia.com/ask/answers/102714/how-are-ira-withdrawals-taxed.asp
7 https://www.investopedia.com/articles/financial-advisors/020116/are-dividend-stocks-good-substitute-bonds.asp
8 http://www.hsabank.com/hsabank/learning-center/health-savings-accounts
9 https://www.bls.gov/osmr/research-papers/2011/ec110030.htm
10 https://www.ebri.org/docs/default-source/rcs/2019-rcs/2019-rcs-short-report.pdf
11 https://www.investopedia.com/mortgage/reverse-mortgage/reverse-mortgage-or-home-equity-loan/

This material was prepared by Carson Coaching. Carson Coaching is not affiliated with the named broker/dealer or firm.

Investment advice offered through American Wealth Management (“AWM”), a SEC-registered investment adviser. Certain personnel of AWM may also be registered representatives of M.S. Howells & Co. (“MSH”), Member FINRA/SIPC, a registered broker-dealer, and therefore, may offer securities through MSH. AWM and MSH are not affiliated entities.

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