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Posts Tagged ‘financial plan’

As the economy improves (think positive) small businesses should be looking again to provide employees with benefits that will ensure their best workers are with them for a long time to come. Health insurance aside the benefits most workers are anxious for are retirement benefits. However, for small business owners choosing and implementing the best retirement plan for the business can be a complicated and time consuming project, so for the next few blogs I will address some of the options available for retirement, the basics you need to know, as a small business owner, and advantages and disadvantages you may want to consider.

First we’ll discuss qualified plans, that is, plans which by definition qualify for tax-preferred treatment by the federal government, usually in the way of tax deductions or credits. When comparing the way in which benefits are determined, there are basically two groups, Defined Contribution Plans and Defined Benefit Plans.

With Defined Contribution Plans the benefit received by the participant depends upon the account balance of the participant when the funds are distributed and the plan itself defines the how contributions are made to the participant’s account.

One class of Defined Contribution Plans is Individual Retirement Accounts or IRAs. IRAs enjoy the following features:

  • Easy to set up and operate,
  • No annual return required,
  • Annual nondiscrimination testing not required, and
  • Immediate vesting of all contributions.

Discrimination testing ensures that the amount of contributions made on behalf of rank-and-file employees is proportional to contributions made on behalf of owners and managers, while vesting refers to employee ownership of the contributions. If contributions are 100% vested, the full amount is accessible to the employee (minus of course taxes due and a 10% penalty if withdrawn before retirement age). If employer contributions are vested according to a vesting schedule then if the employee terminates employment before completing a set number of years (according to the vesting schedule) the employee forfeits a portion of the employer’s contributions to the account. The forfeited amounts are then divided up among the remaining accounts.

A Simplified Employee Pension Plan (SEP) is an IRA that allows employers the option from year to year to make contributions on a tax-favored basis to IRAs of their employees. The employee must set up the IRA to accept the employer’s contributions and all eligible employees must participate in the plan, including part-time employees, seasonal employees, and employees who die or terminate employment during the year.
Sole proprietors, partnerships, and corporations, including S corporations, can set up SEPs. Administrative costs are low and employer may be eligible for a tax credit of up to $500 per year for each of the first 3 years for the cost of starting the plan.

The SIMPLE SEP has the same features as the SEP IRA except the employer must make either matching contributions or contribute 2% of each employee’s compensation. Also the plan must be offered to all employees who have earned income of at least $5,000 in any prior 2 years, and are reasonably expected to earn at least $5,000 in the current year.

In my next blog, we’ll discuss 401(k)s.

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Free Financial Organizer and Planner

Free Financial Organizer and Planner


I am the type of person that likes to start a process at the beginning and follow through to the end. So when I started thinking about how to help someone develop a financial plan, I couldn’t let myself go directly to the planning stage without first going through the ‘get organized’ and the ‘find out where you stand now’ stages. So, I searched the Google web and reviewed ‘umpteen’ financial planners and organizers. I decided which features I liked best and consolidated them into one. The result is “A New Life Begins With A New Plan”, our 54 page financial planner and organizer.

I’m sure that as time goes on I will add more features and updates to the organizer as well as tips and suggestions, but for now you can download our organizer free; no strings attached.

If you’re like me and you need a little motivation to get organized, this should do the trick. It’s like getting a brand new ‘Do It Yourself…’ video. You sit down to watch it and half way through you are saying “Oh, I could do that.” Then by the end of the video you are actually off of the sofa and thinking to yourself “This will just take a jiffy!” (We won’t mention the fact that the completed project looked nothing like the one in the video.)

Anyway to get your free organizer and planner, just go to http://www.getfinancialadvice.com/request-free-financial-planner.html. Enjoy!

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There are numerous areas that a financial plan needs to cover to provide financial security for you and your family. A few of the major areas are:

  • Emergency funds
  • Life insurance
  • Health insurance
  • Disability income insurance
  • Saving for retirement, etc.

There are two rules of thought regarding financial planning and how much insurance and what type of insurance you should purchase:

1. “decide which goals will take priority and work toward the lesser goals only after the really important ones are well provided for“, and

2. Spread your funds to provide at least some protection to each of the major areas of need, or expressed another way “don’t put all your eggs in one basket”.

I was surprised to read the first opinion expressed by a CNN Money Advisor as if it was the one and only answer to the financial security conundrum. I believe the answer depends largely on you and your situation, and in fact for the most part I subscribe to the second rule of thought. Here’s why:

It is rare that someone just beginning the process of financial planning is able to immediately meet even one of their major goals right away, such as having an emergency fund to meet six months of family expenses or purchasing the maximum amount of life insurance truly needed. But, if one is able to, let’s say, purchase a sufficient amount of life insurance, or purchase an adequate disability policy, but cannot do both, then Murphy’s law is bound to apply; in the case that you purchased the life insurance, you will become disabled, and in the case that you purchased the disability policy, a meteor will fall from the sky landing on you, and only you.

On the other hand, if you are employed with a company that offers a wide array of benefits, it may be worthwhile to sign up for the lowest amount of disability insurance and life insurance, even if it means you cannot put as much into a retirement plan. Remember, regardless of your health or employment situation you can put away into a retirement plan. It does not require you to qualify. However, if any factor such as your health, age, or employment changes, you may not be able to purchase life or disability insurance no matter how much money you have in your emergency fund or in your retirement plan.

This is not meant to question the wisdom of contributing as much as possible to a retirement plan (something you definitely want to do), especially when your employer is matching the contribution amount, but it just illustrates why I believe you shouldn’t necessarily feel that you need to complete one goal before starting another.

Again, I believe that each situation is different and that it is the job of the advisor to inform and explain to the client about the options available and the benefits and drawbacks of each, while it is the client’s job to decide which option best fits his/her circumstance.

Anyway, as always, we are interested in your comments. Do you agree? Disagree? Or is there something else on your mind?

Let us know. We are listening.

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