by Stephen Reed | Accounting News, News, Retirement Savings
The IRS has made some changes for Americans saving for retirement with 401(k) and IRA accounts in 2022. We discuss these changes, as well as what’s staying the same, below.
Changes to 401(K)s
Contribution limits to workplace 401(k)s are going up in 2022. Workers will be able to contribute up to $20,500, which is a $1,000 increase over the contribution limits set in 2020 and 2021. This limit increase also applies to 403(b), most 457 plans, and the federal government’s Thrift Savings Plan. However, the catch-up contribution limit for employees ages 50 and up will not be changing. That limit will remain $6,500.
The contribution limit for a SIMPLE IRA—a retirement plan intended for small businesses with 100 or fewer employees—will increase next year as well. Workers with this plan will be able to invest up to $14,000, up from $13,500. Just as with 401(k)s, though, the catch-up contribution limit for workers at least 50 years old will remain the same. This limit is $3,000.
Changes to IRAs
Unlike 401(k) contribution limits, the limit on annual contributions to an Individual Retirement Account (IRA) is not increasing in 2022. It will remain at $6,000. Likewise, the catch-up contribution limit will remain the same at $1,000. However, income limits for making deductible contributions to a traditional IRA are going up, as are the income limits for making any type of contribution to a Roth IRA.
Income limits for traditional IRAs in 2022 will change as follows:
- For single tax filers covered by a workplace retirement plan, the eligibility for full contribution limit is increasing from $66,000 to $68,000. The phase-out limit is increasing from $76,000 to $78,000.
- For married joint filers who are personally covered by a workplace retirement plan, the income limit for full eligibility is increasing from $105,000 to $109,000. The phase-out limit is increasing from $125,000 to $129,000.
- For married joint filers whose spouse is covered by is a workplace retirement plan even though you aren’t, the income limit for full eligibility is increasing to $204,000, up from $189,000. The phase out limit is increasing from $198,000 to $208,000.
Income limits for Roth IRA in 2022 will change as follows:
- Income eligibility for single tax filers and heads-of-household is increasing to $129,000 from $125,000. The phase-out limit will also be increasing—from $140,000 to $144,000.
- Income eligibility for joint filers will increase to $204,000 for full contributions. This is up from $198,000. Additionally, the phase-out limit is increasing from $208,000 to $214,000.
by Stephen Reed | Accounting News, News, Retirement Savings, Uncategorized
The Roth IRA is a unique retirement savings tool. While there is no upfront tax break with a Roth IRA, it grants you tax-free management of your income and gains as long as you retain your investments within the account. Roth IRAs are also flexible, which allows for better access to your funds than traditional retirement accounts. However, the five-year rule—which is actually a set of rules—dictates the penalty and tax-free eligibility of your Roth IRA withdrawals. Here are the rules investors need to be aware of.
Your First Contribution
In order to avoid taxes on distribution from your Roth IRA, you must wait five years after your first contribution to withdraw your earnings tax-free. The five-year period begins on the first day of the tax year for which you made a contribution to any Roth IRA, not necessarily the specific Roth IRA account you’re withdrawing from. For example, if you put money into a Roth IRA for the first time in early 2020 but contributed it toward the 2019 tax year, then the five-year waiting period will end on January 1, 2024.
Because the money you contributed to the Roth IRA was an after-tax contribution, if you withdraw funds before the five-year period, only the growth of the account is potentially subject to income tax.
One more point to make note of in regards to the five-year rule: This rule supersedes the one that states you must be 59 ½ in order to withdraw from a Roth IRA without incurring taxes and penalties. This means that even if you meet the age requirement when you withdraw, you still must have made your first contribution at least five years prior in order to avoid being taxed. You won’t owe a 10% penalty fee for early withdrawals, but you’ll still owe tax on any withdrawals above the amount contributed.
- Penalty for breaking this rule: You will be required to pay taxes on the earnings portion of the withdrawals. However, Roth IRA withdrawals give preference to contributions before earnings. Therefore, if you have enough cumulative contributions to cover the amount you wish to withdrawal before the five-year mark of your first contribution, you may be able to make the withdrawal tax-free.
Roth Conversions
There is an additional five-year rule that was established in order to prevent people from using Roth conversions to gain penalty-free access to their traditional retirement accounts. This rule, therefore, applies to those who convert other kinds of retirement accounts, such as a 401(k), into Roth IRAs. This rule starts on Jan. 1 of the year in which you do the conversion. As a result, if you convert in, say, Nov. 2021, you will only need to wait a bit longer than four years (Jan. 2026) before taking withdrawals.
However, unlike the first-contribution five-year rule, this rule applies individually to each Roth conversion you do. All new conversions start their own five-year clock, and you’ll need to account for multiple conversions to be sure you don’t withdraw too much money too soon.
It’s important to note that if you’re using the backdoor Roth IRA strategy (i.e., contribute to a traditional IRA then immediately convert the account to a Roth IRA), this five-year rule will treat your “Roth contributions” as conversions, and you can’t withdraw them for five years without penalty.
- Penalty for breaking this rule: You will be required to pay a 10% penalty on any withdrawals, including withdrawals of the amount you initially converted (this is on top of the taxes you already paid on that amount). However, if you are over age 59 ½, the age exception will apply, and you can immediately take withdrawals penalty-free.
Inherited IRAs
First, inherited IRAs are also subject to the first-contribution five-year rule. Therefore, if the original owner’s initial contribution was less than five years before you inherited the account, the earnings are subject to taxes.
If you inherit a Roth IRA from someone who is not your spouse, you have a couple of options. The first is to spread out distributions from the inherited IRA up to 10 years, taking required minimum distributions (RMDs) based on your life expectancy each year (if the account owner lived beyond the RMD age, this is your only option.). The second option is to take lump-sum distributions. If you choose this option, you are obliged to exhaust the account by Dec. 31 of the fifth year succeeding the death of the original owner. While you can take distributions of any amount up to that date, you are required to withdraw 100% of the funds by the end of the fifth year.
- Penalty for breaking this rule: If you don’t withdraw 100% of funds from an inherited IRA by the end of the fifth year after the owner’s death, the remaining balance is subject to a 50% penalty.
by Stephen Reed | Accounting News, Business Growth, Industry - Veterinary Medicine, News
With big-box retailers and ecommerce powerhouses like PetSmart, Walmart, and Chewy.com offering online pharmacies, private practices are finding that their bottom lines are being affected. Now is the time to strengthen your clinic’s pharmacy with proactive business strategies. Here’s how.
Send Refill Reminders
Your practice likely already sends reminders for vaccines, so sending refill notices for preventatives and prescriptions are a natural extension of this practice. Because text messages have a 99 percent open rate—as opposed to the 33 percent open rate of health-care emails—text prompts are likely your best route. You can also print refill reminders on prescription labels.
Reinforce Client Relationships
When you receive the fax from the internet pharmacy, instead of immediately signing it, take a minute to connect with the client, especially if the client’s pet is overdue for an exam and heartworm test because you have the opportunity to make an appointment. Even if their pet is up to date, reinforcing the doctor-client-patient relationship with a phone call is important. It also gives you an opportunity to explain to the client how your hospital buys safe drugs directly from pharmaceutical companies, your staff receives regular training on medications, and your pharmacy offers competitive prices. If you can offer any additional savings on particular brands, or if you have an online store and a home-delivery option, now is the time to make sure the client is aware of these services.
Set Up an Online Store with Home Delivery and Auto-Ship Benefits
With your own online pharmacy, you can offer your clients home-delivery of medications with auto-ship benefits by partnering with veterinary distributors. Offering an auto-ship option assures the client that they will never be in need of long-term prescriptions and preventatives. If the client purchases a six-month supply of flea and tick medication, set up an auto-ship refill in five months when the client will have one dose remaining. This is especially helpful in regards to heartworm medication because near the end of a 12-month supply, you can send reminders to the client for an exam, heartworm test, prescription renewal, and additional preventative services.
Begin Offering Home-Delivery of Pet Food
Home delivery helps to cross one more errand off of your clients’ to-do lists. It’s a time-saver for working professionals, a relief for older seniors, and a natural move for anyone who regularly orders online. You can seamlessly get clients started with recurring shipments during exams, offering them a starter bag of food, and assuring them that their online order will arrive on their doorstep in just a few days.
by Stephen Reed | Healthcare, Industry - Healthcare, News
Escalating healthcare costs have been problematic in the U.S. for a long time. A range of proposals have been presented in an effort to undertake the issue, including single-payer healthcare and more free market solutions with a goal of boosting competition. RAND Corporation recently analyzed hospital costs and what could be done to limit them. They found that regulating hospital prices by setting (or capping) what private health plans pay could cut hospital spending by $61.9 billion to $236.6 billion per year. However, researchers found that this method has the most political resistance.
The Study
Using nationwide data from the federal Hospital Cost Report Information System, RAND’s study compared three policy options to determine which one would have the most influence on cutting costs:
- Regulating hospital prices
- Improving price transparency
- Increasing competition among hospitals
The study found that although improving price transparency and increasing competition among hospitals could reduce costs, neither option would have as dramatic an outcome as price regulation. They estimate that price transparency could reduce costs by $8.7 billion and increasing competition—depending on the size of the change and market price sensitivity—could reduce spending by $6.2 billion annually.
Policy Challenges
All three policy options present challenges and are heavily reliant on several factors:
- Price transparency: Success would vary in patient-driven scenarios (patients utilizing the information to research lower process) and employer-driven scenarios (employers establishing health plans that guide patients toward lower-cost hospitals).
- Price regulation: Researchers tested this by switching average commercial plan costs to an amount similar to Medicare costs for a given hospital. Despite evidence of significant cost-saving potentials, researchers found major barriers to price regulations, including hospital closures, erosion of quality, and discouraging political hurdles.
- Competition: Because current hospital markets are so concentrated, policymakers would need to thoroughly restructure hospital markets over and above what the study modeled for prices to reach competitive levels.
Political Pushback and Moving Forward
As reported by the Centers for Medicare and Medical Services, U.S. healthcare costs amounted to $3.8 trillion in 2019. Hospital spending accounted for the majority of that at 31% and increased to $1.2 trillion later that year. Although the study shows price regulation would have the most direct effect on reducing hospital spending, researchers pointed out that this approach routinely encounters the most political pushback, and the hospital community has decisively lobbied against price regulation, especially at prices comparable to Medicare. Moving forward, policymakers will need to consider the possible impact of various policies on hospital earnings and the quality of care as they examine alternatives for slashing hospital prices. They will also need to consider the political and administrative workability of all options.
by Stephen Reed | Accounting News, Business Growth, COVID-19, News
The Covid-19 pandemic has proven to business owners that a major key to long-term growth and success is found in digital strategy. No matter your industry or niche, businesses need the following core attributes in order to prosper in a post-pandemic digital world.
Adopt a Flexible Mindset
Technology is perpetually changing and progressing, and it will continue to shake up the way we work. When small businesses adopt a flexible mindset, they are prepared to assess new technology and expedite change as needed. This swift adaptation allows them to gain the biggest benefits of new technology.
At minimum, make sure you have an online presence with an up-to-date website as well as active and engaging social media accounts. You will also want to create a digital marketing plan—or hire a marketing agency to create one for you.
Learn to Outsource
As an entrepreneur you might be in the habit of doing everything yourself, but the digital world moves too quickly to be able to sustain growth this way. The most effective and efficient way to run your business includes outsourcing. Smart and calculated outsourcing can tremendously boost your profits and productivity. Essentially, you are trading some measure of control over your business for “extra” time, allowing you to work smarter and more efficiently. Depending on your industry, outsourcing opportunities could include tasks such as:
- Accounting and tax preparation
- Payroll
- Web and marketing design
- Copywriting
- IT management
- Social media marketing
Embrace Digital Communication
Consistent communication efforts through digital networks are essential in today’s internet landscape for gaining and retaining clients. By giving your clients multiple channels of communication through a website, social media accounts, and email—and responding to feedback and questions in a timely manner—you have the opportunity to troubleshoot issues as they arise, improve satisfaction with clients, and retain a loyal client base. You also have the opportunity to expand your reach, share specialized messaging, and establish valuable relationships with audiences across online channels. Some ways to connect and communicate with both existing and prospective clients include:
- Launching social media campaigns
- Distributing an email newsletter
- Running banner ads
- Publishing blog posts and articles
- Sending discounts and offers through email
- Offering how-to videos, web series, and behind-the-scenes looks at products and processes through a YouTube channel
Install Cybersecurity
No matter how small your business, it is a target to hackers who want access to sensitive information of both your company and your clients. And as more companies go digital, attacks will only increase. A surefire way to lose trust in a client is to expose their sensitive data through a security breach. Invest in at least basic cybersecurity in order to safeguard your website and other digital accounts from malware attacks or phishing scams.
Some key elements to start protecting your business include:
- Install an SSL certificate for your website
- Make sure you have a firewall
- Keep software and systems up-to-date
- Use strong passwords
