by Stephen Reed | Accounting News, News, Retirement, Tax, Tax Planning - Individual
The House of Representatives recently voted to approve the Setting Every Community Up for Retirement Enhancement or SECURE Act, which would expand access to retirement savings programs for part-time workers and people employed by small business owners.
If the SECURE Act Passes…
If the bill passes the Senate, which it’s expected to do, it will be placed on President Trump’s desk. If signed into law, the SECURE Act would implement the most significant changes to retirement plans since 2006.
The bill aims to entice non-savers to participate in workplace retirement programs, such as a 401(k), so some of the provisions include:
- Raising the age that American workers must start withdrawing from retirement savings, known as the required minimum distribution age, from 70 ½ to 72. This is to reflect the fact that more Americans are working longer, and in this vein, the bill also stipulates more years for people to contribute to retirement accounts.
- Increasing tax incentives for small business employers to offer retirement plans by increasing the tax credit for new plans from the current cap of $500 to $5,000, or $5,500 for plans that automatically enroll new workers.
- Allowing part-time workers to participate in 401(k) plans. The current minimum requirement for part-time employees is 1,000 hours in a 12-month period, but the SECURE Act would amend this requirement to 500 hours, effective January 2021. However, this isn’t mandatory, so it would be at the discretion of the employer.
The SECURE Act would also permit parents to withdraw up to $5,000 from retirement accounts penalty-free within a year of birth or adoption for qualified expenses. Parents could also withdraw up to $10,000 from 529 plans to repay student loans.
What Does the Federal Reserve Say?
According to the Federal Reserve’s annual study, only 36% of Americans feel that their retirement savings are on track, while 25% of Americans have no retirement savings to speak of. Part of this is due to the fact that, because of the cost and complexity of putting retirement savings plans in place, many small businesses don’t offer such plans to their employees. The SECURE Act aims to incentivize small business owners to offer retirement plans by making it easier for small businesses to implement multi-employer retirement plans—where two or more employers join together to offer a plan. This would potentially give small businesses access to lower cost plans with better investment options, thereby possibly giving millions more workers an opportunity to save at work.
In short, this legislation is important because it would remove some barriers that have kept American workers from saving for retirement, specifically through employer-provided plans and incentives. If you have questions or would like to talk about how the information in this article may impact you personally, please reach out to me at [email protected] and we’ll schedule a time to talk.
by Jean Miller | Accounting News, News, Retirement, Tax, Tax Planning - Individual
Mismanaged money, investment duds, a blown budget (or no budget), bad habits, the proverbial hole in your pocket. If financial regrets weren’t a thing, we wouldn’t need the Dave Ramseys of the world, but there’s a difference between splurging on an artisan cup of coffee and making a financial blunder that could have ramifications for years to come.
Some red flags that you’re about to jump into a bad financial decision include needing to justify your rationale, a lack of thorough research and homework, depending on a payment you haven’t received, falling for a too-good-to-be-true scheme, and not paying attention to that internal tugging known as instinct. You might say that you’re effectively ignoring these red flags if you’re tempted by any of the following common financial mistakes that could cause long-term consequences.
Taking a Loan from a 401(k)
Yes, you usually have five years to pay it back, and yes, it’s your money after all, but those who borrow from their 401(k) usually reduce or suspend contributions while they’re repaying the loan. This means they’re going months or even years without contributions, missing out on investment growth and company matches. Not to mention the interest on the 401(k) loan. It’s also a gamble because if you leave your company, the loan must be repaid within 60 days.
Claiming Social Security Early
Waiting until age 70 to tap into your Social Security is your best bet, but it’s generally recommended to wait at least until your full retirement age (currently 66-67). The earliest age to withdraw benefits is 62, but your monthly check would be reduced by approximately 25% for the rest of your life.
Making the Minimum Payment on Credit Cards
With mounting interest costs, it can take years to pay off credit card debt, especially if consumers continue to spend with credit cards while only paying the minimum payment. If possible, transfer the balance to a lower-rate card, and always try to pay more than the minimum payment due. Even a small increase in monthly payments can save you on interest.
Not Saving for Retirement
Unless you’re fresh out of college, you should start saving for retirement yesterday. Don’t think you can wait until you start making more money. According to Morningstar, and assuming a 7% annual rate of return, someone who starts saving for retirement at 25 years old would need to save $381 a month to hit $1 million by the time they turn 65. Compare that to someone who starts saving for retirement at 35 ($820 a month) or 45 ($1920).
Foregoing Professional Advice
Do you have a valid will? Have you legally appointed beneficiaries for your retirement accounts? Financial advisors will help with this as well as anything from taxes and insurance to retirement savings and estate planning.
Refraining from Investing
Sure, there’s risk involved, but by diversifying your investment in a mix of large, small, domestic, and foreign stocks, you reduce the possibility of getting hit with a big loss. Perplexed on where to begin? See “Foregoing Professional Advice” above.
And while your nest egg should keep growing after retirement, most financial planners recommend decreasing risk by gradually pulling away from investing in stocks.
Falling for Scams and Raw Deals
According to the FTC, Americans lost a collective $765 million to telephone, text, mail, email and face-to-face scams in 2015. Requests to wire money; or pay fees before receiving anything; or provide personal information, bank information, or sensitive financial information should be met with extreme skepticism. If you suspect a scam, conduct a quick Google search with any information you have on the product or company, including key words like “scam” or “review”. If your suspicion is confirmed, be sure to file a complaint with the FTC and your local consumer protection office.
by Jean Miller | Accounting News, Business Consulting, News, Professional Services, Tax Consulting, Tax Planning
Considering joining the “startup” world but unsure how to find funding? Whether you’re simply in the research phase or you’ve developed a full blown business plan and have some capital, below are the most common ways new startups, who aren’t yet ready for venture capital, fund their business.
- Personal Savings
Personal capital is the most relied on source by entrepreneurs, according to the Small Business Administration. Many entrepreneurs dedicate a good chunk (or occasionally the whole lot) of their personal savings to their new venture, often relying on family or friends for a little help paying the bills or a place to crash if they find themselves in a bind. However, consider speaking with family and friends before you start to ensure they will be there to pick you up if needed, and always leave yourself a small nest egg in case the venture goes awry.
- Credit Cards
Credit cards are certainly the easiest, but most dangerous, form of funding. They provide easy and quick access to a significant cash flow before founders can give themselves a full salary, but they can also put founders in the hole by losing money to late fees or damaging their personal credit. Be careful about how much you rely on credit cards now, as it could prove to be a major hang-up in your future.
- Personal Wages
Many entrepreneurs take it slow, or develop their business or product on the side, while continuing to work a day job and receive income. This avenue may be the most exhausting, or time consuming, by essentially working two jobs, but may be the most financially viable and more common than many realize. The founder of YouTube, Steve Chen, was still employed at Facebook when he began his video platform venture.
- Crowdfunding
The age of the internet has provided entrepreneurs with a wealth of new resources when it comes to funding. Sites like Indiegogo or Kickstarter allow individuals to raise money by “soliciting” online funders for their product, game or other business. Backers take the risk that they may not be repaid in the anticipated time frame, while founders must be aware that not delivering risks ruining their reputation and their chance for future ventures.
- Loans
Founders can go the traditional route of seeking out a bank or other loan service, or they can consider the newer concept of peer-to-peer online loan platforms like Upstart or LendingClub. Entrepreneurs have many lines of credit or business loans at their disposal, but should take into account the payback of such options, which often include interest.
New business venturers have a bevy of funding possibilities to consider, even if they are not established enough for venture capital funding, but proper planning and multiple financing avenues are always advisable. Talk to family, friends, and trusted financial advisors before jumping into the unknown of owning your own business, and find a funding plan that places you on the path to success.
