|Medicare’s annual open enrollment period begins October 15 and ends December 7. During this time, current Medicare beneficiaries have the option to adjust their coverage for the coming year. Any changes to your plan will go into effect on January 1, 2022.1|
This is an opportunity to reassess your current coverage and identify potential areas for improvement. Maybe you’ve recently changed medication, find yourself underutilizing coverage, or are in need of additional benefits.Before open enrollment begins, you’ll receive a report outlining your current coverage. Review your elections carefully, especially if you haven’t updated coverage in the last few years.
Medicare offers a Plan Finder tool to help compare other offerings if you’re considering making a switch.Your health insurance coverage in retirement should work to protect your financial wellbeing.
I’m happy to help navigate your questions around ensuring your retirement plan has you set up for success and well being. Feel free to reach out with any questions, or to schedule a meeting to talk.
|1. Centers for Medicare & Medicaid Services, February 2, 2020|
|The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG Suite, LLC, is not affiliated with the named representative, broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.|
Stay organized and informed with this printable, newly updated resource of essential financial figures and dates for 2021.
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If you’re like many small business owners, running your own business is an all-consuming endeavor.
In the face of everyday demands, choosing a retirement strategy for your business can become a casualty. The idea of establishing a plan could evoke worries about complicated reporting and administration.
If this sounds familiar, then you may want to consider whether a Simplified Employee Pension Individual Retirement Arrangement (SEP-IRA) may be right for you.
A SEP-IRA can be established by sole proprietors, partnerships, and corporations, including S corporations.
The advantages of the SEP begin with the flexibility to vary employer contributions each year from 0% up to a maximum of 25% of compensation, with a maximum dollar contribution of $57,000 in 2020, and $58,000 in 2021.
The percentage you contribute must be the same for all eligible employees. Eligible employees are those age 21 or older who have worked for you in three of the last five years and have earned at least $600 (in 2020) or $650 (in 2021). Employees are immediately 100% vested in all contributions.
There are no plan filings with the IRS, making administration simple and low cost. You only need to complete Form 5305 SEP and retain it for your own records. This form should be provided to all employees as they become eligible for participation.
Unlike other plans, a SEP may be established as late as the due date (including extensions) of your business’ tax filing (generally April 15th) for making contributions for the prior year.
A Menu of Choices
Each eligible employee will be asked to establish his or her own SEP-IRA account and self-direct the investments within the account, relieving you of choosing a menu of investment choices for the plan. The rules for accessing these funds are the same as those governing regular IRAs.
Under the SECURE Act, in most circumstances, once you reach age 72, you must begin taking required minimum distributions from a SEP-IRA and other defined contribution plans. Withdrawals from Traditional IRAs are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.1
Unlike the self-employed 401(k), which is only available to business owners with no employees, you cannot take a loan from your SEP assets. Under the SECURE Act, 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 from your 401(k) or other defined contribution plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty.1
The SEP earns the “simplified” in its name and stands as an attractive choice for business owners looking to maximize contributions while minimizing their administrative responsibilities.
1. IRAs have exceptions to avoid the 10% withdrawal penalty, including death and disability.
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. This material was developed and produced by FMG Suite to provide information on a topic that may be of interest. FMG, Suite is not affiliated with the named broker-dealer, state- or SEC-registered investment advisory firm. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security. Copyright 2021 FMG Suite.
UNDERSTAND WHERE YOUR FEDERAL TAX DOLLARS GO
In this guide, we will explore where your tax dollars go and some of the ways tax filing may look different in 2021 as well as what you can do to prepare. Keep in mind, this guide is for informational purposes only and is not a replacement for real-life advice, so make sure to consult your tax, legal, and accounting professionals before modifying your strategy.
Before we dive into the upcoming tax brackets and what you can do to prepare for 2021, it can be helpful to understand precisely where the government allocates your federal tax dollars.
HOW TO PREPARE FOR THE 2020 TAX SEASON
MEDICARE, MEDICAID, MARKETPLACE SUBSIDIES, AND CHIP
The Medicare, Medicaid, Affordable Care Act (ACA) marketplace subsidies, and Children’s Health Insurance Program (CHIP) together accounted for $1.1 trillion in 2019 or 25% of the budget.1
Another $697 billion was paid for defense and security-related international activities. The bulk of the spending in this category reflects the underlying costs of the Defense Department. This includes the cost of multiple defense initiatives and related activities, described as Overseas Contingency Operations in the budget.1
Twenty-three percent of the budget, or $1 trillion, was paid for Social Security, which provided monthly retirement benefits averaging $1,503 to 45 million retired workers. Social Security also provided benefits to 3 million spouses and children of retired workers, 6 million surviving children and spouses of deceased workers, and 10 million disabled workers and their eligible dependents in December 2019.1
A NOTE REGARDING COVID-19 AND 2020
As many are no doubt aware, the coronavirus pandemic wrought massive changes to the financial landscape. Although it is highly unlikely that the same scale of change will be seen in 2021, these historic changes are worth noting. In 2020, the Coronavirus Aid, Relief, and Economic Security (CARES) Act became law, giving taxpayers the option to skip required minimum distributions (RMDs) from traditional individual retirement accounts (IRAs) and 401(k)-style plans. In addition, the IRS allowed taxpayers an extension until July 15 to file their Form 1040. July 15 was also the deadline to pay any federal taxes owed for 2019.2,3
THE TAX BRACKETS
The tax brackets are: 10%, 12%, 22%, 24%, 32%, 35%, and 37%.4
These modest changes to the tax brackets also mean that wage earners may fall into lower brackets. Here is one example. A single filer at $83,000 in taxable income would fall into the 24% bracket for tax year 2018. The filer would be in the 22% tax bracket in 2020.
To read more download the full PDF version of this report:
Footnotes & Disclosures
Julie M. Murphy, CFP®, CLU®, ChFC®, MBA
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advisory services offered through Sequoia Wealth Management LLC, a registered investment advisor. Sequoia Wealth Management LLC and JMC Wealth Management, Inc are separate entities from LPL Financial.
These are the views of Platinum Advisor Marketing Strategies, LLC, and not necessarily those of the named representative, broker/dealer, or investment advisor and should not be construed as investment advice. Neither the named representative nor the named broker/dealer or investment advisor gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial advisor for further information.
Remember, if you have any financial questions, we can help you navigate a complicated landscape and collaborate with your legal and tax professionals. Your happiness is our ultimate concern, and we’re here for you at every step.
This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.
Past performance does not guarantee future results.
Consult your financial professional before making any investment decision.
Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.
All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your financial professional for further information.
These are the views of FMG Suite, LLC, and not necessarily those of the named representative, broker/dealer, or investment advisor and should not be construed as investment advice. Neither the named representative nor the named broker/dealer nor the investment advisor gives tax or legal advice.
By clicking on these links, you will leave our server, as they are located on another server. We have not independently verified the information available through these links. They are provided to you as a matter of interest. Please click on the links below to leave and proceed to the selected site.
- Cbpp.org, April 9, 2020
- Under the SECURE Act, once you reach age 72, you must begin taking required minimum distributions from your 401(k) or other defined-contribution plans in most circumstances. Withdrawals from your 401(k) or other defined-contribution plans taxes as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
Also under the SECURE Act, once you reach age 72, you must begin taking required minimum distributions from a Traditional Individual Retirement Account (IRA) in most circumstances. Withdrawals from Traditional IRAs are taxes as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.
The CARES Act temporarily suspended the 10% federal income tax for both defined contribution plans and IRAs for coronavirus-related distributions.
- IRS.gov, June 23, 2020
- Debt.org, October 19, 2020
- Consumerismcommentary.com, May 31, 2020
- HRblock.com, October 24, 2019
- IRS.gov, 2020
- IRS.gov, 2020
- IRS.gov, 2020
- IRS.gov, 2020
- Efile.com, August 17, 2020
- IRS.gov, 2020
As a business owner, you face unique challenges and opportunities when building a financial future. This special report provides insights on mistakes to avoid and steps to take when building the retirement you desire—while managing your myriad of responsibilities.
Small-business owners are an essential component of America’s economy. In the United States, 99.7% of all firms are comprised of small businesses with 500 or fewer employees.1
Too often, however, a small-business owner spends so much time and energy building their company that they neglect their personal financial futures.
With this report, our goal is to show business owners how to maximize the value of their companies with business strategies that may also help them prepare for retirement.
Strategy 1 – Create a Retirement Roadmap
ONE-THIRD OF SMALL-BUSINESS OWNERS DON’T HAVE RETIREMENT STRATEGIES IN PLACE.2
Building, running, and growing a company is tough. Business owners have countless responsibilities and too few hours in the day. Often, in the midst of fulfilling your professional priorities, you end up putting your personal financial life on the back burner.
If you have not prepared for your retirement, you are not alone. Many entrepreneurs think growing a business is all they need to retire. However, just having a business does not automatically mean you have a retirement strategy in place. Without a documented roadmap—one that goes beyond the hope of simply selling your business or passing it to your family—you could end up pushing back your ability to retire. In one survey, 34% of respondents said that they have no retirement strategy, while 12% have no plans to retire at all. Both of which are likely short-sighted.3
Delaying retirement is not always an option, though. Life often brings surprises, and you cannot always control when you will retire. For example, you may retire early because of certain challenges, such as health problems or disability. In 2020, only 28% of retirees were very confident in their abilities to cover medical expenses during retirement.4
To help ensure you can experience retirement on your terms—rather than reacting to what life or the business world throws your way—you need to proactively address these items today.
WHAT TO DO NOW
- Define your ideal retirement. Clarify when you want to retire and what lifestyle you hope to enjoy.
- Build strategies to address your retirement. Determine the actions needed to take to fill the gaps between your current assets and the income you will need to support your desired retirement.
- Hold yourself accountable. Do not let the busy life of business ownership keep you from staying on track toward the retirement you desire.
Strategy 2 – Have an Exit Strategy
NEARLY ONE-THIRD OF U. S. BUSINESSES SURVIVE TO THE SECOND GENERATION—AND ONLY 12%, TO THE THIRD.5
For many business owners, the idea of selling their companies for top dollar or passing them down to future generations is a retirement dream. Many entrepreneurs, however, are not doing the work necessary to turn this dream into a reality.
Studies show that 50% of business owners plan to leave their businesses in the next decade. However, fewer than 30% have a business succession plan. One-third of business owners plan on their retirement to begin sometime between their mid-fifties and mid-sixties.6,7
No matter how long you want to work and how much you love your business, a clear exit strategy is necessary to help foster the company’s longevity and preserve your financial health. If you want to be able to retire when and how you would like—and have your business last beyond your career—you need an exit strategy for accomplishing that goal.
WHAT TO DO NOW
- Define your ideal exit strategy. Do you want to sell your business? Pass it to the next generation? Find an outside successor?
- Determine the real value of your business. Hire a qualified professional to provide a clear valuation of your company as it is today. Depending on how far you are from retirement or exiting, you might need to revisit this valuation in the future.
- Create a strategy—and stick to it. Your exit strategy might require you to hire new people, adjust your services, or implement a number of other changes.
Strategy 3 – Separate Your Retirement Savings
IN ONE SURVEY, 61% OF RESPONDENTS CLAIMED THAT PREPARING FOR RETIREMENT MAKES THEM FEEL STRESSED.8
Trying to build retirement savings, while you foster your business, can be challenging. With only so many dollars to go around and an endless list of professional expenses, you might rather reinvest in your company. However, even if you are ready to sell your business at retirement, you need to have savings that are completely separate from your business.
The reality is that solely relying on the value of your business to carry you into retirement is a risky approach, which can easily backfire. Not only can industries change, and companies falter, but many baby boomers are selling their businesses right now, which could potentially make a sale tougher in some markets.
Would you and your family be able to enjoy a comfortable retirement without your current income or profits from selling your business? If the answer is no, now is the time to start building your savings.
WHAT TO DO NOW
- Balance your personal and professional finances. When deciding how to invest your available assets or what salary to draw, make sure you focus on addressing both sides of your financial life.
- Explore available retirement-savings tools with your financial professional. With the passage of the SECURE Act, many rules regarding retirement plans have changed, making this a great time to evaluate your strategy.
- Review your budget and create a disciplined savings approach. Identify ways you might be able to trim your current expenses or save on your tax liabilities. Also, establish a habit of regularly contributing to your personal retirement savings.
Strategy 4 – Get Sufficient Life Insurance Coverage
IN AN EFFORT TO SAVE MONEY, SOME SMALL-BUSINESS OWNERS DON’T CARRY ANY INSURANCE AT ALL.10
Most people are familiar with life insurance, but the role this product plays for small-business owners often is more complex than for the typical individual. Of course, sufficient life insurance can help protect your family’s financial security if you were to pass away.
A business owner, though, could have an extra liability: business collateral. If you take out loans to support your business, using personal assets as collateral,and you pass away, your family members may be on the hook for that debt, which could jeopardize their financial standing. However, life insurance provides an added layer of protection for your loved ones.11
Keep in mind that this article is for informational purposes only. It’s not a replacement for real-life advice, so make sure to consult your legal or tax professional before considering using personal assets as collateral.
WHAT TO DO NOW
- Analyze your current life insurance coverage. Do you have the right tools? Do you have unrecognized gaps?
- Address your family’s life insurance needs. Calculate your total debts and expenses to find the amount your family would need if you were to pass away prematurely.
- Uncover the opportunities life insurance may bring to your business. Work with a professional to determine how life insurance might be able to help support both your business needs and retirement goals.
* Several factors will affect the cost and availability of life insurance, including age, health, and the type and amount of insurance purchased. Life insurance policies have expenses, including mortality and other charges. If a policy is surrendered prematurely, the policyholder also may pay surrender charges and have income tax implications. You should consider determining whether you are insurable before implementing a strategy involving life insurance. Any guarantees associated with a policy are dependent on the ability of the issuing insurance company to continue making claim payments.
Strategy 5 – Hire Outside Support
OVER 60% OF SMALL-BUSINESS OWNERS REPORT THAT REGULATIONS NEGATIVELY IMPACT THEIR GROWTH.12
Running a successful small business requires a number of skills—from delivering your product or service to managing employees and growth. Accustomed to shouldering a vast number of responsibilities, many business owners seem to forget they do not have to do it alone.
Hiring outside help not only gives you access to experienced professionals who can apply their expertise to your specific needs, but it can also save you significant time. In a 2019 survey of almost 2,285 growth-oriented small businesses, almost 60% expressed challenges with understanding and managing laws and government regulations.13
In fact, they spent an average of 6 hours a week just dealing with regulation and tax compliance.14
So, business owners have both personal and professional financial strategy needs on top of regulatory and tax burdens, thus, increasing their need for professional support.
WHAT TO DO NOW
- Determine what professional support you need. You likely should consider hiring a tax professional, attorney, and financial representative. Your unique circumstances might require additional support.
- Ask your professionals to work together. Aligning your financial life requires an understanding of its many facets. Make sure your support team has a clear picture of how your various pieces intertwine.
- Embrace the benefit of outside professionals. Your financial representative and other professionals are there to help support your needs with their guidance. Let them provide the insight you need and take the weight off your shoulders.
HOW CAN WE HELP
Launching and growing a small business is a challenging, time-consuming endeavor that is not for the faint of heart. As experienced financial professionals, we are here to help you overcome the obstacles that business owners often face and help you seize the opportunities before you.
In times of economic fluctuations and changing regulations, we believe it is critical to seek guidance from a financial representative. The tips in this report are a helpful overview of what you might need to address for your own retirement, but your complete answers are as unique as you are. From our experience, small-business owners who recognize and avoid these common mistakes—and take proactive steps to plan for the future—are better able to enjoy the lives they desire.
We know balancing your personal and professional priorities is tough. We are here to serve as a resource for you and your family. We are happy to discuss your current financial situation and future goals.
If you have any questions about the information you read or would like to discuss your specific needs, please contact us by filling out the form on the right. We would be delighted to speak with you.
FOOTNOTES & SOURCES
1 Fundera.com, April 15, 2020
2 Score Association, April 9, 2020
3 Forbes.com, February 23, 2020
4 Employee Benefit Research Institute, April 23, 2020
5 PwC, 2019
6 The Canadian Federation of Independent Business, November 2018
7 Score Association, April 9, 2019
8 EBRI.com, 2020
9 BizBuySell.com, 2020
10 FitSmallBusiness.com, 2020
11 PolicyGenius.com, 2018
12 GoldmanSachs.com, 2019
13 GoldmanSachs.com, 2019
14 GoldmanSachs.com, 2019
- Powerful information that could potentially save you thousands in taxes andfees
- Tips to help put you one step ahead in your retirementpreparations
- Critical mistakes that cannot be corrected (and how to avoidthem)
HAVE YOU EVER SWITCHED JOBS?
Research shows that the average American employee switches jobs 12.3 times before retiring.1
Job changes can mean that many Americans have old 401(k) plans, which may not be allocated properly to help them prepare for retirement.
Every time you change jobs, you have some choices to make about your old 401(k). Generally, there are four basic options:
- You can leave the assets in your former employer’s plan ifpermitted.
- You can rollover the assets into your new employer’s plan if one is available.
- You can roll the assets over into an Individual Retirement Account(IRA).
- You can take a cash distribution (and deal with the potential taxconsequences).
Each of these options has advantages and disadvantages to consider. In this special report, we’ll help you hopefully avoidcommon(andexpensive)mistakesandshowhowyoucanuseyour401(k)asa tool to help with your retirementpreparations.
1. Roll Over Your 401(k) to Access More InvestmentChoices (That Benefit YOU)
Every investor is different, and volatile markets make customized strategies important when pursuing your financial objectives. Workplace retirement strategies often offer limited investment options that may not be right foryour financial situation. In contrast, IRAs can hold nearly any type of investment, which allows for flexibility in your investment strategies. By rolling over your 401(k) savings into an IRA, you open up a universe of investment options that you can use to build an investment strategy aligned with your long-term goals.
Under the 2019 SECURE Act, in most circumstances, you must begin taking required minimum distributions from your 401(k) in the year you turn 72. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Also, once you reach age 72, you must begin taking required minimum distributions from a Traditional IRA. Withdrawals from Traditional IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. Under the SECURE Act, you may continue to contribute to a Traditional IRA past age 70½, as long as you meet the earned-income requirement. The CARES Act has allowed some one-time exceptions to distributions and penalties in 2020. These rules can be difficult to understand. So, please, contact us, and we will provide the most up- to-dateinformation.
2. Understanding Expenses
401(k)s and other workplace retirement accounts come with administrative fees and expenses, which may take a big bite out of your investment gains. IRAs also have fee structures that include various fees and expenses.
As independent financial professionals, we’re committed to making certain you understand what costs are associated with your IRA. We believe in being completely transparent about the costs and fees associated with any investment we recommend. We work with each of our clients to find investments that are best suited to their needs and long-term goals.
3. Don’t Be Tempted to CashOut!
When our clients come to us for guidance on rolling over a 401(k) or other workplace retirement strategy, we walk them through the four options previously discussed.
One of those options is liquidating your old plan and receiving the money directly. While it can be tempting to see your savings as a quick source of cash, cashing out can be a big mistake that may cost you thousands in penalties and taxes,and it may prohibit you from years of future growth.
If instead, you decide to take a distribution from your old plan or don’t roll over the assets within the 60-day window, you will trigger an IRS reporting,and potentially, saddle yourself with a big tax bill.Taking a check from your old plan administrator will require an automatic 20% withholding tax and be reported to the IRS.2,3
If you delay moving the assets to your IRA account, you could miss your 60-day window and be forced to pay penalties and taxes on your entiredistribution.
One of the best arguments in favor of rolling over your old retirement plan is that it can help simplify your life. In our experience, investors tend to lose track of accounts that aren’t right in front of them. Life gets busy, and failing to modify your investment strategies to keep up with your needs can undermine your long-term financial success. Putting your assets in one place can help ensure that your investments are reviewed regularly and remain consistent with your financial goals. As a former employee, dependent on the plan, you may not be abletomakechangestoyourinvestments,preventingyou from adjustingyourallocationstofit yourcurrentcircumstances and long-term goals.
Why Work with a Financial Professional?
One of the benefits of working with a firm like ours is the comfort of knowing that you have a team of professionals continuously monitoring your investments and keeping you on track.
Investments are just one piece of your overall financial picture. As professionals, we take every aspect of your financial life into consideration when building customized strategies for your retirement. To take one example, many investors fail to consider how taxes may affect their investment returns.
By not taking taxes into consideration, a hypothetical $150,000 portfolio could lose nearly
$500,000 to taxes over 30 years.4Tax-efficient investing strategies can help you manage your tax burden.
Please remember: this hypothetical example that’s used to illustrate one potential situation. It’s not a replacement for real-life advice, so make sure to consult your tax, legal, and accounting professionals before modifying your strategy if you’re concerned about your total tax obligation over time.
What Should You Do Next?
Whether you’re leaving your job to pursue other opportunities or on the wrong side of the economic downturn, the transition can be a stressful experience. Discussing your situation with a financial professional who specializes in working with executives can help you relax and explore all your options.
RESERVE YOUR FREE FINANCIAL STRATEGY SESSION TODAY
Fill out the form to the right, and in our complimentary session, we’ll take a look at your current financial situation and present you with strategies that make the most sense for you and your financial future.
WE’LL TEACH YOU:
- How to negotiate the best settlement or compensationpackage
- What to consider if you own companystock
- The dangers of holding too much companystock
- How to prevent job losses or money emergencies from derailing your financialfuture
We developed this session format after helping hundreds of clients manage their finances during critical life transitions.
To schedule your no-obligation session, please call our office at 312.275.1900
FOOTNOTES & SOURCES
Bureau of Labor Statistics, August 22, 2019
Please discuss taxation issues with a qualified tax specialist.
IRS.gov, February 6, 2020
Calculation assumes initial investment of $150,000, a 7% compound annual return over 30 years with a 2% loss to taxes, and no contributions or withdrawals. Example excludes the effects of interest, dividends, fees, and inflation. This hypothetical example is not representative of any specific investment. Your results may vary.