Retirement Plan Limits

How much money can I put into my IRA or employer-sponsored retirement plan?

IRAs and employer-sponsored retirement plans are subject to annual contribution limits set by the federal government. The limits are adjusted periodically to compensate for inflation and increases in the cost of living.

IRAS

For the 2016 and 2017 tax years, you can contribute up to $5,500 to all IRAs combined (the limit is adjusted annually for inflation). If you have a traditional IRA as well as a Roth IRA, you can only contribute a total of the annual limit in one year, not the annual limit to each.

If you are age 50 or older, you can also make a $1,000 annual “catch-up” contribution.

EMPLOYER-SPONSORED RETIREMENT PLANS

Employer-sponsored retirement plans such as 401(k)s and 403(b)s have an $18,000 contribution limit in 2017 (unchanged from 2016); individuals aged 50 and older can contribute an extra $6,000 each year as a catch-up contribution. (Section 403(b) and 457(b) plans may also provide special catch-up opportunities.)

SIMPLE PLANS

You can contribute up to $12,500 to a SIMPLE IRA or SIMPLE 401(k) plan in 2017, and an extra $3,000 catch-up contribution if you are age 50 or older (unchanged from 2016).

Distributions from traditional IRAs and most employer-sponsored retirement plans are taxed as ordinary income, except for any after-tax contributions you’ve made, and the taxable portion may be subject to 10% federal income tax penalty if taken prior to reaching age 59½ (unless an exception applies). If you participate in both a traditional IRA and an employer-sponsored plan, your IRA contributions may or may not be tax deductible, depending on your adjusted gross income.

 

The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2017 Broadridge Investor Communication Solutions, Inc.

Why Purchase Life Insurance?

We’ve all heard about the importance of having life insurance, but is it really necessary? Usually, the answer is “yes,” but it depends on your specific situation. If you have a family who relies on your income, then it is imperative to have life insurance protection. If you’re single and have no major assets to protect, then you may not need coverage.

In the event of your untimely death, your beneficiaries can use funds from a life insurance policy for funeral and burial expenses, probate, estate taxes, day care, and any number of everyday expenses. Funds can be used to pay for your children’s education and take care of debts or a mortgage that hasn’t been paid off. Life insurance funds can also be added to your spouse’s retirement savings. If your dependents will not require the proceeds from a life insurance policy for these types of expenses, you may wish to name a favorite charity as the beneficiary of your policy.

If your dependents will not require the proceeds from a life insurance policy for these types of expenses, you may wish to name a favorite charity as the beneficiary of your policy.

Permanent life insurance can also be used as a source of cash in the event that you need to access the funds during your lifetime. Many types of permanent life insurance build cash value that can be borrowed from or withdrawn at the policyowner’s request. Of course, withdrawals or loans that are not repaid will reduce the policy’s cash value and death benefit.

There are expenses associated with life insurance. Generally, life insurance policies have contract limitations, fees, and charges, which can include mortality and expense charges, account fees, underlying investment management fees, administrative fees, and charges for optional benefits. Most policies have surrender charges that are assessed during the early years of the contract if the contract owner surrenders the policy. Any guarantees are contingent on the financial strength and claims-paying ability of the issuing company. Life insurance is not guaranteed by the FDIC or any other government agency; it is not a deposit of, nor is it guaranteed or endorsed by, any bank or savings association.

The cost and availability of life insurance depend on factors such as age, health, and the type and amount of insurance purchased.

If you are considering the purchase of life insurance, consult a professional to explore your options.

The information in this newsletter is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2017 Broadridge Investor Communication Solutions, Inc.

Can You Avoid Identity Theft Scams?

If you purchase identity protection, you might think it will prevent you from being a victim of an identity theft scam. But as you’ll see, the reality is more complicated. Identity theft protection is often a wise investment—but don’t let it fool you into a false sense of security.

First, it helps to understand the scope of the problem. According to the 2017 Identity Fraud Study by Javelin Strategy & Research, identity fraud hit a record high in 2016, with 15 million U.S. victims. We’ve written about some of the most popular types of identity theft scams and how to avoid several of them, such as tax-related scams and fantasy football scams.

Given how common and damaging identity theft is, many people are turning to identity theft protection plans. These plans can be a terrific value, especially those that include monitoring and protection services to defend you against personal, financial, and medical identity theft.

Once you purchase the added protection, it’s easy to think you’ll never be a victim of identity theft—but that’s not the case. In fact, identity theft protection doesn’t prevent identity theft any more than car insurance prevents collisions. What it does is give you peace of mind and help you recover quickly if the worst happens.

An identity theft protection plan will typically feature credit and other monitoring services that can spot identity theft early—before significant harm occurs. Comprehensive plans will also include recovery support, so if you are victimized, you will get the professional help you need to quickly restore your identity. Some plans will also include identity theft insurance to reimburse you for your out-of-pocket expenses if you are a victim.

In sum, if you are worried about identity theft, consider investing in a comprehensive identity theft protection plan. It could help you spot identity theft sooner and recover faster, at less cost—just don’t assume it will prevent identity scams from happening in the first place.

Courtesy – MYIDCARE

Cash Balance Plans

Cash Balance Plans Can Help Supercharge Retirement Savings

Cash balance plans are technically defined benefit plans that share some characteristics with defined contribution plans. IRS regulations finalized in 2010 and 2014 clarified some legal issues and made these hybrid plans more flexible and appealing to employers. Nationwide, there was a 189% increase in new cash balance plans between 2008 and 2014.1

Cash balance plans are not just a powerful tool for employee recruitment and retention. They have generous contribution limits that increase with age, and they’re often combined with a 401(k) or profit-sharing plan. This might allow partners in professional service firms and other high-income business owners to maximize or catch up on retirement savings and reduce their taxable income.

In 2016, a 65-year-old could save as much as $245,000 in a cash balance plan, while a 55-year-old could save $180,000 on a tax-deferred basis (until the account reaches a maximum accumulation of $2.5 million).2

Assuming the Risk

As with other defined benefit plans, employees are promised a specified retirement benefit, and the employer is responsible for funding the plan and selecting investments. However, each participant has an individual (albeit hypothetical) account with a “cash balance” for record-keeping purposes, and the vested account value is portable, which means it can be rolled over to another employer plan or to an IRA.

But unlike the situation with a 401(k), the participant’s cash balance when benefit payments begin can never be less than the sum of the contributions made to the participant’s account, even if plan investments result in negative earnings for a particular period. This means the employer bears all the financial risks.

Funding the Plan

Each year, the employer makes two contributions to the cash balance plan for each employee. The first is a pay credit, which is either a fixed amount or a percentage of annual compensation. The second contribution is a fixed or variable interest credit rate (ICR). The ICR can be set to equal the actual rate of return of the portfolio, if certain diversification requirements are met, which reduces the employer’s investment risk and the possibility of having an underfunded plan due to market volatility.

Weighing the Cost

The amount that the employer must contribute to the plan each year is actuarially determined based on plan design and worker demographics. Typically, IRS rules require owners to contribute 5% to 8% of pay to non-highly compensated employees in order to make larger tax-deferred contributions for themselves.3

Businesses may take a significant tax deduction for employee contributions, so current-year tax savings may offset some of these costs. Still, cash balance plans are typically more cost-effective if you are a sole proprietor or the owner of a small firm with just a few employees.