Institutional Services

What are Collective Investment Trusts (CITs)

Many retirement plans are adding collective investment trusts, or CITs, as a way to lower investment costs to participants. While these are not new investment vehicles, they are becoming more prominent in retirement plans. Check out our Frequently Asked Questions (FAQ) to learn more about these investments that may start showing up in your retirement plan.

What are collective investment trusts, or CITs?

Collective investment trusts (“CITs”), also known as collective trusts, commingled funds, or common trust funds, are institutional investment vehicles that can be offered in retirement plans – 401(k), 401(a), “Taft-Hartley”, and government 457(b) plans only.

CITs are sponsored by a bank or trust company, unlike mutual funds, they are not registered with the Securities and Exchange Commission (SEC) and may not have a ticker symbol.

How are CITs similar to mutual funds?

CITs are daily valued pooled accounts that have a stated investment objective and investment strategy, including active and passive strategies ranging from fixed income to equities. 

How are CITs different from mutual funds?

Typically, a CIT is created to mirror the investment strategy of a publicly traded mutual fund but because they are only available to institutional investors, they have some advantages.

CITs generally keep lower cash balances than mutual funds because they are only available to institutional investors with longer investment horizons than retail clients, and cash flows in and out of the trust are more predictable.  These factors can help reduce cash flow volatility and allow the portfolio to be managed more efficiently and be more fully invested than a mutual fund by not having to hold large cash positions to meet redemptions.

Are there cost advantages to CITs?

Fees and expenses of CITs are generally lower than their mutual fund counterpart because they are exempt from registration and filing requirements of the SEC, therefore, CITs can have lower oversight and administrative costs.

Additionally, larger retirement plans are often able to negotiate favorable fee structures based on their plan assets, unlike in a mutual fund which has a set expense ratio.

Where can I get information about a CIT in my retirement plan?

In general, your retirement plan provider will provide a fact sheet with pertinent information about the CIT strategy on the retirement plan website, as well as the daily price and value of your account.

Can I invest in a CIT in my personal accounts?

No. CITs are only available to institutional investors, like a retirement plan. 

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

IRS Announces 2022 Retirement Account Contribution Limits

The Treasury Department has announced inflation-adjusted figures for retirement account savings for 2022. While contribution limits are up for workplace plans, contribution limits for Individual Retirement Accounts are stuck at 2019 levels. Inflation means you can—and probably should—contribute more to your workplace retirement account in 2022. Check out the new limits here.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

Congratulating Tina Schackman – BFSG’s Newly Minted CFP® Professional

The 4 Biggest Mistakes People Make with IRA Rollovers

By:  Paul Horn, CFP®, CPWA®, Senior Financial Planner

For many individuals, their retirement account(s) is their largest asset outside of maybe their home. Over $500 billion is rolled over annually from workplace retirement plans to Individual Retirement Accounts(s) (IRAs). According to the Department of Labor (DOL), the decision to roll over assets from a workplace retirement plan to an IRA is often the single most important financial decision a person makes in their lifetime. Below are some of the most common errors we see people make with their IRA rollovers:

  1. Taking a distribution from another retirement account instead of doing a rollover or transfer.

A common error we see is called an indirect rollover. This occurs when someone takes money as a lump sum to themselves instead of having the money sent directly to their new retirement account. For example, if you start a new job and want to move your old 401(k) into a new IRA the best way to do so is a direct rollover and have the money sent directly from the old 401k to the new IRA on your behalf. Unfortunately, some individuals make the mistake of having the check sent directly to them in their name instead of having the check made out to the custodian of the new account. Ideally, the checks should be made out to the custodian (i.e., Charles Schwab & Co.) FBO (shorthand for “For Benefit Of”) your name. If the check is made out into your name you trigger unnecessary taxes and have only 60 days to put the money back into your new account.

2. Unintentionally triggering the mandatory IRS 20% withholding the IRS requires for an indirect rollover.

If a person makes the first mistake, they will automatically trigger this second mistake. Anytime money comes out of the retirement account from an employer either as a indirect rollover (see above) or as a distribution to themselves (i.e. they need to take money out to pay medical bills), the IRS requires your plan administrator withhold 20% Federal taxes as part of the withdrawal. If this occurs on an indirect rollover on accident you can work with a CPA to claim this when you file your tax return for that year (most likely next April).

3. Not fully understanding the 60 Day Rollover Rule.

If a distribution from a retirement plan is paid directly to you, you can deposit all or a portion of it in an IRA or a retirement plan within 60 days. To avoid people taking money out short-term from their retirement accounts, the IRS updated the rules in 2015 and you can make only one rollover from an IRA to another (or the same) IRA in any 12-month period, regardless of the number of IRAs you own. The limit will apply by aggregating all of your IRAs, including SEP and SIMPLE IRAs as well as traditional and Roth IRAs, effectively treating them as one IRA for purposes of the limit.

The one-per year limit does not apply to:

  • rollovers from traditional IRAs to Roth IRAs (conversions)
  • trustee-to-trustee transfers to another IRA
  • IRA-to-plan rollovers
  • plan-to-IRA rollovers
  • plan-to-plan rollovers

4. Completing a rollover without completing an RMD when it is required.

If you are 72 or older and you retire, the IRS will require you to take out a portion of your 401k each year starting the year you retire, and this is known as a Required Minimum Distribution (RMD). The IRS also does not allow you to combine the RMDs from different types of retirement plans and IRAs. For example, an individual retires end of this year at age 73 with a 401k from her current employer and an IRA that she manages. The IRS will require her to take an RMD from each account, so the RMD from the IRA and the RMD from the 401k must be two separate transactions. Unfortunately, I have seen even other advisors make this mistake and complete a rollover before satisfying the RMD from the 401(k). To avoid this, you must take the RMD from the 401(k) BEFORE you initiate the rollover.

Unfortunately, it is easy to make these simple mistakes and the IRS is not very forgiving. When you are taking a distribution, it is recommended that you work with a professional to help ensure you are not making any of these mistakes. As always feel free to reach us at financialplanning@bfsg.com if you have questions regarding your specific situation.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

NAPA’s 2022 Top Young Retirement Plan Advisors

BFSG is pleased to announce the nominations of 3 of our own to NAPA’s 2022 Top Young Retirement Plan Advisors list.  We are so proud of @Darren Stewart, @Chad Noorani, and @Braden Priest for their dedication to serving retirement plan fiduciaries and being part of our amazing team! 

Vote now by clicking here.

Disclaimer: Awards and recognitions by unaffiliated rating services, companies, and/or publications should not be construed by a client or prospective client as a guarantee that he/she will experience a certain level of results if the Firm is engaged, or continues to be engaged, to provide investment advisory services; nor should they be construed as a current or past endorsement of the Firm or its representatives by any of its clients. Rankings published by magazines and others are generally based exclusively on information prepared and/or submitted by the recognized adviser. The Firm did not pay a fee for inclusion on this list.