#retirementplans

By:  Arash Navi, CFP®, CPA, Controller & Wealth Manager

Our goal is to help our clients build and grow their wealth and tax planning plays an important role in this process. We recommend that you mark your calendar to review your finances in the first week of October, annually. Take this time to review your income for the year from employment, businesses, investments, or any other sources. This will help you project your tax liability ahead of time and allow your financial advisor or tax accountant to find strategies to reduce your tax burden. Implementing this consistently and reducing your tax burden annually will have a compounding impact over the years and increase your retirement nest egg. Here are a few tax planning strategies to keep in mind:

IRAs and Retirement Plans

Take full advantage of tax-advantaged retirement accounts. By contributing to Traditional IRAs and employer-sponsored retirement plans such as 401(k) plans, you can reduce your taxable income and lower your taxes. For 2023, you can contribute up to $22,500 to a employer-sponsored retirement plan ($30,000 if you’re age 50 or older) and up to $6,500 to a Traditional IRA ($7,500 if you’re age 50 or older).

Roth Conversions

If you are in a lower tax bracket this year and expect your income tax rate to increase in the future, you may want to consider a Roth IRA conversion. You can convert all or part of your pre-tax retirement account into a Roth IRA and pay the taxes now at a lower rate. The funds in your Roth IRA will continue to grow tax free, and you will have more income flexibility in retirement. Watch here as we make a case for Roth conversions and how they could benefit you.

Charitable Donation

If you are charitably inclined, you should plan your donations in advance to ensure you maximize the tax benefits. For those over age 70.5, you may want to consider Qualified Charitable Distribution (QCD), where you can transfer up to $100K from your IRA to a charity. This method not only reduces your Required Minimum Distribution (RMD), but the distribution is also excluded from your taxable income. Beginning in 2024, the QCD limit ($100k) will change as it will be linked to inflation. Also, with the passage of the SECURE Act 2.0, starting in 2023 taxpayers may take advantage of a one-time gift up to $50k (adjusted annually for inflation) to fund a Charitable Remainder Unitrust, Charitable Remainder Annuity Trust, or a Charitable Gift Annuity. This is an expansion of the type of charity, or charities, that can receive a QCD.

Tax Bracket Management

The IRS uses a progressive tax system which means as your income grows, it is subject to a higher tax rate. Therefore, it is important to know which of the seven federal tax brackets you will fall into. In your high-income years, you may want to reduce your tax liability by increasing your retirement contribution or utilize a tax-loss harvesting strategy. On the other hand, in low-income years, you may want to consider Roth IRA conversions, accelerate income recognition, or postpone deductible expenses.

Tax planning should be part of every individual investor’s financial and retirement plan. There are many strategies available for individuals and business owners, but it requires proper planning throughout the year. If you’d like to learn more about tax planning strategies unique to your personal circumstances, feel free to Talk With Us!

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 remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

In December 2022, Congress passed the SECURE Act 2.0. It introduced two new rules relating to 529 plans and student debt that will take effect in 2024.

The first provision allows for tax- and penalty-free rollovers from a 529 plan to a Roth IRA. The second provision allows student loan payments made by employees to qualify for employer retirement matching contributions. The overall goal is to help young adults start saving for retirement.

New 529 Rollover Option

529 plans are tax-advantaged savings accounts specifically geared to saving for college. In an effort to broaden the flexibility of 529 plans in situations where families have extra funds in an account, Congress created a new rollover option.

Starting in 2024, 529 plan beneficiaries can roll over up to $35,000 to a Roth IRA over their lifetimes. The rollover is not subject to taxes or a penalty that would typically apply to a non-education use of funds. This new rollover option can allow a young adult to get a head start on saving for retirement.

Here’s how it will work:

• The beneficiary of the 529 plan must be the owner of the Roth IRA.
• Any rollover is subject to annual Roth IRA contribution limits, so a beneficiary can’t roll over $35,000 all at once. For example, in 2023, the Roth IRA contribution limit is $6,500 (for people under age 50) or earned income, whichever is less. If the limit remains the same in 2024, a beneficiary would be able to roll over up to $6,500. If the beneficiary earns $4,000 in total income in 2024, then the maximum amount that could be rolled over is $4,000.
• In order for the rollover to be tax- and penalty-free, the 529 plan must have been open for at least 15 years. If the 529 account owner (typically a parent) changes the beneficiary of the 529 plan at any point, this will restart the 15-year clock.
• Contributions to a 529 plan made within five years of the rollover date can’t be rolled over — only 529 contributions made outside of the five-year window can be rolled over to the Roth IRA.

New Option for Employer Treatment of Employee Student Loan Payments

In addition to making 529 plans more flexible with a new rollover option, the SECURE 2.0 legislation seeks to help employees who have student loans and are making monthly loan payments. Employees with student loan debt often have to prioritize repaying their loans over contributing to their workplace retirement plan, which can mean missing out on potential employer retirement matching contributions. Starting in 2024, employers will have the option to treat an employee’s student loan payments as payments made to a qualified retirement plan (student loan payments will be considered “elective deferrals”), which would make those contributions eligible for an employer retirement match (if the employer offers this benefit).

Our team of Certified Financial Planner™ (CFP®) professionalsis here to construct your comprehensive financial plan and help you start saving for retirement.

Prepared by Broadridge. Edited by BFSG. Copyright 2023.

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 remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By:  Braden Priest, CFA®, Retirement Plan Consultant

Congratulations! Your company offers a retirement plan for employees to save for their future. Did you know you might now be a fiduciary as well? If you meet one of the criteria below, you may now have fiduciary responsibility and liability:

1. “Named Fiduciary” – The named fiduciary is most often the plan sponsor, who is typically either the owner of the company or the Board of Directors.
2. “Functional Fiduciary” – Even when you are not a named fiduciary, you may be a fiduciary if you either:
   1. Exercise any discretionary authority or control over the management of the plan or its assets.
   1. Have any discretionary authority or responsibility over the administration of the plan.

Who are Common Fiduciaries?

1. Employers and Plan Sponsors are often named fiduciaries or become functional fiduciaries through their actions.
2. Corporate Officers or Board of Directors are not automatically fiduciaries, but if they are responsible for the selection of other plan fiduciaries, such as an investment advisor or ERISA counsel, then they are acting as a functional fiduciary.
3. Retirement Committee Member are fiduciaries to the retirement plan if they are serving on your company’s retirement plan committee and they have discretionary authority or control over the plan and its assets.

Reach out to one of our Retirement Plan Advisors today to see if you might be a fiduciary to your plan, and more importantly, see how to mitigate the liability that comes along with such a responsibility.

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 remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By: Tina Schackman, CFA®, CFP®, Senior Retirement Plan Consultant

It’s important to note that not all retirement plans allow loans to be taken, so you should consult with your benefits department or contact your plan’s administrator before considering a loan from your employer-sponsored retirement account (i.e., 401k, 403b, etc.). Whether or not to take a loan from your employer-sponsored retirement account is a significant decision that comes with both potential advantages and drawbacks.

Advantages of a Loan

1. Accessibility: If you have a financial emergency or immediate need for a large sum of money, a loan might be an accessible source of funds, especially if you have difficulty getting a loan elsewhere.
2. No Credit Check: Your credit score isn’t a factor in obtaining a loan because you’re borrowing your own money.
3. Potentially Lower Interest Rate: The interest rate on a loan may be lower than what you would pay on a personal loan or credit card debt.
4. Repayment to Yourself: When you pay the interest on a loan, you’re paying it back into your retirement account, so you’re essentially paying the interest back to yourself.

Drawbacks of a Loan

1. Opportunity Cost: When you take money out of your retirement account, that money is no longer invested in the market. Therefore, you could miss out on potential growth and compounding interest, which could impact your long-term retirement savings significantly.
2. Double Taxation on Interest: While the money you borrow from your retirement account isn’t taxed when it’s taken out, the money you repay, including the interest, is done with after-tax dollars. When you retire and begin withdrawing from your retirement account, you’ll have to pay taxes again on those funds.
3. Loan Repayment After Leaving Job: If you leave your job or are terminated (whether voluntarily or not), you’ll typically have to repay the entire loan within a short time, often 60 days. If you don’t, the remaining balance is considered a distribution and could be subject to income tax, plus a 10% early withdrawal penalty if you’re under age 59 ½.
4. Possible Reduction in Retirement Contributions: If you’re paying back a loan, you might find it difficult to also continue contributing to your retirement account, especially if finances are tight. This could further reduce your retirement savings and impair your retirement goals.

In general, it’s often recommended to view an employer-sponsored retirement account loan as a last resort after considering other options, such as an emergency fund, budget adjustments, personal loans, or even home equity lines of credit. While a employer-sponsored retirement plan loan might make sense in certain situations, it’s crucial to understand the potential impact on your long-term financial health.

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 remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

By:  Braden Priest, CFA®, Retirement Plan Consultant

Hiring the right advisor for your company’s retirement plan is one of the most critical decisions you will ever make as a plan sponsor. Many brokers and retail wealth managers dabble in retirement plan advisory services, but putting your plan in the hands of a non-specialist advisor can lead to expensive plan corrections, penalties, and poor retirement outcomes for your employees. Here are five things a Retirement Plan Advisor can provide that you won’t get from a non-specialist advisor:

1. Risk and Fiduciary Compliance – Is the regulatory landscape of retirement plans a complicated mess? Admittedly, yes. Staying apprised of the most recent legislation, regulation, court decisions, and departmental guidance affecting retirement plans is a full-time job, and it’s not an easy one. The stakes are too high to trust an advisor without the intricate knowledge to navigate the complex regulatory environment. 

• Influence – To put it plainly, service providers want to keep top advisors happy. Well-respected specialist firms have significant influence with vendors and can help you get the best pricing and service personnel for your plan. Vendors often assign more experienced relationship managers and operations teams to the clients of firms that specialize in retirement plans, and in cases where service has been underwhelming, Retirement Plan Advisors have more pull to request personnel changes.

• Coordinator-in-Chief – Retirement Plan Advisors know where to go to get problems fixed, and they speak the language of payroll providers, third party administrators (TPAs), and recordkeepers. When plan sponsors have questions about their retirement plan, their first call is often to their advisor, who can bring together the right parties to find the best solution.

• Big Cost Savings – A Retirement Plan Advisor knows which rocks to turn over to find the most meaningful cost savings. Administrative cost savings can be found through direct negotiations with vendors or the Request for Proposal (“RFP”) process, but it requires proper benchmarking beforehand to ensure plans are getting the best deal. Significant investment savings, ranging from thousands to hundreds of thousands of dollars, can be found by evaluating and properly selecting the share class of each investment in the plan. These savings can often be realized without changing a single investment manager in the plan.

• Big Time Savings – Tired of scheduling committee meetings, drafting agendas, writing meeting minutes, and following up with service providers? A Retirement Plan Advisor should be highly engaged and willing to take these items off your plate so you can focus on running your business.

Speak with one of our Retirement Plan Advisors today to see how your plan can realize these benefits and more!

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 remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.