The Self-Employed Need Retirement, Too!

Transcription

1 The Self-Employed Need Retirement, Too! Presented to WES February 2, 2013 Janet Hudson, CPA Pinnacle Family Advisors 4200 S. Quail Creek Ave., Ste. A Springfield, MO 65810

2 Pinnacle Family Advisors, LLC Pinnacle Family Advisors is an independent Registered Investment Advisory Firm PFA specializes in providing independent consulting and advisory services to mid-sized retirement plans PFA founded on Purpose, Stewardship and Freedom

3 Financial Planning Qualified Plan Consulting Investment Management Pinnacle Family Advisors Private Equity Accounting/ Business Consulting Legacy/ Estate Planning

4 Dreams For Retirement Vacations/Traveling Grand-kids Hobbies Sky-diving Scrapbooking Volunteering No Alarm Clock Time -- To do Whatever You Want!

5 Starts with a Plan

6 Steps to Financial Freedom 1. Engaging in Conversation Sounds Simple Critical On Same Page Realities of a Plan

7 Steps to Financial Freedom 2. Risk vs. Reward Investments?? Derailing Your Plan Satisfaction

8 Steps To Financial Freedom 3. Process Moves to Freedom Unique to YOU Your Plan Your Goals Simple yet Complex

9 Process Your Plan Up To Retirement Time Accumulating Savings Life Happens Revisit Redevelop

10 Nest Egg Sources For Retirement Annuity/Pension Stable Income? COLA Inflation Real Costs? Personal Savings 401k; IRA; Roth Social Security

11 For Financial Success Financial Plan Income Enough? Budget Reality Check Growing Your Savings Retirement Plans 401k; 403b; 457; Solo 401(k) Defined Benefit Plan IRA

12 Retirement Years Longer retirement In 1950, retirement started later and ended earlier than it does now. Today, retirement is lasting 20, 30, even 40 years! The average 58 year old will live to age 82.

13 Income Needs Need to replace 77% 94% of pre-retirement income in retirement. SS = 30% - 45% of current income Age 67 for most Gap to be filled by YOU Example: $90,000 current income (assumes SS is 35%) 25 yrs to retirement; 5% earnings; 3% inflation; 80% retirement income Save $3,400/mth = $2.0 million Withdraw $40,000 in today s dollars combined with SS = 80% of current income in retirement: Savings will last 25 years 40% savings rate not reasonable SOLUTIONS: START EARLY; HIGHER RETURNS; PLAN Management of Financial Plan is more critical when market earnings are low

14 Employee Benefit Savings Programs 401(k) Qualified Plan (1978) Private Sector Employees Contributions Employee contributions Employer Match on Employee Contribution (Vesting Schedule Permitted) Employer contributions Pre-tax Contributions Federal & State No impact on Social Security Taxes Employee Contributions up to Annual Limits

15 Employee Benefit Savings Programs 457(b) Deferred Compensation Plan (1958) Non-Qualified Local and State Governments 403(b) Tax-Sheltered Annuity (1958/1986) Public Schools, Tax-Exempt Orgs (c)(3), Ministers

16 Small Business Retirement Plans SIMPLE 401(k) & SIMPLE IRA Fewer than 100 employees Employees may contribute up to $12,000 & Employer may Match (100% vested) 401(k) Match is limited to Annual Compensation Limit $250, SIMPLE IRA Match No limit on earnings No other qualified plan allowed Loans allowed in 401(k)

17 Small Business Retirement Plans SEP (Simplified Employee Pension) Plan No maximum employees Employer Contributions only Contributed to a Traditional IRA for each employee; up to 25% of salary; Contribute same for every employee Maximum Contribution - 25% up to $51,000 Flexible contributions Not mandatory each year; good for business with varied cash flow No catch-up contributions

18 Self Employed Retirement Plans Solo 401(k) aka Individual 401(k) (Began in 2001) Self-employed individual and spouse - Only eligible (cannot have any employees) Employee Contribution limit - $17,500 Annual Profit-sharing Contribution limit - 25% up to $51,000 (2013) (in addition to employee contribution) Catch-up Contribution allowed at age 50 - $5,500 MRD at age 70 ½ and 10% penalty < 59 ½ Loans allowed up to ½ balance; $50,000 maximum, certain payback rules apply

19 Self Employed Retirement Plans SEP IRA (Simplified Employee Pension) Sole-proprietor, business owner, partnership, or earn selfemployment income Annual Contribution Limit - $51,000; Up to 25% of income Easier set-up and administration Employer contribution to IRA; contribution may vary from year to year No Catch-up Contribution allowed Can contribute to Roth or IRA also No loans allowed

20 IRA (Individual Retirement Account) $5,500/year; $6,500 > age 50 Deduction on Tax Return Covered by Retirement Plan S = $59,000; M = $95,000 Not-covered by Retirement Plan S = no limit; M = $178,000 Taxes are Deferred; pay ordinary tax rates when withdrawing 10% Penalty if withdrawals before age 59 ½ MRD at age 70 ½

21 Roth IRA $5,500/year; $6,500 > age 50 Income limits S = $112,000; M = $178,000 After 5 years & 59 1/2 Earnings TAX FREE Can withdraw Principal w/o penalty immediately No Mandatory withdrawal requirements Passes to beneficiaries TAX FREE

22 Tax Deferred vs. Traditional Savings $60,000 Salary 5%; 25% Tax Rate Taxable Age $300/Month $144,000 Investment 401(k) Match 50% up to 6% Roth $334,693 $72,000 Match $667,136 Total $444,757 Age $500/Month $180,000 Investment $334,900 $54,000 Match $529,000 Total $407,687 Age $1,000/Month $240,000 Investment $361,266 $36,000 Match $466,000 Total $405,804

23 Withdrawals From Retirement Plans Caution: You can borrow for many things - - EXCEPT RETIREMENT

24 Pay Yourself First Dollar Cost Averaging Investment Strategy Reduces Market Risk Systematic Investing Pay Yourself First Investment options Conservative to Risky Savings Easier Out of Reach Potentially in Lower Tax Bracket when you need to use your Nest Egg Future is in YOUR Control

25 Financial Freedom 1. Communicate 2. Develop Plan 3. Follow Plan 4. Enjoy Life!

26 Cell Information presented is only valid as of date of presentation. Consult tax advisor with specific questions.