POSSIBILITIES. Rules Eased for Health FSAs. 2 Setting and Targeting Investment Goals. 4 The ABCs of Mutual Fund Share Classes

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1 POSSIBILITIES FINANCIAL INSIGHTS FOR INDIVIDUALS AND BUSINESSES APRIL 2014 Rules Eased for Health FSAs Recent changes announced by the Internal Revenue Service (IRS) modify the use-it-orlose-it rule that applies to health flexible spending arrangements (FSAs). Plan sponsors will now have the option of allowing participants in health FSAs to carry over up to $500 of unused funds in a health FSA to the following plan year. Background Health FSAs are tax-advantaged employerprovided benefit plans that employees can use to pay for qualifying medical expenses. While generally funded through voluntary employee salary reductions, employers are able to contribute as well. Prior to the start of a plan year, employees decide how much to contribute to the health FSA (the maximum annual employee contribution to a health FSA that is part of a cafeteria plan is $2,500 for 2014). Contributions to the plan are excluded from income for federal income tax purposes, as are any reimbursements made from the plan for qualified medical expenses, including copayments, deductibles, and dental and vision care expenses. Any funds left unspent in the health FSA at the end of the plan year are forfeited this is commonly referred to as the use-it-orlose-it rule. Plan sponsors have the option of providing for a grace period of up to 2½ additional months after the end of the plan year (e.g., a calendar year plan might cover expenses incurred through March 15). New Rules In Notice , the IRS modified the useit-or-lose-it rule that applies to health FSAs: Plans may now be amended to allow participants to carry over up to $500 of unused health FSA funds at the end of a plan year. Any carryover will not count against the $2,500 limit in the next plan year. FSA Rules continued on page 8 inside 2 Setting and Targeting Investment Goals 4 The ABCs of Mutual Fund Share Classes 6 Changing Jobs? Take Your 401(k) and Roll It!

2 2 POSSIBILITIES Setting and Targeting Investment Goals Go out into your yard and dig a big hole. Every month, throw $50 into it, but don t take any money out until you re ready to buy a house, send your child to college, or retire. It sounds a little crazy, doesn t it? But that s what investing without setting clear-cut goals is like. If you re lucky, you may end up with enough money to meet your needs, but you have no way to know for sure. How Do You Set Investment Goals? Setting investment goals means defining your dreams for the future. When you re setting goals, it s best to be as specific as possible. For instance, you know you want to retire, but when? You know you want to send your child to college, but to an Ivy League school or to the community college down the street? Writing down and prioritizing your investment goals is an important first step toward developing an investment plan. What Is Your Time Horizon? Your investment time horizon is the number of years you have to invest toward a specific goal. Each investment goal you set will have a different time horizon. For example, some of your investment goals will be long term (e.g., you have more than 15 years to plan), some will be short term (e.g., you have 5 years or less to plan), and some will be intermediate (e.g., you have between 5 and 15 years to plan). Establishing time horizons will help you determine how aggressively you should invest to accumulate the amount needed to meet your goals. How Much Will You Need to Invest? Although you can invest a lump sum of cash, many people find that regular, systematic investing is also a great way to build wealth over time. Start by determining how much you ll need to set aside monthly or annually to meet each goal. Although you ll want to invest as much as possible, choose a realistic amount that takes into account your other financial obligations, so that you can easily stick with your plan. But always be on the lookout for opportunities to increase the amount you re investing, such as participating in an automatic investment program that boosts your contribution by a certain percentage each year, or by dedicating a portion of every raise, bonus, cash gift, or tax refund you receive to your investment objectives. Which Investments Should You Choose? No matter what your financial goals, you ll need to decide how to best allocate your investment dollars. One important consideration is your tolerance for risk. All investments carry some risk, but some carry more than others. How well can you handle market ups and downs? Are you willing to accept a higher degree of risk in exchange for the opportunity to earn a higher rate of return? Whether you re investing for retirement, college, or another financial goal, your overall objective is to maximize returns without taking on more risk than you can bear. But no matter what level of risk you re comfortable with, make sure to choose investments that are consistent with your goals and time horizon. A financial professional can help you construct a diversified investment portfolio that takes these factors into account. Investing for Retirement After a hard day at the office, do you ask, Is it time to retire yet? Retirement may seem a long way off, but it s never too early to start planning especially if you want retirement to be the good life you imagine. For example, let s say that your goal is to retire at age 65. At age 20 you begin contributing $3,000 per year to your tax-deferred 401(k) account. If your investment earns 6 percent per year, compounded annually, you ll have approximately $679,000 in your investment account when you retire. But what would happen if you left things to chance instead? Let s say that you re not really worried about retirement, so you wait until

3 Financial Services 3 you re 35 to begin investing. Assuming you contributed the same amount to your 401(k) and the rate of return on your investment dollars was the same, you would end up with approximately $254,400. And, as this chart illustrates, if you were to wait until age 45 to begin investing for retirement, you would end up with only about $120,000 by the time you retire. you might also be willing to put some of your money into investments that offer the potential for growth. Investing for a Major Purchase At some point, you ll probably want to buy a home, a car, or the yacht that you ve always wanted. Although they re hardly impulse items, large purchases are usually not something for which you plan far in advance one to five years is a common time frame. Because you don t have much time to invest, you ll have to budget your investment dollars wisely. Rather than choosing growth investments, you may want to put your money into less volatile, highly liquid investments that have some potential for growth, but that offer you quick and easy access to your money should you need it. (This is a hypothetical example and is not intended to reflect the actual performance of any investment.) Investing for College Perhaps you faced the truth the day your child was born. Or maybe it hit you when your child started first grade: You only have so much time to save for college. In fact, for many people, saving for college is an intermediate-term goal if you start saving when your child is in elementary school, you ll have 10 to 15 years to build your college fund. Of course, the earlier you start the better. The more time you have before you need the money, the greater chance you have to build a substantial college fund due to compounding. With a longer investment time frame and a tolerance for some risk, Review and Revise Over time, you may need to update your investment plan. No matter what your investment goal, get in the habit of checking up on your portfolio at least once a year, more frequently if the market is particularly volatile or when there have been significant changes in your life. You may need to rebalance your portfolio to bring it back in line with your investment goals and risk tolerance. If you need help, a financial professional can help. n CONTACT Talk to your local Eide Bailly financial advisor Call for more information Investing in Your Goals Investing Goal and Time Horizon At 4%, you ll need to invest At 8%, you ll need to invest At 12%, you ll need to invest Have $10,000 for down payment on home: 5 years $151 per month $136 per month $123 per month Have $50,000 in college fund: 10 years $340 per month $276 per month $223 per month Have $250,000 in retirement fund: 20 years $685 per month $437 per month $272 per month Table assumes 3% annual inflation, and that return is compounded annually; taxes are not considered. This a hypothetical example and is not intended to reflect the actual performance of any investment.

4 4 POSSIBILITIES The ABCs of Mutual Fund Share Classes When investing in a mutual fund, you may have the opportunity to choose among several share classes, most commonly Class A, Class B, and Class C. This multi-class structure offers you the opportunity to select a share class that is best suited to your investment goals. The only differences among these share classes typically revolve around how much you will be charged for buying the fund, when you will pay any sales charges that apply, and the amount you will pay in annual fees and expenses. Understanding Fees and Expenses Before you can compare share classes, you need to understand the costs that are associated with mutual funds, since these costs are usually deducted from the money you ve invested and can affect the return of your investment over time. Typically, mutual fund costs consist of sales charges and annual expenses. The sales charge, often called a load, is the broker s commission deducted from your investment when you buy the fund or when you sell it. The annual expenses cover the fund s operating costs, including management fees, distribution and service fees (commonly known as 12b-1 fees), and general administrative expenses. The expenses are generally computed as a percentage of your assets and then deducted from the fund before the fund s returns are calculated. So which share class should you choose? The answer to that depends on two factors: how much you want to invest and your investment time horizon. Class A shares Class A shares may appeal to you if you re considering a long-term investment in a large number of shares. When you purchase Class A shares, a sales charge, called a front-end load, is typically deducted upfront, reducing the amount of your investment. Suppose you decide to spend $35,000 on Class A shares with a hypothetical front-end 5% sales load. You will be charged $1,750, and the remaining $33,250 will be invested. However, Class A shares also offer you discounts, called breakpoints, on the front-end load if you buy shares in excess of a certain dollar amount. Typically, a fund will offer several breakpoints; the more you invest, the greater the reduction in the sales load. For example, a mutual fund may charge a load of 5% if you invest less than $50,000, but reduce that load to 4.5% if you invest at least $50,000 but less than $100,000. This means that if you invest $49,000, you ll pay $2,450 in sales charges, but if you invest $50,000 (i.e., you reach the first breakpoint), you ll pay only $2,250 in sales charges. You may also qualify for breakpoint discounts by signing a letter of intent to purchase additional shares within a certain period of time (generally 13 months), or by combining your current purchase with other investment holdings that you, your spouse, and/or your children have within the same fund or family of funds (called a right of accumulation). Since rules vary, read your fund s prospectus to find out how you may qualify for available breakpoint discounts, or contact your financial professional for more information. Also, 12b-1 fees on Class A shares tend to be lower than those of other share classes, reducing

5 Financial Services 5 Comparing Share Classes Class A Shares Class B Shares Class C Shares Initial sales charge. Can be reduced or eliminated by breakpoint discounts. Front-End Load None None Contingent Deferred Sales Charge (CDSC) None Declines over several years Typically lower than Class B, and eliminated after 1 year 12b-1 Fees Typically lower than Class B and C shares Typically higher than Class A shares Typically higher than Class A shares Converts to Class A shares N/A After several years, thereafter reducing expenses Generally Class C shares don t convert to Class A shares your overall costs. This may make Class A shares more attractive if you wish to hold the fund for a long time. Class B shares Class B shares may appeal to you if you wish to invest a smaller amount of money for a long period of time. Unlike Class A shares, there is no up-front sales charge, so all of your initial investment is put to work immediately. Instead, Class B shares have a back-end load, often called a contingent deferred sales charge (CDSC), that you pay when you sell your shares. The load usually decreases over time (typically 6 to 8 years), although this varies from fund to fund. By the end of the time period no sales charge applies. At that stage your shares may convert to Class A shares. For example, suppose you invest $5,000 in Class B shares, with a 5% CDSC that decreases by 1% every year after the second year. If you sell your shares within the first year, you will pay 5% of the value of your assets or the value of the initial investment, whichever is less. If you hold your shares for 6 years, the CDSC will be reduced to zero. Class A shares, especially if your account has been transferred from one broker to another. Class C shares When you purchase Class C shares, a front-end load is normally not imposed, and the CDSC is generally lower than for Class B shares. This charge is reduced to zero if you hold the shares beyond the CDSC period (typically 12 months). For those reasons Class C shares may be appropriate if you have a large amount to invest and you intend to keep the fund for less than five years. However, the 12b-1 fees are greater for Class C shares than for Class A shares. Unlike Class B shares, these expenses will not decrease during the life of the investment, because C Class shares generally don t convert to Class A shares. Also, no breakpoints are available for large purchases. n CONTACT Talk to your local Eide Bailly financial advisor Call for more information Before you purchase Class B shares, however, make sure that this investment fits in with your overall goals. Class B 12b-1 fees can be considerably higher than those for Class A shares, so the cost of investing large amounts over time might be more than you would like. In addition, you don t benefit from the breakpoint discounts available with Class A shares, and you must pay the CDSC if you sell your Class B shares within the time limit. You should also keep track of when your shares convert to

6 6 POSSIBILITIES Changing Jobs? Take Your 401(k) and... Roll It! If you ve lost your job, or are changing jobs, you may be wondering what to do with your 401(k) plan account. It s important to understand your options. What Will I Be Entitled To? If you leave your job (voluntarily or involuntarily), you ll be entitled to a distribution of your vested balance. Your vested balance always includes your own contributions (pretax, aftertax, and Roth) and typically any investment earnings on those amounts. It also includes employer contributions (and earnings) that have satisfied your plan s vesting schedule. In general, you must be 100% vested in your employer s contributions after 3 years of service ( cliff vesting ), or you must vest gradually, 20% per year until you re fully vested after 6 years ( graded vesting ). Plans can have faster vesting schedules, and some even have 100% immediate vesting. You ll also be 100% vested once you ve reached your plan s normal retirement age. It s important for you to understand how your particular plan s vesting schedule works, because you ll forfeit any employer contributions that haven t vested by the time you leave your job. Your summary plan description (SPD) will spell out how the vesting schedule for your particular plan works. If you don t have one, ask your plan administrator for it. If you re on the cusp of vesting, it may make sense to wait a bit before leaving, if you have that luxury. Don t Spend It, Roll It! While this pool of dollars may look attractive, don t spend it unless you absolutely need to. If you take a distribution you ll be taxed, at ordinary income tax rates, on the entire value of your account except for any after-tax or Roth 401(k) contributions you ve made. And, if you re not yet age 55, an additional 10% penalty may apply to the taxable portion of your payout. (Special rules may apply if you receive a lump-sum distribution and you were born before 1936, or if the lump-sum includes employer stock.) your employer has to withhold 20% of the taxable portion of a 60-day rollover. You can still roll over the entire amount of your distribution, but you ll need to come up with the 20% that s been withheld until you recapture that amount when you file your income tax return. Should I Roll Over to My New Employer s 401(k) Plan or to An IRA? Assuming both options are available to you, there s no right or wrong answer to this question. There are strong arguments to be made on both sides. You need to weigh all of the factors, and make a decision based on your own needs and priorities. It s best to have a professional assist you with this, since the decision you make may have significant consequences both now and in the future. Reasons to roll over to an IRA: You generally have more investment choices with an IRA than with an employer s 401(k) plan. You typically may freely move your money around to the various investments offered by your IRA trustee, and you may divide up your balance among as many of those investments as you want. By contrast, employer-sponsored plans typically give you a limited menu of investments (usually mutual funds) from which to choose. You can freely allocate your IRA dollars among different IRA trustees/custodians. There s no limit on how many direct, trustee-to-trustee IRA transfers you can do in a year. This gives you flexibility to change trustees often if you are dissatisfied with investment performance or customer service. It can also allow you to have IRA accounts with more than one institution for added diversification. With an employer s plan, you can t move the funds to a different trustee unless you leave your job and roll over the funds. An IRA may give you more flexibility with distributions. Your distribution options in a 401(k) plan depend on the terms of If your vested balance is more than $5,000, you can leave your money in your employer s plan until you reach normal retirement age. But your employer must also allow you to make a direct rollover to an IRA or to another employer s 401(k) plan. As the name suggests, in a direct rollover the money passes directly from your 401(k) plan account to the IRA or other plan. This is preferable to a 60-day rollover, where you get the check and then roll the money over yourself, because

7 Financial Services 7 that particular plan, and your options may be limited. However, with an IRA, the timing and amount of distributions is generally at your discretion (until you reach age 70½ and must start taking required minimum distributions in the case of a traditional IRA). You can roll over (essentially convert ) your 401(k) plan distribution to a Roth IRA. You ll generally have to pay taxes on the amount you roll over (minus any after-tax contributions you ve made), but any qualified distributions from the Roth IRA in the future will be tax free. Reasons to roll over to your new employer s 401(k) plan: Many employer-sponsored plans have loan provisions. If you roll over your retirement funds to a new employer s plan that permits loans, you may be able to borrow up to 50% of the amount you roll over if you need the money. You can t borrow from an IRA you can only access the money in an IRA by taking a distribution, which may be subject to income tax and penalties. A rollover to your new employer s 401(k) plan may provide greater creditor protection than a rollover to an IRA. Most 401(k) plans receive unlimited protection from your creditors under federal law. Your creditors (with certain exceptions) cannot attach your plan funds to satisfy any of your debts and obligations, regardless of whether you ve declared bankruptcy. In contrast, any amounts you roll over to a traditional or Roth IRA are generally protected under federal law only if you declare bankruptcy. Any creditor protection your IRA may receive in cases outside of bankruptcy will generally depend on the laws of your particular state. If you are concerned about asset protection, be sure to seek the assistance of a qualified professional. You may be able to postpone required minimum distributions. For traditional IRAs, these distributions must begin by April 1 following the year you reach age 70½. However, if you work past that age and are still participating in your employer s 401(k) plan, you can delay your first distribution from that plan until April 1 following the year of your retirement. (You also must own no more than 5% of the company.) If your distribution includes Roth 401(k) contributions and earnings, you can roll those amounts over to either a Roth IRA or your new employer s Roth 401(k) plan (if it accepts rollovers). If you roll the funds over to a Roth IRA, the Roth IRA holding period will determine when you can begin receiving tax-free qualified distributions from the IRA. So if you re establishing a Roth IRA for the first time, your Roth 401(k) dollars will be subject to a brand new 5-year holding period. On the other hand, if you roll the dollars over to your new employer s Roth 401 (k) plan, your existing 5-year holding period will carry over to the new plan. This may enable you to receive tax-free qualified distributions sooner. When evaluating whether to initiate a rollover always be sure to (1) ask about possible surrender charges that may be imposed by your employer plan, or new surrender charges that your IRA may impose, (2) compare investment fees and expenses charged by your IRA (and investment funds) with those charged by your employer plan (if any), and (3) understand any accumulated rights or guarantees that you may be giving up by transferring funds out of your employer plan. What About Outstanding Plan Loans? In general, if you have an outstanding plan loan, you ll need to pay it back, or the outstanding balance will be taxed as if it had been distributed to you in cash. If you can t pay the loan back before you leave, you ll still have 60 days to roll over the amount that s been treated as a distribution to your IRA. Of course, you ll need to come up with the dollars from other sources. n CONTACT Talk to your local Eide Bailly financial advisor Call for more information What Life Event are You Experiencing? Life is full of events, some expected and some not. Whether you are changing jobs, buying a home or planning for retirement are you prepared? Visit our website to learn more! LifeEvents

8 th Ave S PO Box 2545 Fargo ND POSSIBILITIES is distributed with the understanding that the information contained does not constitute legal, accounting or other professional advice. It is not intended to be responsive to any individual situation or concerns as the contents of the publication are intended for general informational purposes only. Content provided by Forefield, Inc. Neither Forefield Inc. nor Forefield Advisor TM provides legal, taxation or investment advice. All the content provided by Forefield is protected by copyright. Forefield claims no liability for any modification to its content and/ or information provided by other sources Forefield Inc. All Rights Reserved. Questions and information for publication can be submitted to your Eide Bailly representative or to the editors of the newsletter. To view this and previous issues of POSSIBILITIES, visit Managing Editor: Liz Stabenow An Independent Member Firm of HLB International Financial Advisor is a Registered Representative of and offers securities through Securities America, Inc. Member FINRA and SIPC. Investment Advisory Services offered through Eide Bailly Advisors, LLC, a Registered Investment Advisor. Eide Bailly Financial Services, LLC is the holding company for Eide Bailly Advisors, LLC. Eide Bailly Financial Services and its subsidiaries are not affiliated with Securities America companies. FSA Rules from page 1 A plan may allow participants a grace period, as described above, or the ability to carry over unused funds but not both. A plan does not have to allow either the grace period or the carryover option. To adopt the carryover option, plans must be amended on or before the last day of the plan year from which amounts may be carried over, and may be retroactive to the first day of the plan year, provided certain requirements, including participant notification, are met. Special rules apply to plan years beginning in 2013 these plans may be amended to retroactively adopt the carryover provision at any time on or before the last day of the plan year that begins in Word of Caution A health FSA plan can t have both a grace period and a carryover option, so plans with existing grace periods will have to be amended to remove the grace period feature in order to add carryovers. However, plan sponsors should consult carefully with a benefit specialist before taking any action, as eliminating an existing grace period feature raises potential issues relating to the Employee Retirement Income Security Act of 1974 (ERISA). IRS Notice itself states that the ability to eliminate a grace period provision previously adopted for the plan year in which the amendment is adopted may be subject to noncode legal constraints. Employers may want to consider making grace period changes prior to when the year starts to avoid ERISA issues. n CONTACT Talk to your local Eide Bailly financial advisor Call for more information