Introduction to Retirement Tax Shelters¶

Read this Excellent summary of business retirement plans at Capital Group ARTICLE

Read the IRS Retirement-Plan Contribution Limits ARTICLE

Recommended Order of Contributing to Retirement Plans¶

This sequence refers to monthly contributions, not necesarrily lump-sums.

1. 401k (and other company sponsored retirement plans). Contribute the amount up the company-match. Always select Roth 401k if it is offered.
2. Fully-fund Roth or Traditional IRA; always choose Roth if you qualify for it. If not, then select Traditional.
3. Raise your 401k contributions to the maximum.
4. Finally, all remaining retirement dollars should go into a variable annuity.

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Individual Retirement Accounts (Traditional IRA & Roth IRA)¶

Roth IRA¶

Listen to Everyone Needs a Roth AUDIO

Read Planning opportunities within Roth IRAs PDF

Many hail the Roth IRA as the greatest tax break ever invented, but there are some important issues to consider before jumping on board.

Like other IRAs, the Roth allows you to accumulate funds for retirement and to enjoy some tax advantages at the same time. While traditional IRAs are tax-deferred, Roth IRAs are designed to be tax-exempt. Traditional IRAs permit you to contribute pre-tax dollars; Roth IRAs accept only already-taxed dollars.

Let's say you're 35 years old and you invest $3,000 of your post-tax income into a Roth IRA each year, starting today. You earn a 10% annual return for the next 30 years until you retire at 65. By then, your contributions would have grown to about $500,000. With a Roth, that's your take-home pay. With a regular IRA, you would pay taxes on any withdrawals, netting just $420,000 or so, assuming a 15% tax bracket during retirement, or merely $365,000 if you are in a 27% bracket. So far, this is very convincing. But remember that if the $3,000 had gone directly into a traditional IRA, you would have reaped about $810 in tax savings each year at a 27% tax rate (and possibly more than $1,000 each year if your tax rate is higher). If that savings is also invested, the total difference between the Roth and the regular IRA becomes slimmer. Still, the Roth is a very compelling proposition to most investors. (Part of the problem is that in real-life most people wouldn't invest the tax deduction.)

The Roth is fully available to individuals who earn up to a certain amount. You can roll over, or convert, your traditional IRA into a Roth one by paying taxes on it, counting the entire value of the account as income.

Backdoor Roth IRA¶

Watch The Backdoor Roth VIDEO

Watch IRA Conversion vs Recharacterization VIDEO

Verified by three CPA's... that if one spouse is doing a Roth conversion and has no other IRA's, the fact that the other spouse might have some IRA's has no bearing on the spouse actually doing the conversion. This could be a good opportunity for some high income couples.

American Funds said they can do a conversion over the phone immediately after the contribution is made into a non-deductible IRA which means there should be no growth in the account, hence no taxes on the conversion.

Stretch IRA¶

The stretch IRA is not a special type of IRA created by Congress. There are no special IRA agreements that establish stretch IRAs but a financial organization may want to add language to its current IRA agreements to enable stretching. The term "stretch" here refers to a method for extending the duration of traditional and Roth IRA beneficiary distributions to certain successor beneficiaries, beyond the death of an original designated beneficiary.

After an IRA owner's death, a spouse beneficiary can treat an IRA as his/her own if he/she is the only beneficiary. If there are multiple beneficiaries, a spouse beneficiary can always take a distribution of his/her share in an IRA and roll it over to a personal IRA. Once the assets are in his/her own IRA, he/she can name his/her own death beneficiaries.

After an IRA owner's death, a non-spouse IRA beneficiary, under the final required minimum distribution (RMD) rules, generally takes RMDs based on his/her single life expectancy. An original beneficiary?s death generally requires distribution of any remaining IRA assets in a single sum to his/her estate. With stretching, the duration of death distributions can continue to a series of successor beneficiaries beyond the death of an IRA?s original beneficiary but not forever.

How Long Can Death Distributions Last?

The regulations prohibit a death distribution period from extending beyond an original non-spouse beneficiary's single life expectancy even though RMDs continue to successor beneficiaries. All beneficiaries base their RMD calculations on the original beneficiary's life expectancy, not on any life expectancy of any successor beneficiary. This calculation guarantees the depletion of an IRA?s assets because the original beneficiary's life expectancy factor decreases each year, eventually reaching 1.0 or less, requiring a full distribution that year.

Example

As the sole designated beneficiary of her mother's IRA, Rhonda chose to take distributions based on her single life expectancy. Rhonda named her son, Tyler, as the successor beneficiary of her mother's IRA. At age 54 in the year after her mother's death, Rhonda?s single life expectancy is 30.5 for the first year of her RMD calculation. As a nonspouse beneficiary, she will reduce this factor by one for each subsequent year's RMD calculation.

If Rhonda passes away after taking RMDs from her mother?s IRA for ten years, Tyler can continue distributions based on Rhonda?s reduced life expectancy factor of 20.5 at this point. Tyler can also name a successor beneficiary who, at Tyler?s death, can continue the RMDs but based on Rhonda?s reduced life expectancy factor at the time of Tyler's death.

Eventually the continued reduction of Rhonda's life expectancy factor will reach 0.5, requiring a full distribution that year of the IRA?s remaining balance. The duration of the death distribution period to all beneficiaries does not exceed Rhonda's life expectancy factor the year after her mother's death of 30.5 years.

Had Rhonda not named a successor beneficiary, the remaining assets in her mother's IRA would have passed to Rhonda's estate after Rhonda died in a single sum distribution subject to income taxes if Rhonda?s mother had a traditional IRA.

Can a Beneficiary Always Name a Successor Beneficiary?

The final RMD regulations imply the possibility and the model IRA agreements (IRS Forms 5305 and 5305A) do not deny the possibility of a beneficiary naming a successor beneficiary. However, for compliance comfort an IRA agreement or a financial organization's policy and procedures should contain specific language regarding successor beneficiaries.

Why Stretch Distributions?

A non-spouse IRA beneficiary may want to name a successor beneficiary for the same reasons as an IRA owner to pass distribution rights to a specific person allowing an IRA to accumulate additional tax deferred or tax-free income, and perhaps save tax dollars by avoiding single sum distributions when a beneficiary dies. A beneficiary should first determine if a deceased IRA owner's agreement permits the naming of a successor beneficiary and, before naming a successor beneficiary, seek the advice of his/her tax or legal professional to determine if this would be the best course of action for his/her personal financial plan.

Non-Deductible IRA¶

Is your client covered by a retirement plan? Maxing out on IRA or Roth IRA? Ineligible for IRA due to income? Here is a work around to add dollars to their investment accounts... Anyone (yes anyone) can open what is known as a Non deductible IRA subject to the same maximums of a Traditional IRA. A person over 50 can invest up to $6000 per year in this account. The firm will look at this as a Traditional IRA, the Fund company may label it "special account." This IRA is NOT deducted on the client's tax return. Personally I wait until the following year to roll this account over to a Roth IRA. There are NO income limitations on rollovers to a Roth. If the account grows to $6,300 then the client would have to declare $300 as income on his tax return, and from then on the whole amount grows tax free and is withdrawn tax free.

Ps: This is also a powerful recruiting tool for tax preparers. CPA, EA, CTEC certified. They all have books of hot (not just warm) business markets that know them and trust them. This recruit should be able to get enough bread and butter clients in two tax seasons to cover monthly fees. Then it gets really fun.

Inherited IRA¶

Watch Inherited IRAs - Omar (2022-10) VIDEO

SO YOU INHERITED an IRA. Sorry to say that unless it's a Roth IRA, you can't just take the money and run. You've got an income tax liability to consider. Nor can you leave that money compounding tax-free forever. There are rules (of course) regulating the minimum withdrawals you must take from your new IRA. If you're lucky, whoever left you the IRA thought about this and left you some instructions. If not, you'll have to piece together the necessary details with the help of the IRA trustee and your tax adviser.

Of course, if you want simply to take your inherited IRA money right now and pay the taxes, you can. But if you want to defer taxes as long as possible, here's what you need to know in order to avoid penalties.

Death Before the Minimum-Withdrawal Start Date: Spousal Beneficiary If the IRA owner dies before minimum withdrawals begin (in other words, before April 1 of the year after turning 70 ½), and the surviving spouse is the designated beneficiary, the spouse can simply treat the inherited IRA as his or her own account. That means the spouse should change the name on the account and, if desired, name new beneficiaries. In this case, the spouse then follows the minimum-withdrawal rules as they would apply to his or her own IRA. Sounds easy so far. If the spouse is young, this is probably the best road to maximum tax-deferral.

If that schedule doesn't please the spouse, he has two additional choices. He can begin taking minimum withdrawals over his life expectancy beginning by Dec. 31 of the year following the deceased spouse's death or by Dec. 31 of the year after the deceased would have turned 70 ½.

If withdrawals are not started by either of these dates, and the account remains in the name of the deceased, the general rule is the surviving spouse must withdraw the entire balance of the inherited IRA by Dec. 31 of the fifth year following the other spouse's death. However, even at this point, it's still not too late for the survivor to choose to treat the IRA as his or her own account, as described above.

Death Before the Minimum-Withdrawal Start Date: Nonspousal Beneficiary Heirs who are not surviving spouses don't have the option of treating inherited IRAs as their own. However, they do have two choices of withdrawal rules. First, minimum withdrawals can be taken over the life expectancy of the beneficiary starting no later than Dec. 31 of the year after death. The other choice is to withdraw the entire balance no later than Dec. 31 of the fifth year after death. This is the relatively well-known "five-year" rule.

If there is no designated beneficiary (or the estate is the beneficiary), the five-year rule automatically applies.

Spouse Inherits After the Minimum-Withdrawal Start Date. Now things really get complicated. If the surviving spouse inherits the IRA as the designated beneficiary, he or she can treat the account as his or her own. Simply change the name on the account and name new beneficiaries. If the survivor is under age 70 ½, that means she can cease the minimum withdrawals, thus deferring taxes even longer. If this option is not chosen (for example, because the survivor is older than the deceased), the resulting minimum-withdrawal schedule depends on whether withdrawals were previously based on the couple's recalculated joint life expectancy . If not, the surviving spouse continues to take minimum withdrawals based on the old schedule. And the same withdrawal pattern then continues for any subsequent heir who inherits the IRA after the second spouse dies. This is good, because the heir is not forced immediately to liquidate the IRA and pay the resulting taxes.

For example, say the surviving spouse is the beneficiary. She is 65 years old when she inherits her 72-year-old husband's IRA. Assume the recalculation method was not being used to calculate his minimum withdrawals. The wife can treat the inherited IRA as her own and name a child as the new beneficiary. She need not take any minimum withdrawals until the year after she turns 70 ½. At that point, the minimum withdrawals will be calculated using the joint life expectancy of the wife and the child.

What happens if the wife is age 77 when she inherits her 72-year-old husband's account? In this case, she might want simply to continue taking minimum withdrawals using the same schedule as if her husband were still alive. Or she can treat the inherited account as her own IRA, name a new beneficiary and begin taking minimum withdrawals over the joint life expectancy of the wife and the new beneficiary.

If the couple's joint life expectancy was being recalculated, the surviving spouse must continue to take minimum withdrawals over the survivor's remaining single life expectancy (which is recalculated annually). Then, when the second spouse dies, the remaining balance must be distributed to his or her heir by Dec. 31 of the year after death. Of course, taxes will be due at that time. Because of this factor and all the mathematical complications that result, recalculating life expectancies should generally be avoided when possible. In most cases, the additional tax-deferral gained from recalculating while still alive just isn't worth the trouble.

Nonspouse Inherits After the Minimum-Withdrawal Start Date. Again, nonspousal heirs do not have the option of treating the inherited IRA as their own.

If the IRA has a designated beneficiary, and the deceased IRA owner's minimum withdrawals were based on his or her recalculated life expectancy, minimum withdrawals must be taken over the beneficiary's single life expectancy beginning in the year of death. If recalculation was not being used, and the deceased IRA owner's minimum withdrawals were based on a joint life expectancy with the beneficiary, then the beneficiary can take minimum withdrawals based on the joint-life-expectancy figure. Again, this is another reason to avoid recalculation when possible.

If there is no designated beneficiary (or the estate is the designated beneficiary) and the deceased owner's life expectancy was being recalculated, the IRA must be liquidated (and taxes paid) by Dec. 31 of the year after the owner's death. If recalculation was not being used, minimum distributions can continue over the deceased owner's life expectancy. Once again, this is a reason to avoid the recalculation method.

What About Roth IRAs? A really nice thing about Roth IRAs is that they are not subject to the minimum-withdrawal rules ? at least not while you are still alive. The same is true for a traditional IRA converted to Roth status.

However, the "regular" IRA minimum-withdrawal rules (specifically the ones for death before minimum withdrawals start) apply to Roth accounts after you die. In other words, the preceding withdrawal rules for inherited IRAs will kick in, which means your heirs cannot continue to benefit indefinitely from the Roth account's compounded tax-free income. Another thing to keep in mind is that earnings must be in the Roth for at least five years before they can be withdrawn tax-free. So if the Roth IRA is not five years old, beneficiaries making withdrawals need to follow the ordering rules for Roth IRAs. That means the first withdrawals will come from annual after-tax contributions. The next layer comes from contributions of converted regular-IRA money ? first the taxable amount, then from the nontaxable amount (if any). The last layer comes from earnings.

Finally, if you die before paying all of your conversion tax, and the beneficiary is not the spouse, the remaining conversion income must be included in the final tax return of the deceased.

If you are at an age where you've already begun taking minimum IRA withdrawals, you can put a halt to this requirement by converting your regular IRA into a Roth account. You then get a fresh opportunity to name a beneficiary for the account, and you can also choose not to use the recalculation method for life expectancies. This won't have any impact on you, but, as explained above, it can result in lower minimum withdrawals for your heirs. That means more money can be left in the Roth account to earn that lovely tax-free income.

Note: For more details on the IRA minimum-withdrawal rules, see IRS Publication 590, "Individual Retirement Arrangements," on the IRS Web site.

IRA Conversions¶

Watch IRA Conversion vs Recharacterization VIDEO

Contribution limits

When Can You Make Contributions?

You can make contributions to a Roth IRA for a year at any time during the year or by the due date of your return for that year (not including extensions). You can make contributions for by the due date (not including extensions) for filing your tax return. This means that most people can make contributions for by April 15. For example, you can start or make 2010 Roth IRA contributions until April 15^th 2011.

Rules for Roth IRA Conversions

You can also convert from a traditional to Roth IRA, but the rules were quite restrictive. Only taxpayers with Modified Adjusted Gross Incomes (MAGI) of less than $100,000 in the year of conversion and not married filing separately may convert from a traditional IRA to a Roth IRA. However new tax laws in 2010 changed the conversion limit, meaning that people who have or are interested in investing for retirement via IRA’s need to look at which vehicle and contribution method (post or pre tax) is best for their situation.

From next year all taxpayers – even those making more than $100,000 a year in adjusted income – will be allowed to convert to Roth IRA accounts from Traditional IRAs. That means that more than 15 million Americans, can consider whether they want to make tax-deductible contributions if they have a traditional IRA or pay the taxes up front and have tax- free withdrawals during retirement with a Roth IRA. Which is better depends on future tax rates and how much the conversion will cost. It may not make sense to pay taxes today at a higher rate because many investors will be in a lower tax bracket during retirement, according to Tom Orecchio in a recent Bloomberg interview of various tax and financial planners, a fee- only adviser at Modera Wealth Management. “From a tax perspective, I think when people do the math, it’s not going to be as game changing as they expect it to be,” Orecchio said.

For example, a taxpayer in the 28 percent federal tax bracket who shifts $100,000 of pretax dollars to a Roth IRA from a traditional IRA would pay $28,000 in taxes, in addition to whatever is owed in state taxes. “There are many people who simply don’t have that kind of a side account to pay the income tax, so for them it isn’t very practical to consider a Roth,” said Christine Fahlund, a senior financial planner at T. Rowe Price Group Inc. in Baltimore.

A partial conversion to a Roth IRA from a traditional IRA may be the most tax-efficient plan because of the diversification benefits, said Orecchio, who estimates about half of his clients may convert some money to a Roth IRA next year. “You never know how the tax code will work in the future. By owning different IRAs, you’re protected from whatever the government might decide to do,” Orecchio said.

Partial conversions may also be desirable for those with larger portfolios that would require a large tax payment at conversion, said Fahlund of T. Rowe Price. And the flexibility of partial conversions can also be beneficial to those who are self- employed or whose income varies year to year. In a year with less income, an investor can convert less of a traditional IRA to avoid having a larger tax burden for the year, according to Fahlund.

Holding Period

The Roth accounts, including those converted from traditional IRAs, must be held for five years and account holders must be at least 59 and a half before money can be withdrawn tax free. Savers who don’t follow the withdrawal rules or meet exemptions face a 10 percent penalty for distributions. Investors who decide to convert to Roth IRAs must declare the conversion amount on their tax forms. The tax owed depends on whether the assets being transferred are made up of pre or post-tax dollars. In 2010 only, converters will be able to pay the tax liability in 2011 and 2012.

There’s a fallback for investors who decide to convert and regret the decision. A Roth can be switched back to a traditional IRA account, or re characterized. Since investors who convert to a Roth IRA don’t have to pay taxes on the conversion until the following year, they have until April 2011, or October 2011, if they get an extension to file, to reverse the conversion, said Slott, the IRA consultant.

1. You have to pay taxes on the amount you convert. In return for the potential future tax breaks of a Roth, you have to pay income taxes when you convert. That means if you have money in a traditional IRA that you haven’t yet paid taxes on, you could have a substantial tax bill. Say you’re in the 28% tax bracket, you could owe $28,000 on a conversion of $100,000. Still, converting may benefit you in the long run if you expect you’ll be taxed at a higher rate when you retire. If you expect your rate will be lower, converting may not be beneficial. If, like most people, you’re not sure what your future tax rate may be, you could consider converting just part of your traditional IRA to a Roth. Doing so gives you“tax diversification” because you’ve got some money in a Roth and some still in a traditional IRA.

2. It’s a good idea to use money outside of your IRA to pay the conversion taxes. You can get the most benefit from switching to a Roth if you can pay the conversion taxes without using money from your IRA. If you convert and don’t pull money out of your IRA, you can increase your after-tax purchasing power in retirement. In effect, $10,000 in a Roth IRA gives you more to spend in retirement than $10,000 in a traditional pre-tax IRA. Remember, taxes could substantially reduce the amount you’re left with when you withdraw from the traditional IRA.

And there’s another reason not to tap your IRA for the conversion taxes: If you’re under age 59½, the amount you withdraw may be subject to a 10% IRS penalty. A cash account may be a good place to get the money to pay the taxes on the conversion.

3. You can lighten the tax burden of a conversion. If you don’t have enough money to pay taxes on converting all your traditional IRA assets, or if doing so would push you into a higher tax bracket, you can consider converting just part of your assets. In addition, a special provision applies to 2010 conversions that gives you the option of postponing the tax bill and paying it off over two years. If you choose this route, taxable income that results from the conversion gets split evenly between 2011 and 2012. But be aware that tax rates are scheduled to go up in 2011, so—barring any new tax legislation—you could end up paying taxes at a higher rate.

4. Penalties may apply if you withdraw within five years of a conversion. A conversion may not be for you if you expect you’ll withdraw the money within five years. Generally speaking, you’ll only be able to withdraw earnings from the account without taxes and penalties if you’re age 59½ or older and you’ve held the Roth IRA for at least five years.As for withdrawals of your original conversion amount, those are tax-free. But to avoid a 10% IRS penalty, you generally must be either at least age 59½ or wait at least five years after your conversion to make the withdrawal.

5. Your heirs may benefit from the conversion. During your lifetime, you don’t have to take money out of the Roth IRA because you’re not subject to RMDs. That means you can leave the entire accumulated balance to someone else. And while a beneficiary who inherits your Roth IRA may be subject to RMDs, he or she can withdraw the amount of your original conversion tax-free. Any earnings are also tax-free, provided that the Roth IRA meets the five-year holding requirement.

SEP IRAs¶

Understanding the Simplified Employee Pension.

Because the Simplified Employee Pension (SEP) is an IRA (and not a pension plan), it does not have the potentially onerous and expensive administrative and reporting requirements. Combine this advantage with contribution flexibility and the ability to install the plan by the employer's tax filing date and you have a truly "simplified" employee pension alternative.

SEP Contribution Limits¶

Much like a profit sharing plan, a SEP-IRA allows the employer to contribute up to the lesser of 25 percent of eligible compensation or $53,000 for 2016. Generally, eligible compensation is earned income that is subject to payroll tax such as W-2 Wages, or Schedule C net profits of sole proprietors and is currently disregarded for income earned over $265,000. Earned income does not include dividends, S Corporation owner profits or real estate rental income.

Also, for business forms that are unincorporated, the SEP contribution will reduce earned income, dollar-for-dollar, so that the 25 percent limit is on the reduced or net profit number.

Another benefit is that contributing to a SEP does not affect your ability to contribute to a Traditional or Roth IRA.

Eligibility¶

Another SEP-IRA feature that many small business owners find attractive is the ability to exclude employees from participation by requiring that they be at least 21 years of age, have worked for at least three of the past five years and earned at least $600 each year. This three-year wait can keep out temporary or short-service employees, ensuring that employer contributions go only to the long service employees—which often includes the owner and possibly other family members. If an employer elects a service requirement, it must also apply in a uniform manner to all potential participants (to include the owner and family members).

Another very attractive feature of a SEP is that, unlike traditional IRAs, an owner or employee may be older than age 70½ and still participate. However, required minimum distributions still need to be taken each year.

Plan Adoption and Funding¶

Setting up a SEP-IRA is fairly easy. A SEP can be established by any business regardless of its type, including corporations, sole proprietors, partnerships, LLCs, and LLPs. Although an employer can turn to a legal or service provider to draw up a Plan, the IRS offers a pre-approved prototype (IRS form 5305-SEP). This form can easily be downloaded from their website and completed by the employer by the tax-filing date (including valid extension). Each employee must receive a copy of this form, and it's also a good idea to submit a copy to your Broker-Dealer along with any new SEP accounts or annuity applications.

The employer then funds the plan by making a contribution to a SEP-IRA established for each eligible participant. It should be noted that for most SEPs, the only contributions made come from the employer. Unlike a 401(k) or SIMPLE-IRA, the participants may not make salary deferrals or catch-up contributions at age 50 and beyond.

Hypothetical Case Study¶

Jeff Jones and Maggie Smith are chiropractors who established a professional S Corporation four years ago and expect to save more than the $5,500 or so they have been contributing to their own IRAs. They pay themselves a salary of $10,000 a month and pass through to themselves another $200,000 or more in profits each year, taxed as ordinary income.

The Practice can establish a SEP-IRA by their tax-filing date, contributing up to $72,500 into the IRA account of each eligible participant and can elect to contribute nothing if their goals change in the future. Each eligible employee may receive up to 25 percent of earned income—in this case, their W-2 wage.

You may note that the profits passing through to the owners are disregarded as these profits are not subject to payroll tax and are not considered to be earned income. If Jeff and Maggie adopt the maximum service requirement, Todd Greene would not be eligible to participate until he works another two years.

The chiropractic practice is required to open a SEP-IRA for Jeff, Maggie and Sarah and apportion the employer contribution to each of them, based upon a uniform percentage of their salary. These monies are fully vested to each participant, who has full control of their own SEP-IRA once the contributions are made by the employer. SEP-IRAs are portable to other IRAs or most qualified retirement plans, at the option of each IRA owner.

Simple IRAs¶

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401k's¶

Watch Julian Rodriguez Explaining 401k's (2023-01)VIDEO

Watch Training from 401k TPA Scott BlarneyVIDEO

Read Understanding 401k - Jackson 2025-10 PDF

More documents in the Proton Drive 401k folder PDF

A 401(k) is a type of retirement savings account at a company, which takes its name from subsection 401k of the Internal Revenue Code. A participant elects his or her own contribution amount to be deposited in his or her own 401k account. An individual can begin to withdraw funds without penalty or hardship withdrawals after reaching the age of 59½ years.

401(k)s were first widely adopted as retirement plans for American workers, beginning in the 1980s. The 401(k) emerged as an alternative to the traditional retirement pension by shifting the burden for retirement savings to workers themselves.

Benefits of 401k's¶

Participants¶

• Pay Yourself First.
• It's easy to get start and easy to contribute.
• Dollar-Cost Averaging.
• High Contribution Limits.
• PreTax and Roth.
• Loans.

Business Owners¶

• Flexibility in Plan Design
• Eligibility Requirements
• Match or No Match
• Vesting Schedule on Match
• Profit Sharing
• Attract and retain key EEs
• High Contribution Limits

401k In-Service, Non-Hardship Withdrawals¶

This is a provision in about 90% of 401k that authorizes the employee to redirect around 40% of the 401k assets per year to another retirement account. I have used this provision since 2004 when I first heard about it from a Metlife wholesaler.

Essentially the employee can still contribute to a 401k plan and receive a match, but once a year transfer 40% to another retirement vehicle. My experience has been that HR reps disavow any knowledge of these provisions. You have to secure the 401k plan document to determine if the clause exist in a person’s 401k. Plus they are hush-hush because if everyone knew they would be moving the money from their 401k regularly. So, it does take time to secure the document, read it, and then convince the HR to allow the employee to make the changes. But believe me, it is worth it. The percentage they can move out of the 401k varies by plan. Some allow for 100% transfer. It’s amazing by far.

How to explain the "matching" of a 401(k)¶

Use two dollar bills and a quarter. Say, Here's how the matching in a 401k works. You put a dollar in your account [lay down a dollar bill] . And, your company puts in a dollar [lay another dollar bill]. Then, because of the tax benefit, the government give you a quarter in tax-deductions [lay down the quarter].

Roth 401ks¶

Solo 401k + Profit Sharing¶

Watch AF MKOM 1628 - Solo 401k VIDEO

Watch AF MKOM 1631 - Solo 401k + VA Case Study VIDEO

A Solo 401k (also known as the uni-401k) is a type of retirement plan designed specifically for self-employed individuals, sole proprietors, and small business owners with no full-time employees (except for themselves and their spouses). It allows these individuals to make very high contributions to their retirement accounts, providing a tax-advantaged way to save for their future.

Contribution Limits¶

Total contribution allowance includes the 401k contribution + Age 50 catch-up provision + profit sharing, with a total limit.

Use the Solo 401k + Profit Sharing Caluclator to help determine the exact contribution limits. Spreadsheet

Solo 401k Plan Creation & Administration¶

Solo 401(k) plans are relatively easy to set-up and administer. Visit our Forms Calculator.

1) Have a TPA set-up the legal framework for the Solo 401k.¶

• Firm name: Future Plan
• Firm ID: 823719843
• Select quarterly statements.
• Cost: One-time set-up fee: \(1,050**. Annual fee: **\)950.

2) After the TPA has established the plan legally, then you submit American Funds paperwork to create the adoption agreement and select the investments.¶

• Share classes: A-shares or R-shares (R1 - R6)
• Funds:
  • American Funds Growth Portfolio (R1) - Ticker: RGWAX | Cusip: 02630R674
• Capital Group Home Office Service Team
  • Katy Jones (KAMJ)
• 800-421-5475