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Retirement Planning and Simple Retirement Plans

You are probably so busy running your business that it’s difficult to take time out to plan for retirement. As a financial planner, I advise clients that they will need up to 70% of their preretirement income to have a comfortable retirement.  Clients should realize that only a small portion of that retirement money will come from Social Security. Retirement planning is a part of financial planning. Choosing the right retirement plan for a business or individual can be complicated and an experienced financial planner should have the expertise to guide you. We at RJR Financial Firm are experts in the field of retirement planning and asset management.

One of the best retirement plans I recommend for small business is a SIMPLE PLAN. A SIMPLE IRA Plan is a salary reduction retirement plan. That means that participants decide how much they want to save for retirement-and that amount is deducted from their salary on a pretax basis each pay period. It is a cost-effective plan designed specifically for companies with 100 or fewer employees.  One of the biggest advantages of a SIMPLE IRA Plan is that enables all participants to save for retirement while also saving on current taxes. In addition to reducing current taxable income, a SIMPLE IRA Plan

  • Helps retain and attract valuable employees
  • Allows employees to save for their retirement
  • Allows contributions to grow tax free
  • Employer contributions are tax deductable
  • RJR Financial Firm is a money management and asset management firm that will manage the employee’s investment accounts

From the employer’s side, this type of plan is cost effective administratively and requires a much lower employee matching requirements from other plans. Each employee will have their own IRA account in which to contribute in order to shelter income from taxes and build a retirement fund. Instead of employees who are not experts in asset management, determine what to invest their money in, We as expert asset management and money management firm will provide that service.

Under a Simple plan, any employee with compensation of at least $5,000 in compensation must be permitted to enter a “qualified salary reduction arrangement.” Under this arrangement, an employee can elect to have a percentage of compensation not in excess of $11,500 (in 2010) set aside in an IRA, instead of receiving it in cash. This maximum is indexed for inflation each year.

Amounts taken out of the employee’s salary and contributed to a Simple IRA are not taxed to the employee until withdrawn from the plan. Early withdrawals may be subject to a 10% penalty (25%, if the withdrawal is made within the first two years).

Under a qualified salary reduction arrangement, the employer must make “matching” contributions to the SIMPLE IRA. That is, the employer must make contributions to an employee’s SIMPLE IRA in the same amount that the employer contributed under the employee’s salary reduction election, up to 3% of the employee’s compensation. For example, if an employee with compensation of $50,000 elects to have 10% of his pay contributed to the plan ($5,000), the employer must contribute an additional $1,500 (3% of $50,000). For these purposes, an employee’s compensation is the amount reported on his Form W-2, plus the amount of elective deferrals (e.g., the amount of the salary reduction contributed to the SIMPLE IRA). But the matching contribution for the year cannot exceed $11,500 in 2010. This amount is indexed for inflation each year.

If an employer wishes to contribute less than 3%, he can give employees proper notice and drop the contribution to as low as 1% of compensation, as long as this isn’t done for more than two years out of the five-year period ending with the year of reduced contributions.

Alternatively, instead of making “matching” employee contributions, the employer can simply contribute a flat 2% of “compensation” (limited to $245,000 for 2010, and as adjusted for inflation in following years), for every employee eligible to participate in the plan, whether the employee elects to reduce his salary or not. Special notice must be given to employees if the employer wishes to take this approach.

Instead of adopting a SIMPLE plan, an employer can set up a SIMPLE 401(k) plan. By making matching contributions (or 2% non-elective contributions) and satisfying rules similar to those for simple plans, SIMPLE 401(k) plans will be considered to satisfy the otherwise complex nondiscrimination test for 401(k) plans. The contribution rules for SIMPLE plan apply to Simple 401(k) plans, except that if an employer adopts the matching contribution approach (instead of the flat 2% option), the maximum contribution percentage cannot be dropped below 3%. Unlike a SIMPLE plan, a Simple 401(k) plan is part of a qualified plan, and is subject to the qualified plan rules. Contributions to Simple 401(k) plan are not subject to the 15 percent limits on contributions to profit-sharing or stock bonus plans.

SIMPLE plan have the advantages of simplified reporting requirements and the absence of the qualification rules prohibiting the plan from discriminating against lower-level employees. These advantages come with some obligations, such as the matching contribution requirement. Additionally, to be eligible to adopt a SIMPLE plan, an employer must not contribute to, or accrue benefits under, any qualified retirement plan for services provided during the year (or in any year after the qualified salary reduction arrangement takes effect).

This maybe a good time to reassess your retirement planning for yourself and your business.  Please call , Robert Richter at RJR Financial Firm if you wish to discuss this topic further.

529 College Savings Plan (Qualified Tuition Program)

College is getting more expensive every year. Four years in a public school costs roughly $ 70,000 and in a private school $139,000. The best way to prepare is to start saving now. The earlier you start making regular contributions, the better prepared you’ll be when those college expenses start rolling in. A great way to start this process is by opening a 529 College Savings Plan. You can design an individualized savings plan that meets your needs. Factors that need to be considered are:   1) Estimated college cost  2) time frame  3) contributions needed  4) how many children  5) inflation and other  economic factors.

Here are the general rules


  1. You can open a 529 plan for anyone-your child, grandchild, spouse or even yourself
  2. The contributor is usually the owner and the beneficiary is the future student
  3. Earnings in the account can grow tax free
  4. There are no income limits. You can contribute no matter how much you earn
  5. Contributions are not deductable on your tax return. It is considered a gift
  6. You can contribute up to $65,000 per year without gift tax issues. There is a $350,000 maximum value in which  no more contributions are allowed
  7. You maintain control of the assets. There’s no predetermined investment mix. As your investment advisor I will allocate your funds that best reflects your needs. We are allowed to move assets only once a year or when you change beneficiaries.
  8. You can use a 529 plan to pay higher education expenses at any eligible educational institution in US
  9. You  can change the beneficiary from one family member to another once a year
  10. Anyone can contribute to the account. However, only the account owner can make decisions regarding the account, including taking withdrawals from the Account, changing the Account’s investments and changing the Beneficiary.
  11. You are permitted to roll over funds without federal income tax consequences from one 529 plan to another 529 plan for the same Beneficiary once every 12 months.


  1. You decide when to make withdrawals
  2. If you withdraw money for something other than qualified higher education expenses, you will owe federal income tax and in addition may face a 10% federal tax penalty on earnings.  If distributions are more than the beneficiary’s qualified expenses, the earnings portion of the excess is included in the beneficiary’s income

Qualified higher education expenses include:

  1. Tuition, fees, books ,supplies and equipment required for attending an eligible school
  2. Reasonable costs of room and board for those who are at least half-time students in a degree program
  3. Certain expenses of a special-needs beneficiary needed to complete their education

Other Considerations

  1. You should receive Form 1099-Q, payments from Qualified Education Programs from the plan sponsor showing information related to QTP distributions
  2. The account owner is strongly encouraged to designate a successor account owner. If the original account owner dies or is declared legally incompetent, the designated successor becomes the account owner. If   there is no successor owner, the estate of the deceased account owner becomes the new account owner.
  3. Your 529 plan holdings could impact your beneficiary’s ability to qualify for grants and student loans.  The 529 plans may also affect a Beneficiary’s ability to qualify for federal need-based financial aid. Effective July 1, 2009, a 529 account, will be regarded as an asset of the student if the student is an independent student and an asset of the parent if the student is a dependent student. An independent student generally includes an individual who:
    • is age 24 by December 31 of the award year
    • is an orphan, in foster care or a ward of the court (other rules may apply)
    • is an emancipated minor
    • is a war veteran
    • is a graduate or professional student
    • is married
    • has legal dependents other than a spouse
    • is homeless (other rules may apply), or
    • has special and unusual circumstances which can be documented to his or her financial aid administrator

The Smart Financial Planning Process

The most common question a new client will ask when we begin the financial planning process is, “What kind of returns can I expect from your portfolio management?” The answer depends on your risk tolerance, age, financial planning needs and investment objectives.

In general, those that are under the age of fifty with medium risk tolerance will achieve between 9% to 11% per year.  For those over fifty-five or in retirement this can range from 7% to 9% depending on your specific financial planning needs and risk tolerance. The recommended minimum investment planning time frame is 8 years.
Financial Planning Process Diagram

Step 1: Determine your risk profile and financial planning objectives.

The amount of risk or variability of return you are willing to accept is a major determinant of your portfolio composition.  Every investor is an individual with different needs and different financial planning objectives. Whether your objective is wealth preservation, asset growth or current income, it is critical to discuss them in detail with a knowledgeable financial planner. I will help you determine whether you need investments that produce income, growth or a combination of both.  It is also important to understand your attitude towards financial planning and investment planning.

Another critical aspect of your risk profile is your investment planning time horizon—which focuses on retirement financial planning. This is determined by when you will need to access your investments. It will seriously affect your financial planning portfolio strategy. An investor with a longer time horizon can afford to assume greater short-term financial planning risk in exchange for potentially greater long-term returns.

Stocks historically have experienced greater short-term volatility, but over the longer term, they have outperformed bonds and other fixed income financial planning investments. If you have a longer time horizon, you may want to take advantage of the opportunities provided by investing in stocks, In addition, regardless of the type of assets held in your portfolio, time is on your side. The longer you hold any particular asset class, the less the variation in your financial planning return.

Step 2: Set your asset allocation policy.

Research has shown that the asset allocation decision – how your investments are spread among asset classes such as Stocks, Bonds, Reits, Commodities and Cash – has by far the most significant impact on overall performance.  This is why determining the right asset allocation is critical to your investment planning and success. The world economy is ever changing, so your investment allocation cannot be stagnate.  This is one of the common downfalls I see with other investment managers and individuals who manage their own investments.
Step 3: Diversify across asset classes and financial planning investment styles.

As a knowledgeable portfolio manager, I diversify your investments across several asset classes by using multiple mutual funds, etf’s, stocks and bonds. I use the best performing mutual funds out of the 5,000 funds available to you. I chose the best managed funds in their asset class. The funds are evaluated among their respective peers in their asset class based on a variety of qualitative and quantitative factors including: management, experience, adherence to their stated class, long term performance, low management fees, tax efficiency and other relevant factors.

Step 4: Rebalance your portfolio.

As your investment manager, I monitor your portfolio as well as the underlying securities and the financial markets on a continuous basis to assure your desired financial planning goals are being met. I rebalance your portfolio periodically instead of being static with the same funds or stocks over the years. Keeping in mind your asset allocation and risk tolerance, your portfolio will be flexible in order to take advantage of which asset class might outperform over the next six to twelve months.

Step 5: Report the results.

As your financial planner I will provide you with a brokerage statement on a monthly basis detailing the market value of securities and transactions affecting your portfolio. You will receive an annual summary report on the performance and investment outlook for the following year. Your performance and asset allocation will be summarized. Tracking your financial planning results allows you to measure the progress against your stated investment planning objectives.