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Monday, September 30 2019
Liquidity in Savings - Bucks County Financial Advisor

401 (k) Savings Are Not Liquid Savings

In the last couple of years, and especially the last 6 months, the bull market has become increasingly conservative. That has many folks checking their monthly balance statements in their 401(k) accounts, and even in some cases, convinced investors that they have crossed the millionaire threshold.

Not so fast. Their 401(k) account is a retirement savings account. This means that unless you are retired or on the verge of retiring, these savings will only serve you several years down the road. For example, Robert the Businessman can’t easily use his blooming 401(k) cash to take a vacation or remodel a bathroom, or even buy groceries.

I’m guessing that most of these “401(k) millionaires” do not have a millionaire lifestyle. First of all, retirement savings are not liquid savings. Robert cannot use this portfolio practically for everyday needs. The vast majority of people are living off their salary or other regular S-corp earnings. The smart ones are putting reasonable tax-deferred dollars into their 401(k) or other retirement accounts and putting some money aside that can be spent on routine costly items, like vacations or home repairs.

Second, the stock market is due for a correction, based on experts’ predictions and the duration of the current bull market. What happens to the $1 million value of Robert’s 401(k) account if the S&P sinks 20%, even with a balanced portfolio? It may take several years to reclaim those lost assets, and in the meantime, Robert is still working as hard as ever, and shoveling as much of his savings into the 401(k) as he can.

It’s great (and necessary) to have plenty of money packed away for retirement. However, piling as much money as possible exclusively into a 401(k) is not a reasonable approach, unless you are like so many millions of Americans who are well behind on their retirement savings.

That’s why at Isakov Planning Group, we advocate a balanced plan for our clients’ investment accounts. This gives them the liquidity they need to live comfortably today, while planning for their comfort tomorrow.

Being euphoric over today’s retirement portfolio performance is nice for the moment, but it is important to have a balanced savings approach between liquid and nonliquid investment accounts.

Contact Isakov Planning Group for more information.

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Posted by: Eugene Kuntorovsky AT 10:15 am   |  Permalink   |  0 Comments  |  Email
Tuesday, September 03 2019
Choosing a Retirement Program for Your Growing Business

Dedicated employees of a small, growing business need the security of knowing they are helping to finance their retirement. This is a key reason why some employees join one company over another. Starting a retirement plan not only helps finance your future, but it is probably the only way your employees can fund their own. Additionally, retirement fund contributions are tax-deductible as a business expense. This can mean considerable tax bill savings at the end of the year. 

Small business owners have several valuable options in setting up retirement programs. Much of the choices boil down to, (1) who will be eligible for the retirement program, (2) will eligible employees be able to contribute their own money to the plan? and (3) which is most important to you, the business owner—maximizing contributions or simplifying administration of the retirement plan? 

Four types of retirement plans are at the center of small business discussions: 

  1. The SIMPLE IRA (Savings Incentive Match Plan for Employees) 

  2. The SEP IRA (Simplified Employee Pension Plan) 

  3. The Standard 401(k) plan 

  4. The Self-Employed 401(k) plan

Each of these plan types offer the potential for tax-deferred savings growth and the possibility of deducting your company contributions as a business expense. In addition, your business will be entitled to a tax credit for start-up expenses associated with setting up your first retirement plan. 

In order to decide which is best for your small business, you’ll need to lay out all of the costs of administration, contribution limits, and the tax benefits of each type. Don’t make the mistake of choosing a plan that fails to deliver the best combination of costs and benefits. The US Department of Labor has published a detailed paper that compares each type of plan and is available free of charge.

Here is a basic description for each option: 

  • The SIMPLE IRA can be used for any business with no more than 100 employees. Similar to a Standard 401(k) plan, employer contributions (tax deductible) and employee contributions (pretax) are permitted. 

  • The SEP IRA was developed for those who are self-employed, but small business owners with virtually any number of employees can utilize its benefits. However, only the employer can contribute, which slows the speed with which the savings grow. 

  • The Standard 401(k) plan is best suited for larger companies, because of administrative set-up costs and fiduciary responsibilities.

  • A Self-Employed 401(k) plan offers the highest contribution limits (employers can contribute up to 25% of total compensation, to a maximum of $53,000 for fiscal 2016), but it is suitable only for businesses with no “common law” employees, meaning any person working for the business who does not have an ownership interest. 

Speak with our financial planning professionals at Isakov Planning Group about why a small-business retirement program is important and how the options stack up for your specific business.

Contact us for a free consultation.


Posted by: Eugene AT 03:31 pm   |  Permalink   |  0 Comments  |  Email
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