Warren Wealth Article Archive
Articles Posted During 04/2010
The 47% Controversary
Tuesday 04/20/2010 - 1:21:36 pm
Half of Americans aren’t paying federal income taxes. Is that right?
provided by Jacob Warren
A provocative statistic. Last July, the nonpartisan Tax Policy Center (a joint venture of the Urban Institute and the Brookings Institution) estimated that 47% of Americans would not owe a penny to the IRS for tax year 2009.1
The White House has projected the federal deficit at $1.6 trillion for 2010 – that’s about 10.6% of our GDP, a percentage unseen since the 1940s. So is it fair to the nation that so many Americans are legally avoiding federal income taxes?2
A major reason? Refundable tax credits. The Making Work Pay credit and other tax cuts accompanying the federal stimulus gave millions more of us a refund this time around. If these credits hadn’t appeared, the TPC says 38% of us still wouldn’t have owed federal income tax for 2009, thanks to assorted variables - astute tax planning, low taxable income, and other factors.1
People who assume the rich are dodging taxes are misinformed. The TPC found that only about 1.5% of those with taxable incomes of $1 million or more owed no federal income tax for 2009. For those with taxable incomes from $500,000-$1,000,000, the estimate rises to just 2%.3
If you made between $75,000-100,000 in taxable income in 2009, you may have been in the lucky 9.2% who the TPC says didn’t owe anything to the IRS. In contrast, it figured that 61.8% of taxpayers who earned $20,000-30,000 last year and 47.5% of those with taxable incomes from $30,000-40,000 had no federal tax liability.3
Can you bring the deficit down without new or excessive taxes? Good question. At first glance, it may seem impossible. The Treasury, however, has a plan to do it, and it looks like this: cut war spending by $250 billion, save another $252 billion by letting tax cuts sunset for couples making more than $250,000 yearly, collect $331 billion in bank fees, and save $105 billion from a selective federal spending freeze. This could shrink the deficit to around 3% of GDP, which the Treasury feels is bearable.4
Of course, bipartisan politics might get in the way. Higher federal income taxes (and new kinds of taxes) seem to be looming in the future; as for legislators figuring out a way to spare us from them, that would seem a longshot.
Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464
---------------------------------------------------------------------------------
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. www.montoyaregistry.com www.petermontoya.com
Citations.
1 taxpolicycenter.org/publications/url.cfm?ID=1001289 [7/2/09]
2 reuters.com/article/idUSTRE63C09I20100413 [4/12/10]
2 usatoday.com/news/opinion/editorials/2010-04-16-editorial16_ST_N.htm [4/16/10]
4 cnbc.com/id/36432254 [4/13/10]
[Permalink]
provided by Jacob Warren
A provocative statistic. Last July, the nonpartisan Tax Policy Center (a joint venture of the Urban Institute and the Brookings Institution) estimated that 47% of Americans would not owe a penny to the IRS for tax year 2009.1
The White House has projected the federal deficit at $1.6 trillion for 2010 – that’s about 10.6% of our GDP, a percentage unseen since the 1940s. So is it fair to the nation that so many Americans are legally avoiding federal income taxes?2
A major reason? Refundable tax credits. The Making Work Pay credit and other tax cuts accompanying the federal stimulus gave millions more of us a refund this time around. If these credits hadn’t appeared, the TPC says 38% of us still wouldn’t have owed federal income tax for 2009, thanks to assorted variables - astute tax planning, low taxable income, and other factors.1
People who assume the rich are dodging taxes are misinformed. The TPC found that only about 1.5% of those with taxable incomes of $1 million or more owed no federal income tax for 2009. For those with taxable incomes from $500,000-$1,000,000, the estimate rises to just 2%.3
If you made between $75,000-100,000 in taxable income in 2009, you may have been in the lucky 9.2% who the TPC says didn’t owe anything to the IRS. In contrast, it figured that 61.8% of taxpayers who earned $20,000-30,000 last year and 47.5% of those with taxable incomes from $30,000-40,000 had no federal tax liability.3
Can you bring the deficit down without new or excessive taxes? Good question. At first glance, it may seem impossible. The Treasury, however, has a plan to do it, and it looks like this: cut war spending by $250 billion, save another $252 billion by letting tax cuts sunset for couples making more than $250,000 yearly, collect $331 billion in bank fees, and save $105 billion from a selective federal spending freeze. This could shrink the deficit to around 3% of GDP, which the Treasury feels is bearable.4
Of course, bipartisan politics might get in the way. Higher federal income taxes (and new kinds of taxes) seem to be looming in the future; as for legislators figuring out a way to spare us from them, that would seem a longshot.
Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464
---------------------------------------------------------------------------------
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information. www.montoyaregistry.com www.petermontoya.com
Citations.
1 taxpolicycenter.org/publications/url.cfm?ID=1001289 [7/2/09]
2 reuters.com/article/idUSTRE63C09I20100413 [4/12/10]
2 usatoday.com/news/opinion/editorials/2010-04-16-editorial16_ST_N.htm [4/16/10]
4 cnbc.com/id/36432254 [4/13/10]
[Permalink]
Could We See A Nationwide Sales Tax?
Monday 04/12/2010 - 12:30:16 pm
Will a VAT become reality? How about Internet or energy taxes?
provided by Jacob Warren
How do you pay down an $8 trillion debt? The Obama administration needs an answer, as the non-profit Congressional Budget Office says America’s debt could rise to $20 trillion by 2020.1
One possible answer has a very European ring to it: a VAT, or value-added tax.
What are the chances of Americans paying a national sales tax? And what about an Internet tax? Or an energy tax? Are they also possible?
A VAT of bubbling controversy. Last year, Obama administration economic adviser Paul Volcker mentioned the possibility of a value-added tax. The CBO is now studying the idea.2
India and the member states of the European Union have VATs: sales taxes imposed on producers, distributors and consumers as a product makes its way through the marketplace. VATs collect a great deal of state revenue while discouraging tax fraud. In France, the VAT is 20%; in Germany, 19%.1
The VAT would not replace our federal income tax, just supplement it. So the furor we saw over health care reform might pale in comparison to the protests over this.
Volcker thinks a VAT is “not as toxic an idea” to America in 2010 as it might have been decades ago. White House budget director Peter Orszag thinks it will never fly, calling it “popular with academics but not seriously considered by policy makers.”3
A VAT could generate trillions. The CBO says each percentage point of VAT could bring in $1 trillion in the next ten years. It also projects that the health care reforms will cost $2 trillion or more over that period.1
Some economists and political analysts think a VAT is inevitable. Why, exactly?
Peter Orszag’s office, the Office of Management and Budget, has projected federal government expenses of $5.7 trillion for 2020. However, it estimates that the government will only collect $4.7 trillion in total taxes in 2020, meaning a deficit of $1 trillion. Well, at least that’s better than the 2010 shortfall of $1.6 trillion, right? Yes, but … the OMB projects income tax receipts of just $2.3 trillion in that year. So if Washington wants to wipe out a 2020 deficit using its #1 revenue generator, it would have to collect 44% more in income taxes, which is unthinkable.3
Rather than trying to do that, it could put a VAT in place – a major tax to be sure. Think double digits. By federal projections, if the government charged Americans a 7% national sales tax on every consumable in 2020, then it could raise $1 trillion. If it spared essentials like food and clothing from VAT (it likely would), then the VAT would need to be higher than 7%.3
One major gripe about VATs around the world is that they burden the poor. Certainly, poor people in America would be pinched by a VAT, possibly to the point of federal subsidy.
However, the government needs a lot of money in a short window of time, and the VAT is beckoning, with voices such as Volcker, Nancy Pelosi and John Kerry bringing up the idea.
An Internet tax? Back in 1998, President Clinton signed the Internet Tax Freedom Act into law, which prohibited federal, state and local governments from charging bandwidth taxes, email taxes and Internet access taxes. It was extended in 2007 with President Bush’s signature.4
However, the National Broadband Plan out in April from the Federal Communications Commission contains Recommendation 4.20: “The federal government should investigate establishing a national framework for digital goods and services taxation.” It also says, “Recognizing that state and local governments pursue varying approaches to raising tax revenues, a national framework for digital goods and services taxation would reduce uncertainty and remove one barrier to online entrepreneurship and investment.”5 (Huh?)
So far, this is as far as this idea has gotten. The governments of the United Kingdom and Canada are currently considering Internet tax proposals.
An energy tax? In an interview with Charlie Rose on PBS last year, Volcker floated the notion of “a tax on carbon, tax on energy, that’s a big revenue producer if you’re willing to do it. Not very popular to say the least.” It was part of a roster of potential tax code changes presented to the President in December, and he brought it up again in April in New York City.6,7
Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464
---------------------------------------------------------------------------------
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.
Content provided by Peter Montoya, Inc. These are the views of Peter Montoya, Inc., not the named representative or Woodbury Financial Services, Inc., and should not be considered investment advice. Neither the representative or Woodbury Financial offer tax or legal advice. All information is believed to be from reliable sources; however, the publisher makes no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, or other professional services. If expert assistance is needed, the reader is advised to work with a competent professional. Consult your representative for further information.
ww.petermontoya.com
Citations.
1 tulsaworld.com/news/article.aspx?no=subj&articleid=20100327_222_A23_WSIGOm22953 [3/27/10]
2 bostonherald.com/business/general/view.bg?articleid=1245809&srvc=rss [4/9/10]
3 cnn.com/2010/02/05/news/economy/vat_deficit.fortune/index.htmss [2/5/10]
4 georgewbush-whitehouse.archives.gov/news/releases/2007/10/images/20071031-17_d-0350-2-515h.html [10/31/07]
5 washingtontimes.com/news/2010/apr/02/internet-taxation-is-on-the-way/ [4/2/10]
6 blogs.wsj.com/economics/2009/09/29/volcker-carbon-tax-vat-should-be-on-the-table/tab/article/ [9/29/09]
7 reuters.com/article/idUSTRE6355N520100406 [4/6/10]
[Permalink]
provided by Jacob Warren
How do you pay down an $8 trillion debt? The Obama administration needs an answer, as the non-profit Congressional Budget Office says America’s debt could rise to $20 trillion by 2020.1
One possible answer has a very European ring to it: a VAT, or value-added tax.
What are the chances of Americans paying a national sales tax? And what about an Internet tax? Or an energy tax? Are they also possible?
A VAT of bubbling controversy. Last year, Obama administration economic adviser Paul Volcker mentioned the possibility of a value-added tax. The CBO is now studying the idea.2
India and the member states of the European Union have VATs: sales taxes imposed on producers, distributors and consumers as a product makes its way through the marketplace. VATs collect a great deal of state revenue while discouraging tax fraud. In France, the VAT is 20%; in Germany, 19%.1
The VAT would not replace our federal income tax, just supplement it. So the furor we saw over health care reform might pale in comparison to the protests over this.
Volcker thinks a VAT is “not as toxic an idea” to America in 2010 as it might have been decades ago. White House budget director Peter Orszag thinks it will never fly, calling it “popular with academics but not seriously considered by policy makers.”3
A VAT could generate trillions. The CBO says each percentage point of VAT could bring in $1 trillion in the next ten years. It also projects that the health care reforms will cost $2 trillion or more over that period.1
Some economists and political analysts think a VAT is inevitable. Why, exactly?
Peter Orszag’s office, the Office of Management and Budget, has projected federal government expenses of $5.7 trillion for 2020. However, it estimates that the government will only collect $4.7 trillion in total taxes in 2020, meaning a deficit of $1 trillion. Well, at least that’s better than the 2010 shortfall of $1.6 trillion, right? Yes, but … the OMB projects income tax receipts of just $2.3 trillion in that year. So if Washington wants to wipe out a 2020 deficit using its #1 revenue generator, it would have to collect 44% more in income taxes, which is unthinkable.3
Rather than trying to do that, it could put a VAT in place – a major tax to be sure. Think double digits. By federal projections, if the government charged Americans a 7% national sales tax on every consumable in 2020, then it could raise $1 trillion. If it spared essentials like food and clothing from VAT (it likely would), then the VAT would need to be higher than 7%.3
One major gripe about VATs around the world is that they burden the poor. Certainly, poor people in America would be pinched by a VAT, possibly to the point of federal subsidy.
However, the government needs a lot of money in a short window of time, and the VAT is beckoning, with voices such as Volcker, Nancy Pelosi and John Kerry bringing up the idea.
An Internet tax? Back in 1998, President Clinton signed the Internet Tax Freedom Act into law, which prohibited federal, state and local governments from charging bandwidth taxes, email taxes and Internet access taxes. It was extended in 2007 with President Bush’s signature.4
However, the National Broadband Plan out in April from the Federal Communications Commission contains Recommendation 4.20: “The federal government should investigate establishing a national framework for digital goods and services taxation.” It also says, “Recognizing that state and local governments pursue varying approaches to raising tax revenues, a national framework for digital goods and services taxation would reduce uncertainty and remove one barrier to online entrepreneurship and investment.”5 (Huh?)
So far, this is as far as this idea has gotten. The governments of the United Kingdom and Canada are currently considering Internet tax proposals.
An energy tax? In an interview with Charlie Rose on PBS last year, Volcker floated the notion of “a tax on carbon, tax on energy, that’s a big revenue producer if you’re willing to do it. Not very popular to say the least.” It was part of a roster of potential tax code changes presented to the President in December, and he brought it up again in April in New York City.6,7
Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464
---------------------------------------------------------------------------------
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.
Content provided by Peter Montoya, Inc. These are the views of Peter Montoya, Inc., not the named representative or Woodbury Financial Services, Inc., and should not be considered investment advice. Neither the representative or Woodbury Financial offer tax or legal advice. All information is believed to be from reliable sources; however, the publisher makes no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, or other professional services. If expert assistance is needed, the reader is advised to work with a competent professional. Consult your representative for further information.
ww.petermontoya.com
Citations.
1 tulsaworld.com/news/article.aspx?no=subj&articleid=20100327_222_A23_WSIGOm22953 [3/27/10]
2 bostonherald.com/business/general/view.bg?articleid=1245809&srvc=rss [4/9/10]
3 cnn.com/2010/02/05/news/economy/vat_deficit.fortune/index.htmss [2/5/10]
4 georgewbush-whitehouse.archives.gov/news/releases/2007/10/images/20071031-17_d-0350-2-515h.html [10/31/07]
5 washingtontimes.com/news/2010/apr/02/internet-taxation-is-on-the-way/ [4/2/10]
6 blogs.wsj.com/economics/2009/09/29/volcker-carbon-tax-vat-should-be-on-the-table/tab/article/ [9/29/09]
7 reuters.com/article/idUSTRE6355N520100406 [4/6/10]
[Permalink]
An Estate Tax Break For Farm Families?
Tuesday 04/06/2010 - 11:36:13 am
If passed, H.R. 3524 would spare some heirs from estate taxes.
provided by Jacob Warren
An interesting bill on the back burner of Congress. Last summer, Reps. Mike Thompson (D-CA) and John Salazar (D-CO) co-sponsored H.R 3524, The Family Farm Preservation and Conservation Estate Tax Act. H.R 3524 would exempt farms and ranches from estate taxes provided the land keeps being used for farming or ranching or has a conservation easement.1
The bill was referred to the House Committee on Ways and Means last summer, and as equilibrium returns to Congress, perhaps its momentum will resume.2
A way to address a huge problem. Usually, farm families have to sell part or all of their acreage just to pay estate taxes. This has been a factor in the decline of the family-owned farm or ranch in America. It has also hurt rural economies, impacted food production, and affected stewardship of rural lands.
A return to pre-EGGTRA estate tax levels in 2011 would definitely make the problem worse. Even if Congress follows the President’s preference and estate taxes return to 2009 levels in 2011, you have a tax condition that offers no incentive for a family to keep ranching or farming.
A union of interesting allies. The Environmental Defense Fund (a conservation lobby) and the Public Lands Council (a ranching and farming lobby) are united in support of H.R. 3524. The California Cattlemen’s Council and the Land Trust Alliance are also on board with the bill, as well as two dozen more farming organizations.3
Help keep the momentum going. As Congress put aside just about everything else (including the estate tax) to focus on health care reform, this was one of many important pieces of potential legislation that was set aside for the time being. Contact your local Senator or Representative to show them your interest in the bill today.
Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464
---------------------------------------------------------------------------------
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
www.montoyaregistry.com www.petermontoya.com
Citations.
1 edf.org/pressrelease.cfm?contentID=10353 [8/20/09]
2 thomas.loc.gov/cgi-bin/bdquery/z?d111:h.r.03524: [8/20/09]
3 cfbf.org/agalert/AgAlertStory.cfm?ID=1375&ck=70FEB62B69F16E0238F741FAB228FEC2 [9/2/09]
[Permalink]
provided by Jacob Warren
An interesting bill on the back burner of Congress. Last summer, Reps. Mike Thompson (D-CA) and John Salazar (D-CO) co-sponsored H.R 3524, The Family Farm Preservation and Conservation Estate Tax Act. H.R 3524 would exempt farms and ranches from estate taxes provided the land keeps being used for farming or ranching or has a conservation easement.1
The bill was referred to the House Committee on Ways and Means last summer, and as equilibrium returns to Congress, perhaps its momentum will resume.2
A way to address a huge problem. Usually, farm families have to sell part or all of their acreage just to pay estate taxes. This has been a factor in the decline of the family-owned farm or ranch in America. It has also hurt rural economies, impacted food production, and affected stewardship of rural lands.
A return to pre-EGGTRA estate tax levels in 2011 would definitely make the problem worse. Even if Congress follows the President’s preference and estate taxes return to 2009 levels in 2011, you have a tax condition that offers no incentive for a family to keep ranching or farming.
A union of interesting allies. The Environmental Defense Fund (a conservation lobby) and the Public Lands Council (a ranching and farming lobby) are united in support of H.R. 3524. The California Cattlemen’s Council and the Land Trust Alliance are also on board with the bill, as well as two dozen more farming organizations.3
Help keep the momentum going. As Congress put aside just about everything else (including the estate tax) to focus on health care reform, this was one of many important pieces of potential legislation that was set aside for the time being. Contact your local Senator or Representative to show them your interest in the bill today.
Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464
---------------------------------------------------------------------------------
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.
These are the views of Peter Montoya Inc., not the named Representative nor Broker/Dealer, and should not be construed as investment advice. Neither the named Representative nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information.
www.montoyaregistry.com www.petermontoya.com
Citations.
1 edf.org/pressrelease.cfm?contentID=10353 [8/20/09]
2 thomas.loc.gov/cgi-bin/bdquery/z?d111:h.r.03524: [8/20/09]
3 cfbf.org/agalert/AgAlertStory.cfm?ID=1375&ck=70FEB62B69F16E0238F741FAB228FEC2 [9/2/09]
[Permalink]
Retirement Plan Solutions For Small Businesses
Monday 04/05/2010 - 2:01:31 pm
The SEP, the SIMPLE IRA, and more.
provided by Jacob Warren
What options do hands-on owner-operators have? If you have a small company and want a retirement program, you want to consider these plan choices.
The SIMPLE IRA. These plans are very easy to create, and they have very low administrative costs and no annual IRS reporting requirements. You set up traditional IRAs for each eligible employee; they can contribute to the IRA on a tax-deferred basis (via payroll deductions, and you can either match the contributions of plan participants or contribute a fixed percentage of all eligible employees’ pay. The employees own the money in their IRAs.1,2
The SEP. A Simplified Employee Pension plan lets you make contributions toward your retirement and your employees’ retirements. (You can even have a SEP and another kind of retirement plan at your business simultaneously.) A SEP allows business owners annual tax-deductible contributions equal to 25% of your compensation (if you have a corporation) or 20% of self-employment income (for a sole proprietor).3,4
The solo 401(k). Yes, you can have a 401(k) when you are self-employed. A business owner may establish one and include their spouse in the plan, provided the spouse is an employee of the business. A solo 401(k) throws in a profit-sharing twist on the standard 401(k). Solo 401ks may be funded by the employee (deferred compensation) and the business (a percentage of profit). As an employee of your business, you can contribute an amount up to the standard yearly 401(k) contribution limit (catch-up contributions permissible if you are 50 or older). Additionally, solo 401(k) plans allow you to make tax-deductible profit-sharing contributions equal to 25% of your compensation (corporate entity) or 20% of self-employment income (sole proprietor). It is even possible to have a solo Roth 401(k). These plans do require a TPA (third-party administrator).4,5
Profit-sharing plans. Here’s one way to compete with larger companies for prime employees. Contributions are usually deductible at both the federal and state level, with contribution limits equivalent to a SEP. Contributions aren’t mandatory. If your business has a bad year, you don’t have to make them. The assets placed within the plan grow tax-deferred. Again, annual tax-deductible contributions may be made according to the 25%/20% rule depending on your business entity.4,6
New comparability plans. Basically, this is a form of profit-sharing plan that rewards senior or key employees more than others. The classic situation for this plan is when you have a small business whose multiple owners take home similar earnings, but are of different ages. The plan must be tested to meet Internal Revenue Code nondiscrimination requirements, of course. It allows different levels of compensation to different groups within a small business.
What plan might work for you? If you are reading this, you are probably thinking about putting a plan into place or switching to a retirement program more easily administered than the one you have now? But which one should you choose – and what is the next step? Take a big step today and take advantage of all that is available in the marketplace - consult an independent financial professional to review your options and find the program that fits your needs.
*Plan characteristics and contribution limits are subject to legislative changes. Consult with a financial professional for the most current information.
Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464
---------------------------------------------------------------------------------
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.
Content provided by Peter Montoya, Inc. These are the views of Peter Montoya, Inc., not the named representative or Woodbury Financial Services, Inc., and should not be considered investment advice. Neither the representative or Woodbury Financial offer tax or legal advice. All information is believed to be from reliable sources; however, the publisher makes no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, or other professional services. If expert assistance is needed, the reader is advised to work with a competent professional. Consult your representative for further information.
Citations.
1 irs.gov/retirement/sponsor/article/0,,id=139831,00.html [9/24/09]
2 irs.gov/retirement/article/0,,id=108941,00.html [9/5/09]
3 irs.gov/retirement/article/0,,id=111419,00.html#12 [10/1/09]
4 entrepreneur.com/worklife/personalfinance/retirementplanning/article79286.html [8/1/05]
5 hcplive.com/pmdlive/in-depth-for-doctors/Solo-401k [3/30/09]
6 wellsfargoadvantagefunds.com/wfweb/wf/retirement/owners/profit.jsp [10/9/09]
[Permalink]
provided by Jacob Warren
What options do hands-on owner-operators have? If you have a small company and want a retirement program, you want to consider these plan choices.
The SIMPLE IRA. These plans are very easy to create, and they have very low administrative costs and no annual IRS reporting requirements. You set up traditional IRAs for each eligible employee; they can contribute to the IRA on a tax-deferred basis (via payroll deductions, and you can either match the contributions of plan participants or contribute a fixed percentage of all eligible employees’ pay. The employees own the money in their IRAs.1,2
The SEP. A Simplified Employee Pension plan lets you make contributions toward your retirement and your employees’ retirements. (You can even have a SEP and another kind of retirement plan at your business simultaneously.) A SEP allows business owners annual tax-deductible contributions equal to 25% of your compensation (if you have a corporation) or 20% of self-employment income (for a sole proprietor).3,4
The solo 401(k). Yes, you can have a 401(k) when you are self-employed. A business owner may establish one and include their spouse in the plan, provided the spouse is an employee of the business. A solo 401(k) throws in a profit-sharing twist on the standard 401(k). Solo 401ks may be funded by the employee (deferred compensation) and the business (a percentage of profit). As an employee of your business, you can contribute an amount up to the standard yearly 401(k) contribution limit (catch-up contributions permissible if you are 50 or older). Additionally, solo 401(k) plans allow you to make tax-deductible profit-sharing contributions equal to 25% of your compensation (corporate entity) or 20% of self-employment income (sole proprietor). It is even possible to have a solo Roth 401(k). These plans do require a TPA (third-party administrator).4,5
Profit-sharing plans. Here’s one way to compete with larger companies for prime employees. Contributions are usually deductible at both the federal and state level, with contribution limits equivalent to a SEP. Contributions aren’t mandatory. If your business has a bad year, you don’t have to make them. The assets placed within the plan grow tax-deferred. Again, annual tax-deductible contributions may be made according to the 25%/20% rule depending on your business entity.4,6
New comparability plans. Basically, this is a form of profit-sharing plan that rewards senior or key employees more than others. The classic situation for this plan is when you have a small business whose multiple owners take home similar earnings, but are of different ages. The plan must be tested to meet Internal Revenue Code nondiscrimination requirements, of course. It allows different levels of compensation to different groups within a small business.
What plan might work for you? If you are reading this, you are probably thinking about putting a plan into place or switching to a retirement program more easily administered than the one you have now? But which one should you choose – and what is the next step? Take a big step today and take advantage of all that is available in the marketplace - consult an independent financial professional to review your options and find the program that fits your needs.
*Plan characteristics and contribution limits are subject to legislative changes. Consult with a financial professional for the most current information.
Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464
---------------------------------------------------------------------------------
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.
Content provided by Peter Montoya, Inc. These are the views of Peter Montoya, Inc., not the named representative or Woodbury Financial Services, Inc., and should not be considered investment advice. Neither the representative or Woodbury Financial offer tax or legal advice. All information is believed to be from reliable sources; however, the publisher makes no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, or other professional services. If expert assistance is needed, the reader is advised to work with a competent professional. Consult your representative for further information.
Citations.
1 irs.gov/retirement/sponsor/article/0,,id=139831,00.html [9/24/09]
2 irs.gov/retirement/article/0,,id=108941,00.html [9/5/09]
3 irs.gov/retirement/article/0,,id=111419,00.html#12 [10/1/09]
4 entrepreneur.com/worklife/personalfinance/retirementplanning/article79286.html [8/1/05]
5 hcplive.com/pmdlive/in-depth-for-doctors/Solo-401k [3/30/09]
6 wellsfargoadvantagefunds.com/wfweb/wf/retirement/owners/profit.jsp [10/9/09]
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The Creative Way To "Maximize" Your Pension
Monday 04/05/2010 - 1:56:29 pm
Here’s a move that might prove useful for you and your spouse.
provided by Jacob Warren
Are you wondering how to make the most of your pension? If you’re thinking about which income option to take, maybe it’s time to think outside the box. Here’s why.
When most retiring public service employees meet with a pension administrator and look over their income options, they face an either/or question. Do they sign up for the survivor’s benefit or not?
You want to do the right thing. At first glance, it seems like a no-brainer. If you have a spouse, of course you want the survivor’s benefit – right? After all, this is the option that guarantees the continuance of pension income for your spouse after you pass away. In most cases, it is structured so that the pension income lasts for the longer of two lives.
But do you really want to reduce your retirement income? You may not realize that this choice carries an opportunity cost.
If you choose to distribute your pension income under a “joint and survivor” arrangement, the monthly income you get will likely be hundreds of dollars less than if you had chosen a “single life” distribution. The pension fund knows that a joint life pension will almost certainly have to pay out over more years than a single life pension, so the monthly income will have to be set lower.
Selecting the joint life option means reducing your retirement income. If you take that option and die early, your spouse is looking at a lifetime of reduced pensions. If you and your spouse die a year or two apart, there is little benefit derived from the choice you’ve made. (In most cases, you can’t reverse a pension payout option you selected years ago.)
If you choose the survivor’s benefit, you are making an insurance decision. Seriously, you are. When you check that box, you are arranging for a cash benefit to be paid out to a surviving spouse. A life insurance policy has the same function – and it might be better to go get one.
The outside-the-box choice that is too often overlooked. Here’s the real choice: Should you insure your spouse’s future level of income, or should you insure yourself?
Let’s put it another way. Let’s say your spouse outlives you. After you die, do you want your spouse to receive some taxable retirement income, or a significant cash benefit that will not be taxed? (Life insurance proceeds aren’t taxed, except in a few limited cases, but survivor pension benefits are.)1,2
Before you retire, you could purchase a whole life insurance policy in an amount that would give your spouse or your children the equivalent of a similar monthly benefit. That whole life policy could even build cash value over time.
Why insure your life instead of your spouse’s future income level? This choice makes sense on many levels. First, you increase your retirement income by not choosing the joint life expectancy payout option. (If your spouse should pass away before you do, this will prove an even wiser financial decision.)
Second, you have a life insurance policy that will give your spouse financial protection in the form of a sizable death benefit if you pass away first. Your spouse could even use the life insurance proceeds to purchase an immediate annuity, which could then provide a lifelong income stream.
Third, if your spouse dies before you, you still have the maximum pension while the eventual life insurance proceeds may be directed to other beneficiaries you name on your policy – such as your children. (Will your children inherit your pension income? No, they will not.)
Fourth, there’s a lot of uncertainty today about the health of state and local pension funds. The less you have to worry about that subject, the better.
How would you pay for this new insurance policy? Well, it may be easier than you think. If you select a single life pension, the money you receive may result in income enough to live on and fund the policy.
Factors to consider. This “pension maximization” strategy makes the most sense if you and your spouse are in good health and if you are within 10 years of retirement. You also want to scrutinize the terms of your pension and medical plan, and take a look at the other income and tax consequences of making this move.
By the way, this strategy is common in corporate America. It’s about time more public service employees used it as well. I urge you to look into it, and to discuss it with a licensed insurance professional or financial professional.
Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464
---------------------------------------------------------------------------------
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.
Content provided by Peter Montoya, Inc. These are the views of Peter Montoya, Inc., not the named representative or Woodbury Financial Services, Inc., and should not be considered investment advice. Neither the representative or Woodbury Financial offer tax or legal advice. All information is believed to be from reliable sources; however, the publisher makes no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, or other professional services. If expert assistance is needed, the reader is advised to work with a competent professional. Consult your representative for further information.
Guarantees are based on the claims-paying ability and financial strength of the issuing company. This is neither an offer for nor a solicitation of any investment product or strategy. You should carefully consider your own investment needs before beginning any investment program. Carefully consider the costs and fees associated with each insurance option or consult with a professional before sending money.
Citations.
1360financialliteracy.org/Life+Stages/Retirement/FAQs/Life+insurance+and+estate+planning/Are+life+insurance+proceeds+income+taxable.htm [2008]
2 advisortoday.com/200704/clientpension.html [4/2007]
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provided by Jacob Warren
Are you wondering how to make the most of your pension? If you’re thinking about which income option to take, maybe it’s time to think outside the box. Here’s why.
When most retiring public service employees meet with a pension administrator and look over their income options, they face an either/or question. Do they sign up for the survivor’s benefit or not?
You want to do the right thing. At first glance, it seems like a no-brainer. If you have a spouse, of course you want the survivor’s benefit – right? After all, this is the option that guarantees the continuance of pension income for your spouse after you pass away. In most cases, it is structured so that the pension income lasts for the longer of two lives.
But do you really want to reduce your retirement income? You may not realize that this choice carries an opportunity cost.
If you choose to distribute your pension income under a “joint and survivor” arrangement, the monthly income you get will likely be hundreds of dollars less than if you had chosen a “single life” distribution. The pension fund knows that a joint life pension will almost certainly have to pay out over more years than a single life pension, so the monthly income will have to be set lower.
Selecting the joint life option means reducing your retirement income. If you take that option and die early, your spouse is looking at a lifetime of reduced pensions. If you and your spouse die a year or two apart, there is little benefit derived from the choice you’ve made. (In most cases, you can’t reverse a pension payout option you selected years ago.)
If you choose the survivor’s benefit, you are making an insurance decision. Seriously, you are. When you check that box, you are arranging for a cash benefit to be paid out to a surviving spouse. A life insurance policy has the same function – and it might be better to go get one.
The outside-the-box choice that is too often overlooked. Here’s the real choice: Should you insure your spouse’s future level of income, or should you insure yourself?
Let’s put it another way. Let’s say your spouse outlives you. After you die, do you want your spouse to receive some taxable retirement income, or a significant cash benefit that will not be taxed? (Life insurance proceeds aren’t taxed, except in a few limited cases, but survivor pension benefits are.)1,2
Before you retire, you could purchase a whole life insurance policy in an amount that would give your spouse or your children the equivalent of a similar monthly benefit. That whole life policy could even build cash value over time.
Why insure your life instead of your spouse’s future income level? This choice makes sense on many levels. First, you increase your retirement income by not choosing the joint life expectancy payout option. (If your spouse should pass away before you do, this will prove an even wiser financial decision.)
Second, you have a life insurance policy that will give your spouse financial protection in the form of a sizable death benefit if you pass away first. Your spouse could even use the life insurance proceeds to purchase an immediate annuity, which could then provide a lifelong income stream.
Third, if your spouse dies before you, you still have the maximum pension while the eventual life insurance proceeds may be directed to other beneficiaries you name on your policy – such as your children. (Will your children inherit your pension income? No, they will not.)
Fourth, there’s a lot of uncertainty today about the health of state and local pension funds. The less you have to worry about that subject, the better.
How would you pay for this new insurance policy? Well, it may be easier than you think. If you select a single life pension, the money you receive may result in income enough to live on and fund the policy.
Factors to consider. This “pension maximization” strategy makes the most sense if you and your spouse are in good health and if you are within 10 years of retirement. You also want to scrutinize the terms of your pension and medical plan, and take a look at the other income and tax consequences of making this move.
By the way, this strategy is common in corporate America. It’s about time more public service employees used it as well. I urge you to look into it, and to discuss it with a licensed insurance professional or financial professional.
Jacob Warren
Warren Wealth Management
111 West Port Plaza Drive, Ste 300, Saint Louis, MO 63146
(866) 463- 0752 ext. 52337 toll free, (314) 819-0464
---------------------------------------------------------------------------------
Securities and Investment Advisory Services offered through Woodbury Financial Services, Inc., Member FINRA, SIPC, and Registered Investment Advisor. Warren Wealth Management and Woodbury Financial Services, Inc. are unaffiliated entities.
Content provided by Peter Montoya, Inc. These are the views of Peter Montoya, Inc., not the named representative or Woodbury Financial Services, Inc., and should not be considered investment advice. Neither the representative or Woodbury Financial offer tax or legal advice. All information is believed to be from reliable sources; however, the publisher makes no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting, or other professional services. If expert assistance is needed, the reader is advised to work with a competent professional. Consult your representative for further information.
Guarantees are based on the claims-paying ability and financial strength of the issuing company. This is neither an offer for nor a solicitation of any investment product or strategy. You should carefully consider your own investment needs before beginning any investment program. Carefully consider the costs and fees associated with each insurance option or consult with a professional before sending money.
Citations.
1360financialliteracy.org/Life+Stages/Retirement/FAQs/Life+insurance+and+estate+planning/Are+life+insurance+proceeds+income+taxable.htm [2008]
2 advisortoday.com/200704/clientpension.html [4/2007]
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