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SERVICE
“Service is the lifeblood of
any organization. Everything flows from it and is nourished by it.
Customer service is not a department…it’s an attitude.”
“There are only two lasting
bequests we can hope to give our children. One is roots; the other,
wings.”
HODDING CARTER
“The challenge is not to manage
time, but to manage ourselves.”
STEVEN COVEY
“You see things; and you say
‘Why?’ But I dream things that never were; and I say ‘Why Not?”
GEORGE BERNARD
SHAW
“Never tell people how to do
things. Tell them what to do and they will surprise you with their
ingenuity.”
GEORGE S. PATTON
CHANGE
“Without change there can be no breakthroughs.
Without breakthroughs, there can be no future.”
CUSTOMER SERVICE CONTACTS
AFLAC
1-800-462-3522
www.aflac.com
Allstate (AHL)
1-800-521-3535
www.ahlcorp.com
American Funds
1-800-421-0180
www.americanfunds.com
Ameritas
1-800-527-0043
www.ameritasgroup.com
Blue Cross Blue Shield
1-888-232-0942
www.bcbsne.com
Jefferson Pilot
1-800-423-2765
www.jpfinancial.com
Met Life
1-800-686-9311
www.metlife.com
OneAmerica (AUL)
1-800-261-9618
www.eretirement.aul.com
Enrollment Fax:
1-317-285-1728
Principal Financial
1-800-547-7754
www.principal.com
Regional Care, Inc.
1-800-795-7772
www.regionalcare.com
UNUM Provident
1-800-255-6148
www.unumprovident.com
THE OLSON GROUP
20214 Veterans Drive
Suite 200
P.O. Box 543
Elkhorn, NE 68022
PHONE:
(402) 289-1046
TOLL FREE:
1-866-289-1046
FAX:
(402) 289-1012
EMAIL:
tolson@theolsongroup.net
WATKO
BENEFIT GROUP
7201 West 129th Street
Suite 120
Overland Park, KS 66213
PHONE:
(913) 685-0000
TOLL FREE:
1-877-685-0000
FAX:
(913) 685-0068
EMAIL:
gwatkins@watkobenefit.com
SECURITIES OFFERED THROUGH
SUNSET FINANCIAL SERVICES, INC.
3520 BROADWAY
KANSAS CITY, MO 64111
(816) 753-7000 (OSJ)
MEMBER NASD/SIPC
SUNSET FINANCIAL IS NOT AFFILIATED WITH THE OLSON GROUP. |
FROM THE OFFICE OF TIM
OLSON, CEBS, CMFC
It’s Time to
Revisit Roth 401(k) and Roth 403(b)
Both of these programs have
been available since January 1, 2006 with little fanfare. Most groups
have a “wait and see attitude” because of administration issues with
their current retirement plan record keeper. In addition, the
explanation to employees will be more confusing, because the concept of
after-tax savings with tax-free withdrawals must now be compared to
pre-tax savings and taxed withdrawals. Let the debate begin!
Our Take
Disadvantages:
Since 95% of your employees
will retire on less money compared to their income while employed, they
will pay less tax on taxable income from traditional retirement plans
upon retirement. That assumes the tax rates are about the same, and they
receive periodic payments. By spreading out the income over time, people
will pay less tax in retirement, or even no tax depending on the amount
of income received. Therefore, the vast majority of employees save more
taxes while they are working and income is higher.
In addition, they can take advantage of the popular Roth IRA’s and
receive tax-free withdrawals after age 59½, as long as the account is at
least 5 years old. The maximum contribution to a Roth IRA is $4,000 per
year with an additional $1,000 catch-up for those ages 50 and older.
So why have a Roth 401(k) or Roth 403(b) when your employees can save
money pre-tax, and if tax-free money is important, take advantage of the
Roth IRA? Also, with an explanation which will be much more cumbersome
to help employees understand the different approaches?
Advantages:
If any of your employees
make over $160,000 per year, they cannot take advantage of a Roth IRA.
Like Roth IRA’s, both Roth 401(k) and Roth 403(b) offer tax-free
qualified withdrawals, no Required Minimum Distributions once the
dollars are rolled over to Roth IRA, and monies go tax-free to heirs
upon death.
Money goes into these plans after-tax, and the maximum is $15,000 per
year or $20,000 per year for those ages 50 and up. Employees can have
matching amounts, voluntary money, or both go into a Roth 401(k) or Roth
403(b). In addition, they can have some money go in after-tax, and some
pre-tax (however, the combination of monies cannot exceed the 402(g)
maximum of $15,000 or $20,000).
No question, the tax-free growth is the biggest selling point for these
Roth programs for qualified withdrawals. However, we believe there is
another advantage. Employees can afford to save more while they
are working compared to their retirement years; therefore, the tax-free
withdrawals provided by Roth 401(k) and Roth 403(b) will allow their
retirement dollar to go further.
What is the best way to
go?
Employees will have to get
advice from their tax professionals. Bottom line is the explanation will
be more detailed, and employees will have to do their homework.
Other Considerations:
- Plan documents will need
to be amended.
- Be sure your current
retirement plan record keeper can administer Roth contributions.
- Roth contributions are
subject to ACP and ADP testing.
- Plan administrators must
decide on how to administer loans, rollovers, and hardship
distributions.
- Current legislation is due
to expire in 2010? Will these options last?
There are numerous other details with these programs, so feel free to
call us with your questions. |
COMPARE KEY WAYS
TO SAVE FOR COLLEGE
Many parents and grandparents face a common challenge – how to
accumulate enough money to cover the cost of a college education for a
child or grandchild. The first thing to do is find out how much money
you will need, and then compare various methods of saving for college.
According to the College Board’s Trends in College Pricing, the
2005-2006 average total costs (including tuition and fees, room and
board, books and supplies, transportation and other expenses) were
$11,692 for students attending two-year public colleges, $15,566 for
students attending four-year public colleges and universities, and
$31,916 for students at four-year private colleges and universities. Out
of state students attending public colleges and universities pay an
average total cost of $23,239.
The following table compares the main benefits and drawbacks of the
following four ways to save for college.
|
Type of Account |
Tax-Advantaged
Growth |
Income and
Contribution Limits |
Control |
Flexibility |
|
529 College
Savings Plan |
Earnings grow free from federal and
state taxes. Withdrawals used to pay for qualified higher
education expenses are free from federal tax. |
No income limits and generous
contribution limits. You can invest in the plan no matter what
your income and you can contribute up to $250,000 per
beneficiary. Contributions are subject to gift tax rules. |
The owner maintains control of the
assets, decides when withdrawals will be made and can change the
beneficiary. Changes of beneficiary must be within the same
family. |
You can move your assets among
funds once each calendar year or when you change the
beneficiary. There are no tax consequences. |
|
Coverdell
Education Savings Account |
Earnings can grow free from federal
and state tax. Withdrawals used for qualified education expenses
for private kindergarten through high school are free from
federal income tax through 2010. Withdrawals for higher
education expenses are also federally tax-free. (Withdrawals for
non-education expenses are subject to federal income tax and a
possible 10% penalty on earnings.) |
The contribution is limited to
$2,000 per year per child until the child reaches the age of 18.
Contributions are phased out for couples filing jointly with
incomes between $190,000 and $220,000 and for individuals with
incomes between $95,000 and $110,000. Contributions are subject
to gift tax rules. |
Beneficiary may assume control at
age of majority, 18 or 21 in most states. |
You can move your assets as often
as you want without tax consequences. |
UGMA/UTMA
Accounts
|
If the child
is younger than 14, the first $800 of investment income and
gains is generally free from federal tax. Income between $800
and $1,600 is taxed at the child’s rate and income over $1,600 a
year is taxed at the parents’ rate. For children age 14 or over,
the investment income and gains are taxed at the child’s rate.
The funds can be used for education or anything that benefits
the child. |
There are no
limitations. Contributions are subject to gift tax rules. |
Beneficiary
assumes legal control of the account at age of majority, which
is typically 18 or 21 in most states. Something to consider: The
beneficiary has the power to use the funds for any purpose,
including a new sports car or a European vacation instead of
college expenses. |
You can move
your assets as often as you want, but each transfer is usually a
taxable event. |
|
Parents’ Investment Account |
Dividends,
interest and capital gains are taxed to the owner at applicable
tax rates. Funds can be withdrawn for any use. |
No limits. |
Parent
maintains control of assets and decides when withdrawals will be
made. |
Assets can
be moved as often as you want, but each transfer usually is a
taxable event. |
Although these plans are often used to fund a child’s or grandchild’s
education, what you may not know is that many plans’ benefits are
available to people of all ages and in all stages of life – including
yourself. If you never had the opportunity to graduate from college
yourself or you need a graduate degree to help advance at your job, you
can look at how these plans can work for you. You can open a 529 college
savings plan with yourself as beneficiary.
Higher education means everything from being enrolled at a four-year
private university to part-time studies at a local community college.
Importantly, if for whatever reason you opt not to return to school or
you decide to transfer funds to another family member, 529s allow you to
redirect plan assets simply by changing the plan’s beneficiary.
You should be aware that certain tax-advantaged benefits of 529 plans
are set to expire in 2010. At that time Congress will review these
benefits and make their decision to extend, make permanent, or change
the 529 plans. |
RETIREMENT BLUNDER: Cashing
Out Plans When Changing Jobs
A survey conducted by Hewitt Associates revealed that 45 percent of 200,000
individuals participating in retirement plans, such as a 401(k)s, elected
cash distributions when leaving their jobs. Too many workers are not looking
at their retirement savings as long-term, but are instead using termination
of employment as an opportunity to spend this money.
Of the individuals surveyed, 32 percent kept their retirement savings in
their current employer’s plan and the remaining 23 percent rolled their
money over to an IRA or another retirement plan. The most likely to cash out
of plans are workers in their 20’s and those with balances of less than
$10,000.
Taking retirement plan savings in cash can cause an individual to incur a
10% early withdrawal penalty if they are under age 59-1/2. That means if
they saved $50,000 in the retirement plan and made no after-tax
contributions, they would lose $5,000 to the IRS. And the distribution will
be subject to income taxes. They could lose close to half of their savings
paying penalties and taxes if they take their distribution in cash.
| A
HEAVY PRICE TO PAY |
| You could potentially
see your retirement account distribution cut in half by taking your
money in cash. |
| Distribution |
$50,000 |
| Less 10% early withdrawal penalty |
$5,000 |
| Income tax (Estimated tax rate of
28%) |
$14,000 |
| State
income tax (Estimated tax rate of 5%) |
$2,500 |
| Net distribution
after the penalty and taxes |
$28,500 |
There are four basic options to consider when deciding what to do with
retirement account savings: (1) take the savings in cash; (2) rolling the
savings into an IRA; (3) keeping the savings in the previous employer’s
retirement plan, if allowed; and (4) moving the savings into the new
employer’s retirement plan. Each option should be carefully considered and
understood to make an educated decision. |
