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E-News ~ 3rd Qtr 2005 |
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From the office of Tim Olson, CEBS, CMFC Exciting News! The Olson Group is pleased to announce Greg Ritzdorf has joined our team. Greg was raised in Omaha, Nebraska, with family origins in Howells, Nebraska. He graduated from the University of Nebraska at Lincoln with a Bachelor of Science degree in Finance. Greg is a career professional in the insurance industry having spent the last 15 years with Prudential Financial developing financial plans for retirement, and other savings needs. He has extensive experience in helping people with asset allocation, retirement planning, and investment counseling. Greg will be responsible for holding in-service meetings for your employees on all of our retirement plans, and will meet with them one-on-one to help them prepare for retirement. In addition to becoming your customer service representative for all of your retirement plans, he will assist you in developing your health and welfare programs as well. Greg will spend most of the fall traveling with me, Mike Atkins, or Ryan Hinz to get acquainted with you. He will be more than happy to help you with any service issues. We hope you will be as excited as we are, and welcome Greg when he comes to your facility! ROTH 401(k) / ROTH 403(b) Opportunity or Not? Since Roth IRA’s came on the scene several years ago, we have witnessed millions open up their Roth IRA accounts with the attraction of TAX FREE qualified withdrawals. With deposits made on an after tax basis, they are available anytime without penalty, and the growth is tax free after age 59-1/2 if the account is at least 5 years old. Furthermore, Roth IRA participants enjoy no minimum required distribution rules, and they can leave the monies to pass on from generation to generation tax free. While we believe these programs are great for those who have already built large pre-tax sums (generally in excess of $100,000), we question their value for those who do not participate in a pre-tax savings program like 403(b) and/or 401(k). The fact is 95% of us will retire on lower income compared to our working years. Therefore, many people pay far less tax by spreading out taxable income during their retirement years. Another advantage to participating in employer sponsored pre-tax savings programs are lower expenses. Effective January 1, 2006, the new Roth 401(k) and 403(b) programs will be available. (However, the regulations will not be final until January 1, 2007.) Do we jump on the bandwagon and offer these as an option? Here are some pros and cons to think about: ADVANTAGES
FACTS ABOUT THE NEW ROTH 401(k) In 2001, Congress enacted the Economic Growth and Tax Relief Reconciliation Act (EGTRRA). Included in the changes was the addition of the Internal Revenue Code Section 402 A that provided for Roth IRA-style contributions to 401(k) plans to begin on January 1, 2006. The Roth 401(k) is designed to allow 401(k) plan participants to make contributions to the plan on an after-tax basis and receive distributions at retirement without future income tax liability. Unlike the Roth IRA, the Roth 401(k) is available to both low and high income employees. A Roth 403(b) will be available to 403(b) plan participants. Designation of Elective Deferrals The Roth 401(k) contribution will be treated the same as an elective deferral, Code Section 402A(a)(1). The EGTRRA Committee Reports indicate that a participant must designate his or her 401(k) contribution as Roth 401(k) contributions prior to the date the contribution is made to the plan. The Roth contribution is an elective contribution that (1) is designed at the time of the contribution election as a Roth election, (2) is treated by the employer as income to the employee at the time of contribution, and (3) is maintained by a plan in a separate account. Higher income employees have not had the ability to use Roth IRAs because of income limits. By adopting Roth 401(k)s, the highly compensated employees will be able to save up to $15,000 per year deferral limit in 2006 ($20,000 if a participant is eligible to make age 50 catch-up contributions). If a participant makes both Roth 401(k) contributions and pre-tax elective deferral contributions, the two contributions may not exceed the Code Section 402(g) limit. Matching Contributions The Roth 401(k) rules do not provide for employer after-tax matching contributions. Employer matching contributions on Roth 401(k) contributions will continue to be treated as pre-tax contributions subject to taxation when distributed to a participant. Rollover Contributions If a Roth 401(k) plan permits, a participant may make rollover contributions of his or her Roth 401(k) distributions from other tax-qualified plans. These rollover contributions do not count against the Code Section 402(g) $15,000 elective deferral limit. Non-Discrimination Rules Roth 401(k) contributions are aggregated with and treated as elective deferrals for purposes of the actual deferral percentage test under Code Section 401(k). Contributions to the traditional 401(k) and Roth 401(k) accounts would be combined for the basic nondiscrimination test that compares contributions made by highly and non-highly compensated plan participants. When a plan needs to reduce contributions by highly compensated employees, the plan will be able to either specify whether Roth 401(k) or pre-tax deferral contributions are returned first or authorize plan participants to elect which contributions are refunded on a participant-by-participant basis. If a Roth 401(k) contribution is refunded, only earnings on the Roth 401(k) are subject to taxation. Final 401(k) regulations provide that a Roth 401(k) contribution feature will be treated as a benefit, right, or feature that is subject to the nondiscrimination testing rules under Code Section 401(a)(4). Separate Accounting A Roth 401(k) must maintain separate accounts for participant contributions and must separately recordkeep each Roth 401(k) account. Plan recordkeepers will need to establish new Roth 401(k) sources on their recordkeeping systems. Roth 401(k) and non-Roth accounts will need to be charged and credited with gains, losses, and other credits and charges on a reasonable basis. Distributions Because a participant’s Roth 401(k) account will be treated as an elective deferral, it will only be eligible for distribution on a participant’s termination of employment, death, disability, attainment of age 59-1/2 (if permitted under the terms of the plan), or hardship. The Roth 401(k) account, unlike Roth IRAs, is subject to the Code Section 401(a)(9) minimum required distribution during a participant’s lifetime. A participant’s reaching one of these distributable events will not necessarily ensure tax-free treatment of distributions of his or her Roth 401(k) account. It must be a “qualified distribution”. To be treated as a “qualified distribution”, the distribution must be made after (1) a participant’s reaching age 59-1/2, a participant’s death, or a participant becoming disabled and (2) may not be made within five years of the first Roth 401(k) contribution to the plan, Code Section 402A(d)(2). Unlike a Roth IRA, a distribution from a Roth 401(k) to finance the first time purchase of a home will not be treated as a "qualified distribution". Plan sponsors will need to decide how Roth 401(k) distributions fit into their plan distribution hierarchies (i.e., participant distributions are first from pre-tax deferrals, then from Roth 401(k) contributions, then from rollover accounts, etc.) and will need to incorporate this in plan documents. Excess Deferrals If a participant contributes pre-tax and Roth 401(k) contributions to one or more defined contribution plans in an amount in excess of the Code Section 402(g) ($15,000 in 2006), this excess must be distributed. Roth 401(k) contributions that are distributed as excess deferrals on or before April 15 of the year following the year of contribution will not be subject to additional taxation. However, earnings attributable to these excess Roth 401(k) contributions will be taxed when distributed. If a plan fails to distribute excess Roth 401(k) contributions by the April 15 deadline, the Roth 401(k) contributions will be subject to double taxation. Participant and Plan Level Reporting Roth 401(k) plans will need to report contributions as elective deferral contributions on a participant’s Form W-2. Roth 401(k) distributions will need to be reported on Form 1099-R. Steps for Employers and Recordkeepers (1) Plan sponsor needs to have the ability to separately recordkeep Roth 401(k) contributions, including payroll systems. (2) Plan sponsors need to determine what and when Roth 401(k) features will be implemented. (3) Preparation of plan amendments will need to begin. (4) Once the Roth 401(k) goes live, new election forms and summary plan descriptions will need to be provided to participants. (5) The plan should be submitted for a determination letter.
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. |
Importance of Personal Health Management and SimplyWell With corporate healthcare costs being the number one concern of financial officers and employers absorbing 58% of the healthcare burden, SimplyWell has created a system that incorporates both preventive and responsive care. This program creates the opportunity for individuals to better understand their health risks and to take action through personal health management. SimplyWell’s complete approach:
AUL Announces New Process for Required Minimum Distributions (RMDs) Starting September 1, 2005, AUL (OneAmerica) will communicate directly with plan participants regarding the minimum distribution (RMD) guidelines for all qualified and non-qualified plans. New RMD forms and information sheets have been created to explain the age 70-1/2 distribution requirements and are available for participants. This new process will ease the burden for plan sponsors of notifying and facilitating the RMD notification for their plan participants. Because RMD payments are mandated by federal tax law, AUL will have the participant complete the new RMD form and mail it directly to AUL for processing. Upon receipt, AUL will calculate the payment and continue paying out future payments until the participant requests the payments to stop. This procedure will eliminate the necessity of the participant to complete annual payment requests (RMDs). Social Security Benefits
What To Expect
vs. What You Need
Understanding what to expect and what not to expect from Social Security is the first step in building the best possible retirement strategy. Social Security benefits were never intended to be the only source of income for you and your family when you retire. You need to supplement your benefits from a pension, savings or investments. The Social Security Board of Trustees reports that in 2017, when the baby boomer retirement reaches its highest peak, the Social Security System will go into the red, and by 2041 the trust funds used to make payments may be exhausted. Americans need to use other investment vehicles to accumulate the resources they need for retirement. The first thing employees should do is take advantage of employer-sponsored retirement plans. Many plans give employees the benefit of an employer match, and all plans allow employees to contribute on a pre-tax basis, which means they can lower their tax bills immediately. After funding an employer-sponsored plan, employees should contribute to a Roth IRA. After taking advantage of these two investment options, non-qualified mutual funds and annuities are other possible solutions. Employees can also enhance their retirement strategy by taking advantage of any group or individual policies offered through their employers. The total coverage should yield payments that replace approximately 60 percent to 70 percent of income. Because individual benefits are typically not taxable, that level of coverage may translate into income replacement of 80 percent to 90 percent of after-tax dollars. The Power of Belief "Believe in yourself. You gain strength, courage, and confidence by every experience in which you stop to look fear in the face . . . You must do that which you think you cannot do." Eleanor Roosevelt "Be the change you want to see in the world." Gandhi "Not life, but good life, is to be chiefly valued." Socrates "The world is round and the place which may seem like the end may also be only the beginning." Ivy Baker Attitude "The greatest discovery of any generation is that a human being can alter his life by altering his attitude." William James "The challenge of every organization is to build a feeling of oneness, of dependence on one another…because the question is usually not how well each person works, but how well they work together." Vince Lombardi "The one step - choosing a goal and sticking to it - changes everything." Scott Reed "Learn from yesterday, live for today, hope for tomorrow." Albert Einstein
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 |
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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: (877) 685-0006 FAX: (913) 685-0068 EMAIL: gwatkins@watkobenefit.com |
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