Happy Thanksgiving!

“We are grateful for the blessings of faith and health and strength and for the imperishable spiritual gifts of love and hope. We give thanks, too, for our freedom as a nation; for the strength of our arms and the faith of our friends; for the beliefs and confidence we share; for our determination to stand firmly for what we believe to be right and to resist mightily what we believe to be base; and for the heritage of liberty bequeathed by our ancestors which we are privileged to preserve for our children and our children’s children.” 

-John F. Kennedy, October 27, 1961

401(k) and Retirement Plan Limits for the Tax Year 2018

On October 19, 2017, the Internal Revenue Service announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for the tax year of 2018.

Highlights of Changes for 2018

The contribution limit for employees who participate in 401k, 403b, most 457 plans, and the federal government’s Thrift Savings Plan is increased from $18,000 to $18,500.

The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2018.

Click here to view the  2018_plan_limits

Diversified – Real Income™

The Real Income™ portfolio strategy does not use leverage, derivatives, or short-selling. Portfolios are constructed with 25-35 securities consisting of various types of liquid REITs.

The property types include apartments, regional malls, shopping centers, lodging, office, industrial, self-storage, data centers/tech, and a variety of health care related facilities. All portfolio companies are classified into one of three categories, and portfolios maintain allocations to each within the following risk categories:

  • Core (40% to 70%): Companies with superior balance sheets, established track records, and moderate growth
  • Value Add (20% to 50%): Companies with moderate leverage, established track records, and high growth potential, both internal and external
  • Opportunistic (0% to 25%): Companies with high leverage, unproven track records, and high growth potential, both internal and external.

For the most recent portfolio update, click this link: Real Income Portfolio 09-30-2017

What is a SMA?

Also known as a SMA (“Separately Managed Account”), is a single investment account comprised of individual stocks, bonds, cash or other securities, tailored to achieve specific investment objectives.

Your portfolio manager oversees the investments according to your specific investment objectives and in an investment style with which you are comfortable.  Put simply, a SMA is for demanding investors who:
  • Seek the comfort of professional investment guidance and a heightened level of personal service
  • Still want to take an active role in their financial life
  • Desire the flexibility to invest in different strategies or styles, while seeking the liquidity and potential tax benefits that come from owning individual securities in separate accounts, versus mutual funds
  • May want a single fee to cover ALL account costs, including trading costs and performance reporting.
  • Low-cost, transparency and 24/7 online access

For those with more than $100,000 a SMA may be the smart way to manage portfolio assets, due to lower costs, greater tax efficiency and transparency.

Why the growth in Cash Balance Plans?

The Pension Protection Act of 2006 (PPA) is long and hard to read, but it played a crucial role in establishing cash balance plans as a viable and legally recognized retirement savings option. Before 2006, cash balance plans faced frequent legal challenges. Those bringing the suits argued that cash balance plans violated established rules for benefit accrual and discriminated against older workers. The rulings on these cases were inconsistent, and many business owners were reluctant to risk establishing a plan that just didn’t have firm legal footing.

The Pension Protection Act ended this uncertainty about the legality of cash balance plans. The legislation set specific requirements for cash balance plans, including:

  • A vesting requirement: Any employee who has worked for their company for at least three years must be 100% vested in their accrued benefits from employer contributions.
  • A change in the calculation of lump sum payments: Participants in a cash balance plan can usually choose to receive a lump sum upon retirement or upon the termination of employment instead of receiving their money as a lifetime annuity. Before 2006, some plans used one interest rate to calculate out the anticipated account balance upon retirement, but, when participants opted to receive an earlier lump sum, the plan called for using a different interest rate to discount the anticipated retirement balance back to the date of the lump sum payment. This could lead to discrepancies between the hypothetical balance of the account (as determined by employer contributions and accumulated interest credits) and the actual lump sum payout, an effect known as “whipsaw”. The PPA eliminated the whipsaw effect by allowing the lump sum payout to simply equal the hypothetical account balance.
  • Clarification on age discrimination claims: A cash balance plan does not violate age discrimination legislation if the account balance of an older employee is compared with that of a similarly situated younger employee (i.e. with the same length of employment, pay, job title, date of hire, and work history), and the older employee’s balance is equal to or greater than the younger employee’s.

There are, of course, many other points included in this lengthy piece of legislation, but the takeaway is this: the Pension Protection Act of 2006 removed the legal uncertainty surrounding cash balance plans and made them a much more appealing option for small business owners.

The number of cash balance plans in America more than tripled after the implementation of the PPA. Additional regulations in 2010 and 2014 made these hybrid plans an even better option, and we anticipate that their popularity will continue to grow. There are thousands of high-earning business owners out there who can reap huge, tax-crushing benefits from implementing cash balance plan – they just have to know about them first.