Portfolio Updates

How 401k Plans Work

In 1978, Congress decided that Americans needed a bit of encouragement to save more money for retirement. They thought that if they gave people a way to save for retirement while at the same time lowering their state and dederal taxes, they might just take advantage of it. The Tax Reform Act was passed. Part of it authorized the creation of a tax-deferred savings plan for employees. The plan got its name from its section number and paragraph in the Internal Revenue Code — section 401, paragraph (k).

Ted Benna, who was a benefits consultant, actually came up with the first version of this plan. His plan was officially accepted by the IRS and proposed regulations were issued in 1981. In 1982, taxpayers were able to take advantage of this new plan for the first time. It took almost 10 years, but final regulations were eventually published in 1991.­

When people talk about 401(k) plans, you often hear about advantages like:

  • Free money from your employer
  • Lower taxable income
  • Savings and earnings that accumulate without you having to remember to make deposits
  • The opportunity to retire and not have to worry about money anymore

Does this sound too good to be true? It isn’t. It’s what you can gain from investing in your company’s 401(k) plan. The 401(k) is one of the most popular retirement plans around.

Although retirement plans may be the farthest thing from your mind, think about how much of a difference 10 years can make in the investing world. You’ll learn about that difference in this article. If your employer offers a 401(k) plan, it makes a lot of sense to participate in it as soon as possible. If you start early, maybe when you’re 25 or so, you can very likely have a million or two (or more) in your account by the time you retire.

401(k) plans are part of a family of retirement plans known as defined contribution plans. Other defined contribution plans include profit sharing plans, IRAs and Simple IRAs, SEPs, and money purchase plans. They are called “defined contribution plans” because the amount that is contributed is defined either by the employee (a.k.a. the participant) or the employer.

For more information, please contact us.

The best charities to give to in the wake of Hurricane Harvey — Portfolio Management | Risk Management | Retirement Plans

Over the weekend, Hurricane Harvey slammed into the Gulf Coast, destroying homes and infrastructure in Texas, displacing tens of thousands of people, and killing at least eight. As many as 13 million people are under flood watches and warnings. After landfall, officials ordered several Houston-area counties to evacuate, due to fears of more flooding. Experts […]

via The best charities to give to in the wake of Hurricane Harvey — Portfolio Management | Risk Management | Retirement Plans

Contribution Limits for 2017

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. According to Kravitz Inc., the number of cash balance plans in America more than tripled after the implementation of the Pension Protection Act.

Additional regulations in 2010 and 2014 made these hybrid plans an even better option, and their popularity only continues to grow. There are thousands of high-earning business owners who can reap huge, tax-crushing benefits from implementing cash balance plans.

For more information, please contact us.

Accelerating Retirement Savings with a Cash Balance Plan

Preparing for retirement is a problem that even wealthy Americans struggle with. It can be difficult to accurately predict how much you will need to save, and even harder to save consistently over the years. Business owners in particular tend to reinvest their money in order to successfully grow their companies, neglecting their retirement savings in the process. Professionals in fields like medicine or law that require an advanced degree also get a late start on retirement savings and find themselves having to play catch-up later on. For most people, saving for retirement is simply not a top priority until later in life. By then, annual limits on 401(k) profit-sharing plans and other traditional retirement plan contributions make catching up on savings extremely difficult.

For those who need to accelerate their retirement savings, the contribution limits on traditional retirement plans pose a difficulty. An American under the age of 50 may contribute up to $18,000 per year to a traditional 401(k) and up to $5,500 to an IRA. These numbers put a firm limit on tax-advantaged retirement savings and make it difficult to accelerate savings later in life. The numbers increase slightly for those 50 or older ($24,000 to a 401(k) and $6,500 to an IRA) and can be further raised with a 401(k) profit-sharing plan, but still not enough for a significant boost.

Fortunately, cash balance plans provide an efficient and tax-favorable way to quickly grow retirement savings. They have significantly higher contribution limits, often in the range of hundreds of thousands of dollars, making them an excellent option for catching up on savings. This is a staggering difference from traditional retirement plans and opens up a whole new world of possibilities for those who want to give their retirement accounts an extra boost while reeling in substantial tax savings.

For more information, please contact us.

Current Real Income Portfolio Yield: 5.74% as of 7.29.17

The NAMCOA Real Income Portfolio is an actively managed diversified portfolio with an objective of providing income from dividends.

Structured as a separately managed portfolio to minimize client fees and other costs, the portfolio focuses primarily on Real Estate Investment Trusts, but can invest up to 30% in preferred stock and floating rate interest products. The portfolio targets to invest in 25 to 35 equities. The portfolio DOES NOT use any leverage or derivatives.

  • These performance figures are NET of its all management fees and trading costs, meaning no other fees, commissions, hidden charges or surprises.
  • The minimum account size starts at $100,000.
  • Distributions can be reinvested or taken in cash.
  • Clients have 24/7 online access to view their account and portfolio positions at either Fidelity or Interactive Brokers.
  • The portfolio is liquid any business day, but is subject to market fluctuations.

See attached portfolio fact sheet and other risk disclosures.

For more information, contact Walter Hester at whester@namcoa.com

 

 

400% Top-Line Deductions?

Despite the explosive growth and substantial tax benefits of cash balance plans, most Americans are unfamiliar with one of the best tax-deferred savings opportunities in existence. When combined with a 401(k) profit-sharing plan, cash balance plans substantially increase the contribution limits for retirement plans, sometimes increasing available top-line deductions by over 400%. This means that participants, particularly older contributors, can accelerate their retirement savings and simultaneously take advantage of significant tax savings.

Cash balance plans are classified as “hybrid” retirement plans: defined benefit plans (think traditional pension plan) that function like defined contribution plans (think 401(k)). Like a defined benefit plan, the ultimate benefit received is a fixed amount, independent of investment performance. The plan sponsor directs investments and ultimately bears investment risk. What sets a cash balance plan apart, though, is its flexibility and hybrid nature that makes its function appear similar to that of a 401(k).

When businesses choose to add a cash balance plan, they generally do so on top of an existing 401(k) profit-sharing plan. This allows high-earning employees to put away more money for retirement at a much faster rate while providing significant tax savings.

Those who stand to benefit the most from a cash balance plan include:

• Professionals with high incomes such as doctors, engineers, lawyers, orthodontists, etc.

• Business owners over 45 looking to substantially increase their retirement savings in the coming years

• Highly-profitable companies

• Business owners wanting to contribute more than the traditional 401(k) limits to their retirement while accruing substantial tax savings

For Americans earning over $400,000 per year, cash balance plans are a game-changer. With the potential for hundreds of thousands of dollars in annual tax savings, a closer look is well worth the time.

How do Cash Balance Plans differ from 401(k) plans?

Cash Balance Plans are defined benefit plans. In contrast, 401(k) plans are a defined contribution plan. There are four major differences between typical Cash Balance Plans and 401(k) plans:

  1. Participation – Participation in typical Cash Balance Plans generally does not depend on the workers contributing part of their compensation to the plan; however, participation in a 401(k) plan does depend, in whole or in part, on an employee choosing to make a contribution to the plan.
  2. Investment Risks – The employer or an investment manager appointed by the employer manages the investments of cash balance plans. Increases or decreases in plan values do not directly affect the benefit amounts promised to participants. By contrast, 401(k) plans often permit participants to direct their own investments and bear the investment risk of loss.
  3. Life Annuities – Unlike 401(k) plans, Cash Balance Plans are required to offer employees the choice to receive their benefits in the form of lifetime annuities.
  4. Federal Guarantee – Since they are defined benefit plans, the benefits promised by Cash Balance Plans are usually insured by a federal agency, the Pension Benefit Guaranty Corporation (PBGC). If a defined benefit plan is terminated with insufficient funds to pay all promised benefits, the PBGC has authority to assume trusteeship of the plan and begin to pay pension benefits up to the limits set by law. Defined contribution plans, including 401(k) plans, are not insured by the PBGC.

For more information, please contact us.