Being financially literate in today’s economic climate is more important than ever. Understanding finances can help you make better money management decisions, budget your money properly, adequately save for college, and be financially prepared for retirement. While it may sound daunting, financial literacy starts with a budget.
If you're like many Americans, you may have a few dents and dings on your credit report.
As temperatures warm up, trees begin budding, and the days get longer, you probably throw open your windows and think about spring cleaning your home. As you tackle washing windows, cleaning carpets, and sorting out the garage, don’t forget to consider your finances. Check out these tips to successfully spring clean your finances.
On Saint Patrick’s Day, towns hold festive parades, people head to restaurants to dine on Irish fare, children pinch each other if they don’t wear green, and everything from beers to milkshakes turn the color of shamrocks. Wondering about the roots of these celebrations? Then, take a look at this brief history of Saint Patrick’s Day.
Women play a central role in establishing and preserving family wealth - whether nurturing the values of children, fulfilling charitable goals, or making investment decisions that affect the financial security of themselves or their families. Consider these statistics:1
In 2020, the average FICO score in the U.S. rose to 711, an eight-point increase from 2019.1 When it comes to having healthy credit, your score is the result of many factors. But what specifically goes into someone's credit report, and what steps can you take to improve your credit?1 Test your credit knowledge with our quiz below.
You’re an entrepreneur and you’re not looking back. You’ve opened your own business, whether alone or with other partners, and you’ve found some success. You’ve hired employees, or not, depending on your business and now you’re thinking about retirement, not just for you, but also for any employees you may have.
Many employers find that one way to attract and keep good employees, especially executives with critical skills, is to offer competitive retirement plan packages along with a buffet of other benefits. Yet, employee-sponsored retirement plans are often unavailable to employees working in small private companies and can lead to poor employee retention.
What business owners need to know is that sponsoring a retirement plan, not just for their employees but also for themselves, is really quite easy. Perhaps you think you must fund employee retirement plans and that plan sponsoring requires lots of complicated paperwork. Or maybe you’re perplexed about compensating top executives without pushing them into an even higher income tax bracket. But don’t fear. Help, and advice, from starting and managing retirement plans to planning for the day you retire, is here.
Qualified Plans: Something for Everyone
A multitude of retirement plan options are available as benefits packages or customized products to suit your company’s needs. Currently available qualified retirement plans include defined benefit plans, 401(k)s, Savings Incentive Match Plans for Employees (SIMPLEs), Simplified Employee Pensions (SEPs), profit-sharing plans, and money purchase plans.
The Employee Retirement Income Security Act (ERISA, amended in 1974) governs most private pension and benefit plans. ERISA has a special focus on making sure that qualified retirement plans do not discriminate in favor of highly paid employees.
Specifically, ERISA deals with qualified retirement plans, with the term “qualified” meaning employers and employees can make tax-deductible contributions up to certain limits to employees’ retirement accounts. “Qualified” also means the earnings on contributions employees make to their own accounts, within certain limits, are tax deferred until withdrawn at retirement.
Traditional pension plans, also known as defined benefit plans, have declined in numbers over the years with the increasing popularity of defined contribution plans, such as the 401(k). But defined benefit plans can be a nice choice for small business owners, particularly for those who are nearing retirement and are looking to accelerate their savings program. Defined benefit plans focus on the end result so that employees, or plan participants, have a defined or fixed income at retirement.
Defined contribution plans focus on the amount contributed, so the level of income at retirement depends heavily on the employee’s management of plan funds. The type of plan determines who contributes—employer, employee, or both. Administration, funding, eligibility, and vesting requirements also differ by plan.
A Look at Nonqualified Plans
Nonqualified plans, on the other hand, offer no immediate tax benefit to the employer and, instead, focus on deferring compensation for a select group of employees, usually highly paid executives, until retirement, death, or disability. “Nonqualified” essentially means participants and employers receive no immediate tax advantages.
Payment for services rendered is delayed to limit the executive’s tax liability during peak earning years. The provisions often intentionally tether the employee to the firm, giving you a better chance to retain good and potentially irreplaceable employees. Such plans are most often governed, not by Federal regulation, but by a legal contract between employer and employee.
Stock options and creative uses of life insurance are common ways to fund these plans. Special provisions, such as rabbi trusts, can be used to segregate funds in nonqualified plans that an employer has agreed will be paid out in the future.
No one plan is inherently better than another; the right choice for you depends on your specific circumstances. Since the risks and potential rewards differ between defined benefit and defined contribution plans, it would be in your best interest to make sure you fully understand the benefits you want to offer your employees and the funding resources you desire for your own retirement.
Most people couldn’t bear the financial hardships resulting from unexpected events, such as a major house fire, a car accident, a disability or the premature death of a family breadwinner, which is why one of the most important component of a sound financial plan should be your personal risk management strategy.
Paying fees for professional investment management is something we’d all like to avoid. Why pay for some guy in a suit to manage your investments when you can do-it-yourself with a simple online brokerage account? There are many reasons to trust a professional - read on to find out whether it’s worth it to go with the pros.
Active vs. Passive
In 2020, the government gave taxpayers an automatic six-month extension due to the coronavirus. Individuals who were affected by the damaging wildfires were also given additional time to meet most tax deadlines. However, in 2021, the deadline for submitting your income tax return is likely to return to the regularly scheduled time slot on April 15.