Skip to content

Teaching Your College-Age Child about Money

March 5, 2019

When your child first started school, you doled out the change for milk and a snack on a daily basis. But now that your kindergartner has grown up, it’s time for you to make sure that your child has enough financial knowledge to manage money at college.

Lesson 1: Budgeting 101

Perhaps your child already understands the basics of budgeting from having to handle an allowance or wages from a part-time job during high school. But now that your child is in college, he or she may need to draft a “real world” budget, especially if he or she lives off-campus and is responsible for paying for rent and utilities. Here are some ways you can help your child plan and stick to a realistic budget:

 

  • Help your child figure out what income there will be (money from home, financial aid, a part-time job) and when it will be coming in (at the beginning of each semester, once a month, or every week).

  • Make sure your child understands the difference between needs and wants. For instance, when considering expenses, point out that buying groceries is a need and eating out is a want. Your child should understand how important it is to cover the needs first.

  • Determine together how you and your child will split responsibility for expenses. For instance, you may decide that you’ll pay for your child’s trips home, but that your child will need to pay for art supplies or other miscellaneous expenses.

  • Warn your child not to spend too much too soon, particularly when money that has to last all semester arrives at the beginning of a term. Too many evenings out in September eating surf and turf could lead to a December of too many evenings in eating cold cereal.

  • Acknowledge that college isn’t all about studying, but explain that splurging this week will mean scrimping next week. While you should include entertainment expenses in the budget, encourage your child to stick closely to the limit you agree upon.

  • Show your child how to track expenses by saving receipts and keeping an expense log. Knowing where the money is going will help your child stay on track. Reallocation of resources may sometimes be necessary, but help your child understand that spending more in one area means spending less in another.

  • Encourage your child to plan ahead for big expenses (the annual auto insurance bill or the trip over spring break) by instead setting aside money for them on a regular basis.

  • Caution your child to monitor spending patterns to avoid excessive spending, and ask him or her to come to you for advice at the first sign of financial trouble.

You should also help your child understand that a budget should remain flexible; as financial goals change, a budget must change to accommodate them. Still, your child’s ultimate goal is to make sure that what goes out is always less than what comes in.

 

Lesson 2: Opening a bank account

For the sake of convenience, your child may want to open a checking account near the college; doing so may also reduce transaction fees (e.g. automated teller machine (ATM) fees). Ideally, a checking account should require no minimum balance and allow unlimited free checking; short of that, look for an account with these features:

 

  • A simple fee structure

  • ATM or debit card access to the account

  • Online or telephone access to account information

  • Overdraft protection

To avoid bouncing checks, it’s essential to keep accurate records, especially of ATM or debit card usage. Show your child how to balance a checkbook on a regular (monthly) basis. Most checking account statements provide instructions on how to do this.

 

Encourage your child to open a savings account too, especially if he or she has a part-time job during the school year or summer. Your child should save any income that doesn’t have to be put towards college expenses. After all, there is life after college, and while it may seem inconceivable to a college freshman, he or she may one day want to buy a new car or a home.

 

Lesson 3: Getting credit

If your child is age 21 or older, he or she may be able to independently obtain a credit card. But if your child is younger, the credit card company will require you, or another adult, to cosign the credit card application, unless your child can prove that he or she has the financial resources to repay the credit card debt. A credit card can provide security in a financial emergency and, if used properly, can help your child build a good credit history. But the temptation to use a credit card can be seductive, and it’s not uncommon for students to find themselves over their heads in debt before they’ve declared their majors. Unfortunately, a poor credit history can make it difficult for your child to rent an apartment, get a car loan, or even find a job for years after earning a degree. And if you’ve cosigned your child’s credit card application, you’ll be on the hook for your child’s unpaid credit card debt, and your own credit history could suffer.

 

Here are some tips to help your child learn to use credit responsibly:

 

  • Advise your child to get a credit card with a low credit limit to keep credit card balances down.

  • Explain to your child that a credit card isn’t an income supplement; what gets charged is what’s owed (and then some, given the high interest rates). If your child continually has trouble meeting expenses, he or she should review and revise the budget instead of pulling out the plastic.

  • Teach your child to review each credit card bill and make the payment by the due date. Otherwise, late fees may be charged, the interest rate may go up if the account falls 60 days past due, and your child’s credit history (or yours, if you’ve cosigned) may be damaged.

  • If your child can’t pay the bill in full each month, encourage him or her to pay as much as possible. An undergraduate student making only the minimum payments due each month on a credit card could finish a post-doctorate program before paying off the balance.

  • Make sure your child notifies the card issuer of any address changes so that he or she will continue to receive statements.

  • Tell your child that when it comes to creditors, students don’t get summers off! Your child will need to continue to make payments every month, and if there’s a credit card balance carried over from the school year, your child may want to use summer earnings to pay it off in order to start the next school year with a clean slate.

Finally, remind your child that life after college often involves student loan payments and maybe even car or mortgage payments. The less debt your child graduates with, the better off he or she will be. When it comes to the plastic variety, extra credit is the last thing a college student wants to accumulate!

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax

or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with  FSC Securities and may be reached at www.theretirementgroup.com.

paid advertisement

Teaching Your Child about Money

March 5, 2019

Ask your five-year old where money comes from, and the answer you’ll probably get is “From a machine!” Even though children don’t always understand where money really comes from, they realize at a young age that they can use it to buy the things they want. So as soon as your child becomes interested in money, start teaching him or her how to handle it wisely. The simple lessons you teach today will give your child a solid foundation for making a lifetime of financial decisions.

Lesson 1: Learning to handle an allowance

An allowance is often a child’s first brush with financial independence. With allowance money in hand, your child can begin saving and budgeting for the things he or she wants.

 

It’s up to you to decide how much to give your child based on your values and family budget, but a rule of thumb used by many parents is to give a child 50 cents or 1 dollar for every year of age. To come up with the right amount, you might also want to consider what your child will need to pay for out of his or her allowance, and how much of it will go into savings.

 

Some parents ask their child to earn an allowance by doing chores around the house, while others give their child an allowance with no strings attached. If you’re not sure which approach is better, you might want to compromise. Pay your child a small allowance, and then give him or her the chance to earn extra money by doing chores that fall outside of his or her normal household responsibilities.

 

If you decide to give your child an allowance, here are some things to keep in mind:

 

  • Set some parameters. Sit down and talk to your child about the types of purchases you expect him or her to make, and how much of the allowance should go towards savings.

  • Stick to a regular schedule. Give your child the same amount of money on the same day each week.

  • Consider giving an allowance “raise” to reward your child for handling his or her allowance well.

Lesson 2: Opening a bank account

Taking your child to your local bank or credit union to open an account (or opening an account online) is a simple way to introduce the concept of saving money. Your child will learn how savings accounts work, and will soon enjoy making deposits.

 

Many banks and credit unions have programs that provide activities and incentives designed to help children learn financial basics. Here are some other ways you can help your child develop good savings habits:

 

  • Help your child understand how interest compounds by showing him or her how much “free money” has been earned on deposits.

  • Offer to match whatever your child saves towards a long-term goal.

  • Let your child take a few dollars out of the account occasionally. Young children who see money going into the account but never coming out may quickly lose interest in saving.

Lesson 3: Setting and saving for financial goals

When your children get money from relatives, you want them to save it for college, but they’d rather spend it now. Let’s face it: children don’t always see the value of putting money away for the future. So how can you get your child excited about setting and saving for financial goals? Here are a few ideas:

 

  • Let your child set his or her own goals (within reason). This will give your child some incentive to save.

  • Encourage your child to divide his or her money up. For instance, your child might want to save some of it towards a long-term goal, share some of it with a charity, and spend some of it right away.

  • Write down each goal, and the amount that must be saved each day, week, or month to reach it. This will help your child learn the difference between short-term and long-term goals.

  • Tape a picture of an item your child wants to a goal chart, bank, or jar. This helps a young child make the connection between setting a goal and saving for it.

Finally, don’t expect a young child to set long-term goals. Young children may lose interest in goals that take longer than a week or two to reach. And if your child fails to reach a goal, chalk it up to experience. Over time, your child will learn to become a more disciplined saver.

 

Lesson 4: Becoming a smart consumer

Commercials. Peer pressure. The mall. Children are constantly tempted to spend money but aren’t born with the ability to spend it wisely. Your child needs guidance from you to make good buying decisions. Here are a few things you can do to help your child become a smart consumer:

 

  • Set aside one day a month to take your child shopping. This will encourage your child to save up for something he or she really wants rather than buying something on impulse.

  • Just say no. You can teach your child to think carefully about purchases by explaining that you will not buy him or her something every time you go shopping. Instead, suggest that your child try items out in the store, then put them on a birthday or holiday wish list.

  • Show your child how to compare items based on price and quality. For instance, when you go grocery shopping, teach him or her to find the prices on the items or on the shelves, and explain why you’re choosing to buy one brand rather than another.

  • Let your child make mistakes. If the toy your child insists on buying breaks, or turns out to be less fun than it looked on the commercials, eventually your child will learn to make good choices even when you’re not there to give advice.

.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax

or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with  FSC Securities and may be reached at www.theretirementgroup.com.

paid advertisement

Getting Started: Establishing a Financial Safety Net

March 5, 2019

 

In times of crisis, you don’t want to be shaking pennies out of a piggy bank. Having a financial safety net in place can ensure that you’re protected when a financial emergency arises. One way to accomplish this is by setting up a cash reserve, a pool of readily available funds that can help you meet emergency or highly urgent short-term needs.

How much is enough?

Most financial professionals suggest that you have three to six months’ worth of living expenses in your cash reserve. The actual amount, however, should be based on your particular circumstances. Do you have a mortgage? Do you have short-term and long-term disability protection? Are you paying for your child’s orthodontics? Are you making car payments? Other factors you need to consider include your job security, health, and income. The bottom line: Without an emergency fund, a period of crisis (e.g., unemployment, disability) could be financially devastating.

 

Building your cash reserve

If you haven’t established a cash reserve, or if the one you have is inadequate, you can take several steps to eliminate the shortfall:

 

  • Save aggressively: If available, use payroll deduction at work; budget your savings as part of regular household expenses

  • Reduce your discretionary spending (e.g., eating out, movies, lottery tickets)

  • Use current or liquid assets (those that are cash or are convertible to cash within a year, such as a short-term certificate of deposit)

  • Use earnings from other investments (e.g.,stocks, bonds, or mutual funds)

  • Check out other resources (e.g., do you have a cash value insurance policy that you can borrow from?)

A final note: Your credit line can be a secondary source of funds in a time of crisis. Borrowed money, however, has to be paid back (often at high interest rates). As a result, you shouldn’t consider lenders as a primary source for your cash reserve.

 

Where to keep your cash reserve

You’ll want to make sure that your cash reserve is readily available when you need it. However, an FDIC-insured, low-interest savings account isn’t your only option. There are several excellent alternatives, each with unique advantages. For example, money market accounts and short-term CDs typically offer higher interest rates than savings accounts, with little (if any) increased risk.

 

Note: Don’t confuse a money market mutual fund with a money market deposit account. An investment in a money market mutual fund is not insured or guaranteed by the FDIC. Although the mutual fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the fund.

 

Note: When considering a money market mutual fund, be sure to obtain and read the fund’s prospectus, which is available from the fund or your financial advisor, and outlines the fund’s investment objectives, risks, fees, expenses. Carefully consider those factors before investing.

 

It’s important to note that certain fixed-term investment vehicles (i.e., those that pledge to return your principal plus interest on a given date), such as CDs, impose a significant penalty for early withdrawals. So, if you’re going to use fixed-term investments as part of your cash reserve, you’ll want to be sure to ladder (stagger) their maturity dates over a short period of time (e.g., two to five months). This will ensure the availability of funds, without penalty, to meet sudden financial needs.

 

Review your cash reserve periodically

Your personal and financial circumstances change often–a new child comes along, an aging parent becomes more dependent, or a larger home brings increased expenses. Because your cash reserve is the first line of protection against financial devastation, you should review it annually to make sure that it fits your current needs.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax

or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with  FSC Securities and may be reached at www.theretirementgroup.com.

paid advertisement

Establishing a Budget

March 5, 2019

Do you ever wonder where your money goes each month? Does it seem like you’re never able to get ahead? If so, you may want to establish a budget to help you keep track of how you spend your money and help you reach your financial goals.

Examine your financial goals

Before you establish a budget, you should examine your financial goals. Start by making a list of your short-term goals (e.g., new car, vacation) and your long-term goals (e.g., your child’s college education, retirement). Next, ask yourself: How important is it for me to achieve this goal? How much will I need to save? Armed with a clear picture of your goals, you can work toward establishing a budget that can help you reach them.

 

Identify your current monthly income and expenses

To develop a budget that is appropriate for your lifestyle, you’ll need to identify your current monthly income and expenses. You can jot the information down with a pen and paper, or you can use one of the many software programs available that are designed specifically for this purpose.

 

Start by adding up all of your income. In addition to your regular salary and wages, be sure to include other types of income, such as dividends, interest, and child support. Next, add up all of your expenses. To see where you have a choice in your spending, it helps to divide them into two categories: fixed expenses (e.g., housing, food, clothing, transportation) and discretionary expenses (e.g., entertainment, vacations, hobbies). You’ll also want to make sure that you have identified any out-of-pattern expenses, such as holiday gifts, car maintenance, home repair, and so on. To make sure that you’re not forgetting anything, it may help to look through canceled checks, credit card bills, and other receipts from the past year. Finally, as you list your expenses, it is important to remember your financial goals. Whenever possible, treat your goals as expenses and contribute toward them regularly.

 

Evaluate your budget

Once you’ve added up all of your income and expenses, compare the two totals. To get ahead, you should be spending less than you earn. If this is the case, you’re on the right track, and you need to look at how well you use your extra income. If you find yourself spending more than you earn, you’ll need to make some adjustments. Look at your expenses closely and cut down on your discretionary spending. And remember, if you do find yourself coming up short, don’t worry! All it will take is some determination and a little self-discipline, and you’ll eventually get it right.

 

Monitor your budget

You’ll need to monitor your budget periodically and make changes when necessary. But keep in mind that you don’t have to keep track of every penny that you spend. In fact, the less record keeping you have to do, the easier it will be to stick to your budget. Above all, be flexible. Any budget that is too rigid is likely to fail. So be prepared for the unexpected (e.g., leaky roof, failed car transmission).

 

Tips to help you stay on track

  • Involve the entire family: Agree on a budget up front and meet regularly to check your progress

  • Stay disciplined: Try to make budgeting a part of your daily routine

  • Start your new budget at a time when it will be easy to follow and stick with the plan (e.g., the beginning of the year, as opposed to right before the holidays)

  • Find a budgeting system that fits your needs (e.g., budgeting software)

  • Avoid using credit cards to pay for everyday expenses: It may seem like you’re spending less, but your credit card debt will continue to increase

  • Build rewards into your budget (e.g., eat out every other week)

  • Distinguish between expenses that are “wants” (e.g., designer shoes) and expenses that are “needs” (e.g., groceries)

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax

or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with  FSC Securities and may be reached at www.theretirementgroup.com.

paid advertisement

529 College Savings Plans

March 2, 2019

Section 529 college savings plans are tax-advantaged college savings vehicles and one of the most popular ways to save for college today. Much like the way 401(k) plans changed the world of retirement savings a few decades ago, 529 college savings plans have changed the world of college savings.

Tax advantages and more

529 college savings plans offer a unique combination of features that no other college savings vehicle can match:

• Federal tax advantages: Contributions to your account grow tax deferred and earnings are tax free if the money is used to pay the beneficiary’s qualified education expenses. (The earnings portion of any withdrawal not used for college expenses is taxed at the recipient’s rate and subject to a 10% penalty.)

• State tax advantages: Many states offer income tax incentives for state residents, such as a tax deduction for contributions or a tax exemption for qualified withdrawals.

• High contribution limits: Many plans let you contribute over $300,000 over the life of the plan.

• Unlimited participation: Anyone can open a 529 college savings plan account, regardless of income level.

• Professional money management: College savings plans are offered by states, but they are managed by designated financial companies who are responsible for managing the plan’s underlying investment portfolios.

• Flexibility: Under federal rules, you are entitled to change the beneficiary of your account to a qualified family member at any time as well as rollover the money in your 529 plan account to a different 529 plan once per year without income tax or penalty implications.

• Wide use of funds: Money in a 529 college savings plan can be used at any college in the United States or abroad that’s accredited by the Department of Education and, depending on the individual plan, for graduate school.

• Accelerated gifting: 529 plans offer an estate planning advantage in the form of accelerated gifting. This can be a favorable way for grandparents to contribute to their grandchildren’s education. Specifically, a lump-sum gift of up to five times the annual gift tax exclusion ($14,000 in 2016) is allowed in a single year, which means that individuals can make a lump-sum gift of up to $70,000 and married couples can gift up to $140,000. No gift tax will be owed, provided the gift is treated as having been made in equal installments over a five-year period and no other gifts are made to that beneficiary during the five years.

Choosing a college savings plan

Although 529 college savings plans are a creature of federal law, their implementation is left to the states. Currently, there are over 50 different college savings plans available because many states offer more than one plan.

You can join any state’s 529 college savings plan, but this variety may create confusion when it comes time to select a plan. Each plan has its own rules and restrictions, which can change at any time. To make the process easier, it helps to consider a few key features:

• Your state’s tax benefits: A majority of states offer some type of income tax break for 529 college savings plan participants, such as a deduction for contributions or tax-free earnings on qualified withdrawals. However, some states limit their tax deduction to contributions made to the in-state 529 plan only. So make sure to find out the exact scope of the tax breaks, if any, your state offers.

• Investment options: 529 plans vary in the investment options they offer. Ideally, you’ll want to find a plan with a wide variety of investment options that range from conservative to more growth-oriented to match your risk tolerance. To take the guesswork out of picking investments appropriate for your child’s age, most plans offer aged-based portfolios that automatically adjust to more conservative holdings as your child approaches college age. (Remember, though, that any investment involves risk, and past performance is no guarantee of how an investment will perform in the future. The investments you choose may lose money or not perform well enough to cover college costs as anticipated.)

• Fees and expenses: Fees and expenses can vary widely among plans, and high fees can take a bigger bite out of your savings. Typical fees include annual maintenance fees, administration and management fees (usually called the “expense ratio”), and underlying fund expenses.

• Reputation of financial institution: Make sure that the financial institution managing the plan is reputable and that you can reach customer service with any questions.

With so many plans available, it may be helpful to consult an experienced financial professional who can help you select a plan and pick your plan investments. In fact, some 529 college savings plans are advisor-sold only, meaning that you’re required to go through a designated financial advisor to open an account. Always carefully read the 529 plan issuer’s official materials before investing.

Account mechanics

Once you’ve selected a plan, opening an account is easy. You’ll need to fill out an application, where you’ll name a beneficiary and select one or more of the plan’s investment portfolios to which your contributions will be allocated. Also, you’ll typically be required to make an initial minimum contribution, which must be made in cash or a cash alternative.

Thereafter, most plans will allow you to contribute as often as you like. This gives you the flexibility to tailor the frequency of your contributions to your own needs and budget, as well as to systematically invest your contributions. You’ll also be able to change the beneficiary of your account to a qualified family member with no income tax or penalty implications. Most plans will also allow you to change your investment portfolios (either for your future or current contributions) if you’re unhappy with their investment performance.

529 prepaid tuition plans–a distant cousin

There are actually two types of 529 plans–college savings plans and prepaid tuition plans (prepaid plans are the less popular type). The tax advantages of college savings plans and prepaid tuition plans are the same, but the account features are very different. A prepaid tuition plan lets you prepay tuition at participating colleges at today’s prices for use by the beneficiary in the future. The following chart describes the main differences:

College Savings Plans Prepaid Tuition Plans
Offered by states Offered by states and private colleges
You can join any state’s plan State-run plans require you to be a state resident
Contributions are invested in your individual account in the investment portfolios you have selected Contributions are pooled with the contributions of others and invested exclusively by the plan
Returns are not guaranteed; your account may gain or lose value, depending on how the underlying investments perform Generally a certain rate of return is guaranteed
Funds can be used at any accredited college in the U.S. or abroad Funds can only be used at participating colleges, typically state universities

Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about specific 529 plans is available in each issuer’s official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits. As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan. There is also the risk that the investments may lose money or not perform well enough to cover college costs as anticipated.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with  FSC Securities and may be reached at www.theretirementgroup.com.

paid advertisement

Understanding the Net Investment Income Tax

March 1, 2019

If your income hits a certain level, you may face an additional wrinkle in calculating your taxes: the net investment income tax (also referred to as the unearned income Medicare contribution tax). This 3.8% Medicare tax applies to some or all of your net investment income if your modified adjusted gross income (MAGI) exceeds certain thresholds. The tax is in addition to any other income tax applicable to such income.

Note: If the net investment income tax applies, your long-term capital gains and qualified dividends may be subject to a combined federal tax rate of as much as 23.8% (the top long-term capital gains tax rate of 20% + 3.8%). Your other taxable investment income may be subject to a combined federal tax rate of as much as 43.4% (the top regular income tax rate of 39.6% + 3.8%). Your investment income may also be subject to state income tax.

In general, the net investment income tax applies to U.S. individual taxpayers (similar rules apply to certain domestic trusts and estates).

Calculation of net investment income tax 

The net investment income tax is equal to 3.8% of the lesser of (a) your net investment income or (b) the excess of your MAGI over:

• $200,000 if your filing status is single or head of household

• $250,000 if your filing status is married filing jointly or qualifying widow(er) with dependent child

• $125,000 if your filing status is married filing separately

For purposes of the net investment income tax, MAGI is generally equal to your adjusted gross income (AGI). However, if you are a U.S. citizen or resident living abroad, you must include in MAGI the foreign earned income that is generally excludable from gross income for federal income tax purposes.

Example: You and your spouse file a joint tax return. Assume your net investment income is $50,000 and your MAGI is $270,000. The amount of your net investment income subject to this tax is equal to the lesser of (a) $50,000 or (b) the excess of $270,000 over $250,000, or $20,000. Your net investment income tax is equal to $20,000 x 3.8%, or $760. 

Net investment income 

Net investment income includes gross income from:

• Interest, dividends, nonqualified annuities, royalties, and rents that are not derived from the ordinary course of a trade or business, and

• Net gain from the disposition of property not used in a trade or business

Gross income and net gain (or loss) from a trade or business may be included in net investment income if the trade or business is (a) a passive activity or (b) engaged in trading financial instruments or commodities.

Note: In general, a passive activity is a trade or business in which you do not materially participate. Rental activities are treated as passive activities regardless of whether you materially participate, but there are certain exceptions. 

Net investment income is reduced by any income tax deductions allocable to these items of gross income and net gain that are included in net investment income. Examples of deductible items that may be allocated to net investment income include investment interest expense; state, local, and foreign income tax; and miscellaneous investment expenses. Deductions may be subject to limitations.

Note: Generally, an interest in a partnership or S corporation is not property held for use in a trade or business, and gain or loss from the sale of a partnership interest or S corporation stock is included in net investment income. 

Net investment income does not include income excluded from gross income for income tax purposes. It also does not include items of gross income and net gain specifically excluded from net investment income. Examples of excluded items include:

• Wages

• Unemployment compensation

• Alimony

• Social Security benefits

• Tax-exempt interest income

• Income from certain qualified retirement plan and IRA distributions

• Self-employment income

• Gain that is not taxable on sale of a principal residence

Note: Even though certain items such as wages and income from certain qualified retirement plan and IRA distributions may not be included in net investment income, they may be included in MAGI, which (as discussed above) is a factor in determining the amount of net investment income that is subject to the net investment income tax. 

Planning for the net investment income tax 

For a particular taxable year, the net investment income tax applies only if your MAGI exceeds the appropriate threshold based on your tax filing status. Also, the net investment income tax applies to the lesser of (a) your net investment income or (b) the excess of your MAGI over the appropriate threshold. So you may be able to reduce exposure to the net investment income tax by controlling the timing of items of income or deduction that enter into the calculation of net investment income or MAGI.

For example, you might consider increasing your net investment income in a year in which your MAGI does not exceed the threshold. Conversely, you might consider decreasing your net investment income in a year in which your MAGI exceeds the threshold.

In general, you may be able to increase net investment income in a particular year by pushing income into that year and deductions into another year. Conversely, you may be able to decrease net investment income in a particular year by pushing deductions into that year and income into another year. You will need to consider how increasing or decreasing net investment income affects MAGI.

Example: Tom, a single taxpayer, is considering selling some stock, either at the end of Year 1 or at the beginning of Year 2, with the effect of increasing his net investment income by $10,000 for one of those years. To keep things simple, assume that an increase in net investment income would result in a dollar-for-dollar increase in MAGI. Before taking into consideration the proposed sale of stock, Tom expects to have $190,000 of MAGI in Year 1 and $200,000 of MAGI in Year 2. If Tom sells the stock in Year 1, he would not be subject to the net investment income tax because his MAGI of $200,000 ($190,000 + $10,000) would not exceed the $200,000 threshold for single taxpayers. If Tom sells the stock in Year 2, he would be subject to the net investment income tax because his MAGI of $210,000 ($200,000 + $10,000) would exceed the $200,000 threshold and he would have $10,000 of net investment income. 

Note: Ordinary income and long-term capital gains tax rates are generally much higher than the 3.8% Medicare tax rate applicable to net investment income. Planning for the net investment income tax should not be done without considering its effect on the regular income tax. 

Note: There is no standard deduction for purposes of determining your net investment income. Itemized deductions are not available for purposes of reducing net investment income unless you itemize deductions for purposes of regular income tax. However, neither standard or itemized deductions reduce MAGI. 

Recordkeeping 

Net investment income tax is reported on IRS Form 8960. If you owe net investment income tax, you must attach Form 8960 to your tax return. For purposes of the net investment income tax, certain items of investment income or investment expense receive different tax treatment than for the regular income tax. You will need to keep records for the items included on Form 8960. Generally, you need to keep records for the life of the investment to show how you calculated basis. You also need to know what you did in prior years if the investment was part of a carry back or carry forward.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with  FSC Securities and may be reached at www.theretirementgroup.com.

paid advertisement

Nonprofit Boards: New Challenges and Responsibilities

February 28, 2019

The days are long gone when nonprofit boards were made up of large donors who expected that little more would be asked of them beyond socializing at the occasional fundraiser. Being a board member can be as demanding and rewarding as any full-time work.

Nonprofit board members are being required to do strategic planning for both long- and short-term goals. They must produce demonstrable results that are measured against specific benchmarks. And they are finding that they must stretch already tight budgets further than ever. In turn, stakeholders within and outside nonprofit organizations increasingly are holding board members to a higher standard of accountability for making sure the organization not only delivers on its mission but does so in the most effective way.

Learning how to do more with less 

Of all the challenges facing nonprofits, financial issues can be especially complex. In the last decade, many nonprofits have experienced funding cutbacks. Even those whose funding has remained stable are finding that money has to go further to meet increased client loads and demands on programs and services.

In some cases, the issues can be so complex that boards are going outside the organization’s ranks to hire consultants with specific expertise in certain areas. People who stay on top of the latest developments in such fields as tax law, charitable giving regulations, and best practices in accounting can be particularly effective in helping an organization fulfill its purpose without having to add staff.

Understanding your role and responsibilities as a board member, as well as the challenges facing nonprofits today, can not only improve your board’s decision-making process, but also can help you have maximum impact. A nonprofit board member has a dual role: support of the organization’s purpose, and governance over how it attempts to further that mission. You and your fellow board members doubtless want to use your collective time efficiently. When thinking about how to focus your efforts, consider whether your organization needs help with any of the following issues.

Ensuring accountability 

Limited budgets and greater demand mean that hard choices will need to be made; in many cases, it’s the board’s responsibility to make them. To make wise decisions, it’s important to understand the organization’s financial assets, liabilities, and cash flow situation. If you’ve had corporate experience, you may be able to help your fellow board members review the balance sheet; if not, it’s worth your time to become familiar with it yourself. For example, knowing whether your organization qualifies for state sales and/or use tax exemption could have a meaningful impact on finances. Little may be more disturbing to potential donors than the feeling that their money may not be used effectively.

Also, the IRS is beginning to require more detailed information about nonprofit finances and governance practices, such as involvement in a joint venture or other partnership.

Program funders also have increased reporting requirements. When deciding which grants to make, foundations are asking for more information, greater documentation, and increased evaluation of results. Gathering and analyzing accurate, timely, comprehensive data and being able to document a program’s effectiveness and impact is increasingly important. Understanding the organization’s finances doesn’t just improve the board’s oversight capabilities; it also can make you a more effective fundraiser.

Higher standards of accountability mean that boards also should ensure that liability insurance is in place for both directors and officers. This is especially true if the organization provides services to the public, such as medical care.

Adopting enhanced governance standards 

The Sarbanes-Oxley Act, passed in the wake of corporate governance scandals and nicknamed SOX, also affects nonprofits. Though the law applies almost exclusively to publicly traded companies, some nonprofits are using SOX provisions as a model for developing formal policies on financial reporting, potential conflicts of interest, and internal controls.

Two provisions of SOX also apply to nonprofits. First, organizations must have a written policy on retention of important documents, particularly those involved in any litigation. Second, they need a process for handling internal complaints while also protecting whistleblowers. Individual states have expressed interest in extending other SOX requirements to the nonprofit world, particularly larger organizations. Many nonprofit organizations hope that voluntary compliance efforts will eliminate calls for increased official regulation of such issues as board member compensation and conflicts of interest.

Ensuring effective fundraising and money management 

Nonprofits have not been spared the increases in for-profit health care costs and worker’s compensation insurance that have hit corporations and small businesses. Yet fundraising for such mundane areas as day-to-day operations, staff salaries, and building and equipment maintenance has traditionally been one of the biggest challenges for nonprofits.

The twin effects of inflation and increased client loads have underscored the importance of having an adequate operating reserve. Also, corporate sponsorships can be vulnerable to the mergers and acquisitions that occur frequently in the corporate world. It makes sense to ensure a diversity of donors rather than relying on a few traditional sources.

Bringing in money is only half the battle; the day-to-day issues are equally important. Board members may be unfamiliar with operational challenges that businesses don’t generally face, such as fundraising, or recruiting and managing volunteers. However, in some cases you might be able to suggest ways to adapt businesslike methods for nonprofit use.

For example, appropriately investing short-term working capital can help preserve financial flexibility while maximizing resources. If your group has an infusion of cash that won’t be spent immediately, such as a contribution for a capital spending project, consider alternatives for putting at least some of it to work rather than letting it sit idle.

Planning strategically 

Having a strategic plan can lead to better evaluation of funding needs and targeted fundraising efforts; it also can help ensure that board members and staff are on the same page. Make sure your plan provides guidance, yet allows staff members to do their jobs without constant board supervision.

A board of directors also must assure that the organization can attract and retain leadership. Many nonprofits today are led by executives who came of age during the 1960s. As those baby boomers march toward retirement, some experts worry that attracting and retaining executive directors and staff will become increasingly challenging, especially when budgets are shrinking. A succession plan for key personnel might be wise.

Using your time wisely 

Nonprofit board membership can be both demanding and rewarding. Understanding your group’s finances can increase your effectiveness in furthering your organization’s goals.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with  FSC Securities and may be reached at www.theretirementgroup.com.

paid advertisement

Stretch IRAs

February 27, 2019


The term “stretch IRA” has become a popular way to refer to an IRA (either traditional or Roth) with provisions that make it easier to “stretch out” the time that funds can stay in your IRA after your death, even over several generations. It’s not a special IRA, and there’s nothing dramatic about this “stretch” language. Any IRA can include stretch provisions, but not all do.

Why is “stretching” important?

Earnings in an IRA grow tax deferred. Over time, this tax-deferred growth can help you accumulate significant retirement funds. If you’re able to support yourself in retirement without the need to tap into your IRA, you may want to continue this tax-deferred growth for as long as possible. In fact, you may want your heirs to benefit–to the greatest extent possible–from this tax-deferred growth as well. But funds can’t stay in your IRA forever. Required minimum distribution (RMD) rules will apply after your death (for traditional IRAs, minimum distributions are also required during your lifetime after you reach age 70½). The goal of a stretch IRA is to make sure your beneficiary can take distributions over the maximum period the RMD rules allow. You’ll want to check your IRA custodial or trust agreement carefully to make sure that it contains the following important stretch provisions.

Key stretch provision #1

The RMD rules let your beneficiary take distributions from an inherited IRA over a fixed period of time, based on your beneficiary’s life expectancy. For example, if your beneficiary is age 20 in the year following your death, he or she can take payments over 63 additional years (special rules apply to spousal beneficiaries).

As you can see, this rule can keep your IRA funds growing tax deferred for a very long time. But even though the RMD rules allow your beneficiary to “stretch out” payments over his or her life expectancy, your particular IRA may not. For example, your IRA might require your beneficiary to take a lump-sum payment, or receive payments within five years after your death. Make sure your IRA contract lets your beneficiary take payments over his or her life expectancy.

Key stretch provision #2

But what happens if your beneficiary elects to take distributions over his or her life expectancy but dies a few years later, with funds still in the inherited IRA? This is where the IRA language becomes crucial. If, as is commonly the case, the IRA language doesn’t address what happens when your beneficiary dies, then the IRA balance is typically paid to your beneficiary’s estate. However, IRA providers are increasingly allowing an original beneficiary to name a successor beneficiary. In this case, if your original beneficiary dies, the successor beneficiary “steps into the shoes” of your original beneficiary and can continue to take RMDs over the original beneficiary’s remaining distribution schedule.

What if your IRA doesn’t stretch?

You can always transfer your funds to an IRA that contains the desired stretch language. In addition, upon your death, your beneficiary can transfer the IRA funds (in your name) directly to another IRA that has the appropriate language.

And if your spouse is your beneficiary, he or she can roll over the IRA assets to his or her own IRA, or elect to treat your IRA as his or her own (if your spouse is your sole beneficiary). Because your spouse becomes the owner of your IRA funds, rather than a beneficiary, your spouse won’t have to start taking distributions until he or she reaches age 70½. And your spouse can name a new beneficiary to continue receiving payments after your spouse dies.

Stretching your IRA–a case study

Jack dies at age 78 with an IRA worth $500,000. He had named his surviving spouse, 69-year-old Mary, as his sole beneficiary. Mary elects to roll over the funds to her own IRA. Mary names Susan, her 44-year-old daughter, as her beneficiary. At age 70½, Mary begins taking required minimum distributions over a period determined from the Uniform Lifetime Table. (Mary is allowed to recalculate her life expectancy each year.) At age 79, Mary dies and Susan begins taking required distributions over Susan’s life expectancy–29.6 years (fixed in the year following Mary’s death). Susan names Jon, her 30-year-old son, as her successor beneficiary. Susan dies at age 70 after receiving payments for 16 years, and Jon continues receiving required distributions over Susan’s remaining life expectancy (13.6 years).

Year 1 Mary becomes owner of Jack’s IRA
Year 3 Mary begins taking distributions at age 70½ over her life expectancy
Year 12 Susan begins taking distributions the year after Mary’s death over Susan’s life expectancy
Year 28 Jon begins taking distributions over Susan’s remaining life expectancy
Year 40 All of Jack’s IRA funds have been distributed

Under this scenario, total payments of over $2 million are made over 40 years, to three generations.

Note: Payments from a traditional IRA will generally be subject to income tax at the beneficiary’s tax rate. Qualified distributions from a Roth IRA are tax free.

Assumptions:

  • This is a hypothetical example and is not intended to reflect the actual performance of any specific investment portfolio, nor is it an estimate or guarantee of future value.
  • This illustration assumes a fixed 6% annual rate of return; the rate of return on your actual investment portfolio will be different, and will vary over time, according to actual market performance. This is particularly true for long-term investments. It is important to note that investments offering the potential for higher rates of return also involve a higher degree of risk to principal.
  • All earnings are reinvested, and all distributions are taken at year-end.
  • The projected figures assume that Mary takes the smallest distribution she’s allowed to take under IRS rules at the latest possible time without penalty.
  • The projected figures assume that tax law and IRS rules will remain constant throughout the life of the IRA.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with  FSC Securities and may be reached at www.theretirementgroup.com.

paid advertisement

The Roth 403(b)

February 26, 2019

Some employers offer 403(b) plan participants the opportunity to make Roth 403(b) contributions. If you’re lucky enough to work for an employer that offers this option, Roth contributions could play an important role in maximizing your retirement income.

What is a Roth 403(b)?

A Roth 403(b) is simply a traditional 403(b) plan that accepts Roth 403(b) contributions. Roth 403(b) contributions are made on an after-tax basis, just like Roth IRA contributions. This means there’s no up-front tax benefit, but if certain conditions are met, your Roth 403(b) contributions and all accumulated investment earnings on those contributions are free from federal income tax when distributed from the plan. (401(k) and 457(b) plans can also allow Roth contributions.)

Who can contribute?

Once you’re eligible to participate in a 403(b) plan, you can make Roth contributions regardless of your salary level. (This is in contrast to a Roth IRA where your contributions may be reduced, or you may not be eligible to contribute at all, if your income exceeds certain amounts.)

How much can I contribute?

There’s an overall cap on your combined pretax and Roth 403(b) contributions. In 2016, you can contribute up to $18,000 of your pay ($24,000 if you’re age 50 or older)1 to a 403(b) plan. You can split your contributions any way you wish. For example, you can make $10,000 of Roth contributions and $8,000 of pretax 403(b) contributions. It’s up to you.

But keep in mind that if you also contribute to a 401(k), SIMPLE, SAR-SEP, or another 403(b) plan, your total contributions to all of these plans—both pretax and Roth–can’t exceed $18,000 (plus catch-up contributions) in 2016. It’s up to you to make sure you don’t exceed these limits if you contribute to plans of more than one employer.

If you also participate in a Section 457(b) plan, any pretax contributions you make to the 457(b) plan are in addition to your 403(b) contributions. This means you can contribute up to $18,000 of pay, Roth or pretax, to the 403(b) plan and an additional $18,000 pretax to the 457(b) plan in 2016 (plus catch-up contributions)–a significant savings opportunity.

Can I also contribute to a Roth IRA?

Yes. Your participation in a Roth 403(b) plan has no impact on your ability to contribute to a Roth IRA. You can contribute to both if you wish (assuming you meet the Roth IRA income limits). You can contribute up to $5,500 to a Roth IRA in 2016, $6,500 if you’re age 50 or older (or, if less, 100% of your taxable compensation).2

Should I make pretax or Roth 403(b) contributions?

When you make pretax 403(b) contributions, you don’t pay current income taxes on those dollars. But your contributions and investment earnings are fully taxable when you receive a distribution from the plan. In contrast, Roth 403(b) contributions are subject to income taxes up front, but qualified distributions of your contributions and earnings are entirely free from federal income tax.

The better option depends on your personal situation. If you think you’ll be in a similar or higher tax bracket when you retire, Roth 403(b) contributions may be more appealing, since you’ll effectively lock in today’s lower tax rates. However, if you think you’ll be in a lower tax bracket when you retire, pretax 403(b) contributions may be more appropriate. Your investment horizon and projected investment results are also important factors. A financial professional can help you determine which course is best for you.

Are distributions really tax free?

Because your Roth 403(b) contributions are made on an after-tax basis, they’re always free from federal income tax when distributed from the plan. But the investment earnings on your Roth contributions are tax free only if you meet the requirements for a “qualified distribution.”

In general, a distribution is qualified only if it satisfies both of the following requirements:

• It’s made after the end of a five-year waiting period

• The payment is made after you turn 59½, become disabled, or die

The five-year waiting period for qualified distributions starts with the year you make your first Roth contribution to the 403(b) plan. For example, if you make your first Roth contribution to your employer’s 403(b) plan in December 2016, then the first year of your five-year waiting period is 2016, and your waiting period ends on December 31, 2020.

But if you change employers and roll over your Roth 403(b) account from your prior employer’s plan to your new employer’s plan (assuming the new plan accepts Roth rollovers), the five-year waiting period starts instead with the year you made your first contribution to the earlier plan.

If your distribution isn’t qualified (for example, you receive a payout before the five-year waiting period has elapsed or because you terminate employment), the portion of your distribution that represents investment earnings on your Roth contributions will be taxable and subject to a 10% early distribution penalty unless you’re 59½ or another exception applies.

You can generally avoid taxation by rolling your distribution over to a Roth IRA or to another employer’s Roth 401(k), 403(b), or 457(b) plan, if that plan accepts Roth rollovers. (State income tax treatment of Roth 403(b) contributions may differ from the federal rules.)3

What about employer contributions?

Your employer can match your Roth contributions, your pretax contributions, or both. But your employer contributions are always made on a pretax basis, even if they match your Roth contributions. That is, your employer’s contributions, and investment earnings on those contributions, are not taxed until you receive a distribution from the plan.

What else do I need to know?

Like pretax 403(b) contributions, your Roth 403(b) contributions and investment earnings can be paid from the plan only after you terminate employment, incur a financial hardship, attain age 59½, become disabled, or die.

You must begin taking distributions from a Roth 403(b) plan after you reach age 70½ (or after you retire if later). But this isn’t as significant as it might seem, since you can generally roll over your Roth 403(b) dollars (other than RMDs themselves) to a Roth IRA if you don’t need or want the lifetime distributions.

Employers aren’t required to make Roth contributions available in their 403(b) plans. So be sure to ask your employer if it is considering adding this exciting feature to your 403(b) plan.

  Roth 403(b) Roth IRA
Maximum contribution (2016) Lesser of $18,000 or 100% of compensation Lesser of $5,500 or 100% of compensation
Age 50 catch-up (2016)* $6,000 $1,000
Who can contribute? Any eligible employee Only if under income limit
Age 70½ required distributions? Yes No
Potential matching contributions? Yes No
Potential loans? Yes No
Tax-free qualified distributions? Yes, 5-year waiting period plus either 59½, disability, or death Same, plus first-time homebuyer expenses (up to $10,000 lifetime)
Investment choices Limited to plan options Virtually unlimited
Bankruptcy protection Unlimited At least $1,245,475 (total of all IRAs)

*Special Section 403(b) catch-up rules may also apply.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with  FSC Securities and may be reached at www.theretirementgroup.com.

paid advertisement

Women and Money: Taking Control of Your Finances.

February 25, 2019

person in red coat sitting on gang chair

As a woman, you have financial needs that are unique to your situation in life. Perhaps you would like to buy your first home. Maybe you need to start saving for your child’s college education. Or you might be concerned about planning for retirement. Whatever your circumstances may be, it’s important to have a clear understanding of your overall financial position.

That means constructing and implementing a plan. With a financial plan in place, you’ll be better able to focus on your financial goals and understand what it will take to reach them. The three main steps in creating and implementing an effective financial plan involve:

• Developing a clear picture of your current financial situation

• Setting and prioritizing financial goals and time frames

• Implementing appropriate saving and investment Strategies

Developing a clear picture of your current financial situation

The first step to creating and implementing a financial plan is to develop a clear picture of your current financial situation. If you don’t already have one, consider establishing a budget or a spending plan. Creating a budget requires you to:

• Identify your current monthly income and expenses

• Evaluate your spending habits

• Monitor your overall spending

To develop a budget, you’ll need to identify your current monthly income and expenses. Start out by adding up all of your income. In addition to your regular salary and wages, be sure to include other types of income, such as dividends, interest, and child support.

Next, add up all of your expenses. If it makes it easier, you can divide your expenses into two categories: fixed and discretionary. Fixed expenses include things that are necessities, such as housing, food, transportation, and clothing. Discretionary expenses include things like entertainment, vacations, and hobbies. You’ll want to be sure to include out-of-pattern expenses (e.g., holiday gifts, car maintenance) in your budget as well.

To help you stay on track with your budget:

• Get in the habit of saving–try to make budgeting a part of your daily routine

• Build occasional rewards into your budget

• Examine your budget regularly and adjust/make changes as needed

Setting and prioritizing financial goals

The second step to creating and implementing a financial plan is to set and prioritize financial goals. Start out by making a list of things that you would like to achieve. It may help to separate the list into two parts: short-term financial goals and long-term financial goals.

Short-term goals may include making sure that your cash reserve is adequately funded or paying off outstanding credit card debt. As for long-term goals, you can ask yourself: Would you like to purchase a new home? Do you want to retire early? Would you like to start saving for your child’s college education?

Once you have established your financial goals, you’ll want to prioritize them. Setting priorities is important, since it may not be possible for you to pursue all of your goals at once. You will have to decide which of your financial goals are most important to you (e.g., sending your child to college) and which goals you may have to place on the back burner (e.g., the beachfront vacation home you’ve always wanted).

Implementing saving and investment strategies

After you have determined your financial goals, you’ll want to know how much it will take to fund each goal. And if you’ve already started saving towards a goal, you’ll want to know how much further you’ll need to go.

Next, you can focus on implementing appropriate investment strategies. To help determine which investments are suitable for your financial goals, you should ask yourself the following questions:

• What is my time horizon?

• What is my emotional and financial tolerance for investment risk?

• What are my liquidity needs?

Once you’ve answered these questions, you’ll be able to tailor your investments to help you target specific financial goals, such as retirement, education, a large purchase (e.g., home or car), starting a business, or increasing your net worth.

Managing your debt and credit

Whether it is debt from student loans, a mortgage, or credit cards, it is important to avoid the financial pitfalls that can sometimes go hand in hand with borrowing. Any sound financial plan should effectively manage both debt and credit. The following are some tips to help you manage your debt/credit:

• Make sure that you know exactly how much you owe by keeping track of balances and interest rates

• Develop a short-term plan to manage your payments and avoid late fees

• Optimize your repayments by paying off high-interest debt first or take advantage of debt consolidation/refinancing

Understanding what’s on your credit report

An important part of managing debt and credit is to understand the information contained in your credit report. Not only does a credit report contain information about past and present credit transactions, but it is also used by potential lenders to evaluate your creditworthiness.

What information are lenders typically looking for in a credit report? For the most part, a lender will assume that you can be trusted to make timely monthly payments against your debts in the future if you have always done so in the past. As a result, a history of late payments or bad debts will hurt your credit. Based on your track record, if your credit report indicates that you are a poor risk, a new lender is likely to turn you down for credit or extend it to you at a higher interest rate. In addition, too many inquiries on your credit report in a short time period can make lenders suspicious.

Today, good credit is even sometimes viewed by potential employers as a prerequisite for employment–something to think about if you’re in the market for a new job or plan on changing jobs in the near future.

Because a credit report affects so many different aspects of one’s financial situation, it’s important to establish and maintain a good credit history in your own name. You should review your credit report regularly and be sure to correct any errors on it. You’re entitled to a free copy of your credit report from each of the three major credit reporting agencies once every 12 months. You can go to www.annualcreditreport.com for more information.

Working with a financial professional

Although you can certainly do it alone, you may find it helpful to work with a financial professional to assist you in creating and implementing a financial plan.

A financial professional can help you accomplish the following:

• Determine the state of your current affairs by reviewing income, assets, and liabilities

• Develop a plan and help you identify your financial goals

• Make recommendations about specific products/services

• Monitor your plan

• Adjust your plan as needed

Tip: Keep in mind that unless you authorize a financial professional to make investment choices for you, a financial professional is solely there to make financial recommendations to you. Ultimately, you have responsibility for your finances and the decisions surrounding them. There is no assurance that working with a financial professional will improve investment results.

This material was prepared by Broadridge Investor Communication Solutions, Inc., and does not necessarily represent the views of  The Retirement Group or FSC Financial Corp. This information should not be construed as investment advice. Neither the named Representatives nor Broker/Dealer gives tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. The publisher is not engaged in rendering legal, accounting or other professional services. If other expert assistance is needed, the reader is advised to engage the services of a competent professional. Please consult your Financial Advisor for further information or call 800-900-5867.

The Retirement Group is not affiliated with nor endorsed by fidelity.com, netbenefits.fidelity.com, hewitt.com, resources.hewitt.com, access.att.com, ING Retirement, AT&T, Qwest, Chevron, Hughes, Northrop Grumman, Raytheon, ExxonMobil, Glaxosmithkline, Merck, Pfizer, Verizon, Bank of America, Alcatel-Lucent or by your employer. We are an independent financial advisory group that specializes in transition planning and lump sum distribution. Please call our office at 800-900-5867 if you have additional questions or need help in the retirement planning process.

The Retirement Group is a Registered Investment Advisor not affiliated with  FSC Securities and may be reached at www.theretirementgroup.com.

paid advertisement