[content_block id=1945]
Announcer:
It’s time now on KROS for Financial Focus, brought to you by NelsonCorp Wealth Management. The opinions voiced in this show are for general information only, and are not intended to provide specific advice or recommendations for any individual.
Announcer:
Any indices mentioned are unmanaged, and cannot be invested into directly. Registered representative securities offered through Cambridge Investment Research Incorporated, a broker dealer member, FINRA SIPC. Investment advisor representative Cambridge Investment Research Advisors Inc. A registered investment advisor, Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. Now here’s today’s financial focus program.
Nate Kreinbrink:
Good Morning and welcome to this week’s Financial Focus, brought to you each and every Wednesday morning right here on KROS. Well, this is [Nate James 00:00:58] joining me today, another beautiful fall, almost fall, Wednesday morning out here today.
James Nelson:
Yeah, not too many warm days left. I think today’s supposed to be up there a little bit, but yeah, fall weather’s here.
Nate Kreinbrink:
Fall weather’s here, football season’s underway, all the back in school, all that fun stuff. Leaves will be turning, Halloween costumes I think has been coming out. I know a lot of local schools have homecoming either this week or in the coming weeks, or whatever. So kind of an exciting time of the year around this area.
James Nelson:
Yeah, no doubt. Busy time of year, and like you said, college football’s here, baseball still going.
Nate Kreinbrink:
Primetime baseball season right now.
James Nelson:
Cubs are still on the hunt, but they really could have used a win last night against your Reds. They’ve had problems with them all year, but yeah, it’s fun time of year.
Nate Kreinbrink:
Getting into today’s show, I know we’ve talked a lot of big picture stuff, and then we’re going to kind of stay along that lane a little bit. But kind of focus today on retirement plans, most notably 401k’s, simple IRAs, kind of where those fall into place in the workplaces.
Nate Kreinbrink:
Everyone kind of knows, when you think retirement savings through workplaces, 401ks usually come to the forefront. And those are the vast majority of the ones that we see, where you have an employer, they may match up to a certain percent, you take money, it’s payroll deducted, it goes right into your paycheck, you have a certain list of funds that you’re able to invest in, and you go from there. And you just kind of continue to build that up throughout your working career.
Nate Kreinbrink:
And that’s a vast majority, and we’ve spent some time, just as far as allocations, knowing what’s inside of your plan, knowing what your investments are during that time, during the [discertain 00:11:26] market cycles that continue to go through. And again, all important stuff. And if you have questions on that, be sure to definitely reach out to us, and then we can see what we can … Take a look at your plan, make sure you’re invested and know what risk you have inside of your plan.
Nate Kreinbrink:
But most notably, kind of look at today, some of those smaller businesses. What can they do when it may not make sense for that company, if they have fewer than 20 employees, to set up a full blown 401k plan? Are there any options? And we’ve seen it more and more with some of these smaller plans, as far as an incentive to their employees. They want to have these employees contribute to retirement planning.
Nate Kreinbrink:
They know how important it is for these employees to start putting money away, so they want to know their options. And the simple IRA, a lot of times, fits a lot of those boxes, and we’ve been able to set them up for some of these companies.
James Nelson:
Yeah, exactly. The simple IRA, again, is for small employers, it’s basically an individual IRA in each employee’s name. The employer, generally, they’ll kick in 3%, is kind of the standard match. But the limits are a little bit higher than just a traditional 401k.
James Nelson:
If it’s a simple … Or excuse me, a traditional IRA. The simple IRA has higher limits, a little bit more flexible as far as being able to payroll deduct, and do some of those things. And then of course, the matching is a big item from the employer’s standpoint, to be able to deduct those matching dollars. But also from the employee’s standpoint, obviously they’d like to take advantage of that and get whatever match they can get.
James Nelson:
Now going back to what Nate started on the 401k space, there’s also two varieties, the traditional 401k and then the Roth 401k. And that’s being offered more and more all the time, especially the large employers in this area all have a Roth 401k component within the plan. So a nice option that didn’t exist, even probably five years ago, but now is kind of commonplace, and most 401k plans have a Roth option as well.
James Nelson:
So people need to know what their options are, what the difference is. And like you said, Nate, I think a lot of these small employers are starting to figure it out and saying, Hey, we need to do this too. Just like the big guys are doing.
Nate Kreinbrink:
Right. And I think to just to piggyback off of that one point you just made, as far as the Roth component, met with clients, a couple the other night, that are within a couple of years of looking at retiring. Going over a bunch of different things, and like the vast majority of people that we meet with, all of their retirement savings are in tax-deferred accounts, meaning that they’re pre-tax.
Nate Kreinbrink:
So when they come, when they roll it over to an IRA, whatever, whenever they need to take that money out of their IRA account at retirement, it’s going to be taxable income to them. They had a pension, so you throw that on top of social security, on top of pensions, and now all of a sudden their income is increased by whatever they take out of these tax deferred accounts, or have to take that out at age 70-and-a-half, They’re going to be in a pretty decent tax bracket at retirement.
Nate Kreinbrink:
So again, looking at it as far as the Roth 401k component, if you’re able to have that inside of your plan, start putting some of that, some of your savings into a Roth 401k now. It just kind of lessens that big pile that you’ve got to kind of unwind, in maybe a not so favorable tax environment later on down the road. So again, if we can take some of planning, start getting some money into the Roth now, it’s just going to help you later on as far as unwinding that account.
James Nelson:
And keep it in mind that the employer contributions have to go in the traditional side of the 401k. So those dollars are always going to go in there, there’s always going to be money building on the traditional side of the 401k. But your contributions are what you have control over. The company match can’t go into the Roth side, but your contributions can.
James Nelson:
And we never usually take somebody from zero to a hundred.
Nate Kreinbrink:
Absolutely not.
James Nelson:
But if you could even break it up 50-50, 50 into the traditional, 50 the Roth now. At least get some of those dollars over, there and give you some options, like Nate said, at retirement. Again, tax rates are at historically low numbers. That deduction doesn’t mean as much as it used to, I’d say. In a lot of situations, certainly there’s high income tax earners that still like that deduction, and it’s meaningful. But tax rates that are at historically low levels, does it make sense to take that deduction when tax rates, we believe, at least in the future, are probably going to go up?
James Nelson:
And that’s something that people don’t really think about. They say, “Hey, I need the deduction today.” Well that’s fine, but if tax rates go up significantly between now and your retirement date, or when you’re in retirement, that’s not a good scenario either. You’re paying more overall tax. So things to consider, and certainly crunching the numbers makes a lot of sense before making these decisions.
Nate Kreinbrink:
Right, so talk to your HR person to see if there is a Roth component to your 401k, and if there is, it may be definitely something you need to look into, as far as starting that contributions.
Nate Kreinbrink:
Jumping over back to the simple IRA plans that we talked about with small businesses, they have become more and more prevalent, I think, as we said with some of these smaller businesses coming up, trying to get their employees to save. And as James mentioned before, that there’s some options as far as the employer being able to contribute to the the simple IRA on behalf of the employee.
Nate Kreinbrink:
And this can be done in a couple of different ways, whether it’s up to a 3% match, as far as the employee puts in 2%, the employer match 2%, up to 3% they can do. Or they can just do an automatic election, and automatically put in 2% whether the employee puts in anything or not.
Nate Kreinbrink:
So there’s some options as far as the employer side of things. As far as some options, you have to work there for so long, you have to work so many hours, whatever. So again, we can kind of customize these plans a little bit, as far as on behalf of the employer, to kind of protect them a little bit. But as well as having some of that incentive for them to save for their retirement. Because again, you go back to a lot of these pension plans being done, it’s on the employee’s shoulders to start saving money for retirement.
Nate Kreinbrink:
And again, these younger employees, when they come in, the earlier they can start, the earlier that they can start that compounding process, and getting that money building, the better off they’re going to be.
James Nelson:
Yeah. And from the employer’s standpoint, it’s a nice benefit to offer. I mean, it helps retain employees, and it’s an option that the big employers have always had. And now we’re able to scale that back, and offer a very similar type lineup as the large employers in the area.
James Nelson:
There’s also something called a Solo 401k. That’s if, just, a business owner doesn’t have any employees, or doesn’t want to offer a full-blown retirement plan. A very small business could offer a Solo 401k, where maybe one or two people, especially owners, can put money in on a tax deferred basis. Not a bad option there either. That those are less common, because once you start adding employees, they become complicated and hard to implement. But for a very small business, somebody looking to save some money, more than what they could put into just a traditional IRA if they want higher limits, a Solo 401k is also an option.
Nate Kreinbrink:
And lastly, I think there’s, to go along with that, is the SEP IRA. The only differences between that, is that the employer is the only one that can make contributions to a SEP IRA. Employees cannot contribute to it.
Nate Kreinbrink:
So where we see these a lot of times, is an employer will say, “Hey, if you’ve been here for so many years, at the end of the year, we’re going to take X percent of your annual salary, and you’re going to be able to put that into a SEP IRA of your choice.” So again, there’s a lot of different options that we can look at, incentivize people to start saving for retirement, understand the importance of saving for retirement, and then kind of look at the different options that are out there, and see which one best fits your needs.
Nate Kreinbrink:
But again, long are the days gone that say, “I’m a smaller business, I can’t afford to have a 401k set up or anything.” There are other options out there that will fit your needs a little bit better.
James Nelson:
Yeah, absolutely.
Nate Kreinbrink:
Again, just wanted to mention real quick that every Friday, NelsonCorp Wealth Management is wearing jeans for charity. Money raised in the month of September will be donated to the Quilts Of Valor Foundation. Again, this is Nate and James with Nelson cork wealth management, bringing you this week’s financial focus. Thanks for tuning in, and have a great rest of your week.
Announcer:
Financial Focus is a production of NelsonCorp Wealth Management in Clinton and Davenport. The opinions voiced in this show are for general information only, and are not intended to provide specific advice or recommendations for any individual.
Announcer:
Any indices mentioned are unmanaged, and cannot be invested into directly. Registered representatives securities offered through Cambridge investment research Inc. A broker dealer member, FINRA SIPC. Investment advisor representative, Cambridge Investment Research Advisors Incorporated, a registered investment advisor. Cambridge and NelsonCorp Wealth Management are not affiliated. Cambridge does not offer tax advice. For more information, visit our website at www.nelsoncore.com.
[content_block id=1539 slug=button-for-all-tv-and-radio]