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April 1, 2022by admin

If your business doesn’t already have a retirement plan, now might be a good time to take the plunge. Current retirement plan rules allow for significant tax-deductible contributions.

For example, if you’re self-employed and set up a SEP-IRA, you can contribute up to 20% of your self-employment earnings, with a maximum contribution of $61,000 for 2022. If you’re employed by your own corporation, up to 25% of your salary can be contributed to your account, with a maximum contribution of $61,000. If you’re in the 32% federal income tax bracket, making a maximum contribution could cut what you owe Uncle Sam for 2022 by a whopping $19,520 (32% times $61,000).

More options

Other small business retirement plan options include:

  • 401(k) plans, which can even be set up for just one person (also called solo 401(k)s),
  • Defined benefit pension plans, and
  • SIMPLE-IRAs.

Depending on your circumstances, these other types of plans may allow bigger deductible contributions.

Deadlines to establish and contribute

Thanks to a change made by the 2019 SECURE Act, tax-favored qualified employee retirement plans, except for SIMPLE-IRA plans, can now be adopted by the due date (including any extension) of the employer’s federal income tax return for the adoption year. The plan can then receive deductible employer contributions that are made by the due date (including any extension), and the employer can deduct those contributions on the return for the adoption year.

Important: The SECURE Act provision didn’t change the deadline to establish a SIMPLE-IRA plan. It remains October 1 of the year for which the plan is to take effect. Also, the SECURE Act change doesn’t override rules that require certain plan provisions to be in effect during the plan year, such as the provisions that cover employee elective deferral contributions (salary-reduction contributions) under a 401(k) plan. The plan must be in existence before such employee elective deferral contributions can be made.

For example, the deadline for the 2021 tax year for setting up a SEP-IRA for a sole proprietorship business that uses the calendar year for tax purposes is October 17, 2022, if you extend your 2021 tax return. The deadline for making the contribution for the 2021 tax year is also October 17, 2022. However, to make a SIMPLE-IRA contribution for the 2021 tax year, you must have set up the plan by October 1, 2021. So, it’s too late to set up a plan for last year.

While you can delay until next year establishing a tax-favored retirement plan for this year (except for a SIMPLE-IRA plan), why wait? Get it done this year as part of your tax planning and start saving for retirement. We can provide more information on small business retirement plan alternatives. Be aware that, if your business has employees, you may have to make contributions for them, too.


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September 1, 2021by admin

In employment settings in which women save less for retirement than men, an aggressive educational program can help to narrow the gap. That’s the conclusion of a study conducted by the Center for Retirement Research.

The study

The study focused on the impact of an initiative by the state of Wisconsin to close a retirement savings gender gap among state employees. Although Wisconsin state employees were also covered by defined benefit plans, increasing women’s contributions to a state-sponsored supplemental retirement plan was considered essential to their retirement security.

The study’s authors reported that, while financial education outside of the workplace typically doesn’t correlate with increases in retirement savings, workplace-based education efforts generally are effective. The Wisconsin initiative “delivered information, motivation, and challenges through multiple media over a span of a few months.” For example, women received monthly emails with messages such as “women are twice as likely as men to live in poverty during retirement,” with links to online educational resources and financial planning tools. Such messages apparently hit home.

Women were also invited to attend women-only lunchtime education sessions, and the resulting participation rates were high. Rather than lectures, the program format emphasized peer interaction to overcome what the study’s authors call “the ostrich effect” — a reluctance of people to discuss personal finance matters, especially if they’re already worried about their financial health. Program content directed participants to take specific actions to improve their financial outlook, particularly increasing their participation in the supplemental retirement savings plan.

The results

According to the study, “Differences between men and women in financial knowledge and motivation contribute to gender gaps in retirement savings.” However, the study concluded that using multimedia financial education can increase knowledge and motivate participants.


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August 1, 2021by admin

Determining how much of your retirement nest egg to withdraw each year can be stressful. You want to take out enough to maintain a comfortable lifestyle, yet the idea of running out of money is frightening. The 4% rule can help.

How it works

The 4% rule is derived from a 1994 study of stock and bond returns from the 1920s through the 1970s. The author of the study concluded that, regardless of the market’s ups and downs, there was no historical scenario under which annual 4% inflation-adjusted withdrawals would exhaust a retirement portfolio in less than 33 years.

To apply the rule, begin by withdrawing 4% of your portfolio in the first year of retirement. For example, if you’ve saved $2 million, you would withdraw $80,000 in the first year. To maintain your purchasing power, you would increase your withdrawals each year to keep pace with inflation. For example, if the inflation rate is 2.5%, you would withdraw $82,000 in year two and $84,050 in year three.

Exclusive use discouraged

Although the 4% rule can be a useful tool, relying on it exclusively may be dangerous. As with all investing rules, the fact that it worked in the past is no guarantee it will work the same way in the future. Today’s low bond interest rates may not even support a 4% withdrawal rate. Interest rates were substantially higher when the rule was established, and some experts believe that a 3% rule may be more realistic.

Also, if your portfolio contains more high-risk investments than the typical portfolio, the rule may not protect you in the event of a significant market downturn. What’s more, people are living longer and retirement periods well over 30 years aren’t uncommon. Planning for a 30-year retirement could leave you short of funds.

Then there’s the risk that a 4% annual withdrawal is less than you can afford and will lead you to miss out on some of the pleasures of retirement. The rule provides some protection against running out of money, but a large percentage of retirees who follow it end up maintaining or even increasing the size of their nest eggs by the end of the 30-year time horizon.

Better solution

So think of the 4% rule as a guideline. You might withdraw 4% the first year and then re-evaluate the lasting power of your savings annually. Talk to your financial advisor about a withdrawal strategy that takes into account your unique circumstances.