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In our prior blog we talked about the idea of “New Year, New Me!” and how the season of renewal inspires us to live better lives.

Maybe for you, 2023 marks a “New Year, New Job,” and you’ve moved on to a chapter of your career at a new company.

Or your 2023 bucket list includes making a career change.

Either way, as you forge ahead on your journey, there’s one thing you don’t want to leave behind: your existing retirement accounts.

Yes, plural.

Leaving retirement accounts like 401(k)s or pension plans behind is more common than you’d think. According to Capitalize, a financial services firm specializing in 401(k)s, over 20% of 401(k) plans are lost or forgotten.

Often referred to as “orphaned retirement accounts,” these abandoned retirement plans mean you’ve literally left money on the table.

While the news may be shocking, it’s not a surprise, given the number of jobs Americans tend to hold. The Bureau of Labor Statistics reports that men held 12.6 jobs, and women held 12.3 jobs from age 18 to 54.

Which is why a job change presents an ideal time to take inventory of your retirement savings accounts.

Of course, it’s not the only time to do so. You might be reading along and thinking, “Wow, I should check to see if I’ve left any retirement funds at some of my old employers.”

If you’re content at your current job or moving on to the next one, there’s no better time than the present to uncover what we at the Kaspian Group refer to as “lost treasures.”

Tracking Down an Orphaned Retirement Account

Step 1: List prior employers

This may sound obvious, but it’s worth mentioning. Don’t rely on your memory to catalog where you’ve worked and whether you had a retirement plan there or not. Instead, create a list of past employers and Write your list down in a way that works for you; a notebook, a Word or Google document, or a spreadsheet.

Step 2: Find your funds

Once you have a list of your prior employers, start contacting them individually to determine whether they’re maintaining any accounts in your name.

It goes without saying, but you may run into roadblocks. For example, you may find that the company you worked for no longer exists because it merged with another.

If that’s the case, contact the plan administrator, which you can find on the Department of Labor’s website. Form 5500 will list the plan administrator’s contact information.

You can also check your state’s unclaimed property database via the National Association of Unclaimed Property Administrators.

Step 3: Take control

Once you’ve located your lost account, you’ll want to weigh your options and then coordinate one of the following with your former employer’s plan administrator:

1. Rollover your old 401(k) into your current employer’s 401(k). If your new plan’s features, costs, and investment options align with your goals, a rollover to your current employer’s sponsored plan will make sense.

2. Rollover your old 401(k) into an IRA (Individual Retirement Account). If you’d like to have options beyond the new plan’s offering, a rollover to an IRA may be a better option.

In either rollover scenario, it’s highly advised to perform a direct rollover so that funds are sent straight from your prior account to the new one without touching it to avoid tax implications and withdrawal penalties.

By now, you may be thinking, “Wow, that’s A LOT!” It can be, but it doesn’t have to be complicated, and you don’t have to do this alone. At the Kaspian Group, we work alongside clients to find orphaned assets and help them make the most of their long-lost treasures in alignment with their goals. Contact us at kwesi@kaspiangroupinc.10e1e9c.rcomhost.com to begin the process today.

Establishing a retirement plan for your company is a decision that could make a great difference in the retirement preparedness of your employees, and yourself.

The Federal Reserve’s 2015 Report on the Economic Well-Being of U.S. Households in 2014 found that only 31 percent of non-retired survey respondents had no retirement savings whatsoever. Only 46 percent of those surveyed had access to an employer-sponsored retirement plan. Federal retirement benefit programs such as Social Security Income are strained. In fact, an August 2015 article from Pew Research forecasts that Social Security’s reserves will be depleted by 2034 based on current demographic and economic trends.

As the Department of Labor states, “It’s not going to be your parents’ retirement – rewarded at 65 with a gold watch, a guaranteed pension and health insurance for life.” In reality, Americans are living longer and can no longer count on their employers or the government to fund their retirements. Therefore, it’s important that individuals take control of their own financial futures. Employers can help by making retirement savings options easily accessible.

THE PROS

Several plan options available. Retirement plans can be extremely simple, such as Payroll Deduction IRA, or quite complex like a defined benefit pension plan. Some require mandatory employer contributions regardless of the profitability of the company. Others, like a SEP (Simplified Employee Pension Plan), allow the employer to decide year-to-year whether to contribute, and if so, how much to contribute. Choosing the plan that is right for the business requires forethought and planning. The Plan Feature Comparison Chart from the IRS can help you assess your options.

The Federal income tax deduction. This may be the most compelling reason for the small business owner and the self-employed to offer a qualified pension plan. Employer contributions are deductible from the employer’s income. Even contributions to the employer’s retirement account may be claimed as a deduction, subject to IRS rules and calculations. The IRS also offers a tax credit to employers establishing a retirement plan for the first time, which is intended to offset the cost of the initial set-up, administration, and employee education. The credit is limited to employers of 100 or fewer employees.

Greater contribution maximums. The maximum contribution to a private IRA is $5,500 ($6,500 if 50 or older). The employee maximum contributions for most employer- sponsored plans are significantly more. Only the Payroll Deduction IRA applies the same maximum contributions as a private IRA. For example, an employee participating in a 401(k) plan may contribute up to $19,000 tax-deferred in 2019. As of this writing, contributions to a Profit Sharing 401(k) may be 100% of compensation or $56,000 whichever is less, based on a maximum compensation of $280,000. Retirement plans that allow employer contributions also have generous per employee maximums.

Tax incentives extend to employees. Employees also earn a tax advantage for participating in a qualified plan. With the exception of a Roth IRA, employee contributions are excluded from taxable wages. Contributions and asset growth are taxable but not until a distribution is taken. Lower income employees participating in the plan may qualify for the Saver’s Credit (retirement contribution savings credit). This tax credit is for individuals with an AGI (adjusted gross income) of $30,500 or less who file as single or married filing separately. Joint filers may not exceed an AGI of $61,000 to qualify.

Tax deferred growth. Assets in the plan grow without incurring income taxes. Ultimately, pre-tax contributions and asset growth are taxable but not until distributions begin in retirement.

Talent attraction and retention. Less than half of Americans employed by small businesses have an employer sponsored retirement plan. Yet close to half the workforce is employed by small businesses according to SBA.gov. An employer-sponsored retirement plan can be a differentiator to job applicants and contributes to employee retention. According to the 2011 Towers Watson Retirement Attitudes Survey, 57 percent of employees participating in a defined contribution plan are motivated to stay with their employers until they retire. When a defined benefit plan is offered that number jumps to 69 percent.

Matching contributions. Matching contributions can benefit both the employer and plan participants. An employer who matches employee contributions is likely to increase employee participation rates, which can reduce plan non-discrimination concerns, if applicable. The employer matching also emphasizes to employees the importance of saving for retirement. Some 401(k) plans allow discretionary employer contributions, similar to profit sharing. Employees benefit from increased value of the employee account and increased employee contributions in order to maximize the employer match.

Tax-deferred compound earnings. Compound earnings are available in many savings plans. However, a tax-favored plan can heighten the impact of compound earnings. Consider the future value of a $600 ($50 monthly) annual contribution that grows over time without decreasing the account value to pay income tax:

Guaranteed lifetime income. Retirement benefits vary by type of plan. However, most share the requirement to offer a lifetime annuity. Some plans offer the participant choices in the form of a lump sum distribution. Defined contribution plans usually have more flexibility than defined benefit plans.

Option to convert savings into a Roth IRA. Roth IRA conversion features can be very attractive as a tax planning strategy for employees and business owners alike. How does it work? You can take a portion of the funds you’ve saved in the employer-sponsored retirement account and convert them to a Roth IRA. You claim the converted amount of pretax savings as income on your taxes at the time you convert, and then you enjoy the benefits of tax-free growth on the Roth IRA. Usually Roth IRA distributions are tax-free as long as the money has been in the Roth account for at least five years and is taken at age 59 1⁄2 or later. Conversions require some careful planning and can occur over several years. Roth IRA rules still restrict contributions based on income but conversions are viewed differently. IRS Guidance Notice #2014-54 provides further details.

Designated Roth Account. Within a 401(k), 403(b), or 457(b) account, participants may designate a separate Roth account. The option allows taxed and non-taxed contributions to be managed in a single plan. Because the designated Roth account is within a qualified plan, participants benefit from increased contribution maximums and do not have the income restrictions Roth IRAs do. The maximum plan contributions apply to combined participant contributions. Like a Roth IRA, distributions from the designated Roth account are usually tax-free although designated Roth accounts are subject to required minimum distributions. The IRS website provides details.

Plan assets are protected. In the event of bankruptcy of the business, assets in a pension plan are usually protected from creditors. Contributions made by the employer to employee retirement accounts including the employer’s retirement account are sequestered from other assets of the business. Plan participants immediately become 100 percent vested for the full value of their account.

THE CONS

Administrative expenses. Some employer-sponsored retirement plans, such as the SEP or Payroll Deduction IRA, have virtually no set-up expenses. Others require dedicated administrative staff and actuarial expertise to ensure the plan remains compliant and properly administered. Consider the administration requirements and expenses involved before choosing the plan for your company.

Restricted employer contributions. Some plans restrict employer contributions. For example, if earning a tax deduction for employer contributions is the primary reason to establish a retirement plan, then the Payroll Deduction IRA may not be the right choice, as employer contributions are not allowed. Conversely, a SIMPLE IRA allows the employee to decide how much to contribute, subject to maximums, and requires the employer to match the contribution or contribute 2 percent of salary for each eligible employee. Again, carefully research the employer contributions allowed and required before deciding on a plan.

Underfunded liability complications. In a defined benefit plan, the employer bears the entire risk for funding the account. If investments perform poorly or the interest rate environment is stagnant, the portfolio may not perform as expected. Ultimately, the employer must make the fund whole. A good actuary and plan administrator are essential to avoid undesirable situations. Even defined contribution plans must be careful to avoid underfunding. Some firms plan for employer contributions in their operations cash flow. Others make required employer contributions out of the employer’s income. Plan carefully to avoid penalties for underfunded plans.

Penalties for early distributions. All retirement plans that allow withdrawals and distributions prior to retirement apply a penalty tax for early distributions.

Required distributions. All retirement plans require a minimum distribution (RMD) at age 70 1⁄2, including designated Roth accounts. Only a Roth IRA does not impose an RMD on the original owner. However, inherited Roth IRAs do require RMDs.

THE NEXT STEPS

For many employers, the advantages of employer-sponsored retirement plans outweigh the disadvantages. Whichever path you choose, make sure to collaborate with financial and tax professionals who are versed in the products, administration, and funding rules for pension plans. With a wide variety of employer-sponsored retirement plan types and features, you should be able to identify a plan that accomplishes your business objectives. Some retirement plans can be established in a few business days, while others require more legwork and selection of an administrator and actuary. If needed, your financial partner can recommend firms specializing in pension administration.

For even more information on employer-sponsored retirement plans and how they may be a fit with you and your company, please reach out to us for a private consultation.

When we think of retirement, we imagine enjoying a home-cooked meal with family, vacationing in sunny locations, and losing ourselves in our favorite hobbies. We look forward to relaxing and enjoying our golden years, and we save our money to pay for those expected costs. But our imagined retirement betrays us by ignoring the realities of aging- increased risk of injury and illness, both of which can carry an unexpectedly steep price tag. The financial burden of an unexpected illness or injury can be devastating to your family’s finances. Just take a look at the following statistics:

• A stroke occurs every 40 seconds in the United States
• 1 out of 2 men and 1 out of 3 women will develop cancer in their lifetime
• 1 out of 2 adults will have at least 1 chronic illness
• The average length of a disability is about 7 years
• 1 out of 2 households that have filed for personal bankruptcy were due to medical problems
• Approximately $34 billion is spent every year treating strokes

These statistics don’t have to be scary if you take care of your health and put the right financial mechanisms in place. Proper planning for these very real risks must be part of every retiree’s portfolio.

Fortunately, there are financial solutions available that allow you to multiply your initial investment and withdraw tax-free funds should you suffer from an illness or injury related to aging. It may not have been the first thing that comes to mind, but certain types of life insurance policies allow this as an option.

To understand this better, let’s quickly review the different types of benefits that are available in certain life insurance policies:C

CHRONIC ILLNESS BENEFITS

If a physician diagnoses you as not being able to perform two of the six “activities of daily living” (bathing, continence, dressing, eating, toileting, & transferring) after a short elimination period, this benefit may pay you a monthly tax-free amount. In many cases, these payments can be used however you see fit.

CRITICAL INJURY & CRITICAL ILLNESS BENEFITS

If a physician diagnoses you with a qualifying injury or illness (e.g. heart attack, stroke, cancer, paralysis, etc.), this benefit may pay you a lump-sum tax-free amount. In many cases, this payment can be used however you see fit.

TERMINAL ILLNESS BENEFITS

In the unfortunate case a physician diagnoses you with an illness that will result in your death over a short period, this benefit may pay you a lump-sum tax-free amount. In many cases, this payment can be used however you see fit.

The beauty of these benefits is that they draw from the death benefit of your life insurance policy, which is usually much, much greater than your original investment. These benefits allow an asset that was earmarked for your heirs to cover your unexpected medical costs that could end up bleeding your family’s finances dry. Instead of your family paying your medical expenses and waiting for your life insurance to pay out at your passing, you can use your Life Insurance to pay your medical expenses and maintain a great relationship with your family during your golden years! Once again, with proper implementation and execution, these payments are received tax-free.

You owe it to yourself to find out how you can reduce the risk of going broke and burdening your family during your retirement years.

Note: Chronic lliness Benefits, Critical Injury Benefits, Critical Illness Benefits, and Terminal Illness Benefits are not available to everyone and may be limited in affect. Please review all specific details of your insurance policies with a licensed insurance professional for all details. All guarantees and product specifics are provided by the underlying insurance company.

1. American Heart Association, American Stroke Association; Heart disease and stroke statistics, 2015
2. American Cancer Society. Lifetime Risk of Developing or Dying from Cancer, 2014
3. 2008 Census Bureau
4. www.disabilitycanhappen.org
5. Health Affairs – Medical Bankruptcy: Myth versus Fact, 2016
6. Centers for Disease Control Prevention, 2015

Would you like to learn how to increase your net after-tax distribution, while reducing your taxes and increasing the deductible contribution to your retirement plan?

MAXIMIZING YOUR RETIREMENT BENEFITS

There are provisions in the IRS tax code that allow for incidental benefits to be provided by your business sponsored retirement plan. These benefits could include long-term care benefits, disability benefits, and even life insurance benefits. While your plan document needs to have provisions that allow these additional benefits to be provided, it would be worthwhile for you to check the terms of your document to make certain they are allowed.

For example, if you want to buy long-term care or disability policy with a premium of, let’s say $5,000 annually, assuming a 40% tax bracket, you first would have need to earn $8,000 so you can pay $3,000 in tax, allowing for $5,000 left over to make a premium payment. Over the span of a 30-year career, that’s $90,000 in unnecessary taxes paid. If we were to earn interest on the amount paid, it is relatively simple to see how we could have accumulated an additional $250,000 to use towards retirement.

If we apply the same thought process to your life insurance and your disability insurance, this could be another $15,000 per year in unnecessary taxes on these financial instruments. This could add up and total close to $1,000,000 of additional saved assets for use in retirement that would otherwise be forfeited to unnecessary tax.

The informed consumer thinks about ways to be able to use opportunities in the tax code, not just be limited by the restrictions. Are you fully informed?

What is your exit plan for your large IRA balance?

Converting your IRA to a Roth IRA with minimal or zero taxes

As you may or may not be aware, all of the assets in your IRA and pension or profit sharing plan will be subject to income taxes and possibly estate taxes and probate expenses as well.

There are opportunities available to convert your IRAs to plans where there could potentially be little or no income taxes, estate taxes, or probate expenses. The Internal Revenue Service is loaded with regulations (over 72,000 pages!) and looks very complex and difficult to understand to the average person.

However, with proper planning and a good team of advisors, you can mitigate most of those taxes and expenses. The reason most people have not converted to these plans is due to current INCOME TAXES that are required to be paid at conversion. There are simple solutions for this concern: for example, you could adopt a ‘Charitable Planning Strategy’ (using assets in your personal account, outside of the IRA), which will create a tax deduction that could essentially offset the taxes on a Roth conversion, and eventually get that asset value back. There are numerous opportunities using this concept that one could use to achieve the end goal of increasing their income in retirement.

Why a Roth?

(a) You would not have to take distributions any longer once you are reach age 70 ½, as in a traditional IRA.

(b) When you do take distributions, you do not have to pay income taxes. For example, you may wish to retire in California (with high taxes) and you live in Texas (with no state income taxes), a Roth IRA would be a great asset to have and not worry about the huge California State income taxes.

The key here is design

Many people believe that using a Charitable Plan means you are required to give money away to a charity. This often translates to the misconception of being less wealthy, losing control of your money, and even disinheriting your children. In most circumstances, this is a false belief. In fact, you could receive a current income tax deduction for a charitable contribution that you would not have to make until you or your spouse pass away. This deduction could be used to offset taxes on a Roth conversion. In addition, you would maintain control and have the option to invest the money as long as you live.

You would also be entitled to all of the income from those assets for as long you and your spouse live. With all of these benefits available, why not explore the opportunity to eliminate income taxes on your IRA or Pension Plan(s)?