Retirement Planning

"Retirement Planning Tip: You can "Rollover" your vested balance from a previous employer’s retirement plan into an IRA in your name with no tax penalties. You gain control over how the money is invested and all earnings remain tax deferred."

Individual Investor Retirement Plan Options

There are generally three different types of plans that are appropriate for the Individual Investor.

1. IRA (Individual Retirement Account)
2. Roth IRA

A large component of the popularity of IRAs is their simplicity. Anyone under age 70 1/2 with earned income can open one, and your choice of investments is nearly unlimited. Individuals can correctly contribute up to $4,000 annually tax-deferred, $5,000 if you are over age 50, and $8,000 for couples filing jointly. You have until April 15 to contribute to an IRA to enjoy the tax benefit for the previous year. Withdrawals prior to age 59 1/2 may be subject to tax penalties.

Roth IRA

Roth IRAs are one of the most exciting results of the Taxpayer Relief Act of 1997. They allow those whose incomes have exceeded the deductibility limits for traditional IRAs to contribute $4,000 a year after taxes to a Roth IRA. ($5,000 if over age 50.) While these contributions are not tax deductible, earnings, interest, and dividends are all tax-free. As long as the account has been established for at least 5 years, and the account holder is older than 59 1/2, distributions are all tax free.

Here's an example of the power of the Roth IRA (and tax-deferred compounding). If an 18-year-old puts away $2,000 a year in a Roth IRA for just four years-assuming a 12% rate of return-at the age of 65, he will have $1.5 million dollars that is completely tax free!!!

In terms of the Roth IRA's deductibility, the phase out for singles is between $95,000 and $110,000 in adjusted gross income. For couples it is between $150,000 and $160,000. Like the traditional IRA, you can withdraw up to $10,000 from your Roth IRA for first time home buying and education expenses. In addition, contributions to a Roth IRA may be made after age 70 1/2 and the normal minimum distribution rules applicable after age 70 1/2 do not apply.

Small or Large Employers' Retirement Plan Options

For all employers, whether small or large, there is a myriad of plan options, ranging from those that are relatively simple and easy to administer, to large scale plans with detailed reporting requirements.

SEP (Simplified Employee Pension) IRA

SEP IRAs are a simple and practical alternative to traditional retirement plans. They are designed for self-employed individuals (and employers with 25 or fewer workers) and feature employer contributions into individual IRA accounts that are set up for the employer and, where applicable, each eligible employee. The simplicity of these plans, their high maximum contributions (particularly appealing to sole proprietors), and their ease of operation (including reporting exemptions) have made them extremely popular. Unlike traditional IRAs, all contributions are made solely by the employer. The maximum contribution is 25% of compensation.

SIMPLE (Savings Incentive Match Plan for Employees) Plan

Employers with 100 or fewer employees can establish a SIMPLE plan as either a 401(k) or a group of IRAs. SIMPLE plans allow employees to make elective contributions and require employers to make matching or non-elective contributions. Currently, employees can defer up to $10,500 ($13,000 if over age 50) of their salary per year into the plan through salary reductions-on a tax-deferred basis. Employer matching requirements vary but are usually either 2%-3% of the employee's salary. The main advantages of the SIMPLE plans are their salary deferral feature, ease of administration (no discrimination testing) and the low cost associated with operating these retirement plans.

Traditional 401(k) Plan

The 401(k) is becoming the retirement plan of choice in corporate America. However, 1/3 of those who have 401(k) plans available to them choose not to participate.

Traditional 401(k) plans offer employees the opportunity to defer part of their salary on a pre-tax basis until retirement. Employers have the option to provide matching contributions based on the amount each employee decides to defer. In 2007, employees can make a maximum tax-deferred contribution of their salaries, up to $15,500 ($20,500 if over age 50). This amount will be adjusted for inflation in future years.

403(b) Plan

403(b) plans are tax-deferred retirement plans for employees of certain tax-exempt organizations such as schools, foundations, and hospitals. In addition to the employee contributions, 403(b) plans may also feature employer contributions. Beginning in 1997, tax-exempt employers were permitted to sponsor 401(k) plans.

Profit Sharing Plan

Profit Sharing Plans are the most flexible and least complicated kind of Keogh plan. They allow the employer the option of contributing a variable percentage from 0% to 25% of the employee's compensation up to $45,000. This means that in a good year, you can contribute more, and if, there's a bad year, you can cut back, even contribute nothing. However, according to the IRS, over the long run, contributions must be "substantial and recurring."

Money Purchase Plan

Money Purchase Plans are not based on employer profits. Contributions must be made every year and must be a fixed percentage of each participant's compensation.

This percentage can be as low as 3% of compensation and, in 2007, as high as 25% of compensation up to $45,000. However, after an annual contribution percentage is established when the plan is set up, you cannot change it. The IRS even levels penalties if you fail to meet the required contribution level.

Estate Planning

Many people don't realize that they have a need for estate planning. How do you know? Consider these:

• Do you and your spouse have more than $2,000,000 in assets? How are your assets owned? You may not realize that some items, such as life insurance, may be included in your estate; therefore, leading to estate taxes and a reduction in the assets that are available to leave to your family.
• Do you have a family business that you would like to pass along to your children? Without an adequate plan that addresses estate taxes due at your death, it may be difficult to make this dream come true.
• Would you like to pass wealth to your children and grandchildren? FS&S can help you with a strategy for wealth transfer.

Just don't want Uncle Sam to have a portion of your hard-earned estate? Let FS&S work with you to minimize federal and state estate tax liability.

Let us illustrate some techniques that may help you reduce your estate tax bill.