Retirement Planning Solutions

When do you want to achieve financial independence and retire? Retirement planning includes setting goals for your retirement date, projecting your living expenses and income, and then implementing and monitoring your investment plan.

It also includes maximizing the benefits that your employer offers, such as pension plans and tax-deferred plans, like 401s. If you are self-employed, such special retirement savings vehicles as profit-sharing plans and SEP IRAs are available.

Planning for your retirement also means looking at the tax and cash flow consequences of distributions from your tax-deferred savings plans, as well as Social Security, the multitude of IRAs, stock options, employee stock-purchase plans, and deferred compensation.

What is an IRA?

The Individual Retirement Account is a personal, tax-deferred account for people who are employed.

You can set up an IRA at almost any bank, brokerage, or mutual fund.

There two kinds of IRAs available to you - Traditional IRA and ROTH IRA (see explanatiopns below) and there are a wide variety of investment options availbale to you or your investment advisor as to how best to invest your contributions.

For 2009 and 2010 the maximum contributions into an IRA account are $5000. For people over 50, the government allows an additonal "catch up" contributioon of $1000 for a total of $6000.

Traditonal (Deductable) IRA

You get a tax deduction, essentially letting you deposit pre-tax dollars
Your principal grows tax-free
You pay income tax on the entire amount of your withdrawal.
As with other tax-deferred plans, there are caveats. Any money you withdraw is taxed at your ordinary income tax rate. Plus, if you receive any withdrawals before you reach age 59 1/2, there may be a 10 percent penalty tax. Traditional IRAs require you to begin taking your money out once you attain age 70 1/2. One bonus: if you weren't permitted to take your IRA contributions as a tax deduction while you were working, you won't have to pay taxes on them when you take your money out (your accrued earnings will still be subject to taxes, however).

ROTH IRA

You pay income tax, and then make your contribution with post-tax dollars
Your principal grows tax-free
The Roth IRA is a variation that lets you withdraw principal and earnings completely tax-free after age 59 1/2, as long as the contributions have been in the plan at least five years. Unlike traditional IRAs, Roth IRAs don't require you to take distributions at age 70 1/2, and you can keep contributing to them as long as you like as long as you have earned income.You pay no further taxes on withdrawal.

401K Plans

A 401K plan is a qualified plan established by employers to which eligible employees may make salary deferral (salary reduction) contributions on a pretax basisEmployers offering a 401(k) plan may make matching or non-elective contributions to the plan on behalf of eligible employees and may also add a profit-sharing feature to the plan. Earnings accrue on a tax-deferred basis. Employee 401k contribution are automatically deducted from their paycheck each pay period. This money is taken out before the employees paycheck is taxed. The contributions are invested at the employees direction into one or more funds provided in the plan. Employers often "match" employee contributions, but are not required to do so. While the investments grow in the employees 401k account, they do not pay any taxes on it. Advantages and Benefits 401k plans offer many benefits including the following:

• Any business, whether a C Corporation, S Corporation, partnership, sole proprietorship, self-employed can establish Plan.
• The company sets the eligibility requirements, within certain guidelines, at the time the plan is established. Employer can restrict individuals with less than 1 year service, union members, non US citizens, part-time workers, etc., from being eligible for the plan.
• Contributions to plan can come from voluntary employee salary reduction, from employer, or both. Each individual employee can defer in 2010 up to $16,500 or 100% of compensation, whichever is less. Participants age 50 and over can make additional "catch-up" contributions of $5,500 in 2010. Employees are immediately 100% vested with their own salary reduction tax deferred contributions. Employee withdrawals before age 59 1/2 may be subject to 10% penalty. Employees who retire any time during the calendar year in which they turn 55, or later, are not subject to the 10% penalty. Employers can establish a vesting schedule, within certain guidelines, for the contribution the company makes to the 401k. Employers are not required nor obligated to make any contribution to the 401k, although employer may have some obligation to contribute if plan is deemed top heavy. Turnkey and Internet based plans are available. Excellent range of investment options available for the plan sponsor to offer within the plan. The investment choices in most plans range from 8 to 20 options. The average plan has about 15. 401k plans may permit "self-directed investment accounts" and company stock purchase within the plan. Employee contributions to the plan are not subject to federal income taxes until a distribution from the plan is made. Any investment gains and earnings also enjoy tax deferral until distribution. This type of plan can permit loans and hardship withdrawals. Participants can start, stop contribution during course of year, as determined by the company. The employer can receive certain tax benefits for contributions.

401k plans have proven to be popular with employees for several reasons. The tax deferral is obviously high on this list of reasons. Others include the increased portability of this plan, employer matching contributions, and the increased control associated with self-direction of investments.

What is a SIMPLE IRA

Components of estate planning include instructions to take effect in the event of your unexpected incapacity or death, specific bequests to family, friends, or charity, and minimization of estate and income taxes.

Estate planning is often the hardest of the five areas of financial planning for people to address, since it deals with a person's mortality and other somewhat unpleasant issues.

However difficult these issues may be, this area is crucial to consider for those who have children, a spouse, an aging parent, or other dependents.

If you are charitably inclined, you can incorporate some creative estate planning to give a portion of your assets to your favorite charity, while giving yourself some tax breaks on the gift while you are alive.

Profit Sharing Plans

A plan that gives employees a share in the profits of the company. Each employee receives a percentage of those profits based on the company's earnings.

A profit-sharing plan is a defined contribution plan in which your employer has discretion to determine when and how much the company pays into the plan. The amount allocated to each individual account is usually based on the salary level of the participant (employee). Your employer's contributions to your account, and any investment earnings, accumulate on a tax-deferred basis - the IRS will tax these benefits as part of your regular income only when you begin receiving distributions from the plan, typically after you retire or terminate employment. Whether you can make withdrawals while you are still employed depends on the terms of your plan. For example, some plans permit withdrawals after you've attained at 59 1/4, or after you've been a participant for some specified period of time (usually at least five years), or in the event of a financial hardship.

401k Rollovers

You have several choices when you retire or change jobs. You can move your assets into a Rollover IRA, roll your assets to a plan with your current employer, keep your assets in your former employer's plan, or take your distribution in cash (withdrawal penalties may apply). At Walnut Investment Services, we feel that that simplifying your finances is an important part of a sound financial strategy. By bringing your old 401(k)s and IRAs together, you can manage your retirement savings more efficiently, namely:.

• A more complete view of your financial picture, making it easier to maintain appropriate asset allocation
• Freedom from restrictions that may be present in your old workplace 401k plan
• Access to a full range of mutual funds, stocks, bonds, CDs, and other investments
• The ability to withdraw penalty-free for a first-time home purchase or qualified education expenses
• The opportunity to convert to a Roth IRA for some or all of your savings, regardless of income
• Less hassle and paperwork to cope with when keeping multiple old retirement accounts