Financial Literacy Month – April – Help Employees Understand Their 401(K)

By Marc Aarons

April is Financial Literacy Month, a perfect time to help employees better understand their 401(k) benefits. With that in mind, I am sharing several key terms that all employees should know. Please feel free to share this more broadly with your team and reach out with any questions or needs.

1. 401(k) Plan

Let’s start with the very basics. A 401(k) plan is an employer-sponsored retirement plan that allows employees to contribute a portion of their wages to individual retirement accounts. Contributions are typically made on a pre-tax or Roth (after-tax) basis, depending on the plan design, and invested for long-term growth.

For employees, understanding what a 401(k) is and how it fits into overall retirement planning is the foundation of financial literacy.

2. Plan Participant

A plan participant is an employee who meets eligibility requirements and has enrolled in the employer’s retirement plan. Eligibility is defined by the plan document and may include age and service-hour requirements.

Employees often assume participation is automatic. In fact, a study found that 59% of employees surveyed who were not participating in their 401(k) plan believed they were. This misconception can lead to missed savings opportunities if enrollment steps are not completed.

3. Pre-Tax Contributions

Traditional 401(k) plans have pre-tax contributions, which are deducted from an employee’s pay before federal income taxes are applied. These contributions reduce current taxable income, but withdrawals in retirement are generally taxed as ordinary income.

Understanding pre-tax contributions helps employees evaluate the immediate tax benefits of participating in their 401(k) — as well as potential tax impacts after retiring.

4. Roth Contributions

Roth 401(k) contributions are made after taxes are withheld. While there is no upfront tax deduction, qualified withdrawals in retirement, including earnings, are generally tax-free.

This option can be especially valuable for younger employees or those who expect to be in a higher tax bracket later in life.

5. Employer Match

An employer match is a contribution made by the employer based on employee deferrals, often expressed as a percentage of employee contributions up to a certain limit.

Many employees leave money on the table simply by not contributing enough to receive the full match. Educating employees on how the match works can significantly improve participation and retirement outcomes.

6. Vesting

Vesting refers to an employee’s ownership of employer contributions over time. While employee contributions are always fully vested, employer matching or profit-sharing contributions may vest according to a schedule.

Employees who understand vesting rules are better equipped to make informed decisions about job changes and retirement savings continuity.

7. Contribution Limit

The contribution limit is the maximum amount an employee is allowed to contribute to their 401(k) each year, as set by the IRS. Clear communication around contribution limits helps employees plan contributions effectively and avoid excess deferrals.

8. Catch-Up Contributions

Catch-up contributions allow eligible employees aged 50 and older to contribute more than the standard annual limit. This provision is designed to help workers accelerate retirement savings later in their careers.

This term is particularly relevant for employees nearing retirement or coordinating savings alongside Medicare and Social Security planning.

9. Beneficiary

A beneficiary is the individual or entity designated to receive a participant’s 401(k) funds in the account in the event of the participant’s death. Beneficiary designations typically override wills or estate plans.

Explaining what these designations do and encouraging employees to review and update beneficiaries are critical steps for employers.

10. Required Minimum Distributions (RMDs)

RMDs are mandatory withdrawals that must begin at a certain age, as defined by IRS rules. Failure to take RMDs can result in significant tax penalties.

When employees understand their 401(k), they’re more likely to participate consistently, take full advantage of matching contributions, and make informed decisions that reduce confusion and administrative questions.

If you’d like to discuss your 401(k) plan or retirement education, don’t hesitate to respond to this email or give the office a call. I’d be happy to connect.

Please don’t hesitate to reach out with any questions or concerns.

Marc Aarons may be reached at 714-887-8000 or Email Marc

Money Managers inc. Website

Investment advisory and financial planning services are provided by Money Managers, Inc. a registered investment advisor.  Money Managers, Inc., is registered in the required states with the state regulatory authority. Our CRD Number is 151602.  To access our most recent version of our Form ADV, Form ADV Part 2A and privacy policy, visit https://adviserinfo.sec.gov/. This information is for educational purposes only.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results.  Investments involve risk and are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.

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Retirement- Should You Leave Your 401(k) With Your Employer?

Presented by Marc Aarons

I thought I’d quickly reach out about an interesting trend I’ve seen with my retiring clients. More and more plans are offering retirees the option of keeping their funds in their employer-sponsored 401(k) upon retirement. Since this is relatively new, I wanted to explain the shift in thought and offer a few pros and cons as you think through your options.

The Shift in Thought

Plan sponsors are changing how they view 401(k)s. What used to be thought of as solely a vehicle for savings is now becoming a potential source of income during retirement. To facilitate that shift, more plan sponsors are adding in-plan annuities to their employees’ investment options.

As you near retirement, you may have the option to leave your assets where they are. Here are a few things to keep in mind as you decide.

Pros and Cons of Not Rolling Over Your 401(k) to an IRA

Pros:

• Leaving your 401(k) account with your employer may help you save on fees, since they can buy funds at institutional pricing rates.
• Company 401(k) plans have access to stable value funds similar to money market funds but with better interest rates.
• Funds in a 401(k) are protected by federal law from creditor judgments (other than IRS tax liens and spousal or child support orders), including bankruptcy.
• If your plan includes an annuity option, you could potentially receive guaranteed lifelong payouts similar to a pension.

Cons:

• You can’t make new contributions, nor will you be eligible for any employer contributions.
• You may have fewer investment choices. A typical 401(k) plan has a few dozen funds to select from, while an IRA can provide thousands of options.
• You might have a hard time managing and tracking your savings if you have multiple accounts. Consolidating your retirement accounts by rolling your 401(k)s into a single IRA can simplify your financial life.

This is a lot to consider, but I’m here to help. As soon as you know your retirement date, start asking about your options, or better yet, give me a call, and let’s review them together. As always, I’m just a phone call or email away.

Marc Aarons may be reached at 714-887-8000 or marc@ocmoneymanagers.com

www.ocmoneymanagers.com

This communication is from Money Managers, Inc.; a Securities and Exchange Commission registered investment advisor.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results.  Investments involve risk and are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.

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401(k) After-Tax Contributions

Presented by Marc Aarons

I have noticed increasing interest in the benefits of after-tax 401(k) contributions among my general client base.

To get ahead of any questions you might have, I put together a succinct overview of after-tax 401K contributions. I encourage you to review the information below. As always, I am happy to answer any follow-up questions you may have.

How do after-tax 401(k) contributions work?

After-tax contributions allow you to save beyond the standard 401(k) limits by contributing money for which you have already paid taxes. As with a Roth IRA or Roth 401(k), withdrawals on contributions are tax and penalty-free.

However, unlike Roth IRAs, there are no income limits for making after-tax 401(k) contributions, making this a great option for anyone who has maxed out a Roth IRA.

Do they work with my 401(k) plan?

Unfortunately, only about one in five 401(k) plans allows for after-tax contributions, but it’s certainly worth contacting your 401(k) provider to determine eligibility if you are interested.

Just 10% of Americans with the option of making after-tax contributions did so in 2022, so it’s possible some of the other 90% were simply not aware it was an option.

What are the other key limits and conditions?

In 2024, the regular 401(k) contribution limit is $23,000, with an additional $7,500 catch-up for those 50 and older. You can put an additional $46,000 of after-tax dollars and employer match contributions (if applicable) into your 401(k) account. The maximum total contribution (employee plus employer) is $69,000, or $76,500 for those 50+. This is significantly higher than the Roth IRA contribution, which, this year, is $7,000 or $8,000 if you are 50+.

Why to Move After-Tax Contributions

As mentioned earlier, 401(k) after-tax contributions can be withdrawn tax and penalty-free. However, earnings on those contributions are tax-deferred, meaning taxes are due upon withdrawal, and early withdrawals (before age 59½) may incur a 10% penalty. By rolling those contributions into a Roth IRA, you can avoid paying taxes upon withdrawal in retirement.

Other reasons you may consider rolling your after-tax contributions into a Roth IRA include:

• Unlike traditional IRAs and 401(k)s, Roth IRAs do not require minimum distributions during the account holder’s lifetime, offering more flexibility in retirement planning.
• Since Roth IRAs do not have RMDs for the original owner, they can be a strategic tool for passing wealth to heirs more efficiently, potentially tax-free.

Rolling into a Roth

There are two primary methods for transferring after-tax 401(k) contribution dollars into a Roth account:

• In-Plan Conversion: This option allows you to convert all or a portion of your 401k into a Roth within the same plan. When you opt for an in-plan conversion, you need to pay taxes on the converted amount. However, like a Roth IRA, your future withdrawals from the Roth will be tax-free. Some plans even include an auto-convert feature that automatically transitions your after-tax contributions into your Roth account.
• In-Service Withdrawal: If your employer offers in-service distributions or withdrawals, you have the opportunity to perform a mega backdoor Roth. This involves rolling your after-tax contributions into a Roth IRA that is outside of your current retirement plan.

If you have any questions or would like to discuss how this strategy might fit into your financial plan, please don’t hesitate to reach out. I am here to help you navigate these options and make the best decisions for your financial future.

Marc Aarons may be reached at 714-887-8000 or marc@ocmoneymanagers.com

www.ocmoneymanagers.com

This communication is from Money Managers, Inc.; a Securities and Exchange Commission registered investment advisor.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results.  Investments involve risk and are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here.

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IRS Announces 2023 401(k) and IRA Limit Increases

Presented by Marc Aarons

I thought I’d provide a quick reminder note regarding the IRS’s announcement in late October regarding retirement account limits for 2023 (IRS). I’m here to help with any questions you may have.

401(k), 403(b), 457 plans, and Thrift Savings Plan

• The amount individuals can contribute to their 401(k) plans in 2023 has increased to $22,500, up from $20,500 in 2022.
• The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan has increased to $7,500, up from $6,500.
• In total, participants 50 and over can contribute up to $30,000 ($22,500 + $7,500) beginning in 2023.

Traditional and Roth IRA

• The limit on annual contributions to an IRA increased to $6,500, up from $6,000 in 2022.
• The IRA catch-up contribution remains $1,000 for individuals 50 (and is not subject to an annual cost-of-living adjustment).
• The income phase-out range for taxpayers making contributions to a Roth IRA has increased to between $138,000 and $153,000 for singles and heads of household, up from between $129,000 and $144,000.
• The income phase-out range has increased for married couples filing jointly to between $218,000 and $228,000, up from between $204,000 and $214,000.

Reach out if I can help. I look forward to hearing from you.

Marc Aarons may be reached at 714-887-8000 or marc@ocmoneymanagers.com

www.ocmoneymanagers.com

This communication is from Money Managers, Inc.; a Securities and Exchange Commission registered investment advisor.  Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any securities, and past performance is not indicative of future results.  Investments involve risk and are not guaranteed.  Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed here. This material was developed and produced by Levitate which is not affiliated with the named broker-dealer. For a comprehensive review of your personal situation, always consult with a tax or legal advisor.

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New Retirement Contribution Limits for 2023
Near-record levels.

Provided by Marc Aarons

The Internal Revenue Service has released new limits for the coming year. After months of high inflation and financial uncertainty, some of these cost-of-living-based adjustments have reached near-record levels.

Individual Retirement Accounts (IRAs). IRA contribution limits are up $500 in 2023 to $6,500. Catch-up contributions for those over age 50 remain at $1,000, bringing the total limit to $7,500.

Roth IRAs. The income phase-out range for Roth IRA contributions increases to $138,000-$153,000 for single filers and heads of household, a $9,000 increase. For married couples filing jointly, phase-out will be $218,000 to $228,000, a $14,000 increase. Married individuals filing separately see their phase-out range remain at $0-10,000.

Workplace Retirement Accounts. Those with 401(k), 403(b), 457 plans, and similar accounts will see a $2,000 increase for 2023, the limit rising to $22,500. Those aged 50 and older will now have the ability to contribute an extra $7,500, bringing their total limit to $30,000.

SIMPLE Accounts. A $1,500 increase in limits for 2023 gives individuals contributing to this incentive match plan a $15,500 stop light.

Other Changes. In addition to changes in contributions limits, the IRS also announced several other changes for 2023, including an increase to the annual exclusion for gifts to $17,000 per person and an increase to the estate tax exclusion threshold.

Keep in mind that this update is for informational purposes only, so consult with your tax professional before making any changes in anticipation of the new 2023 levels. You can also contact your trusted financial professional, and they can provide you with information about the pending changes.

Marc Aarons may be reached at 714-887-8000 or marc@ocmoneymanagers.com.

www.ocmoneymanagers.com

MMI Disclosure: This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

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What does this mean for your overall retirement strategy?

Provided by Marc Aarons

 Your workplace retirement account can play a critical role in your overall retirement strategy. However, some have gone further with the accounts than others, especially recently.

CNBC reported on findings that place 401(k) accounts at all-time highs, with some even joining the much-desired “two comma club” of 401(k) millionaires. Average 401(k) balances jumped 24% from the previous year to $129,300. Also on the rise were overall contributions, with 12% increasing their contributions since last year and 37% of employers placing new employees into workplace plans. The study discovered a record 412,000 401(k) plans with million-dollar balances; overall Individual Retirement Account (IRA) millionaires reached 342,000, another record.¹

Some of this represents a correction from 2020 as well as the economic uncertainty faced during the early days of the global pandemic. People are rethinking their retirement needs and taking advantage of employer matches, if available. It also reflects businesses working to entice employees; even some restaurants are offering 401(k) plans to their workers these days, in a bid to maintain staffing levels year-round.¹

What does this mean for your overall retirement strategy? I’d be happy to talk to you about this and the many other choices open to you at your earliest convenience.

Marc Aarons may be reached at marc@ocmoneymanagers.com

^{MMI Disclosure This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment}

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

^Citations

1. ^{CNBC.com, August 19, 2021}

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Should you withdraw and reinvest your retirement plan money while you are still on the job?

Provided by Marc Aarons

Did you know you may be able to take your 401(k), 403(b), or 457 plan and roll it into another type of retirement account while you are still working? Let’s look at how these rollovers can happen and the pros and cons of making them.

To start, some basics. Distributions from 401(k) plans and most other employer-sponsored retirement plans are taxed as ordinary income, and if you take one before age 59½, a 10% federal income tax penalty commonly applies. In addition, 20% of the withdrawn amount is withheld for tax purposes. Generally, once you reach age 72, you must begin taking required minimum distributions.¹

Now, the fine print. You may be able to take a distribution from your qualified, employer-sponsored retirement plan while still working, via an in-service non-hardship withdrawal. This is done by arranging a direct rollover of these assets to an Individual Retirement Account (IRA) in order to potentially avoid both the 10% penalty and the 20% tax withholding in the process. It’s important to note that this option is only available if allowed by your employer.²

It may be smart to speak to your financial professional before making any changes.

Generally, distributions from traditional IRAs must begin once you reach age 72. The money distributed to you is taxed as ordinary income. When such distributions are taken before age 59½, they may be subject to a 10% federal income tax penalty.

The criteria for making in-service non-hardship withdrawals can vary. Some workplace retirement plans simply prohibit them. Others permit them when you have been on the job for at least five years or when assets in your plan have accumulated for at least two years or you are 100% vested in your account.²

Weigh the pros and cons. Who knows if your reinvested assets will perform better in an IRA than they did in your company’s retirement plan? Only time will tell. Right now, you can put up to $7,000 into an IRA, annually, if you are 50 or older. The limit on annual additions, however, is much more impressive at $58,000 for 2021. Lastly, if your employer matches your retirement plan contributions, getting out of the plan may mean losing future matches.³

Marc Aarons may be reached at (714) 887-8000 or marc@ocmoneymanagers.com

 ^{MMI Disclosure This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment}

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

  ^Citations

1. ^{IRS.gov, March 3, 2021}
2. ^{IRS.gov, March 3, 2021}
3. ^{IRS.gov, March 3, 2021}

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Understand the IRS’s calculations and tables.

Provided by Marc Aarons

As much as you would like to, you can’t keep your money in your retirement account forever.

These investment vehicles include 401(k)s, IRAs, and similar retirement accounts.¹  Under the SECURE Act, once you reach age 72, you must begin taking required minimum distributions from your 401(k), IRAs, or other defined contribution plans in most circumstances. Withdrawals from your 401(k) or other defined contribution plans are taxed as ordinary income and, if taken before age 59½, may be subject to a 10% federal income tax penalty.

Another major change that occurred from the SECURE Act is the removal of the age limit for traditional IRA contributions. Before the SECURE Act, you had to stop making contributions at age 70½. Now, you can continue to make contributions as long as you meet the earned-income requirement.²

How do you determine how much your RMD needs to be? It depends on whether or not you’re married, and if you are, if your spouse is the sole beneficiary of your IRA and less than 10 years younger than you are. For everyone else, the Uniform Lifetime Table can help.

Keep in mind that this article is for informational purposes only, and the table below is meant to provide some guidance. The table is neither a recommendation nor a replacement for real-life advice. Always contact your tax, legal, or financial professional before making any changes to your required minimum distributions.

Uniform Lifetime Table (additional ages can be found on IRS.gov)

You can use the following formula to calculate a rough estimate of your RMD:

1. Determine the year-end balance of your account.
2. Find your age on the table and note the distribution period number.
3. Divide the total balance of your account by the distribution period. For example, say you’re 72, and your account balance is $100,000. Your RMD may be about $3,906, based on the table.

Calculating your RMD isn’t tricky, but understanding your RMD’s role in your overall retirement strategy can be complicated. It’s important to note that penalties can apply if you don’t follow the mandatory distribution guidelines. A financial professional is an excellent resource for guidance.

Marc Aarons may be reached at (714) 887-8000 or marc@ocmoneymanagers.com

^{MMI Disclosure This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment}

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party nor their affiliates. This information is derived from sources believed to be accurate. Please note: investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting, or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax, or legal advice and may not be relied on to avoid any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

^Citations

1. ^{IRS.gov, September 23, 2020}
2. ^{NerdWallet.com, November 26, 2020}
3. ^{Internal Revenue Service IRA Required Minimum Distribution Worksheet, 2020}

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How many pieces do you have in place?

Provided by Marc Aarons

 When you read about money matters, you will sometimes see the phrase, “getting your financial house in order.” What exactly does that mean?

When your financial “house is in order,” it means it is built on a solid foundation. It means that you have six fundamental “pillars” in place that are either crucial for sustaining your financial well-being or creating wealth.

#1: A savings account. This is your Fort Knox: the place where you store and build the cash you may someday use for your biggest purchases. Savings accounts pay a modest interest rate. You should still consider having a savings account, even in today’s low-interest rate environment. Banks and credit unions often limit the number and amount of withdrawals you can make from savings accounts per month.       #2: A checking account. This is your go-to account for everyday expenses, whether you pay your bills digitally or the old-fashioned way. Checking accounts pay a modest interest rate. Some accounts may have minimum balance requirements, so it’s best to closely read the new account information. Also, opening a checking account may lead to opening a credit card account at the same financial institution.

#3: An emergency fund. This bank account helps you deal with the unexpected. You know that label you see on fire extinguisher boxes – “break glass in case of emergency?” Only in a financial emergency should you “break into” this account. What is a financial emergency? Everyone’s definition varies, but examples include hospital bills, major car repairs, and unemployment.

#4: A workplace retirement plan account. Some want to start saving for retirement as soon as possible. Workplace retirement plans offer you a convenient way to get started. In most of these plans, your contribution is made with pre-tax dollars.¹

Money saved and invested in these accounts can compound, and the compounding may become greater with time. Consistent monthly investment is the “fuel” for your account.

Regular monthly investing does not protect against a loss in a declining market or guarantee a profit in a rising market. Individuals should evaluate their financial ability to continue making purchases through periods of declining and rising prices. The return and principal value of stock prices will fluctuate as market conditions change. Shares, when sold, may be worth more or less than their original cost.

#5: An Individual Retirement Arrangement (IRA). This is a tax-advantaged retirement savings account that you own. There are traditional IRAs (up-front contributions are not taxed; retirement withdrawals are) and Roth IRAs (up-front contributions are taxed; retirement withdrawals are not, provided federal tax laws are followed).²

Mandatory annual withdrawals are required from traditional IRAs starting at age 72. The money distributed to you is taxed as ordinary income; if such distributions are taken before age 59½, they may be subject to a 10% federal income tax penalty. No mandatory annual withdrawals are required from Roth IRAs while the original owner lives. To qualify for the tax-free and penalty-free withdrawal of earnings, Roth IRA distributions must meet a five-year holding requirement and occur after age 59½. Tax-free and penalty-free withdrawal can also be taken under certain other circumstances, such as the owner’s death. The original Roth IRA owner is not required to take minimum annual withdrawals.

Thanks to the SECURE Act, you may contribute to Roth and traditional IRAs all your life, as long as you meet the earned-income requirement for account contributions.²

#6: A taxable investing account. This is also popularly called an investment account or brokerage account. Unlike an IRA or workplace retirement plan, the invested assets in these accounts are taxed each year. A taxable investing account gives you access to a wide range of investment products, which can help complement the other accounts in your financial foundation.

Marc Aarons may be reached at (714) 887-8000 or marc@ocmoneymanagers.com

  ^{MMI Disclosure This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment}

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

^Citations

1. ^{Tax Policy Center, May 2020} 
2. ^{Internal Revenue Service, November 10, 2020}

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The SECURE Act and CARES Act may complicate the decision.

Provided by Marc Aarons

As a small-business owner, figuring out retirement choices can be a little intimidating. How do you pick the most appropriate retirement plan for your business as well as your employees?

There are three main types of retirement plans for small businesses: SIMPLE-IRAs, SEP-IRAs, and 401(k)s. Read on below to learn more about each type of retirement plan. Also, keep in mind that recent legislative changes that occurred with the passing of the SECURE Act and CARES Act may complicate the decision.

SIMPLE-IRAs. SIMPLE stands for Savings Incentive Match Plan for Employees. This is a traditional IRA that is set up for employees and allows both employees and employers to contribute. If you’re an employer of a small business who needs to get started with a retirement plan, a SIMPLE-IRA may be for you. While this plan doesn’t require an employee to contribute, employers must contribute 2% of their employee’s salary to a retirement fund. If you do choose to offer a matching contribution to your employee’s SIMPLE-IRA plan, you can match up to 3% of your employee’s compensation. Employees can also participate in a SIMPLE-IRA plan by having automatic deductions go straight from their paycheck to their SIMPLE-IRA.^1,2,3

Distributions from SIMPLE-IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. However, during the 2020 calendar year, the CARES Act allows eligible participants to take an early distribution of up to $100,000 without paying the 10% penalty. Generally, once you reach age 72, you must begin taking required minimum distributions.

For a business to use a SIMPLE-IRA, it typically must have fewer than 100 employees and cannot have any other retirement plans in place. There are also no filing requirements required by the employer.²

SEP-IRAs. SEP plans (also known as SEP-IRAs) are Simplified Employee Pension plans. Any business of any size can set up one of these types of retirement plans, including a self-employed business owner. This type of retirement plan may be an attractive option for a business owner because a SEP-IRA does not have the start-up and operating costs of a conventional retirement plan. It also allows for a contribution of up to 25% of each employee’s pay. This is a type of retirement plan that is solely sponsored by the employer, and the contribution to each employee’s SEP-IRA must be the same amount. Employees are not able to add their own contributions. Unlike other types of retirement plans, contributions from the employer can be flexible from year to year, which can help businesses that have fluctuations in their cash flow.⁴

 Much like SIMPLE-IRAs, SEP-IRAs are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. The CARES Act applies to SEP-IRAs too. Generally, once you reach age 72, you must begin taking required minimum distributions.

 401(k)s. 401(k) plans are funded by employee contributions, and in some cases, with employer contributions as well. In most circumstances, you must begin taking required minimum distributions from your 401(k) or other defined contribution plan in the year you turn 72. Withdrawals are taxed as ordinary income, and if taken before age 59½, may be subject to a 10% federal income tax penalty. As of right now, the CARES Act exemptions apply only in the 2020 calendar year.⁵

Because of the recent legislative changes, resulting from the passage of the SECURE Act and the CARES Act, let’s talk further about which of these plans may work best for you and your business.⁵

Marc Aarons may be reached at(714) 887-8000 or marc@ocmoneymanagers.com

^{MMI Disclosure This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

^{This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.}

^Citations

^{1 – IRS.gov, January 15, 2020}

^{2 – IRS.gov, January 8, 2020}

^{3 – IRS.gov, January 9, 2020}

^{4 – IRS.gov, January 15, 2020}

^{5 – U.S. Chamber of Commerce, February 20, 2020}

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