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The Self-Employed Need
Retirement, Too!
Presented to WES
February 2, 2013
Janet Hudson, CPA
Pinnacle Family Advisors
4200 S. Quail Creek Ave., Ste. A
Springfield, MO 65810
Pinnacle Family Advisors is an independent
Registered Investment Advisory Firm
PFA specializes in providing independent
consulting and advisory services to mid-sized
retirement plans
PFA founded on Purpose, Stewardship and
Freedom
Pinnacle Family Advisors, LLC
Pinnacle Family
Advisors
Financial Planning
Investment Management
Accounting/ Business
Consulting
Legacy/ Estate
Planning
Private Equity
Qualified Plan
Consulting
Vacations/Traveling
Grand-kids
Hobbies
Sky-diving
Scrapbooking
Volunteering
No Alarm Clock
Time -- To do Whatever You Want!
Dreams For Retirement
Starts with a Plan
Steps to Financial Freedom
1. Engaging in Conversation
Sounds Simple
Critical – On Same Page
Realities of a Plan
Steps to Financial Freedom
2. Risk vs. Reward
Investments??
Derailing Your Plan
Satisfaction
Steps To Financial Freedom
3. Process Moves to Freedom
Unique to YOU
Your Plan – Your Goals
Simple yet Complex
Process Your Plan
Up To Retirement
Time
Accumulating
Savings
Life Happens
Revisit – Redevelop
Nest Egg – Sources For
Retirement Annuity/Pension
Stable Income?
COLA – Inflation – Real Costs?
Personal Savings – 401k; IRA; Roth
Social Security
For Financial Success
Financial Plan Income Enough?
Budget – Reality Check
Growing Your Savings
Retirement Plans
401k; 403b; 457; Solo 401(k)
Defined Benefit Plan
IRA
Retirement Years Longer retirement
In 1950, retirement started later and ended earlier
than it does now.
Today, retirement is lasting 20, 30, even 40 years!
The average 58 year old will live to age 82.
Income Needs Need to replace 77% – 94% of pre-retirement income
in retirement.
SS = 30% - 45% of current income
Age 67 for most
Gap to be filled by YOU Example: $90,000 current income (assumes SS is 35%)
25 yrs to retirement; 5% earnings; 3% inflation; 80% retirement income
Save $3,400/mth = $2.0 million
Withdraw $40,000 in today’s dollars combined with SS = 80% of current income in
retirement: Savings will last 25 years
40% savings rate…not reasonable
SOLUTIONS: START EARLY; HIGHER RETURNS; PLAN
Management of Financial Plan is more critical when
market earnings are low
Employee Benefit Savings Programs
401(k) – Qualified Plan (1978)
Private Sector Employees
Contributions Employee contributions
Employer Match on Employee Contribution (Vesting Schedule Permitted)
Employer contributions
Pre-tax Contributions – Federal & State
No impact on Social Security Taxes
Employee Contributions up to Annual Limits
Employee Benefit Savings Programs
457(b) – Deferred Compensation Plan (1958)
– Non-Qualified
Local and State Governments
403(b) – Tax-Sheltered Annuity (1958/1986)
Public Schools, Tax-Exempt Orgs. - 501(c)(3), Ministers
Small Business Retirement Plans
SIMPLE 401(k) & SIMPLE IRA
Fewer than 100 employees
Employees may contribute up to $12,000 & Employer may Match
(100% vested)
401(k) Match is limited to Annual Compensation Limit
$250,000 – 2013
SIMPLE IRA Match – No limit on earnings
No other qualified plan allowed
Loans allowed in 401(k)
Small Business Retirement Plans
SEP (Simplified Employee Pension) Plan
No maximum employees
Employer Contributions only – Contributed to a Traditional IRA for
each employee; up to 25% of salary; Contribute same for every
employee
Maximum Contribution - 25% up to $51,000
Flexible contributions – Not mandatory each year; good for
business with varied cash flow
No catch-up contributions
Self Employed Retirement Plans
Solo 401(k) aka Individual 401(k) (Began in 2001)
Self-employed individual and spouse - Only eligible
(cannot have any employees)
Employee Contribution limit - $17,500
Annual Profit-sharing Contribution limit - 25% up to $51,000
(2013) (in addition to employee contribution)
Catch-up Contribution allowed at age 50 - $5,500
MRD at age 70 ½ and 10% penalty < 59 ½
Loans allowed – up to ½ balance; $50,000 maximum, certain pay-
back rules apply
Self Employed Retirement Plans
SEP IRA (Simplified Employee Pension)
Sole-proprietor, business owner, partnership, or earn self-
employment income
Annual Contribution Limit - $51,000; Up to 25% of income
Easier set-up and administration
Employer contribution to IRA; contribution may vary from year to
year
No Catch-up Contribution allowed
Can contribute to Roth or IRA also
No loans allowed
IRA (Individual Retirement Account) $5,500/year; $6,500 > age 50
Deduction on Tax Return
Covered by Retirement Plan
S = $59,000; M = $95,000
Not-covered by Retirement Plan
S = no limit; M = $178,000
Taxes are Deferred; pay ordinary tax rates when
withdrawing
10% Penalty if withdrawals before age 59 ½
MRD at age 70 ½
Roth IRA
$5,500/year; $6,500 > age 50
Income limits –
S = $112,000; M = $178,000
After 5 years & 59 1/2
Earnings TAX FREE
Can withdraw Principal w/o penalty immediately
No Mandatory withdrawal requirements
Passes to beneficiaries – TAX FREE
Tax Deferred vs. Traditional Savings
$60,000 Salary
5%; 25% Tax Rate
Taxable
401(k)
Match –
50% up to 6%
Roth
Age 25 – 65 $300/Month
$144,000 Investment
$334,693
$72,000 Match
$667,136 Total
$444,757
Age 35 – 65 $500/Month
$180,000 Investment
$334,900
$54,000 Match
$529,000 Total
$407,687
Age 45 – 65 $1,000/Month
$240,000 Investment
$361,266
$36,000 Match
$466,000 Total
$405,804
Withdrawals From Retirement Plans
Caution:
You can borrow for many things - - EXCEPT RETIREMENT
Pay Yourself First
Dollar Cost Averaging Investment Strategy
Reduces Market Risk
Systematic Investing – Pay Yourself First
Investment options – Conservative to Risky
Savings Easier – Out of Reach
Potentially in Lower Tax Bracket
when you need to use your Nest Egg
Future is in YOUR Control
Financial Freedom
1. Communicate
2. Develop Plan
3. Follow Plan
4. Enjoy Life!
[email protected] | 417-894-8389 Cell Information presented is only valid as of date of presentation. Consult tax advisor with specific questions.
