June Retirement Plan Newsletter 2019

June Retirement Plan Newsletter 2019

 

LUTZ BUSINESS INSIGHTS

 

JUne RETIREMENT PLAN NEWSLETTER

MILLENNIALS KNOW IT ALL. BUT, ARE THEY SAVING FOR RETIREMENT?

Millennials

Millennials – they’ve infiltrated the workplace and bring expertise in social media, individuality, technology and hipster bars. But, what do they know about saving for retirement? Typically, younger people don’t make retirement savings a priority. Living expenses, student debt, rent or house payments, and other day-to-day expenses mean that retirement savings take a back seat. In fact, a Franklin Templeton Investments survey from January 2016 says that 40 percent of millennials don’t have a retirement plan in place, and 57 percent haven’t started saving.1 That attitude, however, will make it much more difficult to have a secure retirement later,  according to seasoned retirement plan advisors.

The main thing that millennials are sacrificing by not saving now is time. Time allows funds to grow through compounding, and that can turn relatively modest savings into much larger nest eggs. For example, saving $50 each month in a retirement account earning 6.5 percent annually and compounded monthly would generate retirement savings of $226,781 over 50 years. A millennial who starts saving the same amount 30 years later, allowing it to only compound for 20 years, would have only $24,525 at the end of the 20 years.2

And $50 each month isn’t a huge amount, even for a cash-strapped millennial. Some other retirement savings tips you can share with your millennial employees are:

  • Take full advantage of employer-sponsored retirement plans, like 401(k) or 403(b) plans. Funds contributed to these tax-advantaged programs grow free of taxes, which means more money stays in the account to generate interest.
  • Contribute at least as much as your employer is willing to match. If your employer matches three percent of your salary, you should start by contributing that much.
    • Otherwise, you’re “leaving money on the table.” Your employer match instantly increases your contribution, and your money grows faster.
  • Don’t worry about not being an investment expert. Many retirement plans now offer target-date funds (TDFs). Also known as lifecycle or age-based funds, TDFs automatically adjust your investment assets as you age, so you don’t need to balance your funds yourself.

One common objection millennials have about contributing to an employer-based retirement fund is that they may not stay with that employer. Actually, very few people stay with a single employer for their entire careers, and they should be reminded that retirement plan funds can be rolled over into a new employer’s plan or rolled over into an IRA if they leave their job.

 

¹http://money.usnews.com/money/personal-finance/articles/2016-05-27/who-needs-a-retirement-plan-apparently-not-millennials

2http://www.bankrate.com/calculators/savings/simple-savings-calculator.aspx

 

About the Author, Jamie Hayes

Jamie has over 10 years of experience in employer retirement plan fiduciary services and corporate pension consulting. Jamie works extensively with matters pertaining to the financial operation of employer-sponsored retirement plans. Jamie combines powerful behavioral finance strategies with the maximization of fiduciary risk management to help promote retirement confidence for both employers and employees. Jamie graduated with a Bachelor of Science degree in economics and high honors from University of Michigan.

THE EVOLVING WORKSCAPE

Longevity, demographic changes and technological innovation have revolutionized the world of work.

As many employers face a coming wave of baby-boomer retirements, the resulting gaps in unique skills, experience and institutional knowledge may be difficult to fill. Keeping mature workers engaged may help ensure that your company retains the employee knowledge necessary to compete.1 Going forward, successful workplaces will not only leverage the skills and institutional knowledge of mature workers, but also ensure that the expertise mature workers possess is shared with other employees.

Here’s how:

  • Offer educational opportunities
  • Be flexible
  • Promote collaboration

Offer Educational Opportunities

More than 80 percent of workers age 45 to 64 say the opportunity to learn something new is critical to them, and over 70 percent say that job training is an essential element of that ideal employment.1

Experienced workers are eager to get additional training so they can keep their skills sharp and make themselves more employable.

While large employers with abundant resources may already be providing this training, smaller companies can still manage to do this and reap the benefits. Assess your company’s existing training model and determine opportunities for bolstering your employees’ skillsets.

  1. Use free or low-cost options

Highly skilled employees might be your best trainers. Ask them to pass on their skills and knowledge to others.

  1. Promote internal learning opportunities

Don’t limit your training offerings. Host a variety of training and business building sessions and engage with your employees to find out what they like, don’t like, and what they want to learn more about.

  1. Subsidize training programs

Thanks to modern technology, there are more educational opportunities than ever before, such as online courses and tuition reimbursement programs.

 

Be Flexible

Workplace flexibility is a way to attract talent because it accommodates active lifestyles and child or eldercare. One study revealed that 77 percent of millennials think that flexibility is not only desirable but also is key to productivity. The idea is also appealing to baby boomers, who are seeking flexibility as they near their retirement years.2

  1. Evaluate your company’s existing policies. Which aspects do you currently offer?
  • Flexible hours
  • Working remotely
  • Job sharing
  1. Consider offering part-time work or a phased retirement

Promote Collaboration

Employees of all ages can benefit from a sense of community in the workplace. Sharing ideas is one way to foster this feeling. Whether it’s informal with shadowing and project partnerships, or formal with mentorship and reverse mentorship programs, generational and experiential differences are a learning opportunity.

  1. Brainstorming

Brainstorming brings employees together to work toward a common goal by offering various perspectives and solution.

  1. Create a reverse-mentorship program

In this program, older employees can pick up something fresh from their younger counterparts. For example, those who are less skilled at using technology might rely on another employee to teach them how to use a certain application or tool. Conversely, more experienced employees can teach younger ones how to develop business and share valuable insights.

  1. Provide spaces that support all of the above

Employees are more likely to be happy and collaborative when they have places to meet together comfortably, participate in training or seminars, or work independently when necessary.

In the workscape of tomorrow, employees of traditional “retirement age” want more, and workplaces must adapt if they want their business to succeed. In order to retain and attract the best talent across generations, including would-be retirees, it is critical to:

  • Offer educational opportunities for employees hungry to learn;
  • Be flexible to accommodate the employees with different lifestyles; and
  • Promote collaboration to foster a community and creative thinking.

People are living longer, better lives. And the happiest, most productive workplaces are those that are adapting to support these lifestyle changes.

 

1Employers Need To Train Their Older Workers, Too. Forbes.com. Oct. 17, 2017.

2More Than Avocado Toast: How Millennials Will Make Retirement Better For Baby Boomers. Forbes.com. Jan. 29, 2018.

This article was contributed by our valued partner, Hartford Funds, with minor edits made for spacing reasons.

HEY JOEL!

Welcome to Hey Joel! This forum answers plan sponsor questions from all over the country by our in-house former practicing ERISA attorney.

Hey Joel,

Should stable value information be included in our investment policy statement? – Paranoid in Portland

Hey Paranoid,

The cash or principal preservation alternatives can be quite varied in scope. As a result it is extremely difficult to create language that would be widely applicable to all vehicles available for such plan goals. Money market funds, stable value funds, guaranteed income contracts, and general accounts are very different in their design, tertiary goals, holdings, and regulatory aspects. Thus one set of standard specific criteria would be unwise for an IPS.  The primary goal of these vehicles in an efficient plan investment menu is the preservation of principal and minimization of risk. Thus focusing on the credit quality and stability of the provider are appropriate as primary criteria. Note that our IPS template states that criteria should include “credit quality, diversification and stability of insurance provider” but, it also states that criteria “should not be limited to” those items. Thus other criteria are well within the scope of what fiduciaries may, and perhaps should, be reviewing depending on the type of vehicle being utilized. As a result our team of former practicing ERISA attorneys is confident in this language. Supporting that confidence is the fact that over 40 independent ERISA attorneys have reviewed our IPS template and provided comment and none of them provided any additional recommended language or edits in regards to this particular language.

 

Dispelling Paranoia,

Joel Shapiro

 

About Joel Shapiro, JD, LLM

As a former practicing ERISA attorney Joel works to ensure that plan sponsors stay fully informed on all legislative and regulatory matters. Joel earned his Bachelor of Arts from Tufts University and his Juris Doctor from Washington College of Law at the American University.

PARTICIPANT CORNER: MILLENNIALS START SAVING NOW!

This month’s employee memo informs young participants, particularly millennials, about the benefits of saving early. Download the memo from your Fiduciary Briefcase at fiduciarybriefcase.com and distribute to your participants. Please see an excerpt below.

Typically, younger people don’t make retirement savings a priority. Living expenses, student debt, rent or house payments, and other day-to-day expenses mean that retirement savings take a back seat. In fact, a Franklin Templeton Investments survey from January 2016 says that 40 percent of millennials don’t have a retirement plan in place, and 57 percent haven’t started saving.1 That attitude, however, will make it much more difficult to have a secure retirement later, according to seasoned retirement plan advisors.

The main thing that millennials are sacrificing by not saving now is time. Time allows funds to grow through compounding, and that can turn relatively modest savings into much larger nest eggs. For example, saving $50 each month in a retirement account earning 6.5 percent annually and compounded monthly would generate retirement savings of $226,781 over 50 years. A millennial who starts saving the same amount 30 years later, allowing it to only compound for 20 years, would have only $24,525 at the end of the 20 years.2

And $50 each month isn’t a huge amount, even for a cash-strapped millennial. Some other retirement savings tips include:

  • Take full advantage of employer-sponsored retirement plans, like 401(k) or 403(b) plans. Funds contributed to these tax-advantaged programs grow free of taxes, which means more money stays in the account to generate interest.
  • Contribute at least as much as your employer is willing to match. If your employer matches 3 percent of your salary, you should start by contributing that much.
    • Otherwise, you’re “leaving money on the table.” Your employer match instantly increases your contribution, and your money grows faster.
  • Don’t worry about not being an investment expert. Many retirement plans now offer target-date funds (TDFs). Also known as lifecycle or age-based funds. TDFs automatically adjust your investment assets as you age, so you don’t need to balance your funds yourself.

One common objection millennials have about contributing to an employer-based retirement fund is that they may not stay with that employer. Actually, very few people stay with a single employer for their entire careers, and retirement plan funds can be rolled over into a new employer’s plan or rolled over into an IRA if you leave your job.

 

1http://money.usnews.com/money/personal-finance/articles/2016-05-27/who-needs-a-retirement-plan-apparently-not-millennials

2http://www.bankrate.com/calculators/savings/simple-savings-calculator.aspx

DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Lutz Financial (“Lutz”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Lutz.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Lutz is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the Lutz’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are a Lutz client, please remember to contact Lutz, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Lutz shall continue to rely on the accuracy of information that you have provided.

For more important disclosure information, click here.

RECENT LUTZ FINANCIAL POSTS

May Retirement Plan Newsletter

This month’s newsletter contains insights on ways to increase employee retirement contributions, investment options, reasons to roll into your employer’s plan vs. an IRA, and more…

read more

Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

VIEW MODIFIED SUMMER HOURS HERE

OMAHA

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Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

May Retirement Plan Newsletter

May Retirement Plan Newsletter

 

LUTZ BUSINESS INSIGHTS

 

MAY RETIREMENT PLAN NEWSLETTER

FOUR WAYS TO INCREASE EMPLOYEE RETIREMENT CONTRIBUTIONS

 As a retirement plan sponsor, you want your employees to save the most they can in order to reach their maximum retirement potential. A significant amount of research says that you can improve both employee participation and their saving rates. Here are four ways you can help your employees start building a confident retirement:

  1. Boost employee participation with automatic enrollment. Choosing to automatically enroll all new employees in your retirement plan can dramatically improve your participation rates. According to the Center for Retirement Research (CRR) at Boston College, in one study of automatic enrollment, participation increased by 50 percent, with the largest gains among younger and lower-paid employees.1 While auto-enrolled employees are allowed to opt out of the retirement plan, most generally stay enrolled.
  2. Set the initial default contribution rate higher. Many companies who use auto-enrollment set their default contribution rate relatively low at 3 percent, according to the CRR, which is lower than the typical employer match rate of 6 percent. Workers who might have contributed more to their savings passively accept the lower default rate, which means they’re sacrificing employer matching funds along with saving less of their own pay.
  3. Adopt auto escalation. Plans that use auto escalation automatically increase their participants’ contribution rate every year, typically by 1 percent. Over time, that can significantly improve savings rates among workers. The CRR cites a 2013 study of Danish workers where the majority of workers who experienced automatic increases simply accepted them, and savings rates dramatically increased.
  4. Automate investment decisions with target date investment products. Investing is complicated, and many employees don’t want to take the time to learn how to manage their portfolios. Target date strategies automatically adjust an employee’s investment allocations over time, shifting them to a more conservative asset mix as the target date (typically retirement) approaches. The ease of use of target date funds means their popularity is increasing. The CRR notes that in 2014, nearly 20 percent of all 401(k) assets were in target date funds, and about half of plan participants used target date funds.2

1http://crr.bc.edu/wp-content/uploads/2016/08/IB_16-15.pdf

2http://crr.bc.edu/wp-content/uploads/2017/01/IB_17-2.pdf

 

About the Author, Michael Viljak

Michael joined RPAG in 2002 and has over 30 years of experience in the retirement plan industry, on both the wholesale and retail levels, focusing on retirement plans ever since their inception in 1981. Michael has an interest in fiduciary-related topics and was part of the team that created RPAG’s proprietary Fiduciary Fitness Program. He also authors many of the firm’s newsletter articles, communication pieces and training modules.

HOW MANY INVESTMENT OPTIONS SHOULD YOU OFFER?

 Many plan sponsors struggle with deciding how many investment options to offer in their retirement plans. While people generally like to have lots of options when making other decisions, having too many plan options can potentially lead to poor investment decisions by plan participants. In addition, increasing plan options can also increase plan costs, as well as the administrative paperwork associated with the plan.

In a study on retirement plan options, researchers concluded that it is possible to present plan participants with too many options.1 The researchers began by offering people selections of jams and chocolates. Some were offered a wide variety, while others received less choices. The wide variety of jams attracted more attention from people, but more people purchased jams when offered limited choices. When sampling chocolates, people enjoyed choosing from the larger selection more, but also were more dissatisfied with the choices. Those who sampled from a smaller selection were more satisfied and more likely to buy chocolates again. In other words, as the number of options increased, people became more concerned by the possibility of making the “wrong” choice–they became uncertain that they had made the best choice possible. 

Chocolates and jams aren’t very big decisions, but the researchers found that these same behaviors carried over to retirement plans. They examined participation rates for 647 plans offered by the Vanguard Group, a large investment management company, covering more than 900,000 participants. They found that as plans increased the number of options they offered, employee participation decreased. In fact, for every 10 options added to the plan, participation dropped by 1.5-2 percent. Plans offering fewer than 10 options had significantly higher employee participation rates.

In addition, more plan options can increase costs both for participants, in the form of fees, and for plan sponsors, who may face additional administrative charges from third party administrators for additional options. Further, auditing and other costs may increase, since the number of options could increase the time necessary to conduct audits.

It’s important to balance choice overload against the requirements of ERISA Section 404(c) which requires plan sponsors to have at least three diversified investment options with different risk and return characteristics.

1 http://www.columbia.edu/~ss957/articles/How_Much_Choice_Is_Too_Much.pdf

HEY JOEL!

Welcome to Hey Joel! This forum answers plan sponsor questions from all over the country by our in-house former practicing ERISA attorney.

Hey Joel,

What’s the appropriate number of members and positions for a retirement plan committee? – Plannin’ in Pennsylvania

Dear Plannin’,

There is no specific guidance on the appropriate number of committee members. It’s important to have committee members who can contribute to the topics to be focused on. When there is one committee, as opposed to separate committees (for investments, plan design, employee communications, etc.) perhaps a CEO and/or CFO, an administrative executive and a participant communications representative would be appropriate committee members.

Ideally, these would be people who want to be on the committee to make a contribution to plan success and who are willing to accept fiduciary responsibilities, not the least of which is personal financial liability in event of a fiduciary breach. (Our Fiduciary Fitness Program (FFP) is designed to substantially mitigate this liability if followed appropriately.)

You can also have, as a regular or a non-voting member (guest with no intent as fiduciary), someone who can represent an employee base.

Most importantly, when setting up a committee, is to determine who the “named fiduciary” for the plan is. The named fiduciary will be identified in the plan document and this person or entity is the primary fiduciary for the plan. Note, if the named fiduciary is listed as “the Company” this is interpreted to mean the board of directors (if a C corporation or managing partners, if a partnership). The named fiduciary is expected to be the entity who has the authority to decide to have a retirement plan. The named fiduciary can delegate the majority of their fiduciary duties to co-fiduciaries (e.g., a retirement plan steering committee). Typically they would be anxious to do so as they likely would not want to be responsible for day-to-day management of the plan. The Committee Charter and ancillary paperwork (in our FFP) is designed expressly for this purpose.

 

The Committee Planner Extraordinaire,

Joel Shapiro

 

About Joel Shapiro, JD, LLM

As a former practicing ERISA attorney Joel works to ensure that plan sponsors stay fully informed on all legislative and regulatory matters. Joel earned his Bachelor of Arts from Tufts University and his Juris Doctor from Washington College of Law at the American University.

PARTICIPANT CORNER: TEN REASONS TO ROLL INTO YOUR EMPLOYER'S PLAN VERSUS AN IRA

This month’s employee memo informs participants about the benefits of joining their employer’s plan versus an IRA. Download the memo from your Fiduciary Briefcase at fiduciarybriefcase.com and distribute to your participants. Please see an excerpt below.

Do you have retirement plan assets with a former employer’s plan that you’re not sure what to do with? Review the pros and cons of consolidating into your current employer’s retirement plan versus an individual retirement account (IRA).

1. Performance results may differ substantially.

 As an institutional buyer, a retirement (401(k), 403(b), 457, etc.) plan may be eligible for lower cost versions of most mutual funds. Cost savings with institutional share classes can be considerable and can have significant impact on long-term asset accumulation, which benefits you.

 One recent study by the Center for Retirement Research indicated that the average return retirement plan participants experienced was nearly 41 percent greater than other investors. Share class savings likely contributed to this result.

2. The IRA rollover balance may be too small to meet minimum investment requirements.

 Many of the low expense mutual fund share classes available to investors outside of retirement plans have minimum investment requirements in excess of $100,000. Some are $1 million or more. As a result, the average retirement plan participant who rolls a balance into an IRA may not have access to certain investments and/or will often end up investing in one of the more expensive retail share classes.

3. IRA investment advisors may not be fiduciaries.

 In a 401(k) or 403(b) plan (and even many 457 plans), both the employer and the plan’s investment advisor may be required to be a fiduciary. This means that investment decisions they make must be in the best interests of plan participants. This is the golden rule of fiduciary behavior and if not explicitly followed can lead to heavy economic impact to those organizations.

 A non-fiduciary IRA broker or advisor is not necessarily required under law to act in the client’s best interests, and as a result, there is the possibility that their recommendations may be somewhat self-serving.

4. Stable value funds are not available.

 While money market funds are available to IRA investors, they do not have access to stable value funds or some guaranteed products that are only available in qualified plans. Historically money market fund yields have often been below that of stable value or guaranteed interest fund rates.

5. IRAs typically apply transaction fees.

 Many IRA providers require buy/sell transaction fees on purchases and sales. Retirement plans typically have no such transaction costs.

6. Qualified retirement plans (like 401(k), 403(b), and 457) offer greater protection of assets against creditors.

 Retirement plan account balances are shielded from attachment by creditors if bankruptcy is declared. In addition, retirement balances typically cannot be included in judgments.

7. Loans are not available in IRAs.

Loans from an IRA are not allowed by law, unlike many qualified retirement plans which may allow for loans. Although we do not generally recommend you take loans from your retirement plan, as they may hinder savings potential, some individuals prefer having such an option in the event they run into a financial emergency. Also, as a loan is repaid through payroll deduction, participants pay themselves interest at a reasonable rate.

8. Retirement plan consolidation is simple and convenient.

It is easier and more convenient for you to manage your retirement plan nest egg if it is all in the same plan rather than maintaining multiple accounts with previous employers or among multiple plans and IRAs.

9. Retirement savings via payroll deductions are convenient and consistent.

The convenience of payroll deductions is very helpful for consistent savings and achieving the benefit of dollar cost averaging.

10. For present retirement savings strategies, retirement plans can provide greater savings than IRAs.

The law allows you to make a substantially larger contribution to many retirement plans than you can save with an IRA.

 

Although personal circumstances may vary, it may be a good idea for you to rollover your balance in a former employer’s retirement plan into your current employer’s plan rather than an IRA. Your savings potential will not be as limited as with an IRA.

DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Lutz Financial (“Lutz”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Lutz.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Lutz is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the Lutz’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are a Lutz client, please remember to contact Lutz, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Lutz shall continue to rely on the accuracy of information that you have provided.

For more important disclosure information, click here.

Q2 FIDUCIARY HOT TOPICS

RETIREMENT IS A LONG WAY OFF UNTIL IT'S NOT - SHOULD I SUPPLEMENT MY RETIREMENT SAVINGS WITH AN IRA?

IRAs are an effective way for individuals covered by employer-sponsored retirement plans to supplement their retirement savings. Anyone can make IRA contributions up to the annual limit. For 2019, this limit is $6,000, plus an additional catch-up contribution of $1,000 for taxpayers 50 and older. For traditional IRAs, contributions are tax deductible in the year made. Taxes are deferred on both contributions and earnings until the year withdrawn. For Roth IRAs, contributions are after tax and withdrawals (if certain requirements are satisfied) are completely tax free, including earnings.

While everyone with income can contribute to an IRA, there are phase-outs for high earners. These phase-outs reduce or eliminate the ability to make deductible or Roth contributions. The phase-outs for deductible contributions only apply to individuals covered by an employer-sponsored retirement plan.  The phase-outs for Roth contributions apply to all high earners.

  • Individuals subject to these phase-outs can still make nondeductible contributions. Nondeductible contributions to an IRA are advantageous as taxes are deferred on earnings until the year withdrawn. This can be especially attractive for individuals who expect to be in a lower tax bracket after retirement.
  • For 2019, if covered by a retirement plan, the phase-outs for deductible contributions are:
    • Single taxpayers: $64,000 – $74,000
    • Married filing jointly:
      • For the spouse covered by a plan: $103,000 – $123,000
      • For the spouse not covered by a plan: $193,000 – $203,000
  • For 2019, for all individuals, the phase-outs for Roth contributions are:
    • Single taxpayers: $127,000 – $132,000
    • Married: $193,000 – $203,000

WELLS FARGO - PRINCIPAL AGREES TO BUY RETIREMENT BUSINESS

Wells Fargo sold off a number of business units in an effort to better focus on its core banking business. In the latest deal, Principal Financial Group agreed to purchase Wells Fargo’s retirement and trust services business for $1.2 billion. This is a substantial acquisition. This business represents $827 billion in retirement plan assets with 7.5 million participants. This transaction will increase Principal’s footprint in the mid-size market as the majority of Wells Fargo’s plans range from $10 million to $1 billion in assets. In terms of assets, Principal will become the third largest recordkeeper, trailing only Vanguard and Fidelity. It is possible significant layoffs will occur as this transaction is obviously attractive to Principal because of the opportunity to achieve economies of scale.  This is part of an ongoing wave of consolidation in the industry that includes a number of significant acquisitions: Empower- JP Morgan, John Hancock – New York Life, and One America – Bank of Montreal.

DOL'S NEW FIDUCIARY RULE & THE SEC'S BEST INTERESTS RULE - IS NO NEWS GOOD NEWS?

 Neither the Department of Labor (DOL) nor the Securities & Exchange Commission (SEC) has given any indication of how they are progressing with their new respective fiduciary rules. Last year, both agencies said they would publish their respective rules in September of this year. At this point, it seems unlikely either agency will meet this deadline. Additionally, it is possible these rules may never materialize due to the current administration’s general view on regulations.

In March of last year, almost 10 years after the DOL’s Fiduciary Rule was first proposed, the Fifth Circuit of the U.S. Court of Appeals vacated the rule in its entirety. The DOL elected not to appeal to the Supreme Court. Quickly following this decision, and to no one’s surprise, the SEC issued a package of its own proposed advice standards. This includes a “Regulation of Best Interest.” The Commission indicated that a final rule would be forthcoming this fall.

In October, DOL released its regulatory agenda for 2019 which includes plans to issue a revised Fiduciary Rule in September of 2019.  The essence of the DOL’s original Fiduciary Rule was that persons advising plans, participants or IRA holders, are acting as fiduciaries and may only make recommendations that are in the “best interests of the client.” The SEC’s new rule goes beyond the existing rule of suitability and requires that brokers and advisors put the best interests of their clients ahead of their desire to make money. Both rules have generated controversy. They have been criticized as unnecessary and overly complex (DOL’s rule is 176 pages long and the SEC’s proposed rule is almost 1,000 pages). The DOL’s rule experienced challenges in the courts on the grounds that the attempt to regulate the financial services industry went beyond the Department’s statutory authority. Although the aims of these two agencies are similar, they have made no attempt to coordinate their efforts.

LITIGATION UPDATE: ABB SETTLES FOR $55 MILLION

ABB recently announced the settlement of a lawsuit involving its 401(k) Plan. This settlement is another victory for the law firm of Schlichter, Bogard & Denton in St. Louis. Earlier this year, it obtained a $10 million settlement in a suit brought against Duke University. Filed in 2013, this suit has now dragged on for almost 13 years. It was one of the first class action suits against a retirement plan under ERISA. As in all such class actions, the plan in question is substantial. ABB has 24,000 employees and about $2 billion in plan assets. The alleged fiduciary violations are typical for these kinds of suits – poor investment choices and excessive fees that, in this case, were used to subsidize services provided to other plans. The case went to trial in 2010, resulting in a $36 million judgment for the plaintiffs. On appeal, the judgment was overturned and the case remanded for further proceedings.  The Schlichter firm has obtained large settlements in other class actions including $57 million against Boeing and the largest settlement to date in these types of suits – $62 million against Lockheed Martin. Attorney’s fees and other details of the settlement have yet to be announced.

RECENT LUTZ FINANCIAL POSTS

May Retirement Plan Newsletter

This month’s newsletter contains insights on ways to increase employee retirement contributions, investment options, reasons to roll into your employer’s plan vs. an IRA, and more…

read more

Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

VIEW MODIFIED SUMMER HOURS HERE

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

Everything You Need to Know About the Yield Curve

Everything You Need to Know About the Yield Curve

 

LUTZ BUSINESS INSIGHTS

 

everything you need to know about the yield curve

josh jenkins, cfa, senior portfolio manager & head of research

 

In recent weeks the financial markets have displayed a traditional warning sign that has garnered significant attention. Widely viewed as one of the most reliable and accurate predictors of an economic slowdown, this signal has intensified the debate on where we are at in the economy. I am referring to, of course, the inversion of the yield curve. If you follow the financial media, you have most likely been exposed to some of these deliberations. What follows is a primer on what the yield curve is, some perspective on what an inversion has meant in the past, and whether investors should care.

 

Yield Curve 101

The yield curve is a graphical representation of yields for bonds with varying maturities ranging from short to long-term. The curve is typically associated with Treasury bonds, and it provides investors with a visualization of risk (time to maturity) and reward (yield) in the market. As the long-term average line in the chart below illustrates, yield has historically increased with time to maturity. This is generally because an investor will require more reward for bearing extra risk. The longer the period you have your money tied up, the larger the chance something could go awry. When the yield curve slopes upward, it is considered “normal”, and signifies the presence of the risk (term) premium.

 

Yield Curve 1

 Source: Treasury.gov. Long-term average calculated using daily yields from 1/2/1990 – 3/29/2019

Investors monitor the slope over time by comparing long-term yields with short-term yields. An inversion occurs when the long-term yield falls below that of the short. The spread between the 10-year Treasury bond and 3-month Treasury bill is among the most followed, and in late March it inverted for a couple of days.

Short-term interest rates are generally driven by monetary policy established by the Federal Reserve, while long-term rates are arguably driven by market expectations for economic growth and inflation. When the curve inverts, it can be interpreted as the market’s expectation for weaker growth in the future. The blue line above reflects the yield curve as of the end of March, with an apparent slight downward slope.

 

A Crystal Ball?

People pay close attention to the yield curve, because of its track record as an accurate forecaster of upcoming recessions. The yield curve has inverted ahead of all seven recessions endured by the U.S. economy going back over 50 years, while flashing a false positive just once. You would be hard pressed to find another indicator with that much success.

The chart below illustrates the historical experience. The blue line represents the monthly spread between the 10-year Treasury bond and 3-month Treasury bill yields going back to the early 1960’s. You can see that ahead of every recession (highlighted by the grey bars), the curve has inverted. The lone false positive occurred in the mid-1960’s.

As accurate as the signal has been historically, acting on it presents significant challenges. One of the primary drawbacks has been the considerable variability in the timing between the inversion and the onset of the recession. Going back to the 1960’s the time lag has ranged anywhere from 6 to 23 months (Average: 13 months).

 

Yield Curve 2

 Source: Fred.stlouisFed.org. Data as of 1/31/1962 – 3/29/2019. The 10-year yield is represented by the 10-Year Treasury Constant Maturity Rate. The 3-month bill is represented by the 3-Month Treasury Bill Secondary Market Rate until 1/4/1982, and the 3-month Treasury constant maturity rate thereafter. The spread was calculated on the last trading day of each month. Recessions represented by the NBER monthly peak through trough index.

Another issue relates to equity market performance following the inversion. You would generally expect stocks to decline if you had a strong reason to believe the economy was on a path to recession, but this hasn’t been the case historically. Following the last 8 inversions, U.S. stocks were positive on average 3 to 12 months later. Any investor that sold out immediately following the signal would have missed out on those gains. Additionally, the overall range of return outcomes (displayed in the table below as the Max-Min Spread) is extremely wide. For example, while the average 12-month return following an inversion was a pedestrian 5.10%, past returns were as high as +30.59% and as low as -14.49%. A market timing signal that keeps you within a 45% range is not particularly useful.

 

Yield Curve 3

Source: Morningstar Direct. Data as of 1/31/1962 – 3/29/2019. Equity Returns are based on monthly IA SBBI Large Cap Stock Index data, and begin the first day of the month following the initial inversion. Returns for periods in excess of 12 months are annualized.

Despite the impressive accuracy inversions have displayed in predicting recessions, many market participants are not buying it. There are a variety of explanations for why an inverted curve may have lost its predictive power. Among the most frequently cited is that quantitative easing, an unconventional policy tool used by the Federal Reserve in the wake of the financial crisis, has artificially suppressed long-term rates. Others point to the fact that the curve, defined as the spread between 10-year bonds and 3-month bills, only remained inverted for a couple of days. Finally, the relative value in U.S. yields may be increasing demand from foreign investors, as interest rates in many major economies are near zero or even negative. While one must be careful in assuming “this time is different”, the factors above appear credible and shouldn’t be discounted.

 

Implication for Investors

For investors with a long-term financial plan, much of this discussion amounts to noise. Market developments may be fascinating for those who are interested, but the news flow of the day should not tempt investors into increased portfolio activity.  If a perfect and actionable indicator existed, everyone would use it, and everyone would be rich. Alas, this is simply not the case. Despite being one of the best precursors of trouble, there remains significant uncertainty following an inversion. A false positive is always a possibility, and there are some credible guesses as to why that could be the case now. Furthermore, even if a recession is coming, there is a massive range of outcomes in terms of time till recession and stock market performance that can result.

Maintaining a balanced and diversified portfolio frees the investor from trying to see into the future. If your portfolio remains appropriate relative to your financial plan, an inversion (or any other market development) should not be the catalyst for change. Diversified portfolios are designed with the knowledge that the market is cyclical, and that recessions are inevitable. What investors SHOULD do, however, is use the inversion as a sign to recalibrate expectations. Prepare yourself mentally for the possibility the road ahead will be bumpier. Those that stick to their plan in the face of fear and uncertainty have historically been rewarded.

 

 

IMPORTANT DISCLOSURE INFORMATION
PLEASE REMEMBER THAT PAST PERFORMANCE MAY NOT BE INDICATIVE OF FUTURE RESULTS.  DIFFERENT TYPES OF INVESTMENTS INVOLVE VARYING DEGREES OF RISK, AND THERE CAN BE NO ASSURANCE THAT THE FUTURE PERFORMANCE OF ANY SPECIFIC INVESTMENT, INVESTMENT STRATEGY, OR PRODUCT (INCLUDING THE INVESTMENTS AND/OR INVESTMENT STRATEGIES RECOMMENDED OR UNDERTAKEN BY LUTZ FINANCIAL), OR ANY NON-INVESTMENT RELATED CONTENT, MADE REFERENCE TO DIRECTLY OR INDIRECTLY IN THIS BLOG WILL BE PROFITABLE, EQUAL ANY CORRESPONDING INDICATED HISTORICAL PERFORMANCE LEVEL(S), BE SUITABLE FOR YOUR PORTFOLIO OR INDIVIDUAL SITUATION, OR PROVE SUCCESSFUL.  DUE TO VARIOUS FACTORS, INCLUDING CHANGING MARKET CONDITIONS AND/OR APPLICABLE LAWS, THE CONTENT MAY NO LONGER BE REFLECTIVE OF CURRENT OPINIONS OR POSITIONS.  MOREOVER, YOU SHOULD NOT ASSUME THAT ANY DISCUSSION OR INFORMATION CONTAINED IN THIS BLOG SERVES AS THE RECEIPT OF, OR AS A SUBSTITUTE FOR, PERSONALIZED INVESTMENT ADVICE FROM LUTZ FINANCIAL.  TO THE EXTENT THAT A READER HAS ANY QUESTIONS REGARDING THE APPLICABILITY OF ANY SPECIFIC ISSUE DISCUSSED ABOVE TO HIS/HER INDIVIDUAL SITUATION, HE/SHE IS ENCOURAGED TO CONSULT WITH THE PROFESSIONAL ADVISOR OF HIS/HER CHOOSING.  LUTZ FINANCIAL IS NEITHER A LAW FIRM NOR A CERTIFIED PUBLIC ACCOUNTING FIRM AND NO PORTION OF THE BLOG CONTENT SHOULD BE CONSTRUED AS LEGAL OR ACCOUNTING ADVICE.  A COPY OF THE LUTZ FINANCIAL’S CURRENT WRITTEN DISCLOSURE STATEMENT DISCUSSING OUR ADVISORY SERVICES AND FEES IS AVAILABLE UPON REQUEST.

ABOUT THE AUTHOR

402.763.2967

jjenkins@lutz.us

LINKEDIN

JOSH JENKINS, CFA + SENIOR PORTFOLIO MANAGER & HEAD OF RESEARCH

Josh Jenkins is a Senior Portfolio Manager & Head of Research at Lutz Financial with over eight years of investment experience. He is responsible for assisting clients in the construction, selection, and risk assessment of their investment portfolios. In addition, Josh will provide on-going research and trade support.

AREAS OF FOCUS
  • Asset Allocation & Portfolio Management
  • Investment & Market Research
  • Trading
AFFILIATIONS AND CREDENTIALS
  • Chartered Financial Analyst (CFA)
  • Chartered Financial Analyst Institute, Member
  • Chartered Financial Analyst Society of Nebraska, Member
EDUCATIONAL BACKGROUND
  • BSBA, University of Nebraska, Lincoln, NE

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Lutz Financial Surpasses $1 Billion in Assets Under Management

Lutz Financial Surpasses $1 Billion in Assets Under Management

 

LUTZ BUSINESS INSIGHTS

 

Lutz financial surpasses $1 billion in assets under management

Lutz Financial, an SEC Registered Investment Advisor and affiliate of Lutz, has announced that it recently surpassed the $1 billion threshold for assets under management.

“This is an exciting milestone in our firm’s history. This achievement demonstrates what can happen when a group of forward-thinking financial professionals focuses on the needs of their clients. We thank our wonderful clientele for allowing us to serve as their trusted financial advisor,” said Jim Boulay, Investment Advisor and Managing Member of Lutz Financial.

Lutz Financial serves more than 500 clients by providing wealth management, financial planning, and business retirement plan solutions. Acting as fiduciaries, Lutz Financial’s advisors serve their client’s ever-changing needs, personally, thoughtfully and practically.

Positioned for success, Lutz Financial looks forward to future growth and the expansion of client services. Learn more about Lutz Financial at https://www.lutz.us/services/lutzfinancial/.

 

RECENT POSTS

5 Ways to Maximize Your Tax Refund

With each tax season comes the hope of a substantial refund, or at least the chance of not owing too much in taxes. So, how can you be sure you are getting back as much as you should…

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VIEW MODIFIED SUMMER HOURS HERE

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

April Retirement Plan Newsletter

April Retirement Plan Newsletter

 

LUTZ BUSINESS INSIGHTS

 

APRIL RETIREMENT PLAN NEWSLETTER

TEN REASONS TO ROLL OVER INTO YOUR PLAN VERSUS AN IRA

 TEN REASONS TO ROLL OVER INTO YOUR PLAN VERSUS AN IRA

Do you have employees in a prior employer’s retirement plan? Should they transfer these assets to a personal IRA or into your employer-sponsored retirement plan?

Review the pros and cons of an individual retirement account (IRA) versus consolidating into the current retirement plan with your employees to help them make this decision.

 

  1. Performance results may differ substantially.

As an institutional buyer, a retirement (401(k), 403(b), 457, etc.) plan may be eligible for lower cost versions of most mutual funds. Cost savings with institutional share classes can be considerable and can have significant impact on long-term asset accumulation.

One recent study by the Center for Retirement Research indicated that the average return retirement plan participants experienced was nearly 41 percent greater than other investors. Share class savings likely contributed to this result.

 

  1. The IRA rollover balance may be too small to meet minimum investment requirements.

Many of the low expense mutual fund share classes available to investors outside of retirement plans have minimum investment requirements in excess of $100,000. Some are $1 million or more. As a result, the average retirement plan participant who rolls a balance into an IRA may not have access to certain investments and/or will often end up investing in one of the more expensive retail share classes.

 

  1. IRA investment advisors may not be fiduciaries.

In a 401(k) or 403(b) plan (and even many 457 plans), both the employer and the plan’s investment advisor may be required to be a fiduciary. This means that investment decisions they make must be in the best interests of plan participants. This is the golden rule of fiduciary behavior and if not explicitly followed can lead to heavy economic impact to those organizations.

A non-fiduciary IRA broker or advisor is not necessarily required under law to act in the client’s best interests, and as a result, there is the possibility that their recommendations may be somewhat self-serving.

 

  1. Stable value funds are not available.

While money market funds are available to IRA investors, they do not have access to stable value funds or some guaranteed products that are only available in qualified plans. Historically money market fund yields have often been below that of stable value or guaranteed interest fund rates.

 

  1. IRAs typically apply transaction fees.

Many IRA providers require buy/sell transaction fees on purchases and sales. Retirement plans typically have no such transaction costs.

 

  1. Qualified retirement plans (like 401(k), 403(b), and 457) offer greater protection of assets against creditors.

Retirement plan account balances are shielded from attachment by creditors if bankruptcy is declared. In addition, retirement balances typically cannot be included in any judgments.

7. Loans are not available in IRAs.

Loans from an IRA are not allowed by law, unlike many qualified retirement plans which may allow for loans. Although we do not generally recommend participants take loans from their retirement plan, as they may hinder savings potential, some individuals prefer having such an option in the event they run into a financial emergency. Also, as a loan is repaid through payroll deduction, participants pay themselves interest at a reasonable rate.

 

8. Retirement plan consolidation is simple and convenient.

It is easier and more convenient for participants to manage their retirement plan nest egg if it is all in the same plan rather than maintaining multiple accounts with previous employers or among multiple plans and IRAs.

 

9.Retirement savings via payroll deductions are convenient and consistent.

The convenience of payroll deductions is very helpful for consistent savings and achieving the benefit of dollar cost averaging.

 

10. For present retirement saving strategies retirement plans can provide greater savings than IRAs.

The law allows you to make a substantially larger contribution to many retirement plans than can be saved with an IRA.

Although personal circumstances may vary, it may be a good idea for participants to roll over their balance in a former employer’s retirement plan into your current plan rather than an IRA. It could be a mutually beneficial decision as your plan’s assets will grow and your employees’ savings potential will not be as limited as with an IRA.

 

About the Author, Michael Viljak

Michael joined RPAG in 2002 and has over 30 years of experience in the retirement plan industry, on both the wholesale and retail levels, focusing on retirement plans ever since their inception in 1981. Michael has an interest in fiduciary-related topics and was part of the team that created RPAG’s proprietary Fiduciary Fitness Program. He also authors many of the firm’s newsletter articles, communication pieces and training modules.

LOSS AVERSION AND FIGHTING FEAR

Loss aversion sounds like a good thing — trying to avoid losing. What could be wrong with that? Unfortunately, if taken too far, it can actually be a threat to retirement plan participants’ long-term financial health. Loss aversion is the tendency to prefer avoiding potential losses over acquiring equal gains. We dislike losing $20 more than we like getting $20. Yet, this common bias can come with a heavy cost.

Excessive risk avoidance can hurt participants when, for example, it keeps their money out of the market and tucked away in low-risk, low-interest savings accounts — where purchasing power can be eroded by inflation over time. Delaying enrollment in an employer-sponsored retirement plan due to fear of market downturns can cripple opportunities for future growth.

Loss aversion can also lead to undue stress and anxiety. Participants stay invested, but worry constantly, which can create health and other problems. Finally, it can result in short-sighted decision making, causing participants to jump ship during volatile and down markets rather than staying in for the long term. All these things can greatly compromise retirement preparedness.

Fortunately, the fact that people are susceptible to loss aversion doesn’t mean they have to succumb to it. It’s especially important not to during periods of high market volatility. Here are five things you can recommend your participants do to fight the fear.

  1. Understand it. Merely knowing about and identifying loss aversion tendencies can give greater insight and conscious control over decision making. Your participants should consider the potential consequences of loss aversion before making important financial decisions.
  1. Take the long view. Maintaining a long-term outlook on markets can be helpful. Let your participants know they should look at historical trends and how investments have performed over extended periods of time. Otherwise, it’s just too easy to get caught up in the latest financial fear mongering on the nightly news.
  1. Don’t obsess. Recommend setting limits on how frequently your participants check the performance of their portfolios and limiting consumption of financial news reporting. If the daily ups and downs of the stock market make their stomachs turn, suggest trying to limit reviews to quarterly performance reports instead.
  1. Get an outsider’s perspective. Your participants should consider speaking with your advisor — someone with more experience and greater objectivity. Participants tend to get very myopic when it comes to their own finances; it can help to seek out the advice of experts when they may be losing perspective.
  1. See the big picture. Take a balanced view of the overall economy, which comprises a lot more than stock market performance. Factors like increased growth, low unemployment and low interest rates are all favorable economic indicators during periods of volatility.

No one likes to lose, that’s for sure. It’s perfectly normal to prefer upswings over downturns, but the lesson is to not let fear take hold when it can compromise financial decision making and hurt long-term best interests.

HEY JOEL!

Welcome to Hey Joel! This forum answers plan sponsor questions from all over the country by our in-house former practicing ERISA attorney.

Hey Joel,

Should we consider life insurance in our retirement plan? – Beefin’ up my plan in Buffalo

Hey Beefin’,

I’m not a fan of having this type of “investment” within a retirement plan.  I often explain my position by asking a client what the purpose of their retirement plan is.  Most will answer that it is a vehicle that helps their participants save towards retirement at or around age 65. When you introduce insurance into the plan, you are increasing your fiduciary liability by offering a product that in most cases becomes an important investment after retirement.  In other words, you’re introducing a product that is designed to assist during the payout period, which could be measured in 10-20 years (or more) beyond when they actually worked for you.  You have to monitor the insurance product, just like a mutual fund.  If it doesn’t perform well, as a fiduciary, you may have to choose an alternative.  In addition the credit worthiness of the insurance provider can come under question, and this can happen many years after introducing the product. This becomes problematic if participants have accrued a benefit in an insurance product that they may lose if a change takes place. If a mutual fund has an issue it is very easy to change.

I do feel there is a place for insurance for many people, but let them do it outside of their retirement plan.  Once that money leaves the plan, it is no longer a concern of fiduciaries.

One of the benefits of having life insurance in the plan is that it provides a “floor” value for a participant’s account that can limit the impact of market downturns. The fees are so high though, that the investments score a watch-list amount. Performance is mediocre at best. Those that offer it often see the exposure it adds to their plan –  sometimes their outside counsel also will have concerns, sometimes the plan sponsor must consider a freeze of this and no longer allow participants to add to the product and sometimes they experience poor service with their recordkeeper, who is also the insurance provider, and this is limiting their ability to find a new recordkeeper.  If the plan sponsor leaves, they may force participants to cash out of this. These companies may use this to lock in a client and it becomes difficult to do anything different.

There are other plan design alternatives you may discuss with your plan advisor to beef up your plan in other ways.

 

Pumpin’ up plan sponsors,

Joel Shapiro

About Joel Shapiro, JD, LLM

As a former practicing ERISA attorney Joel works to ensure that plan sponsors stay fully informed on all legislative and regulatory matters. Joel earned his Bachelor of Arts from Tufts University and his Juris Doctor from Washington College of Law at the American University.

PARTICIPANT CORNER: TAX SAVERS CREDIT REMINDER

This month’s employee memo reminds participants about the annual tax savers credit. Download the memo from your Fiduciary Briefcase at fiduciarybriefcase.com and distribute to your participants. Please see an excerpt below.

You may be eligible for a valuable incentive, which could reduce your federal income tax liability, for contributing to your company’s 401(k) or 403(b) plan. If you qualify, you may receive a Tax Saver’s Credit of up to $1,000 ($2,000 for married couples filing jointly) if you made eligible contributions to an employer sponsored retirement savings plan. The deduction is claimed in the form of a non-refundable tax credit, ranging from 10% to 50% of your annual contribution.

Remember, when you contribute a portion of each paycheck into the plan on a pre-tax basis, you are reducing the amount of your income subject to federal taxation. And, those assets grow tax-deferred until you receive a distribution. If you qualify for the Tax Saver’s Credit, you may even further reduce your taxes.

Your eligibility depends on your adjusted gross income (AGI), your tax filing status, and your retirement contributions. To qualify for the credit, you must be age 18 or older and cannot be a full-time student or claimed as a dependent on someone else’s tax return.

Use this chart to calculate your credit for the tax year 2019. First, determine your AGI – your total income minus all qualified deductions. Then refer to the chart below to see how much you can claim as a tax credit if you qualify.

 

FILING STATUS/ADJUSTED GROSS INCOME FOR 2019

Amount of Credit

Joint

Head of Household

Single/Others

50% of amount deferred $0 to $38,500 $0 to $28,875 $0 to $19,250
20% of amount deferred $38,501 to $41,500 $28,876 to $31,125 $19,251 to $20,750
10% of amount deferred $41,501 to $64,000 $31,126 to $48,000 $20,751 to $32,000

 

For example:

  • A single employee whose AGI is $17,000 defers $2,000 to their retirement plan will qualify for a tax credit equal to 50% of their total contribution. That’s a tax savings of $1,000.
  • A married couple, filing jointly, with a combined AGI of $39,000 each contributes $1,000 to their respective company plans, for a total contribution of $2,000. They will receive a 20% credit reducing their tax bill by $400.

With the Tax Saver’s Credit, you may owe less in federal taxes the next time you file by contributing to your retirement plan today!

DISCLOSURE INFORMATION

Please remember that past performance may not be indicative of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Lutz Financial (“Lutz”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice from Lutz.  To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing.  Lutz is neither a law firm nor a certified public accounting firm and no portion of the newsletter content should be construed as legal or accounting advice.  A copy of the Lutz’s current written disclosure Brochure discussing our advisory services and fees is available upon request. Please Note: If you are a Lutz client, please remember to contact Lutz, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Lutz shall continue to rely on the accuracy of information that you have provided.

For more important disclosure information, click here.

RECENT LUTZ FINANCIAL POSTS

May Retirement Plan Newsletter

This month’s newsletter contains insights on ways to increase employee retirement contributions, investment options, reasons to roll into your employer’s plan vs. an IRA, and more…

read more

Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

VIEW MODIFIED SUMMER HOURS HERE

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850

Best Practices for Plan Fiduciaries

Best Practices for Plan Fiduciaries

 

LUTZ BUSINESS INSIGHTS

 

best practices for plan fiduciaries

Are you offering a competitive retirement plan? In this webinar, Chris Wagner of Lutz Financial covers the step by step process for making fiduciary decisions and administering a prudent retirement plan, as well as discusses current hot topics in the financal industry.

 

RECENT POSTS

5 Ways to Maximize Your Tax Refund

With each tax season comes the hope of a substantial refund, or at least the chance of not owing too much in taxes. So, how can you be sure you are getting back as much as you should…

read more

SIGN UP FOR OUR NEWSLETTERS!

We tap into the vast knowledge and experience within our organization to provide you with monthly content on topics and ideas that drive and challenge your company every day.

Toll-Free: 866.577.0780  |  Privacy Policy

All content © Lutz & Company, PC

VIEW MODIFIED SUMMER HOURS HERE

OMAHA

13616 California Street, Suite 300

Omaha, NE 68154

P: 402.496.8800

HASTINGS

747 N Burlington Avenue, Suite 401

Hastings, NE 68901

P: 402.462.4154

LINCOLN 

601 P Street, Suite 103

Lincoln, NE 68508

P: 531.500.2000

GRAND ISLAND

3320 James Road, Suite 100

Grand Island, NE 68803

P: 308.382.7850