March Retirement Plan Newsletter 2020

March Retirement Plan Newsletter 2020

 

LUTZ BUSINESS INSIGHTS

 

MARCH RETIREMENT PLAN NEWSLETTER

CONSIDERING A TRADITIONAL SAFE HARBOR RETIREMENT PLAN?

It may be advantageous for a plan sponsor to consider adopting a traditional safe harbor design for their retirement plan. Adopting a safe harbor retirement plan design permits an employer to essentially avoid discrimination testing (the testing is deemed met). Remember, this testing limits highly compensated employees’ contributions based upon non-highly compensated employees’ contributions. By making a safe harbor contribution highly compensated employees can defer the maximum amount allowed by their plan and Internal Revenue Code limits, without receiving any refunds. General rules for all safe harbor contributions include the following:

  • Safe harbor contributions are 100 percent vested.
  • There may be no allocation requirements imposed on safe harbor contributions, for example, a 1,000-hour service requirement or a last day employment rule.
  • Safe harbor contributions may be used toward satisfying the top heavy plan minimum contribution requirement.
  • All eligible participants must receive a written notice describing the applicable safe harbor provisions between 30 and 90 days before the beginning of the plan year. This notice must be provided for each year the plan will be safe harbored unless the plan is going to elect safe harbor treatment after commencement of the plan year and utilize nonelective contributions to meet the safe harbor contribution requirement per the SECURE Act, which passed in December, 2019.

Generally, there are two types of safe harbor contributions:

  1. The non-elective contribution, which is a 3 percent contribution to all eligible participants (or 4 percent if safe harbor is going to be elected later than 30 days prior to plan year end, in accordance with the SECURE Act), or
  2. A matching contribution to participants who are contributing to your plan.

There are two options from which to choose for the matching contribution, either the basic or the enhanced match. The basic safe harbor matching contribution is defined as a 100 percent match on the first 3 percent of compensation deferred and a 50 percent match on deferrals between 3 percent and 5 percent of compensation. Alternatively, the employer may choose an enhanced matching formula equal to at least the amount of the basic match; for example, 100 percent of the first 4 percent deferred. All that said, employers wishing to explore a safe harbor solution should also be aware that it may entail more cost if their present contribution structure is less than the required safe harbor required structure.

Alternatively, a plan can adopt a qualified automatic contribution arrangement (QACA) design and receive the same safe harbor benefits with automatic enrollment and escalation features. To learn if a traditional safe harbor feature is appropriate for your plan, or to explore the workings of QACA, contact your plan advisor.

IS YOUR TURNOVER RATE ROUTINE? WHAT YOU NEED TO KNOW ABOUT PARTIAL PLAN TERMINATIONS

A partial plan termination is presumed by the IRS to occur when 20 percent or more of a company’s employees are no longer eligible to participate in the plan in a determined span of time (typically one plan year, but it can be other spans of time based on facts and circumstances). Routine turnover during the year is generally not considered a partial plan termination.

To determine whether your turnover rate is routine, consider the following factors:

  • What was your turnover rate during other periods and what was the extent to which terminated employees were actually replaced?
  • Do the new employees perform the same functions as the previous employees? Do they have the same job classification or title? Do they have comparable compensation?

There is no requirement to notify the IRS of a partial plan termination, but all affected employees must be 100 percent vested in their account balance as of the date of their termination. If this hasn’t happened, a Voluntary Correction Program would be appropriate. For more information on partial plan terminations, please contact your plan advisor.

TIPS FOR PREVENTING UNCASHED RETIREMENT CHECKS

Managing uncashed retirement checks may be considered a nuisance by plan administrators. Nevertheless, the employer still has fiduciary responsibility when a former employee fails to cash their distribution. Search efforts to locate a missing plan participant consume time and money and may fail to locate the participant. Likewise, going through the process of turning over dormant accounts to the state can also consume time and resources.

Decrease the burden of uncashed checks by:

  1. Discussing with terminating employees during the exit interview the options for their retirement plan. They may forget they have a company-sponsored retirement plan, or don’t know how to manage it.
  2. Reminding departing employees that they can roll over their retirement assets into their new employer’s plan. Your plan’s service provider or the new employer can answer questions the former employee may have about the rollover process.
  3. Letting employees with an account balance of $1,000 or less know they should expect to receive a check in the mail after a certain amount of time.
  4. Having the employee verify their current address to where the check can be sent. 

Remember, fiduciary responsibility and liability extends to terminated employees with assets in the plan. This responsibility includes delivery of all required distributions and all fiduciary prudence responsibilities. It’s very important to stay in touch with this important group.

PARTICIPANT CORNER: SIMPLE SECRETS FOR RETIREMENT SUCCESS

Retirement planning can often seem complicated and daunting. Really, though, most of the actions you need to take to work toward a confident retirement are very simple.

Follow a Plan
Successful investors have a plan and they stick to it. You have access to a qualified plan like a 401(k). With that comes access to educational materials and often, personalized information about saving for retirement. Creating a retirement plan, assessing risk tolerance, and setting up an asset allocation are easy steps to take toward retirement, and can always be readjusted later as circumstances change.

 

Focus on Saving More than Spending
Saving as much as possible is one of the most important steps for you to take. You should strive to live below your means and save the remainder. A qualified plan makes saving easy, since the money comes out before you receive it. Someone who starts saving 3 percent of income and increases that by 1 percent every six months will be saving 13 percent in five years.

 

Maximize Matching
If your qualified plan matches contributions, you should take full advantage of it. In this situation, the top priority is to contribute enough to get the maximum matching contribution. This “free money” can add tens of thousands of dollars to your retirement portfolio.

 

Seek Tax Deferred Retirement Plans

Tax-deferred plans are another huge boon to retirement savings. Money is contributed to the plan before taxes, and continues to grow and compound free of taxes, until withdrawal. This means that funds that would normally have gone to the government stay in your retirement account, boosting returns.

Q1 2020 FIDUCIARY HOT TOPICS

NEVER SAY NEVER - THE SECURE ACT BECOMES LAW
  • Last December, President Trump signed into law the “Setting up Every Community for Retirement Enhancement (SECURE) Act” (gotta love the name).
  • Although the most significant law affecting retirement plans in many years, all in all, it is a modest piece of legislation, as compared to prior laws such as Pension Protection Act of 2006 and the Tax Reform Act of 1986.  It is really a hodge podge of policy initiatives that have been bouncing around the halls of Congress in recent years.
  • The stated concerns of Congress in enacting this legislation are that almost half of the American work force is not covered by an employer sponsored retirement plan and many of those who are covered are not saving enough to provide adequate income in retirement.
  • Some of the provisions in the SECURE Act reduce or defer federal tax revenues. To pay for this the taxation of inherited IRAs is changing. Under current law, individuals who inherit an IRA may elect to take distributions based on their life expectancy which can be many years.  Going forward, non-spouse beneficiaries must take all distributions from an inherited IRA within 10 years. This change does not affect individuals who inherit an IRA from their spouse.
OPENING THE GATE FOR ANNUITIES IN 401(K) PLANS
  • One of the most important changes in the SECURE Act is removing a major stumbling block to offering annuities in 401(k) plans.
  • Only about 10 percent of 401(k) plans currently offer an annuity as an investment option. One of the main reasons for the reluctance to offer annuities is the potential fiduciary liability if the provider becomes insolvent, which may occur many years after the provider is selected.
  • The SECURE Act provides for a safe harbor that relieves plan fiduciaries of potential liability in regards to selection of annuity provider. This does not excuse plan fiduciaries from making a prudent and well considered decision in the initial selection and monitoring the provider ongoing. Additional guidance will be issued by the Department of Labor regarding the requirements to gain such protection.
  • The upside to including annuities in 401(k) plans is this offers participants an investment option that will provide a steady stream of income in retirement. This has become a greater concern in recent years as the American population ages and plan participants move from the accumulation phase into retirement. The concern is that annuities are complex and expensive, and the fees can be difficult for the average investor to discern.
  • Notwithstanding the potential complexities of annuities, participants who decide to invest in an annuity will probably be better off if the plan fiduciaries select the annuity provider, as opposed to participants rolling their account to a brokerage firm and then purchasing an annuity which frequently occurs under current law.
  • The SECURE Act makes a second important accommodation for offering annuities in plans. Where a plan sponsor eliminates a lifetime income option, the Act permits individuals to transfer this investment to another plan or to an IRA.
LIFETIME INCOME DISCLOSURE NOW REQUIRED
  • At present a few record keepers include on participant statements an estimate of the monthly income a participant’s account might generate. Often this estimate is based on a projected account balance at retirement.
  • The SECURE Act requires an annual disclosure on participant statements of the estimated monthly income a participant’s accrued benefit might produce in the form of a either a single life annuity or, if married, a joint
    life annuity.
  • The Department of Labor is directed to develop standards for making life time income projections. The Department has a year to develop these standards. This notice does not have to be provided to participants until after these standards are published.
AGE FOR REQUIRED DISTRIBUTIONS PUSHED BACK TO 72/AGE 70 1/2 LIMIT REMOVED FOR TAX DEDUCTIBLE IRA CONTRIBUTIONS
  • The SECURE Act increases the age at which minimum required distributions (MRDs) must commence.
  • The MRD rules are designed to prevent individuals from effectively using retirement plans and IRAs for estate planning and deferring income taxes on retirement benefits until the next generation. This rule requires individuals to begin taking distributions each year based on life expectancy and paying income taxes on these distributions. Under current law, for retirement plans, MRDs must commence in the year individuals reach age 70½, or if later, the year the individual retires. For IRAs, it is always the year the individual attains age 70½. The Act pushes this back to the year individuals reach age 72.
  • WARNING – This change is effective for individuals who do not reach age 70½ until 2020. Individuals who reached age 70½ in 2019 must take their first MRD April 1st, 2020.
  • The SECURE Act allows individuals to make tax deductible contributions to IRAs after age 70½. Under current law, only Roth contributions are permitted after age 70½. This change takes effect immediately and allows deductible contributions for 2019.
LONG TERM PART TIME WORKERS MUST BE OFFERED OPPORTUNITY TO DEFER
  • Current law allows plan sponsors to exclude part time workers who work less than 1,000 hours a year. The SECURE Act requires sponsors to allow “long term” part time workers to participate in their retirement plans. A “long term” part time worker is someone who works at least 500 hours in three consecutive years.
  • Employers are only required to offer these part time workers the opportunity to defer and do not have include these workers in any company contributions. These part time workers may be excluded from
    discrimination testing.
  • Practically speaking, this provision is not effective till 2023 as it does not require employers to begin tracking part time workers until 2021.
TAX CREDIT TO ENCOURAGE SMALL EMPLOYERS TO SET UP PLANS INCREASES TO $5,000 AND TO INCLUDE AUTOMATIC ENROLLMENT
  • The existing tax credit of $500 to encourage small employers to set up plans will increase to $5,000 per year for the first three years.
    • There is an additional tax credit of $500 for small employers that add an automatic enrollment feature to
      their plan.
    KEY PROVISIONS + APPLICABILITY AND EFFECTIVE DATES

    Multiple employer plans

    Defined contribution (DC) plans

    Plan years beginning after 2020

    Tax credits to encourage small employers to set up plans

    Qualified plans (e.g., 401(k) plans), SIMPLE IRA and Simplified Employee Pension (SEP) plans

    Tax years beginning after 2019
    Credit for small employers that add automatic enrollment 401(k) and SIMPLE IRA plans Tax years beginning after 2019
    Participation by long-term part- time employees 401(k) plans Plan years beginning after 2020
    Lifetime income disclosure on participant statements DC plans 12 months after the DOL provides guidance
    Fiduciary safe harbor for selecting insurer to provide lifetime income

    DC plans

    Date of enactment–December 20, 2019
    Portability of lifetime income options DC, 403(b) and 457(b) plans Plan years beginning after 2019

    Increase in the automatic escalation cap to 15% in the automatic enrollment safe harbor

    401(k) plans

    Plan years beginning after 2019

    Simplification of the rules for nonelective safe harbor 401(k) plans

    401(k) plans

    Plan years beginning after 2019

    Penalty-free withdrawals for birth or adoption expenses Qualified DC plans, 403(b) plans and IRAs Distributions made after 2019
    Increase in the age when distributions must begin Qualified plans, traditional IRAs, 403(b) and 457(b) plans Individuals who reach age 70 ½ after 2019
    Changes to the required minimum distribution rules for nonspouse beneficiaries Qualified DC plans, traditional and Roth IRAs, 403(b) and 457(b) plans Effective with respect to participants and account holders who die after 2019
    Permit traditional IRA contributions after 70 ½ Traditional IRAs Contributions for tax years beginning after 2019
    Expand tax-free distributions from 529 plans 529 college savings plans Distributions made after 2018
    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.

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    LINCOLN 

    115 Canopy Street, Suite 200

    Lincoln, NE 68508

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    GRAND ISLAND

    3320 James Road, Suite 100

    Grand Island, NE 68803

    P: 308.382.7850

    March Retirement Plan Newsletter 2020

    February Retirement Plan Newsletter 2020

     

    LUTZ BUSINESS INSIGHTS

     

    FEBRUARY RETIREMENT PLAN NEWSLETTER

    TOO MANY CHOICES: HOW MANY INVESTMENT OPTIONS SHOULD YOU OFFER?

    Many plan providers 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 administration associated with the plan.

    Choice Overload

    In a study on retirement plan options, researchers concluded that it is possible to present plan participants with too many options1. The researchers began by offering people selections of jams and chocolates. Some were offered a wide variety, while others received fewer choices. The wide variety of jams got more attention from people, but more people purchased jams when the choices were limited. When sampling chocolates, people enjoyed choosing from the larger selection more, but also expressed more dissatisfied with the choices. Those who sampled from a smaller selection were more satisfied and more likely to buy chocolates again. The study showed that as the number of options increased, people became concerned with the possibility of making the wrong choice, and were increasingly uncertain that they had made the best choice possible.

    Looking at Plan Options

    Chocolates and jams aren’t 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, 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.

    Rising Costs

    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.

    For more information on plan options, consult your plan advisor.

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

     

    USE PLAN ANALYTICS TO EVALUATE YOUR RETIREMENT PLAN

    Your retirement plan is a valuable resource for your employees and serves as a vehicle to attract and retain top talent. Ensuring plan success is crucial. Examining plan analytics can help evaluate its success.

    Plan analytics you should explore:

    • Median age, tenure and savings rates of plan participants

    These analytics can be helpful to determine which age groups are not strongly participating and may be encouraged to do so via on-site meetings, focused mailings and other communication and education.

    • Participants not contributing sufficiently to receive all eligible employer match

    Participants “leaving money on the table” can be studied to explain why contributing to the employer match maximum is so advantageous (e.g., with a 50 percent match, participants automatically earn 50 percent “return” on their contribution before any investment gains occur).

    • Participants, by age, in each target date fund

    Another demographic that can be helped by focused participant communications.

    • Participants taking loans

    It is important for plan fiduciaries to determine if the plan loan provision is being abused. This can result in significant asset leakage with participants and oversight concerns for plan fiduciaries.

    • Loan default rates

    Loan defaults also create problems for participants (taxation & penalties for premature distributions) and plan fiduciaries (loan defaults at 90 days arrear are a fiduciary breach).

    • Dollar amounts of employee contributions by type and source

    These analytics allow for a deep dive into appropriateness of participant behavior potentially impacting plan menu design decisions, employee investment assistance, Roth utilization, TDF utilization and more.

    Many factors impact the success of your plan. Studying your plan’s analytics helps you improve your plan and ensures your employees reach their retirement goals.

    TARGET DATE FUNDS AND FIDUCIARY OBLIGATIONS

     Target date funds (TDFs) — which rebalance investments to become more conservative as a fixed date approaches — are a convenient way for plan participants to diversify their portfolios and reduce volatility and risk as they approach retirement, making them an increasingly popular choice. However not all TDFs are created equal, and selecting and monitoring them can pose unique challenges for plan sponsors and fiduciary advisors.

    TDFs were first introduced in 1994. A little over ten years ago, just 13% retirement plan participants were invested in TDFs. Today, that number has risen to more than 50%, according to a new report from Vanguard, which also estimates that 77% of Vanguard participants will be invested in a single TDF by 2022.

    However, the “automatic” rebalancing feature of TDFs doesn’t supplant the obligation to monitor funds and educate participants. The Department of Labor (DOL) provides guidance on TDFs in the form of tips for ERISA plan fiduciaries. A fiduciary advisor can help plan sponsors understand the rules and assist with compliance.

    TDF Tip Highlights

    • Establish an objective process for comparing and selecting TDFs. Some of the things DOL suggests you consider include: fund performance, fund fees and expenses and how well the fund’s characteristics align with your employees’ ages, retirement dates and salaries.
    • Establish a process for periodic review of your plan’s TDFs. If there are significant changes in any of the criteria you considered when you added the TDF – management staff of the fund, performance, objectives – consider replacing it.
    • Understand the fund’s investments and how these will change over time. Aside from the primary strategy and underlying risk, another important aspect to consider is the fund’s “glide path.” Some TDFs reach their most conservative state closer to the target date, while others continue to become more conservative as participants move through their retirement years, with the assumption that funds will be withdrawn over a longer period of time.
    • Review the fund’s fees and expenses. Even small differences in fees can have a large impact on the growth of participants’ savings over time. In addition to fees and expenses charged by the component funds held by the TDF, are there additional charges for rebalancing or other services?
    • Ask whether a customized TDF that includes component investments not managed by the TDF vendor would be better for your plan. There may be additional costs associated with a custom TDF, but it may be worth it and you should ask the question.
    • Develop effective communications about TDFs for your plan participants, especially disclosures required by law. Check EBSA’s website for updates on regulatory disclosure requirements.
    • Use available sources of information, such as commercially available resources and services, to evaluate and review TDFs as well as any recommendations received concerning their selection.
    • Document your process for choosing and reviewing TDFs, including the decision-making process regarding individual investment options.

    *Read the full DOL Target Date Retirement Funds — Tips for ERISA Plan Fiduciaries document here https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/target-date-retirement-funds.pdf). The trend toward TDFs has changed the landscape for retirement plan investors, and it’s a trend that shows no signs of slowing down anytime in the near future. For assistance navigating this relatively recent evolution in retirement planning and investing contact your plan advisor.

    1 https://www.dol.gov/sites/default/files/ebsa/about-ebsa/our-activities/resource-center/fact-sheets/target-date-retirement-funds.pdf

    2 https://pressroom.vanguard.com/news/Press-Release-Vanguard-Launches-How-America-Saves-2018-060518.html

    3 http://www.ucs-edu.net/cms/wp-content/uploads/2014/04/I_ABriefHistoryOfTargetDateFunds.pdf

    PARTICIPANT CORNER: TAKE ADVANTAGE OF YOUR COMPANY'S RETIREMENT PLAN MATCHING PROGRAM

    Over 40 percent of employers now offer at least a small retirement plan match to employees, who can help manage their financial wellness by taking advantage of this offer. Even if your employer only matches a small percentage, you’re losing money by not participating. But before you sign up for your company’s retirement plan, it’s important to know how to make the most of it. Here are a few tips that can help.

    Get the Details

    If you haven’t already clarified the details of your business’s retirement plan offerings, it’s never too late to find out. Ask your HR representative to list the benefits and find out how you can maximize your savings. Some employers offer a 50 percent match for each dollar you put in, while others match a dollar for every dollar. Find out what your company’s maximum match contribution is and decide whether you want to save only to that point or more.

    Don’t Be Afraid to Contribute More

    If your employer only matches up to a certain amount, don’t feel you have to only save that up to that point. Every dollar you save will grow tax-free over the years, providing a healthy cushion for your retirement years. The IRS does impose contribution limits, but those are fairly high, so it’s likely you won’t need to worry about it.

    Don’t Assume You’re Enrolled

    New employees often assume they were automatically enrolled in a business’s retirement, especially if the employer match was a selling point during the pre-hiring process. Make sure to ask if there’s something you need to do to enroll in the retirement plan program and take advantage of the match. Ask for program details and pay particular attention to any vesting schedule. If your employer-sponsored program has vesting requirements, you may find that you only receive the full benefits after a set time of employment.

    An important part of financial wellness is getting every benefit possible out of your work-sponsored retirement program. This often comes in the form of an employer match to your retirement plan, which will help you get a big head start on saving for your future!

    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.

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    Toll-Free: 866.577.0780  |  Privacy Policy

    All content © Lutz & Company, PC

    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 

    115 Canopy Street, Suite 200

    Lincoln, NE 68508

    P: 531.500.2000

    GRAND ISLAND

    3320 James Road, Suite 100

    Grand Island, NE 68803

    P: 308.382.7850

    Tax Credits Increase for Companies Establishing a Retirement Plan in 2020!

    Tax Credits Increase for Companies Establishing a Retirement Plan in 2020!

     

    LUTZ BUSINESS INSIGHTS

     

    tax credits increase for companies establishing a retirement plan in 2020!

    chris wagner, investment adviser

     

    On December 20th, 2019, the Setting Every Community Up for Retirement Enhancement (SECURE) Act was signed into law.  One of the major enhancements included in the bill is the increase in tax credits available to small businesses who establish a retirement plan after 12-31-2019.  A small business is considered to have less than 100 employees who make at least $5,000 per year. 

    Small businesses cite the biggest reason they don’t offer a company sponsored retirement plan is costs.  Under the SECURE Act, the tax credit for the first 3 years equals 50% of the plan’s startup costs up to the greater of $500, or $250 multiplied by the number of Non-Highly-Compensated employees eligible to participate, to a maximum of $5,000 per year.  A non-highly-compensated employee (NHCE) is classified as making less than $130,000 of compensation in 2020 and less than 5% ownership. 

    Additionally, a new tax credit equal to $500 for up to 3 years is available if the small business adds automatic enrollment to a new or existing plan.  Automatic Enrollment enrolls employees in the company retirement plan at a pre-determined percentage of pay upon meeting eligibility requirements.  It simply changes the enrollment process by requiring employees to opt out of participating vs going through the process of opting into the plan.  According to research by Vanguard, among new hires, retirement plan participation rates nearly double to 93% under automatic enrollment compared with 47% under voluntary enrollment. 

     

    Let’s review a few examples:

    1. XYZ Company has 10 eligible Non-Highly-Compensated employees and implements a 401(k) plan in 2020. XYZ Company would be eligible for up to $2,500 ($250 x 10) per year in tax credits to cover start up and plan administrative costs.  This credit would be available for 3 years assuming they maintain 10 eligible employees.  If the plan includes automatic enrollment XYZ Company will receive an additional $500 tax credit for 3 years.
    2. ABC Company has 40 eligible Non-Highly-Compensated employees and implements a 401(k) plan in 2020. ABC Company would be eligible for the maximum $5,000 ($250 x 40 = $10,000) per year in tax credits to cover start up and administrative costs.  This credit would be available for 3 years assuming they maintain at least 20 ($250 x 20 = $5,000) eligible employees.  If the plan includes automatic enrollment XYZ Company will receive an additional $500 tax credit for 3 years.

     

    Why is it important that small businesses provide their employees with access to a company sponsored retirement plan?

    According to the U.S. Small Business Administration Office of Advocacy, small businesses employ approximately 48% of the workforce.  A Labor Department report estimates that only half of the workers employed by companies with fewer than 50 employees have access to a retirement savings plan through their employer.  Most workers without access to a company sponsored retirement plan do not save on their own and have little or no retirement savings. 

    Implementing a company sponsored retirement plan also provides substantial benefits for the employer.  Opportunities for ownership and key employees to make meaningful tax deferred contributions, an enhanced benefit package to attract qualified employees in the low unemployment job market and a financially secure workforce just to name a few.  Companies can now provide this great benefit at a substantial discount for the first 3 years thanks to the SECURE ACT.  That is a win for everyone!

    ABOUT THE AUTHOR

    402.827.2077

    cwagner@lutz.us

    LINKEDIN

    CHRIS WAGNER, CHFC®, CFP®, CPFA® + INVESTMENT ADVISER

    Chris Wagner is an Investment Adviser at Lutz Financial. With 15+ years of relevant experience, he specializes in providing company and corporate retirement plan consulting and investment advisory services. He lives in Elkhorn, NE, with his wife Kristin, and children Brynn and Owen.

    AREAS OF FOCUS
    • Retirement Plan Consulting
    • Investment Product Analysis
    • Provider and Fee Benchmarking
    • Fiduciary Guidance
    • Plan Design Analysis
    • Investment Advisory Services
    • Participant Education
    AFFILIATIONS AND CREDENTIALS
    • National Association of Plan Advisors, Member
    • CERTIFIED FINANCIAL PLANNER®
    • Certified Plan Fiduciary Advisor®
    • Chartered Financial Consultant
    EDUCATIONAL BACKGROUND
    • BSBA in Marketing, Midland University, Fremont, NE
    • American College of Financial Services, Bryn Mawr, PA
    COMMUNITY SERVICE
    • Knights of Columbus, Member
    • St. Wenceslaus, Volunteer Coach

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    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 

    115 Canopy Street, Suite 200

    Lincoln, NE 68508

    P: 531.500.2000

    GRAND ISLAND

    3320 James Road, Suite 100

    Grand Island, NE 68803

    P: 308.382.7850

    March Retirement Plan Newsletter 2020

    January Retirement Plan Newsletter 2020

     

    LUTZ BUSINESS INSIGHTS

     

    JANUARY RETIREMENT PLAN NEWSLETTER

    FINANCIAL WELLNESS AND PRODUCTIVITY: HOW ARE YOUR EMPLOYEES AFFECTED?

    Employees worried about their personal finances are less productive, more distracted and are easier targets for poachers. While none of that is a revelation, a recent nationwide survey showed just how pervasive financial insecurity is in the workforce and how large the losses and potential risks are for employers at every level. When asked what they feel stress about, 59% of respondents said personal finances were their number one concern. Other familiar stressors paled in comparison — “my job” at 15%, “relationships” at 12% and “health” at just 10%.

    If you have a retirement planning professional who works with your employees, that’s a good start, but the study shows the problem — and effective solutions — go much deeper.

     

    Who’s at Risk?

    Not surprisingly, younger, lower-earning employees feel stressed about their finances. But that concern extends all the way up the income ladder and across all generations. In fact, 38% of Millennials reported feeling financial stress, compared to 34% of Gen X and 25% of Baby Boomers.

     

    Employers impact on Financial Wellness

    EFFECTS OF FINANCIAL STRESS

    Effect Those Who Say They’re Stressed Those Who Say They Aren’t Stressed
    Finances have been a distraction at work 47% 10%
    Spend three hours or more at work each week thinking about or dealing with personal finance issues* 49% 30%
    Health has been impacted by financial worries** 26% 18%
    Relationships at home have been impacted by financial worries** 38% 18%

    For companies concerned about a stressed workforce, financial wellness goes beyond having a retirement plan advisor inform employees about their options and basic financial literacy. Formal coaching on handling personal finances can lower stress, boost productivity and increase retention. Employees who participated in a formal financial wellness plan at work say that it helped them prepare for retirement (47%), pay off debt (29%), save for their goals (29%) and control their spending (29%). Demonstrating concern for employees’ financial health could also reduce the allure of jumping ship if they feel your company cares and is taking steps to help them.

     

    Changes, and not Just in Attitudes

    Organizations using retirement plan advisors that offer robust financial wellness programs aren’t just engaging in self-interested risk-abatement – they’re signaling to employees that they understand our economic system is undergoing rapid and significant change. The 20th century paradigm of locking into a lifetime profession has been replaced by seismic shifts and massive uncertainty. Companies that offer employees effective help in navigating the new economy stand to benefit from a workforce that is not only more productive, but one that’s more loyal and committed as well.

     

    For more information on financial wellness and preparing your employees for retirement, reach out to your plan advisor.

    *Asked of those who say finances have been a distraction at work
    ** As noted on page 19 of the study, employees could choose as many answers as applicable to the question, “Which of the following have been impacted by your financial worries?”

    1. https://www.pwc.com/us/en/industries/private-company-services/library/financial-well-being-retirement-survey.html
    2. https://www.pwc.com/us/en/private-company-services/publications/assets/pwc-2019-employee-wellness-survey.pdf

     

    WHY CFOS SHOULD CONSIDER PARTNERING WITH A RETIREMENT PLAN ADVISOR

    Many companies are outsourcing more and more activities, mainly because outsourcing can provide cost savings and increase productivity. Outsourcing allows companies to focus more on their core businesses, rather than spending time on areas outside their expertise. For retirement plan sponsors, outsourcing services makes sense for these reasons as well as others.

     

    Reduced Risks

    As a plan sponsor, you and your company are plan fiduciaries, and can be held legally responsible for the plan’s administration and performance. Many sponsors outsource some or most responsibility. A 3(21) investment fiduciary assumes part of the risk, functioning as a co-fiduciary that provide prudent and objective advice. A 3(38) investment fiduciary accepts total responsibility and the lion’s share of potential liability for selecting, monitoring and replacing investment options, which helps the plan sponsor manage the risk of legal action concerning investment decisions. A true 3(16) outsourcing of the plan administrator role means offloading not only the day-to-day mechanics of plan administration, but the ultimate fiduciary responsibilities attendant thereto. That said, when plan sponsors contemplate outsourced 3(16) services they need to dive deep into contract review to understand what is actually being outsourced and what might remain in their hands.

     

    Increased Objectivity

    Independent third-party plan administration and fiduciary services help your retirement plan by managing conflicts of interest, biases or self-interest. As set out in the Employee Retirement Income Security Act of 1974 (ERISA), both 3(21) and 3(38) investment fiduciaries, as well as 3(16) plan administrators, are required to act solely in the interest of plan participants and must act prudently when making decisions about, or administering, the plan. These actions provide plan sponsors and plan participants with a greater level of risk management and confidence in the retirement plan.

     

    Increased Service Level

    Typically, a third-party plan administrator or fiduciary can devote much more time and attention to the support of your retirement plan than can employees. Employees often ‘squeeze in’ plan-related tasks around their regular duties, and may lack the skills, training and resources that an outsourced provider offers.


    For more information on outsourcing fiduciary services, contact your plan advisor. portant group.

    IMPROVE YOUR RETIREMENT PLAN BY ENCOURAGING EMPLOYEES TO JOIN

    Many organizations face the problem of increasing employee participation in their retirement plans. Participation is crucial to the success of the plan, and it improves employee retention and overall job satisfaction – but how can plan sponsors improve participation rates?

    • Design: Your plan needs to meet the needs of your employees and your company. Employee matching contributions, waiting periods for new employees, loan or hardship withdrawal options, investment options, and more should be structured to make it easy for employees to join and feel confident they can control their assets. A qualified consultant can help you understand design features that meets your company and employee goals.
    • Communication: Investing and financial markets are confusing for most people, and confusion doesn’t inspire confidence or trust. One way to improve confidence and trust in your plan is to regularly supply plan information and investment education. Communication to employees helps your plan advisors demonstrate their competence and expertise. Consider setting up dedicated meetings, targeted communications, one-on-one sessions, e-mails, webinars, and more! These are just a few ways to communicate the value of your retirement plan to employees and help them prepare for retirement.

    For other ideas on how to improve your retirement plan and encourage your employees to participate, reach out to your plan advisor.

    PARTICIPANT CORNER: THE IMPORTANCE OF KEEPING BENEFICIARY INFORMATION UPDATED

    Planning for the departure of a loved one is a difficult thing to think about, but no matter how delicate, it is something any pragmatic planner must consider. What happens to your retirement account when you, your spouse or partner pass? When choosing your retirement plan it’s likely that you were asked to designate a beneficiary – the individual who would receive the money accrued in your retirement account in the event of your passing. As difficult as this may be to think about, it’s always best to be prepared for any contingency. Here are a few tips to consider when updating your beneficiary information.

     

    Take Time to Review Your Account

    When reviewing your retirement savings account, take time to consider your designated beneficiaries. This is an important step since retirement account assets typically are not governed by your will. Instead, the assets will pass to the beneficiaries named on the account, which is why it is of utmost importance to keep this information up to date.

     

    Spousal Consent Notice

    If you’re married, it is imperative that your spouse’s signature consent is signed in front of a notary public, or your plan administrator, to designate anyone besides your spouse as a beneficiary.

     

    Life Changing Events

    Remember to make changes to beneficiaries after any significant life event, including marriage, divorce, birth of a child, or any other milestones. If you’re unsure if something qualifies as a ‘life changing event’, your plan advisor will be happy to assist you. By keeping your beneficiary form up to date, you can ensure that your assets will be distributed as you intended.

    As always, planning for retirement and keeping your plan up to date – even in the event of unforeseen adverse situations – is very important. Your plan advisor is here to help you through every step, so make sure to reach out at any time with questions.

    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

    Toll-Free: 866.577.0780  |  Privacy Policy

    All content © Lutz & Company, PC

    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 

    115 Canopy Street, Suite 200

    Lincoln, NE 68508

    P: 531.500.2000

    GRAND ISLAND

    3320 James Road, Suite 100

    Grand Island, NE 68803

    P: 308.382.7850

    March Retirement Plan Newsletter 2020

    December Retirement Plan Newsletter 2019

     

    LUTZ BUSINESS INSIGHTS

     

    DECEMBER RETIREMENT PLAN NEWSLETTER

    THE BENEFITS OF MATCHING RETIREMENT CONTRIBUTIONS

    As the unemployment rate has dropped, hiring has grown increasingly competitive – especially for businesses with highly-specialized positions. It’s important to understand how retirement matches factor into the hiring process and how they can financially benefit your company. Here are a few reasons why offering a retirement match helps your business.

    Competitive Hiring

    If you don’t offer a retirement match, chances are your competitors do, meaning it’s more difficult to attract top talent. A full benefits package that includes a retirement match may prevent you from paying top dollar to win candidates who might consider a job offer from your competitors.

    Reduced Turnover

    In order to reap the largest rewards attached to a retirement plan match, employees often must work for a particular period of time, known as vesting1. This timeframe encourages employees to stay and maximize their contributions to receive the best benefits. Since replacing a departing worker is expensive2, reduced turnover brings cost savings.

    Tax Savings

    Your finance department will love the savings received at tax time from your retirement plan match. Businesses can deduct every dollar they contribute toward employee retirement plans in addition to the tax savings employees reap for participating. Small and mid-sized business may also be able to deduct their retirement plan startup costs under the Credit for Small Employment Pension Plans Startup Costs3.

    Future Compliance

    In most states, businesses aren’t required to offer retirement plans for their employees, but that is changing. Seven states4 now have a government-mandated retirement option in place for residents, and in Oregon and Illinois5, employers are required to enroll their workers in a plan. By having an employer-matched retirement plan in place, your business will be prepared if a mandate impacts your workplace.

    By understanding the benefits of a retirement plan match, your business can make informed decisions and save money. For further questions about matching or other questions relating to retirement plans, contact your plan advisor.

     

    1. https://money.cnn.com/retirement/guide/401k_basics.moneymag/index10.htm

    2. https://www.peoplekeep.com/blog/bid/312123/Employee-Retention-The-Real-Cost-of-Losing-an-Employee

    3. https://www.irs.gov/retirement-plans/retirement-plans-startup-costs-tax-credit

    4. https://primepay.com/blog/state-retirement-plans-now-mandatory-7-states

    5. https://www.forbes.com/sites/ashleaebeling/2016/09/13/when-will-new-state-retirement-plans-start-enrollment/#7905e2f57e0f

    THE MORE YOU KNOW: AUTOMATIC ENROLLMENT NOTICES

     Many retirement plans today provide automatic enrollment for employees, meaning the plan sponsor initiates enrollment into the retirement plan on behalf of the employee. One common question plan sponsors come across is whether their enrollment kit satisfies the annual automatic enrollment notice requirement.

    At first glance, it may seem that enrollment kits contain all the necessary information to satisfy your obligation to provide an annual notice of your plan’s automatic enrollment feature, however the notice must include the following information:

    1. The default contribution rate that will apply if the participant does not make an affirmative deferral election.
    2. The employee’s right to elect not to have the default rate apply, or to elect a different contribution rate.
    3. How default contributions will be invested absent an investment election by the participant.
    4. The notice must be provided before each plan year.

    Do you expect to send out enrollment kits to all covered employees before the beginning of each plan year? Since most plans merely provide an enrollment kit at the time an employee first becomes eligible to participate, the enrollment kit will not likely satisfy the annual notice requirement.

    For more information on automatic enrollment notification requirements, contact your plan advisor.

    TOP TEN FIDUCIARY RESPONSIBILITIES

    A plan fiduciary plays an important role in the organization’s financial health. Not only do they oversee the fiduciary process, but they identify and serve the best interests of a retirement plan’s participants and beneficiaries. Here are 10 important responsibilities to keep in mind.

    1. Limit liability: As a fiduciary, it is imperative that you understand ERISA so you can keep yourself and your business safe from liability.
    2. Find the right plan provider: Finding a retirement plan provider is much more complicated than many realize.
    3. Keep costs low: No matter how big your business’s budget, always monitor fees to ensure you are getting the best deal.
    4. Oversee plan performance: Once a retirement plan is in place, continuously monitor its performance.
    5. Educate plan participants: Regardless of position and hierarchy, employees may come to you asking about plan options. What should you say?
    6. Stay informed: Your role is to know more about your business’s retirement savings plan than everyone else, so education is vital.
    7. Avoid personal gain: As a fiduciary, it’s important to distance yourself from any situation that could be perceived as personal gain from the retirement plan.
    8. Diversify investments: The investment options offered in your plan should be diversified. This limits financial risk and helps balance risks and rewards.
    9. Monitor participant satisfaction: Evaluate employee satisfaction with the plan. Follow up on complaints, and regularly gauge the plan needs to determine the right time for change.
    10. Ensure employees understand their options and monitor their satisfaction levels.
    PARTICIPANT CORNER: INCREASING YOUR RETIREMENT DOLLARS

    1. Don’t Cash Out Retirement Plans When Changing Employment

    When you leave a job, the vested benefits in your retirement plan are an enticing source of money. It may be difficult to resist the urge to take that money as cash, particularly if retirement is many years away. If you do decide to cash out, understand that you will very likely be required to pay federal income taxes, state income taxes, and a 10 percent penalty if under age 59½. This can cut into your investments significantly and negatively impact your retirement savings goals! In California, for example, with an estimated 8 percent state income tax, someone in the 28 percent federal tax bracket would lose 46 percent of the amount withdrawn. When changing jobs, you generally have three options to keep your retirement money invested – you can leave the money in your previous employer’s plan, roll it over into an IRA, or transfer the money to your new employer’s plan.

     

    2. Take Your Time: Give Your Money More Time to Accumulate 

    When you give your money more time to accumulate, the earnings on your investments, and the annual compounding of those earnings can make a big difference in your final return. Consider a hypothetical investor named Chris who saved $2,000 per year for a little over eight years. Continuing to grow at 8 percent for the next 31 years, the value of the account grew to $279,781. Contrast that example with Pat, who put off saving for retirement for eight years, began to save a little in the ninth and religiously saved $2,000 per year for the next 31 years. He also earned 8 percent on his savings throughout. What is Pat’s account value at the end of 40 years? Pat ended up with the same $279,781 that Chris had accumulated, but Pat invested $63,138 to get there and Chris invested only $16,862!

     

    3. Don’t Rely on Other Income Sources, and Don’t Count on Social Security

    While politicians may talk about Social Security being protected, for anyone 50 or under it’s likely that the program will be different from its current form by the time you retire. According to the Social Security Administration, Social Security benefits represent about 34 percent of income for Americans over the age of 65. The remaining income comes predominately from pensions and investments. They also state that by 2035, the number of Americans 65 and older will increase from approximately 48 million today to over 79 million. While the dollars-and-cents result of this growth is hard to determine, it is clear that investing for retirement is a prudent course of action.

     

    4. Consider Hiring a Financial Advisor!

    Historically, investors with a financial advisor have tended to “stay the course”, employing a long-term investment strategy and avoiding overreaction to short-term market fluctuations. A financial advisor also can help you determine your risk tolerance and assist you in selecting the investments that suit your financial needs at every stage of your life.

    For more information on retirement tips, contact your plan advisor.

    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

    Toll-Free: 866.577.0780  |  Privacy Policy

    All content © Lutz & Company, PC

    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 

    115 Canopy Street, Suite 200

    Lincoln, NE 68508

    P: 531.500.2000

    GRAND ISLAND

    3320 James Road, Suite 100

    Grand Island, NE 68803

    P: 308.382.7850

    New IRS Indexed Limits for 2020

    New IRS Indexed Limits for 2020

     

    LUTZ BUSINESS INSIGHTS

     

    new irs indexed limits for 2020

     

    WASHINGTON — The Internal Revenue Service today announced that employees in 401(k) plans will be able to contribute up to $19,500 next year. The IRS announced this and other changes in Notice 2019-59 (PDF), posted today on IRS.gov. This guidance provides cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2020.

    Share this valuable information with your clients. Download a communication to send to your clients and memo for your clients to send to their participants in the Advisor Portal Resource Center > Fiduciary Compliance & Plan Design > Plan Limits folder.      

     

    ITEM

    2020

    2019

    2018

    401(k), 403(b), 457 Elective Deferral Limit

    $19,500

    $19,000

    $18,500

    Catch-Up Contribution Limit (age 50 or older)

    $6,500

    $6,000

    $6,000

    Annual Compensation Limit

    $285,000

    $280,000

    $275,000

    Defined Contribution Limit

    $57,000

    $56,000

    $55,000

    Defined Benefit Limit

    $230,000

    $225,000

    $220,000

    Definition of Highly Compensated Employee

    $130,000

    $125,000

    $120,000

    Key Employee

    $185,000

    $180,000

    $175,000

    IRA Contribution Limit

    $6,000

    $6,000

    $5,500

    IRA Catch-Up Contributions (age 50 and older)

    $1,000

    $1,000

    $1,000

     

    HIGHLIGHTS OF CHANGES FOR 2020

    The contribution limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $19,000 to $19,500.

    The income ranges for determining eligibility to make deductible contributions to traditional Individual Retirement Arrangements (IRAs), to contribute to Roth IRAs and to claim the saver’s credit all increased for 2020.

    Taxpayers can deduct contributions to a traditional IRA if they meet certain conditions. If during the year either the taxpayer or their spouse was covered by a retirement plan at work, the deduction may be reduced, or phased out, until it is eliminated, depending on filing status and income. (If neither the taxpayer nor their spouse is covered by a retirement plan at work, the phase-outs of the deduction do not apply.) Here are the phase-out ranges for 2020:

    • For single taxpayers covered by a workplace retirement plan, the phase-out range is $65,000 to $75,000, up from $64,000 to $74,000.
    • For married couples filing jointly, where the spouse making the IRA contribution is covered by a workplace retirement plan, the phase-out range is $104,000 to $124,000, up from $103,000 to $123,000.
    • For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $196,000 and $206,000, up from $193,000 and $203,000.
    • For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

    The income phase-out range for taxpayers making contributions to a Roth IRA is $124,000 to $139,000 for singles and heads of household, up from $$122,000 to $137,000. For married couples filing jointly, the income phase-out range is $196,000 to $206,000, up from $193,000 to $203,000. The phase-out range for a married individual filing a separate return who makes contributions to a Roth IRA is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

    The income limit for the Saver’s Credit (also known as the Retirement Savings Contributions Credit) for low- and moderate-income workers is $65,000 for married couples filing jointly, up from $64,000; $48,750 for heads of household, up from $48,000; and $32,500 for singles and married individuals filing separately, up from $32,000.

     

    KEY LIMIT REMAINS UNCHANGED

    The limit on annual contributions to an IRA remains unchanged at $6,000. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.

    Details on these and other retirement-related cost-of-living adjustments for 2020 are in Notice 2019-59 (PDF), available on IRS.gov.

    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 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 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 newsletter 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.

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    Toll-Free: 866.577.0780  |  Privacy Policy

    All content © Lutz & Company, PC

    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 

    115 Canopy Street, Suite 200

    Lincoln, NE 68508

    P: 531.500.2000

    GRAND ISLAND

    3320 James Road, Suite 100

    Grand Island, NE 68803

    P: 308.382.7850