401k & 403b Basics: No Match Doesn?t Mean No Good

Ever wonder how much money you need to retire?? Experts suggest that for each?$1k?of money to spend each month during retirement, you need to have?$150k?in financial assets. So to generate?$10k?per month (or $120k per year), you?ll need?$1.5 million?saved up. That?s a lot of money.

How can you ever manage to save that much money? Contributing to a 401(k), 403(b), or 457 plan at work is one of the best tax shelters available to people during their working years. ?Amounts contributed generally reduce your taxable salary and grow tax-deferred. For 2015, you can make salary deferrals of $18k into your employer?s plan.? Anyone 50 of older can contribute $24k.

If you are fortunate to work at a business that matches your salary deferrals,?Rule #1?is very obvious.? Put away enough to max out employer contributions.? Otherwise, you are leaving a portion of your compensation package on the table.

What if your employer does NOT make any matching contributions?? In this case, the advice we routinely give is quite simple:?No Match Does Not Mean No Good.

Here?s why.? Let?s assume you?re in the 25% federal tax bracket and the 5% state tax bracket.? Every dollar you contribute in salary deferrals saves you 30 cents in taxes.? It only costs you $700 in after-tax dollars, therefore, for every $1,000 you contribute to the plan.? You?ve already earned a 43% return on your money. ($300 / $700 = 43%)

Yes, you?ll owe taxes on the money in your 401k, 403b, or 457 plan when you retire.? But as long as the money stays invested, the government lets you keep the compounded earnings on the taxes you didn?t pay.

Let?s look at an example of $100k invested earning an 8% return over 25 years: This money would grow to $685k within your retirement account versus only to $370k in a taxable account assuming all the earnings were taxed each year.?That?s the power of tax deferred growth!

MORE SAVINGS TIPS:

  • Consider?rolling your old retirement accounts? held at a previous employer into your current employer’s 401(k) or 403(b) plan to consolidate your finances
  • If your income will be too high for 2015 to contribute to a Roth IRA this year, consider making a non-deductible contribution to an IRA to convert to a Roth before December 31st.
  • The?maximum annual salary deferral?into a?401(k) plan or a?403(b) plan?is $18,000 in 2015, up from $17.5k in 2014.? If you’ll be 50 or older by Dec. 31st, you can contribute an extra $6,000 into your 401(k) or 403(b) account this year, up from $5,500 last year.
  • The?maximum annual contribution?to your?IRA?is?$5,500 for 2015.? If you turn 50 by Dec. 31st, you can contribute an extra $1,000 that year.? You have until April 15, 2016 to make your 2015 IRA contributions.

Please watch our 2-minute recorded presentation on this topic available at:?https://youtu.be/aKPWrRDA-GI

 

As Market Fears Grow, Stay Focused on The Long Term

Presented by Matthew Metraw, Axial Financial Group

One bad day doesn?t make a bear market. Two bad days, however, and the prospect of more to come, may well signal one.

Bear market is a scary term, and the past several days have certainly given investors cause for concern. Rather than spend time worrying, though, let?s try to understand what has happened and what it means for our long-term financial goals.

Markets decline worldwide, but U.S. fundamentals remain strong?

At times like this, it?s worth reviewing where stock prices come from. The two components are earnings (how much companies are making per share) and valuations (how much investors are willing to pay for those earnings). Earnings evolve with the economy as a whole, whereas valuations are much more variable.

Asian markets, particularly China?s, are suffering from a double hit. Earnings growth has slowed substantially for many companies, making them worth less even if valuations remain constant. Valuations, however, have been dropping sharply as investors lose confidence in the economy and in future growth. This double whammy has slammed markets in China and around the world, and it may well continue.

In Europe, the turbulence in China has sapped confidence, but the damage has been mitigated by relatively strong fundamental economic and corporate performance. This shows that investors are still making rational distinctions between markets – a positive sign – and also allows for confidence to recover as fundamentals continue to improve.

Right now, with the exception of energy, the U.S. economy continues to grow at a reasonably healthy rate?better than European economies. Corporate earnings, which are based on the economy as a whole, are relatively strong outside of the energy sector. Even there, lackluster earnings are due to low oil prices, which actually help the rest of the economy. In any event, earnings are expected to increase over the next year.

Just as in Europe, any declines in U.S. markets will be based on what investors are willing to pay for a given stream of earnings, and valuations may well recover as confidence improves again.

Putting it all in perspective?

When we consider where we are now, compared with where we have been, it?s important to make the following distinctions:

  • In the financial crisis of 2008, the banking system was in jeopardy. Now it is far more solid, with much higher levels of capital and much lower exposure to risky areas.
  • In the financial crisis, U.S. consumers and businesses had large stocks of debt and the housing sector was collapsing. Now, the housing market has normalized and household debt has come down substantially to a healthy level.
  • Supportive economic factors are in place?namely, Federal Reserve policy and low oil prices, both of which continue to stimulate the economy.

Combined, these facts suggest we?re unlikely to see the low market valuations that we saw in the financial crisis of 2008. Although we may experience further declines, they will be constrained by the much healthier economic and financial position the U.S. now finds itself in.

A better comparison is probably to the Asian financial crisis. As that situation deepened in 1998, U.S. markets dropped substantially, only to recover shortly thereafter. The damage was real but short lived, as strong U.S. economic fundamentals supported markets and investors from other parts of the world moved capital into what they perceived as a safe haven.

Given that the problem here in the U.S. is largely related to confidence, it?s logical to think that the market will recover as fundamentals continue to improve. We?ve gone several years without a significant decline, and the first was bound to be unsettling. In reality, though, the market?s foundations remain solid.

Taking the long-range view?

Over the longer term, this type of adjustment is normal and healthy. Periodic downturns clear out market excesses and set the stage for further advances. To put the recent decline in context, the market is still up substantially over the past five years. And, although down over the past 12 months, it remains above the levels of October 2014, when it dropped and then fairly quickly recovered.

As always, the key is to remain focused on your long-term objectives rather than short-term fluctuations. As unsettling as recent market movements have been, the real economy continues to improve. That, not short-term price fluctuations, is what will determine the ultimate success of your investment process.

Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict. All indices are unmanaged, and investors cannot invest directly in an index. Unlike investments, indices do not incur management fees, charges, or expenses. Past performance is no guarantee of future results.


Matthew Metraw?is a financial advisor with Axial Financial Group, located at 5 Burlington Woods, Suite 102, Burlington, MA 01803.? He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network?, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 781-273-1400 or mmetraw@axialfg.com. ?

This article is Authored by Brad McMillan, CFA?, CAIA, MAI, chief investment officer at Commonwealth Financial Network.??? 2015 Commonwealth Financial Network?


 

Wealth Management: Do You Need a Plan?

MattMetraw_140_2014We?re pleased to announce that Schwartz & Schwartz is now offering clients wealth management services through our new alliance with Axial Financial Group, LLC.

The alliance of Axial Financial Group, LLC and Schwartz & Schwartz, PC brings together two established and independent financial services firms to provide ?one-stop financial shopping? to Schwartz & Schwartz clients. The combined venture allows clients to continue their established relationship with Schwartz & Schwartz, and receive the added benefit of personal and corporate wealth management.

Meeting with you in our offices in Woburn, Axial Financial Group can provide you with customized investment advisory services by utilizing a comprehensive wealth management plan and corporate benefit and retirement plan solutions. The firm?s services are wide ranging but with one common thread: a focus on risk management while helping clients achieve their personal financial goals.

For a complimentary and no obligation review of your current financial situation, including a full wealth management plan presentation, please contact Matt Metraw, Wealth Management Consultant, ?of Axial Financial Group at 781.938.0045 or email mmetraw@axialfg.com.


The financial advisors of Axial Financial Group are located at 5 Burlington Woods, Suite 102, Burlington MA 01803, Phone: 781-273-1400. ?Securities and advisory services offered through Commonwealth Financial Network, Member FINRA/SIPC, a registered investment advisor. Fixed insurance products and services offered by Axial Financial Group or Axial-Foy Insurance.? Axial Financial Group and Axial-Foy Insurance are separate and unrelated to Commonwealth.


 

IRS Announces Higher Retirement Plan Limits for 2015

Contributing to a retirement plan is one of the best tax shelters available to you during your working years.? Recently, the IRS announced that many of the retirement savings limits will increase for 2015.

Most working professionals have access to a 401(k) plan or a 403(b) plan at work.? Amounts contributed to these plans generally reduce your taxable earnings and always grow tax deferred.? For 2015, you can contribute up to $18,000 into a 401(k) or 403(b) plan through salary deferrals, up from $17,500 in 2014.

Catch-up contributions increased by $500 for 2015.? Anyone 50 or older by December 31, 2015 can now contribute an extra $6,000 into their 401(k) or 403(b) plan through salary deferrals next year, for a total annual contribution of $24,000.

Many smaller employers offer their staff access to SIMPLE/IRAs instead.? SIMPLE’s work just like 401(k) plans, which means it’s up to you to fund the bulk of this retirement savings account through salary deferrals.? For 2015, the maximum contribution into your SIMPLE increases by $500 to $12,500. ?Anyone 50 or older by December 31st can sock away an additional $3,000 in 2015, for a total annual contribution of $15,500.

Are you self-employed?? Each year, you can contribute up to 20% of your net self-employment income into a SEP IRA.? The maximum contribution for 2015 is $53,000, up from $52,000 in 2014.

Solo 401(k)’s are an attractive alternative to many sole proprietors and business owners with no full time employees who work more than 1,000 hours per year besides a spouse.? If you don’t have access to a 401(k) or 403(b) plan through another employer, the Solo 401(k) plan makes it easier for you to hit next year’s max of $53,000.? If you’re 50 or older, your maximum contribution into a Solo 401(k) jumps to $59,000.? You have until December 31st to set up a Solo 401k and contribute for 2014.

The IRS also announced that the maximum amount of wages and net self-employment income that you can use to determine certain retirement plan contributions has increased to $265,000 for 2015, up from $260,000?in 2014.

Re-Set Your 2015 Budget

Most people won’t be able to max out these tax-advantaged retirement options unless they get on a budget and put away a set amount of money each month.? With 2014 winding down, now’s the time to start thinking about resetting your monthly retirement savings goals for 2015.

 

2015 Maximum Retirement Account Contributions

Under the Age of 50:

401(k) or 403(b) $18,000
($1,500/month)
SIMPLE IRA $12,500
($1,041.67/month)
SEP IRA $53,000
($4,416.67/month)
Solo 401(k) $53,000
($4,416.67/month)
IRA or Roth IRA $5,500
($458.33/month)

 

50 or Older by Dec. 31st:

401(k) or 403(b) $24,000
($2,000/month)
SIMPLE IRA $15,500
($1,291.67/month)
SEP IRA $53,000
($4,416.67/month)
Solo 401(k) $59,000 or
($4,916.67/month)
IRA or Roth IRA $6,500
($541.66/month)

 

Don’t Forget About IRAs When Planning for Year End

Even if you’re covered under a retirement plan at work, you and your spouse can each contribute up to $5,500 into a traditional IRA or Roth IRA for 2014 and 2015, as long as your combined wages and net self-employment income exceeds the total amount contributed. Anyone 50 or older can contribute an extra $1,000, increasing the max contribution to $6,500.

Here is some good news for people looking to contribute to a Roth IRA. The amount you can earn and still contribute to a Roth has increased from 2013 by $2,000 for married couples and for single individuals, as follows:

Single Individuals Married Couples
Phase-out begins $116,000 $183,000
Phase-out ends $131,000 $193,000

If your income is too high for a Roth, don’t forget that the rules changed a few years back, eliminating the income limitation as of 2010 for people looking to convert their IRAs to a Roth IRA. This tax law change provides high-income taxpayers with a great opportunity to get money into these tax-free investment accounts.

And if you’re married and your spouse isn’t covered under either an employer sponsored or self-employed retirement plan during the year, the 2014 phase-out range for your spouse making a deductible IRA contribution has increased to $183,000 – $193,000, which is identical to the Roth IRA phase-out limits.

 

IRS Announces Higher Retirement Plan Limits for 2015

Contributing to a retirement plan is one of the best tax shelters available to you during your working years.? Recently, the IRS announced that many of the retirement savings limits will increase for 2015.

Employer Sponsored Plans

Most working professionals have access to a 401(k) plan or a 403(b) plan at work.? Amounts contributed to these plans generally reduce your taxable earnings and always grow tax deferred.? For 2015, you can contribute up to $18,000 into a 401(k) or 403(b) plan through salary deferrals, up from $17,500 in 2014.

Looking to set your 2015 monthly budget?? To max out your 401(k) or 403(b) salary deferrals next year, instruct your employer to withhold $1,500 per month from your pay.

Catch-up contributions increased by $500 for 2015.? Anyone 50 or older by December 31, 2015 can now contribute an extra $6,000 into their 401(k) or 403(b) plan through salary deferrals next year, for a total annual contribution of $24,000, or $2,000 per month.

Many smaller employers offer their staff access to SIMPLE/IRAs instead.? SIMPLE’s work just like 401(k) plans, which means it’s up to you to fund the bulk of this retirement savings account through salary deferrals.? For 2015, the maximum contribution into your SIMPLE increases by $500 to $12,500, or $1,041.67 per month.? Anyone 50 or older by December 31st can sock away an additional $3,000 in 2015, for a total annual contribution of $15,500, or $1,291.67 per month.

Are you self-employed?? Each year, you can contribute up to 20% of your net self-employment income into a SEP IRA.? The maximum contribution for 2015 is $53,000, or $4,416.67 per month, up from $52,000 in 2014.

Solo 401(k)’s are an attractive alternative to many sole proprietors and business owners with no full time employees who work more than 1,000 hours per year besides a spouse.? If you don’t have access to a 401(k) or 403(b) plan through another employer, the Solo 401(k) plan makes it easier for you to hit next year’s max of $53,000.? If you’re 50 or older, your maximum contribution into a Solo 401(k) jumps to $59,000, or $4,916.67 per month.? You have until December 31st to set up a Solo 401k for 2014.

The IRS also announced that the maximum amount of wages and net self-employment income that you can use to determine certain retirement plan contributions has increased to $265,000 for 2015, up from $260,000? in 2014.

IRA’s

Don’t forget about IRAs.? Even if you’re covered under a retirement plan at work, you and your spouse can each contribute up to $5,500, or $458.33 per month, into a traditional IRA or Roth IRA next year, as long as your combined wages and net self-employment income exceeds the total amount contributed.? Anyone 50 or older can contribute an extra $1,000, increasing the total allowable contribution to $6,500, or $541.66 per month.

Even though the contribution limits didn’t increase for 2015, there is a little good news for people looking to contribute to a Roth IRA .? The amount you can earn and still contribute to a Roth has increased by $2,000 for single individuals as well as for married couples, as follows:

Single Individuals Married Couples
Phase-out begins $116,000 $183,000
Phase-out ends $131,000 $193,000

If your income is too high for a Roth, don’t forget that the rules changed a few years back, eliminating the income limitation as of 2010 for people looking to convert their IRAs to a Roth IRA.? This tax law change provides high-income taxpayers with a great opportunity to get money into these tax-free investment accounts.? For more information, please check out the article, The Re-Emergence of Non-Deductible IRAs, available on our March 2007 Newsletter or Keep on Converting in 2011 and Beyond, available in our March 2011 Newsletter.

And if you’re married and your spouse isn’t covered under either an employer sponsored or self-employed retirement plan during the year, the 2015 phase-out range for your spouse making a deductible IRA contribution has increased to $183,000 – $193,000, which is identical to the Roth IRA phase-out limits.

Re-Set Your 2015 Budget

Most people won’t be able to max out these tax-advantaged retirement options unless they get on a budget and put away a set amount of money each month.? With 2014 winding down, now’s the time to start thinking about resetting your monthly retirement savings goals for 2015.

2015 Maximum Retirement Account Contributions


Retirement Savings Option
Under the age
of 50
50 or older by December 31st

401(k) or 403(b)
$18,000
($1,500/month)
$24,000
($2,000/month)

SIMPLE IRA
$12,500
($1,041.67/month)
$15,500
($1,291.67/month)

SEP IRA
$53,000
($4,416.67/month)
$53,000
($4,416.67/month)

Solo 401(k)
$53,000
($4,416.67/month)
$59,000 or
($4,916.67/month)

IRA or Roth IRA
$5,500
($458.33/month)
$6,500
($541.66/month)