Roth 401(k) off to a slow start

By Jerry Kalish on Posted in 401(k) Plans

Today’s on-line edition of the Bellevue News Democrat (Belleville, Illinois) carried a story that the verdict was split on Roth 401(k) and cited a Hewitt survey that employers were taking a cautious approach in adopting Roth.

Like the large companies surveyed by Hewitt, very few small employer have added Roth to their plans. And not out of caution, but for a different reason. Most business owners have heard about Roth 401(k) but very few realize the extent of significant retirement and estate planning opportunities.

For example, the Roth 401(k) will appeal to those business owners and highly compensated employees who are more likely than most to not outlive their pensions. They expect to rollover a Roth 401(k) distribution to Roth IRA and avoid required minimum distributions.

Why is it important for small businesses to add Roth 401(k) to their plans now ? The clock is ticking. Earnings in the Roth 401(k) are tax-free if the contribution remains for five years after the first contribution and certain conditions are satisfied. The five year clock begins with the first year for which the first Roth 401(k) contribution is made. And without congressional extension the Roth 401(k) provision will end December 31, 2010.

Video workshop for small business retirement plans now available from IRS

By Jerry Kalish on Posted in 401(k) Plans, Audio/Visuals

The IRS has just released, A Virtual Small Business Tax Workshop (Publication 1066C), which helps small business owners and self-employed understand and meet their federal tax obligations. Lesson 5 deals with how to set up a retirement plan.

While the IRS focuses strictly on SEPs and SIMPLE IRAs, the lesson does effectively communicate why new or younger small business owners should start a retirement plan now. The Workshop can be ordered directly from the IRS in DVD format or click here  to access the Online Classroom to download Lesson 5’s 18-minute video or printed transcript.

It’s Official: 401(k) Rules

By Jerry Kalish on Posted in 401(k) Plans, Defined Benefit Pension Plans

No one doubts that 401(k) plans have far surpassed defined benefit plans as the retirement plan of choice for corporate America (employers, that is, but not necessarily employees). But seeing this chart from Google Trends really puts it into focus. Thanks  to Fred Wilson’s A VC Blog for the reference.

Defined Benefit Plans, Where art thou?

By Jerry Kalish on Posted in Defined Benefit Pension Plans

It seem like every day we learn about another company that is freezing or terminating its defined benefit pension plan. And it’s not just the troubled automakers, airlines and steelmakers. It’s also healthy companies such as Verizon and IBM who have also moved to reduce or eliminate their pension plans as they shift more of the responsibility to employees through 401(k) plans.

Indeed, the number of active, private-sector workers covered by defined benefit plans has been on the decline for several years. The number of PBGC-insured plans peaked at more than 114,000 in 1985, declining to 31,238 in 2004, according to the Employee Benefit Research Institute.

But defined benefit pension plans are on the rise for a certain segment of the business community – small businesses. Defined benefit pension plan appeal to those business owners who have not saved enough for retirement or want larger tax deductions than those available through a profit sharing plan.

Recent tax law changes have encouraged the adoption of defined benefit pension plans by small businesses:

  • In 2006 the limit for an annual benefit increases to as much as $170,000.
  • A pre-retirement benefit funded through life insurance may be part of the plan design (not new, but rediscovered).
  • The deductible contribution can far exceed that for a profit sharing contribution.
  • The business owner may be able to contribute up to $15,000 to a 401(k) plan plus $5,000 catch-up if age 50 or older in addition to the pension plan contribution.

Who should adopt a defined benefit pension plan? No pat answer since it depends on the facts and circumstances of each employer. In future posts I’ll be addressing a more appropriate question, "What type of retirement plan is right for you?"

Gambling On Retirement

By Jerry Kalish on Posted in Defined Benefit Pension Plans

Two views on the impact of gambling on saving for retirement:

It’s a problem.

The Tax Foundation’s on-line publication, FISCAL FACTS, reported in January on a survey wihch showed that the lottery diverted income from retirement savings. The survey conducted by the Opinion Research Corporation for the Consumer Federation of America and the Financial Planning Association indicated that 21% of the respondents believe the lottery is a practical way to save for retirement. The Tax Foundation went on to assert that contrary to many people’s beliefs—and to state governments’ claims—the money that states raise from lotteries is tax revenue; and that lotteries exemplify poor tax policy.

It’s Not A Problem.

Just recently Harrah’s 2006 Survey:Profile of the American Casino Gambler reported that casino gamblers compared to non-gamblers are:

  • more likely to have increased their savings and decreased their debt over the past year;
  • more likely to be looking forward to their retirement years; and
  • more frequently putting aside money regularly for their retirement.

Who’s right?


TIPRA reinvigorates Roth IRAs

By Jerry Kalish on Posted in 401(k) Plans, Individual Retirement Accounts

The recently passed tax law, the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA),  eliminates the $100,000 modified adjusted gross income ceiling and the joint filing requirement for married individuals for converting a traditional IRA to a Roth IRA for tax years after 2009.

While a conversion is treated as a taxable distribution, it is not subject to the 10% early distribution penalty. Taxpayers converting in 2010 can recognize the conversion income in that year or average it over the following two years. Why might this change be attractive to high income taxpayers? Earnings are distributed tax free, and there are no required distributions at age70 ½.  Click here to access MSN Money’s Roth conversion calculator. 

Will we call it TIPRA?

By Jerry Kalish on Posted in 401(k) Plans, Defined Benefit Pension Plans

Those of us that live in ERISA Land tend to speak in acronyms. Sometimes to the total incomprehension of our clients. The recently passed  tax bill, The Tax  Increase Prevention and Reconciliation Act, will also engender one. The resulting acronym will, no doubt, appear on attorney B. Janelle Grenier’s Benefit Acronym Lexicon, another addition to the 160 currently on her list. 

More importantly, there are two benefit provisions as part of TIPRA (or whatever). One involves changes to the income limitations on Roth IRAs, and the  the other imposes an excise tax on retirement plans that are parties to prohibited tax shelter transactions. More about both after reading the fine print.

My Roth 401(k) Presentation

By Jerry Kalish on Posted in 401(k) Plans, Events, Seminars and Speaking Engagements

I’m active providing continuing education seminars, a number of which are sponsored by The Lanny D. Levin Agency, a Guardian General Agency, for its brokers. Here is an abbrevated version of my recent Roth 401(k) presentation (PDF download) requested by a number of brokers unable to attend.

Thanks again to Lanny Levin, the Agency’s owner, for the opportunity to present.

Know Your Beneficiary

By Jerry Kalish on Posted in 401(k) Plans

Once again the subject of possible Federal Estate Tax repeal is in the news, and many retirement plan participants are waiting or putting off reviewing or even doing their estate plan. Whether or not repeal happens, participants should periodically review their beneficiary designations – especially with 401(k) balances being significant personal assets for many people. Personal circumstances do change (as do spouses). Don D. Carlson and Leslie J. Anderson of the Dorsey & Whitney law firm provide guidance in avoiding the Law of Unintended Consequences – and expensive litigation. 

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