Retirement Planning

Financial Planning: Your Map for Your Financial Goals

Financial planning provides the foundation for your investments. You must begin by setting goals, gathering your financial records, learning your net worth, and creating a budget. This planning stage starts with gathering your information. The more information about finances, your risk tolerance, and your financial goals that you can show to your financial planner, the better the professional will be able to help you make a roadmap for your future.

Once you have gathered this information, your financial planner will help you answer the following questions about your finances:

• How long are you willing to keep your funds in your investment vehicles to achieve your stated goals?
• What cash needs will you have in the future?
• What income do you need to have right now from your investments?
• What legal issues or taxes do you need to consider when setting up your portfolio?
• What level of risk are you comfortable with for your investments?
• Are you willing to accept volatility in your portfolio if it will yield a higher return?

Once you have found the answers to these questions, your financial planner can find a mix of assets that matches your goals and your risk comfort level. Often, financial planning begins with sound retirement planning.

Retirement Funding

Individuals planning for their financial needs during retirement should fully fund the savings plans offered through their employers to take advantages of the savings available through tax-deductible of tax-deferred plans. If your employer offers contributions or matching contributions, fund those accounts first. If you qualify for any IRAs, fund these next.

Definitions to Know

• Simple Plans – Simple plans, like the simple 401(k) or the simple IRA, are designed for small business owners who have 100 or fewer employees and no current retirement plans in place.
• Roth Accounts – Roth plans are elective plans that can be included in your gross income. Since the contributions come from post-tax income, these grow tax free, and the money can be withdrawn tax-free any time after age 59 1/2, or prior to that time if you are disabled or pass away.

Retirement Plan Options


• Section 401(k) plans are tax-qualified deferred compensation plans for businesses that allow employees to contribute a portion of their wages to the plan prior to taxes. These wages, known as elective deferrals, are subject to income taxes when they are placed in the account, and they are not entered into Form 1040 at tax season. They are subject to other taxes, such as Medicare, unemployment taxes, and Social Security.
• In 2015 the maximum employee contribution that could be made in a 401(k) plan is $18,000.
• The maximum compensation to be considered is $265,000.
• Employees who are age 50 or older can add an additional catch-up contribution. In 2014 this additional amount is $6,000.
• When the money in a 401(k) is withdrawn, it is subject to federal and state income taxes.

Simple 401(k)

• These plans are a type of tax-qualified deferred compensation plan for businesses with less than 100 employees, similar to the standard 401(k). Under a Simple 401(k), employers must make a matching contribution of up to 3 percent of the employee’s pay, or they can make a non-elective contribution of 2 percent of the employee’s pay.
• The maximum employee contribution for 2015 is $12,500.
• The maximum for employee plus employer contributions in 2015 is $53,000 ($12,500 plus 3 percent of compensation up to $265,000 plus catch-up payments).
• The maximum amount of compensation that can be considered under these plans is $265,000.
• Employees age 50 or older can make an additional catch-up contribution of $3,000 as of 2015.
• When money is withdrawn from these accounts, it is subject to federal and state income taxes.

Roth 401(k)

• A Roth 401(k) is a business retirement account made with after-tax dollars.
• In 2015 the maximum employee contribution is $18,000 plus $6,000 if you are over the age of 50.
• The maximum amount of compensation that can be considered is $265,000 in 2015.
• Employees age 50 and older may make an additional contribution, which in 2015 is $6,000.
• Investments in a Roth 401(k) can grow tax free, and earnings are withdrawn tax free after age 59 ½ or after the death or disablement of the holder. Accounts must be open for 5 years.


• These are plans sponsored by tax-exempt institutions, such as schools, colleges, universities, or charitable organizations, for their employees. They are similar to 401(k) plans in that they allow employees to defer some of their salary, but it goes into an employer-sponsored plan, where it is not taxed until distribution.
• In 2015 the maximum employee contribution is $18,000.
• Employee plus Employer contributions are the lesser of $53,000 or 100 percent of the employee’s wages.
• In 2015 the maximum amount of compensation that can be considered was $265,000.
• These plans have a “lifetime catch-up provision.” This is available to employees who have 15 or more years of service with a qualified organization, and allows them to increase their contributions by up to $3,000 per year. The lifetime limit on this increase is $15,000. Qualified employees must have contributed an average of less than $5,000 per year to their 403(b) plan to qualify for the catch-up provision.


• SEP IRAs allow employers to make contributions to a traditional IRA setup for eligible employees. The SEP is funded only through employer compensation, and each employee has full ownership of the money in his or her SEP-IRA.
• Business can be of any size to set up a SEP. They can adopt Form 5305-SEP, set up an SEP prototype, or individually design a plan for their employees.
• The business cannot have another retirement plan if the model in Form 4304-SEP is used.
• Total contributions cannot be more than the lesser of $53,000 or 25 percent of the employee’s plus any catch-up payments in 2015.


• These tax-deferred retirement plans are offered to small businesses with less than 100 employees or sole proprietors who do not have another retirement plan. In a Simple IRA, employees can defer part of their salaries. All contributions are fully owned by the employee.
• Employee contribution limits in 2015 are $12,500. Those over the age of 50 can contribute an additional $3,000 for a catch-up contribution.
• Employers can dollar-for-dollar match up to 3 percent of the pay or a 2 percent non-elective contribution for eligible employees.


• Keoghs are tax-deferred retirement plans designed for self-employed individuals.
• Profit Sharing Keogh plans allow for a changing contribution each year.
• Money Purchase Keogh plans require the same percentage contribution each year.
• Individuals who qualify for Keogh plans may contribute to both types of plans.
• Contribution limits are the lesser of $53,000 or 25 percent of the individual’s earnings, as of 2015.

Traditional IRA

• IRA stands for Individual Retirement Account. These are tax-deferred investments for people who are employed.
• In 2015 the maximum contribution is $5,500 per year, with a catch-up of $1,000 for those 50 years old or older.
• Regular IRAs are for individuals with earned income.
• Spousal IRAs are for married couples who have only one spouse earning income.
• Contributions are fully tax-deductible if neither the investor or the investor’s spouse participated in a company-sponsored retirement plan.
• Contributions are fully tax-deductible if the investor contributes money to a company-sponsored retirement plan, but earned less than $61,000 for single wage earners and $98,000 for married wage earners, as of 2015.
• Contribution are partially tax-deductible if the investor contributed to a company-sponsored retirement plan and earned between $61,000 and $71,000 for single individuals and $98,000 and $118,000 for married couples as of 2015.
• Contributions are not tax deductible if earnings were above these limits.

Roth IRAs

• Roth IRAs are individual retirement accounts that are not tax-deductible. Because income is placed into the plan after taxes, it grows tax free and is withdrawn tax free, provided the account has been open for five years and the investor waits to withdraw until age 59 ½.
• Maximum contributions are $5,500, with a catch-up of $1,000.
• Eligibility depends on income. Eligibility phases out for married couples with an adjusted gross income between $183,000 and $193,000 and for single individuals with an AGI between $116,000 and $131,000, as of 2015.

For more information about specific retirement accounts, contact us, and we will send you more information.