Tribal Council Retirement Plans: What You Need to Know

Tribal council retirement plans are a crucial aspect of the compensation and benefits package that tribal governments offer their employees. These retirement plans help ensure that employees are financially confident after they retire and provide a sense of stability to both the employee and the tribe.

Tribal governments, as sovereign nations, have a unique relationship with the federal government, which has implications for the types of retirement plans they can offer their employees. 

In this blog, we will discuss the importance of tribal council retirement plans, the impact of the Pension Protection Act of 2006 on these plans, and how tribal governments navigate federal regulations to provide their employees with comprehensive retirement benefits. Let’s dive in!

Tribal Retirement Plans vs Non-tribal Retirement Plans: What is the Difference?

When it comes to retirement plans, tribal governments have unique considerations and challenges that differ from those faced by non-tribal employers. Tribal governments, as sovereign nations, have a special relationship with the federal government, which impacts the types of retirement plans they can offer their employees.

Let’s discuss some of these differences between tribal and non-tribal retirement plans and how these differences can prove advantageous to providers.

Compliance with the Employee Retirement Income Security Act (ERISA)

One notable difference is that tribal governments are not required to comply with the Employee Retirement Income Security Act (ERISA), a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans. Instead, they may choose to offer their employees non-ERISA plans that are subject to less stringent regulations. 

However, the tribal retirement plans must be government plans in order to not be subject to the requirements of ERISA. 

According to the IRS, “A tribe may be eligible for a 401(k) or 403(b) governmental plan…. Whether the plan qualifies will depend on the facts and circumstances at hand. If a plan does not qualify as a governmental plan, then it would be presumably non-governmental and subject to the requirements of ERISA.”

What Does the Term “Government Plan” Mean Exactly?

The IRS states, “Prior to 2006, a ‘governmental plan,’ as defined in IRC Section 414(d), included a plan established and maintained for its employees by the U.S. Government, a State government or political subdivision thereof, or by any agency or instrumentality of the foregoing but did not include plans established and maintained by an Indian tribe or a tribal subdivision.

As amended by the Pension Protection Act of 2006 (PPA), the definition of ‘governmental plan’ in IRC Section 414(d) now includes a plan established and maintained by an Indian tribal government, a tribal subdivision, or an agency or instrumentality of either, and all of the participants of which are employees of such entity substantially all of whose services are in the performance of essential governmental functions but not in the performance of commercial activities (whether or not an essential government function).”

How Can Non-ERISA Plans be Advantageous for Employers?

Non-ERISA plans can be advantageous for employers because they are subject to fewer regulatory requirements than ERISA plans. This can lead to lower administrative costs and greater flexibility in plan design.

Non-ERISA plans can also provide greater autonomy for the employer in terms of plan management and decision-making. Additionally, non-ERISA plans may be exempt from certain taxes and fees that are associated with ERISA plans. 

Qualifying Governmental Plans for Indian Tribal Governments

Tribes may be eligible for a 401(k) or 403(b) governmental plan, subject to certain requirements and limitations. To qualify as a governmental plan, the plan must meet specific criteria outlined in Section 414(d) of the Internal Revenue Code.

 A tribe may decide to maintain two separate plans.

Separate Retirement Plans

Another difference is that tribal governments may offer separate retirement plans for their commercial and government employees, while non-tribal employers are typically required to offer the same retirement plan to all eligible employees. This is due to the fact that tribal commercial entities are often separate from the government and have their own unique legal considerations.

However, it’s important to note that tribal governments are still subject to federal regulations, such as the Pension Protection Act of 2006, which has implications for the types of retirement plans they can offer their employees. Additionally, tribal governments are encouraged to file Form 5500 for their retirement plans to ensure compliance and avoid potential penalties.

Multiple Plans

One unique aspect of tribal council retirement plans is the defined benefit (DB) plan for elected officials. Elected tribal council members do not earn Social Security benefits during their term of service, and the DB plan was created to address this issue. Tribes want to ensure that their plans are well-funded and promote the social and financial well-being of their members.

Challenges and Variations

Tribes face challenges in complying with IRS regulations, including the complexity of tribal governance and the unique functions of tribal governments. Each tribe does business differently, with some doing business by consensus while others delegate decisions to a select few members. To address these challenges, tribes need a team that understands federal law, state law, and tribal law.

Summary

Understanding tribal council retirement plans is essential for both tribal governments and employees. The Pension Protection Act of 2006 and ERISA regulations have a significant impact on the design and administration of tribal employee benefit plans. 

Tribal governments must balance compliance with federal law with their inherent sovereignty to govern themselves and their affairs. Providing retirement benefits to tribal council members and other government employees presents unique challenges, but tribes can overcome these challenges with the right team and expertise.

Learn More About Our Tribal Services

At RWM Financial Group, we are committed to upholding independence, excellence, and supporting tribal sovereignty to help achieve your tribe’s financial goals. Our extensive range of services include but are not limited to:

  •  Tribal Council Retirement Plans, 401(k) Investment Management (both ERISA and Non-ERISA)
  • Children’s Trust Investment Management
  •  Fiduciary Investment Management, Discretionary and Non-Discretionary Investment Management
  • Investment Monitoring
  •  And,  Detailed Reporting

We also provide services such as Investment Committee Education, Tribal Member Financial Education, Third-Party Administrator and Provider Liaison, 401(k) Provider Request for Proposal, Participant Education, and Financial Wellness Program, Onsite Meetings, and Retirement Plan Enrollment Assistance. Our team is dedicated to providing exceptional service and building long-lasting relationships with our clients.
The purpose of RWM Financial Group is to promote plan success via our knowledgeable team and a robust set of tools. By working with us, you can help put your employees on the path working toward a confident retirement. Learn more about our services, here.

This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice. Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation. In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.

Administering a 401(k) Plan: Who Does What?

, ,

Managing a workplace retirement plan is a team effort. Everyone needs to understand their roles and responsibilities to ensure the retirement goals of all employees.

The key players in administering a 401(k) or similar employer-sponsored plan include:

  • The plan sponsor, who appoints an officer or employee of the company as the named fiduciary (plan administrator).
  • The plan administrator, who may outsource certain tasks to service providers, but still retains ultimate responsibility for any outsourced activities.
  • The plan participants, who play a key role in the administration of the plan.
  • Service providers and regulators, who have specific responsibilities related to the plan.

Read on to learn more about how this team functions and how each member plays an important role in ensuring the success of the 401(k) plan.

The Plan Sponsor (The Employer)

The plan sponsor has a legal obligation to act as a fiduciary. This means they must act in the best interest of the plan’s participants, and make informed decisions. 

One of the key responsibilities of the plan sponsor is to conduct regular audits of the plan. This includes reviewing the plan’s financial statements, ensuring compliance with legal and regulatory requirements, and monitoring the performance of the plan’s service providers.

The plan sponsor should also have a process in place for selecting and monitoring service providers, such as investment advisers or recordkeepers. This includes conducting due diligence, reviewing contracts, and monitoring performance on an ongoing basis.

In addition, the plan sponsor should verify the plan has adequate insurance coverage and that all necessary documents, such as the summary plan description and trust agreement, are up to date and in compliance with applicable laws.

It’s important for the plan sponsor to keep themselves informed about the current laws and regulations and make sure that the plan is in compliance. They should also take steps to educate their employees about the plan and the responsibilities of all parties involved.

Named Fiduciary/Plan Administrator

The Named Fiduciary/Plan Administrator is the person chosen by the employer to manage and run the 401(k) plan. 

As a fiduciary, they have a legal duty to act in the best interest of the plan’s participants and make informed decisions. This includes choosing and monitoring service providers like investment advisers or recordkeepers and making sure the plan is following all laws and regulations.

The Named Fiduciary/Plan Administrator’s duties may also include:

  • Filing annual reports and other paperwork
  • Communicating with plan participants and giving them information about the plan
  • Approving transactions and investments
  • Checking financial statements and other reports
  • Keeping the plan’s records and documents
  • Working with service providers to make sure the plan is being run correctly
  • Communicating With the employer, service providers, and participants to make sure the plan is working in their best interest.

Plan Participants

401(k) plan participants have certain rights and responsibilities related to the plan, including the right to contribute, receive information, and direct the investment of their contributions.

Participants can choose how much to contribute, subject to any limitations established by the plan sponsor. They also have the right to change their contribution amount at any time and to direct the investment of their contributions among the options offered under the plan.

401(k) plan participants also have the right to receive certain information about the plan, including the summary plan description,  financial statements, and information about investment options. They also have the right to file a complaint or appeal if they believe their rights under the plan have been violated.

It’s important for 401(k) plan participants to communicate with the plan sponsor and administrator to stay informed about their rights and responsibilities.

Service Providers and Regulators

Service providers and regulators play an important role in the administration of a 401(k) plan. Service providers are companies or organizations that provide various services to the plan, such as investment management, recordkeeping, and trustee services. Regulators are government agencies that oversee and enforce compliance with laws and regulations governing 401(k) plans.

Service providers may include:

  • Investment managers, who manage the plan’s investment options and provide investment advice to the plan sponsor and plan administrator;
  • Recordkeepers, who maintain records of the plan’s assets, transactions and participant account balances;
  • Trustees, who hold the plan’s assets in trust and are responsible for safekeeping the assets;

Learn More About 401(k)Plans

Employers should create an effective 401k communication plan that helps employees make informative decisions for retirement.

Contact RWM today to review your existing 401k or talk through a plan of action to offer retirement savings to your employees. 

This information was developed as a general guide to educate plan sponsors but is not intended as authoritative guidance or tax or legal advice.  Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.  In no way does the advisor assure that, by using the information provided, the plan sponsor will be in compliance with ERISA regulations.

Retirement Plan Options for Agricultural Businesses

,

Agricultural business owners have distinct financial characteristics compared to the general population, such as higher personal savings and less dependence on social security during retirement. They also have income from both farming and non-farming sources. Therefore, it’s crucial for them to have a well-defined and comprehensive retirement plan.

 In this article, we will explore different retirement plan options available to agricultural business owners. These include IRAs, SIMPLE plans, SEP plans, and 401(k) plans. We will also discuss the importance of estimating net worth, income, and expenses, and how to use that information to create a retirement plan that aligns with your goals. 

Planning for Retirement with an AG Business

Retirement planning for agricultural businesses can be a complex process due to the unique nature of the industry. Compared to typical business owners, farm and ranch households often have:

  • More personal savings
  • Diverse financial portfolios
  • Income from both farm and off-farm sources

Commercial farm operators are also less likely to have employer-sponsored pension plans and often have to rely on farm assets for retirement income.

It is important for farmers and ranchers to begin planning for retirement well in advance, ideally five to fifteen years before they plan to retire. This provides ample time to make necessary adjustments to their financial portfolio and informed decisions about their future.

Let’s take a look at some options.

Retirement Plan Options for Farmers

As farmers and ranchers approach retirement, it’s important to have a plan in place to ensure financial security. There are several options available for retirement planning, including:

IRAs

There are regular (traditional) IRAs and Roth IRAs. Regular IRA contributions can get you a current-year tax deduction of up to $6,000 for 2022, or $7,000 if you’re over 50 years old. However, you will pay income tax on the distributions when you withdraw them in retirement. Roth IRA contributions, on the other hand, get you no tax deduction for the current year, but you will pay no income tax when you receive distributions after 59.5 years old.

SIMPLE PLAN

Simplified Employee Pension plans allow for tax-deductible contributions for the employer, with contribution limits of up to 25% of the employee’s compensation. This plan is a good option for agricultural businesses with a small number of employees.

401(K) PLAN

This plan allows for tax-deferred contributions from employees, with contribution limits of up to $20,500 for 2022 and up to $27,000 if you’re over 50 years old. Employers can also match contributions, but this plan can be more costly and complex to administer.

Farmers and ranchers can also consider investing in farm assets such as land, equipment, and livestock as a means of retirement income. However, it is important to consult with a financial advisor or CPA to determine the best plan for your situation.

Do Farmers Ever Really Retire? 

It ultimately depends on the individual. Some farmers choose to continue working, while others decide to retire for health reasons or to pursue other interests. Some farmers may sell their farm to a younger generation and continue to work on the farm in an advisory role. 

Others may lease their land to another farmer and continue to work on the farm in some capacity. It’s important for farmers to have a plan for retirement and to consider their options for income during retirement, whether that means continuing to work on the farm or finding alternative sources of income.

With all of these options available, many business owners in the agricultural sector may not know where to start. Let’s discuss how to begin developing a retirement plan. 

How Farmers Can Develop a Retirement Plan

Here are four steps for agribusiness owners can use to develop a financial or retirement plan:

Identify Your Goals:

Establishing your financial objectives in advance is the key to ensuring your investment strategy aligns with your goals. While your long-term goals may not change significantly over time (such as retirement planning and passing on your business to the next generation), your investment mix will evolve as you age. As you approach retirement, you may prefer less risky investments. Because markets fluctuate, it’s essential to reassess your goals and investments regularly to ensure that your financial strategy remains on track.

Calculate What You Can Invest

When creating your investment plan, subtract your monthly expenses from your monthly income to calculate your disposable income. This will determine the amount of money you have left over after covering necessary expenses and what you can afford to invest each month.

If you find that your expenses are greater than your income, consider ways to reduce or delay expenses or find ways to increase your income. If your income exceeds your expenses, it’s time to decide how to use the surplus income to achieve your financial goals.

Planning Retirement with a Professional 

Preparing for retirement can be a complex and overwhelming process. It is important to have a thorough understanding of how to make the most of your distributions and avoid potential pitfalls to ensure a comfortable and secure retirement. It can be beneficial to seek guidance from a team of financial experts to develop a personalized plan that aligns with your specific needs and goals.

Contact RWM today to learn more about retirement plan distributions and how we can help you get ready for retirement. 

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. If you are seeking investment advice specific to your needs, such advice services must be obtained on your own separate from this educational material. 

Secure 2.0: What The New Legislation Could Mean For You

,

The Setting Every Community Up for Retirement Enhancement (SECURE) Act 2.0 offers solutions for a range of issues, including Required Minimum Distributions and student loan debt.

The bill has the potential to strengthen the retirement system and improve your financial readiness for retirement. The law builds upon previous legislation that raised the age for required minimum distributions (RMDs) and permitted workplace savings plans to offer annuities, ultimately concluding a prolonged debate on enhancing retirement savings through employer plans and IRAs.

The key retirement provisions of the Secure 2.0 Act include:

  • Raising the age for retirees to begin taking RMDs from IRA and 401(k) accounts
  • Modifying the catch-up contribution limits for older workers with workplace plans
  • Matching for Roth Accounts
  • Assistance with student debt
  • Simplifying the process of transferring accounts from one employer to another
  • Saving for emergencies within retirement accounts. 

These new provisions will impact employees and employers alike. In this blog, we will discuss the key provisions of the Secure Act 2.0 and what these changes could mean for your retirement. 

Download Our Secure 2.0 Deck

Significant Changes For Retirement Accounts

Starting on January 1, 2023, the required age for taking money out of your retirement account (RMDs) will increase to 73, up from 72. However, if you turned 72 in 2022 or earlier, you will still need to take money out of your accounts as usual.

Penalties for not taking RMDs will decrease as well. Currently, if you don’t take an RMD, you will be charged a penalty of 50% of the amount you were supposed to take out. Starting in 2023, the penalty will decrease to 25% of the RMD amount not taken. If you take the missed RMD and file a corrected tax return in a timely manner, the penalty will be reduced to 10% for IRA accounts.

Additionally, starting in 2024, Roth accounts in employer retirement plans will be exempt from RMD requirements, and the Secure Act 2.0 pushes the age of RMD to 75 starting in 2033. And if you’re receiving annuity payments from your employer retirement plan that exceed the RMD amount, you can apply the excess payment to that year’s RMD.

Higher Catch-up Contributions

Starting January 1, 2025, people between 60 and 63 years old will be able to put an extra $10,000 per year into their workplace retirement accounts as catch-up contributions. This amount could increase each year based on inflation. Currently, the catch-up contribution limit for people 50 years or older is $7,500.

Keep in mind that if you make more than $145,000 in the previous calendar year, any catch-up contributions you make when you’re 50 or older will have to be put into a Roth account, meaning you’ll have to pay taxes on the money before it’s deposited. The income limit can also increase with inflation.

Starting in 2024, the catch-up contribution limit for IRAs for people aged 50 or older will be indexed to inflation, meaning it could increase each year based on cost-of-living adjustments.

Matching for Roth Accounts

Employers will be able to offer their employees the option of getting matching contributions for their Roth accounts. However, it may take some time for plan providers to offer this option and for payroll systems to be updated. Before, matching contributions in employer-sponsored plans were made before taxes were taken out. With Roth accounts, contributions are made after taxes, but the earnings can grow tax-free.

Unlike Roth IRAs, employer-sponsored Roth accounts will still require RMDs until the tax year 2024.

Qualified Charitable Distributions (QCDs)

Starting in 2023, if you’re at least 70 ½ years old you’ll be able to give up to $50,000 (adjusts annually for inflation) as a one-time gift to certain types of charities. This can include a charitable remainder unitrust, a charitable remainder annuity trust, or a charitable gift annuity as part of your Qualified charitable distributions (QCDs) limit. 

The Secure Act 2.0 expands the types of charities that can receive QCDs. This gift will count towards your annual RMD if you’re required to take one. It’s important to note that the gift must come directly from your IRA by the end of the calendar year and not all charities qualify for QCDs.

Retirement Plans for Employees with Student Debt

Starting in 2024, the SECURE 2.0 Act allows employers to make contributions to their employees’ workplace savings plans, even if the employees are still paying off student loans. 

 Workers will no longer have to choose between paying off their college loans or saving for retirement. Additionally, employers will be able to make contributions that match the amount of student loan debt repaid by the employee in a given year. This can be an effective way to attract and retain employees as they plan for retirement.

Emergency Savings

In 2024, defined contribution retirement plans will be able to include an emergency savings account as a designated Roth account that can accept participant contributions from non-highly compensated employees. Contributions will be limited to $2,500 per year, or lower if set by the employer. The first 4 withdrawals in a year will be tax and penalty-free. Depending on the plan’s rules, contributions may be eligible for an employer match. An emergency savings fund can help plan participants save for short-term and unexpected expenses, and also provides them with penalty-free access to funds.

Improved Legislation

The Secure Act 2.0 offers a variety of solutions to retirement-related issues, including raising the age for RMDs, modifying catch-up contributions, and allowing employers to match contributions for Roth accounts. These changes aim to strengthen the retirement system and improve Americans’ financial readiness for retirement.

Read the full SECURE Act 2.0 here.

Need Help Preparing for Retirement?

Preparing for retirement can be a complex and overwhelming process. You need to have a thorough understanding of how to make the most of your distributions and avoid potential pitfalls to ensure a comfortable and secure retirement. It can be beneficial to seek guidance from a team of financial experts to develop a personalized plan that aligns with your specific needs and goals.
Contact RWM today to learn more about retirement plan distributions and how we can help you get ready for retirement.

Retiring with a Spending Plan: How to Prepare Financially for Retirement

,

Retirement is a major milestone in life and a time when you’ll have the freedom to enjoy your hard-earned leisure time. However, it’s also a time when you’ll be relying on your savings and investment income to support your lifestyle. 

Retiring with a spending plan starts with just that: planning. Let’s take a look at how you can begin planning for your retirement today. 

Determine Your Income Sources

Determining your income sources in retirement is an important first step towards creating a spending plan that will allow you to live comfortably during this new stage of your life. There are several different types of income that you may have in retirement, and it’s important to consider all of them when creating your plan.

Social Security is a government-run program that provides financial assistance to retired Americans. If you’ve paid into the system through payroll taxes during your working years, you’ll be eligible to receive Social Security benefits when you retire. These benefits are based on your earnings history, and the amount you’ll receive will depend on how much you’ve paid into the system and how long you’ve worked.

A pension is another type of income that you may receive in retirement. A pension is a regular payment that you receive from an employer or other organization in exchange for your past service. Pensions can be either defined benefit plans, which provide a set amount of income each month, or defined contribution plans, which provide a set amount of money that you can use to invest in a retirement account.

Retirement savings accounts, such as 401(k)s and IRAs, are another important source of income in retirement. These accounts allow you to save money for retirement on a tax-advantaged basis, and the money you save in them can be used to generate income in retirement through investments in stocks, bonds, and other assets.

Finally, you may also have other investments, such as stocks, bonds, or real estate, that can generate income in retirement. It’s important to consider all of these income sources when creating your spending plan, as they can all play a role in helping you to maintain your desired lifestyle during retirement.

Estimate Your Expenses

When creating a spending plan for your retirement, it’s important to make a comprehensive list of all of the expenses that you expect to have. This may include things like housing, healthcare, food, transportation, and entertainment. Be sure to include both fixed and variable expenses in your plan, as well as any one-time expenses that you may have. 

Fixed expenses are those that stay the same each month, such as a mortgage payment or car insurance premium, while variable expenses may vary from month to month, such as the cost of groceries or entertainment. One-time expenses are expenses that only occur occasionally, such as home repairs or travel. 

By considering all of these types of expenses, you can get a more accurate picture of your financial needs in retirement and create a spending plan that will allow you to live comfortably. It’s a good idea to review your expenses periodically to ensure that your spending plan is still on track and to make any necessary adjustments.

Determine Your Retirement Budget

Once you know your income sources and expenses, you can determine your retirement budget. This is the amount of money you have available to spend each month. If your income is less than your expenses, you’ll need to make adjustments to either your income or your expenses (or both). On the other hand, if your income is more than your expenses, you may be able to save the excess for future needs or splurge on a special treat.

Consider Inflation 

Inflation is the gradual increase in the cost of goods and services over time. It’s important to consider inflation in your spending plan because it can impact your budget over the course of your retirement. For example, if you’re planning to spend $50,000 per year in retirement, but inflation increases the cost of goods and services by 3% per year, your expenses will actually be closer to $58,000 after 10 years. To account for inflation, you may need to increase your income or make adjustments to your spending plan.

Review and Adjust Your Spending Plan

 It’s a good idea to review your spending plan regularly to ensure that it’s still on track. This may involve making adjustments to your income, expenses, or both. For example, if your investment portfolio isn’t performing as well as you’d hoped, you may need to reduce your spending or find ways to increase your income. On the other hand, if your investments are doing well, you may be able to increase your spending or save more for the future.

Final Thoughts

By creating a spending plan for your retirement, you can ensure that you have a solid financial foundation to support your desired lifestyle. This can help you relax and enjoy your golden years, knowing that you have a plan in place to support you financially.

The purpose of RWM Financial Group is to promote plan success via our knowledgeable team and a robust set of tools. 

RWM will lead the way toward retirement readiness for pre-retirees and new generations of employees—whose success comes from your plan’s success. Combining professional dedication, cutting-edge tools, and high-impact education with a commitment to service, RWM Financial Group’s process sets a clear direction toward retirement for your valued employees and balances their needs with yours. The RWM process uses features and services that strive to create value for the employee and the employer.

For a better understanding of retirement savings plans, read our article here.

Everything You Need to Know About Retirement Plan Distributions 

,

Retirement brings you the opportunity to spend time on what matters most in life and finally relax as your career comes to an end. If you’ve taken the right steps throughout your career, then you may be in a position to receive Retirement Plan Distributions. These distributions can be crucial to living comfortably after you’ve stopped working. 

Retirement Plan Distributions allow you to receive payments or withdraw money from retirement plans such as 401(k)s and IRAs. They provide you with a consistent income or a lump sum of cash so you don’t need to worry about working as you get older. It’s vital that you understand Retirement Plan Distributions so you don’t incur penalties, maintain a healthy income when you’re no longer working, and save on taxes.

This article will look at how you can get the most out of your retirement plan and set yourself up for long-term financial freedom. 

Eligibility for Distributions 

The best way to avoid penalties when it comes to your distributions is to understand eligibility. 

In the United States, the retirement age is considered 59.5. If you withdraw any money from your retirement plan before retirement age you will incur a 10% penalty on the cash you withdrew. Unless you absolutely need the money, you should really think twice about any early withdrawals. You’ll be far better off in the long run if you stick to the practice of not touching your retirement plan before retirement age.

There are exceptions however to that 10% penalty. Some examples include:

  • First Time Homebuyers can withdraw up to 10,000 dollars
  • The death of the retirement plan participant 
  • Total and permanent disability 
  • Qualified medical expenses 

Most of the reasons for the penalty being waived are that something has gone really wrong in your life. It’s important to talk to a qualified financial planner if you’re ever in a position where you need to take money out of your plans so they can help with waiving the fee. 

Required Minimum Distributions

A Required Minimum Distribution (RMD) is the minimum amount of funds that you must withdraw from your traditional retirement plan once you reach the age of 72 (increased from 70 with the Secure Act). The government created legislation for RMDs to make sure people don’t use their retirement accounts as a way to avoid paying taxes indefinitely.

The IRS performs a mathematical calculation to inform you how much you need to take out. There will be no penalty if you take out the minimum or more, but it’s possible you’ll have to pay income tax. Some plans allow you to defer the RMD if you’re still employed at 72. 

Lump Sums or Installments?

Once you reach the age where you can start receiving distributions, you’ll have the choice of receiving cash in either a lump sum or installments. This is where a lot of people start to feel overwhelmed as there’s a lot of information about what’s the best step to take toward long-term financial freedom. 

From our own experience in retirement plans, we typically see clients choose  installments as their preferred choice for taking distributions. The two main reasons for this are:

  • Taxes: Getting paid in installments helps you spread out your taxes over time and avoid the higher tax rate that may come with a lump sum distribution.
  • Financial Stability: It’s difficult to make a sitting lump of cash last. Having installments allows you to have a predictable and stable source of income, providing you with peace of mind in retirement. 

There are some pros to choosing a lump sum, such as putting that money into other investments with the help of a qualified financial planner, but this decision should be carefully thought over by a professional as it can lead to greater financial risk. 

Rollovers

It’s possible, even likely, that you’ll change companies over your career. And you may be worried about what happens to all the money in the plan at your current place of work if you’re considering a job change. The good news is that you can take all of that money with you if the new plan accepts money from your previous plan with a rollover. 

A rollover is the process of transferring retirement assets from one plan to another while avoiding any possible penalties and maintaining your tax-deferred growth. 

But what if you want to rollover your retirement plan to an IRA?

Well, you can do that too. A direct rollover to an IRA means that income taxes are still not due. Your future earnings are still tax-deferred and you can now control your money as far as investments are concerned. A direct rollover is an optimal way of transferring assets from account to account. 

Planning Retirement with a Professional 

Planning for your retirement can be stressful. You want to do everything in your power to make it a period of life that’s as stress-free as possible. Having the knowledge of how to make the most out of your distributions and how to avoid potential pitfalls goes a long way toward making a pleasant retirement possible. 

The next step is talking with a team of professionals to find the best plan of action for your financial situation. You can contact RWM today to learn more about retirement plan distributions and how we can help you get ready for retirement. 

Five Things to Do Five Years Before You Retire

,

Retiring can be an uncertain time, but with the right planning and preparation, it can also be an exciting and enjoyable new chapter in your life. Here are five things you should consider doing five years before you retire:

  1. Look at your income
  2. Think about your home
  3. Keep control of your debt and taxes
  4. Plan for healthcare expenses
  5. Imagine your ideal retirement

Let’s talk about each of these in detail. 

Look At Your Income 

Determine how much income you’ll need in retirement and consider moving some of your money into income-producing investments to provide a steady stream of income.

 It’s also important to consider inflation and the potential for rising costs of living in the future, as this could impact your overall income needs. Reviewing your income and expenses can help you create a retirement budget that is realistic and feasible for your needs. It may also be helpful to work with a financial professional who can help you create a retirement plan that is tailored to your specific financial situation and goals.

Think About Your Home

There are a few key things to consider when thinking about your home in the years leading up to retirement. First, consider your current and future needs. Do you need a larger home to accommodate your family, or would a smaller home be more suitable for your lifestyle in retirement? If you’re considering downsizing, think about the cost of selling your current home and the potential cost of purchasing a new home. You may also want to consider the location and any potential maintenance costs of a new home.

Additionally, it may be helpful to think about the potential tax implications of selling your home. Depending on your situation, you may be able to exclude some or all of the capital gain from the sale of your home from your taxable income. It’s a good idea to review your options with a tax advisor to see if selling your home could potentially benefit you tax-wise.

Finally, consider the cost of living in different areas. Moving to a location with a lower cost of living could help reduce your expenses in retirement, but it’s important to carefully weigh the pros and cons of a move before making a decision. You may want to visit potential new locations and consider factors like the availability of healthcare, access to amenities, and proximity to friends and family.

Keep Control of Your Debt and Taxes

Paying off as much debt as possible before retirement is a smart financial move because it can help reduce your expenses and increase your cash flow in retirement. This can be especially important if you’re relying on fixed income sources, such as Social Security or a pension, as these sources of income may not increase over time to keep up with inflation. It’s a good idea to prioritize paying off high-interest debt first, as this can save you the most money in the long run.

One way to lower your taxable income is to work with a tax advisor to see if converting a traditional IRA to a Roth IRA is a viable option for you. With a traditional IRA, you contribute pre-tax dollars, but you’ll pay taxes on the money when you withdraw it in retirement. A Roth IRA, on the other hand, is funded with after-tax dollars, so you won’t pay taxes on the money when you withdraw it in retirement. This can be a good option for people who expect to be in a higher tax bracket in retirement, as it allows you to pay taxes on the money at your current, potentially lower tax rate. However, it’s important to carefully consider the potential tax implications of a Roth IRA conversion, as it may not be the right choice for everyone. A tax advisor can help you weigh the pros and cons of a Roth IRA conversion and determine if it’s a good option for your specific financial situation.

Plan for Healthcare Expenses

Planning for healthcare expenses in retirement is an important consideration because healthcare costs can be a significant portion of your budget in retirement. Here are a few things to consider when planning for healthcare expenses:

Make sure you have the proper healthcare insurance. This may include enrolling in Medicare if you’re eligible and considering supplemental insurance policies to help cover out-of-pocket costs. It’s a good idea to review your options carefully and consider factors like your current and future healthcare needs, the cost of premiums, and the coverage offered by different plans.

Consider long-term care options. Long-term care costs, such as nursing home care or home healthcare, can be a major expense in retirement. It’s a good idea to consider your potential need for long-term care and explore options for paying for it. Options may include purchasing long-term care insurance, setting aside money in a dedicated savings account, or including long-term care provisions in your estate plan.

Think about how healthcare expenses will fit into your budget. It’s important to consider how healthcare expenses will fit into your overall retirement budget and make sure you have enough savings to cover these costs. This may involve setting aside money in a dedicated healthcare savings account or factoring in healthcare costs when creating a retirement budget.

It’s a good idea to review your healthcare options and plan for healthcare expenses well in advance of retirement to ensure that you have the coverage and resources you need to meet your healthcare needs in retirement.

Imagine Your Ideal Retirement

Here’s the fun part: paint the picture of your ideal retirement. You can do this by asking questions such as:

  • What do you want your retirement to look like? Do you want to travel the world, spend more time with your family and friends, or take up a new hobby? Do you want to stay in your current location or move somewhere new?
  • How will you spend your time? Do you want to be active and stay engaged with your community, or do you prefer a more laid-back lifestyle?

Take some time to think about your goals and aspirations for retirement and consider how you might continue to pursue your current interests and passions in your daily life.

Make sure your assets are structured in a way that will allow you to have the retirement you envision.

Final Thoughts

Retirement planning can be confusing but  can have many benefits for any individual. 

Not sure where to start? We got you covered. 

The purpose of RWM Financial Group is to promote plan goals via our knowledgeable team and a robust set of tools. 

RWM can help lead the way toward retirement readiness for pre-retirees and new generations of employees—whose success comes from your plan’s success. Combining professional dedication, cutting-edge tools, and high-impact education with a commitment to service, RWM Financial Group’s process sets a clear direction toward retirement for your valued employees and balances their needs with yours. The RWM process uses features and services that strive to create value for the employee and the employer.

For a better understanding of retirement savings plans, read our article here.

Qualified Retirement Plan vs CalSavers Program: What’s Better for Business Owners?

,

The CalSavers program is a big step in ensuring all California employees have the right to a retirement plan, but if you’re a business owner you may want to think twice before enrolling. It can be advantageous to both you and your employees to set up a qualified retirement program. 

If you’re a business with five or more employees in California, then you need to either have your own retirement plan or be enrolled in CalSavers. And if you have one to four employees, you have until December 31st, 2025 to meet these requirements. 

In this article, we’ll look at different retirement programs to see what the best option is for your company, why it’s worth setting up your own, and the benefits these programs provide that you won’t get from CalSavers.

Types of Qualified Retirement Plans

We’ll briefly look at what plans are available so you have a general idea of what you can offer your employees. If you want a more detailed understanding of retirement plans, check out our article here.

According to the U.S. Department of Labor, there are a few types of qualified retirement plans:

  • A Defined Benefit Plan promises a specific monthly benefit at retirement. It may state the benefit as a dollar amount or calculate the benefit through a formula that often factors in salary and service to the company. A common example of this is a Cash Balance Plan. 
  • A Defined Contribution Plan does not promise a specific benefit amount. The employee or employer, and sometimes both, contribute to a retirement account for the employee. The employee ultimately receives the balance in their account. Common examples include 401(k) plans, 403(b) plans, employee stock ownership plans, and profit-sharing plans.
  • A Simplified Employee Pension Plan (SEP) allows employees to make contributions on a tax-favored basis to their IRAs. SEPs are subject to minimal reporting and disclosure requirements. 

The plan you choose for your business will depend on factors such as the costs of the plan, the size of your business, the investments offered in the plan, and the goals and needs of your employees. Having a qualified financial planner can alleviate a lot of the headaches and burden that comes with choosing the perfect plan for your company’s needs. 

Advantages of Qualified Retirement Plans for Employers

Setting up your own retirement plan comes with a lot of advantages to help save you money and improve your business’s long-term financial health. These include…

  • Customization: With your own qualified retirement plan, you can fully customize the plan to meet the specific needs of your business. A qualified retirement plan provides you with a wide range of contribution levels, vesting schedules, and investment options. The CalSavers program doesn’t provide the same amount of range and offers more of a one-size-fits-all approach.
  • Tax Benefits: Money you contribute to your qualified plan can be tax deductible up to certain limits depending on which plan you choose. Assets that are in the plan also grow tax-free until they are distributed to employees upon retirement. 
  • Attract High-Level Employees: Having a customized qualified retirement program that is best suited to the type of employees you hire will set you apart from other businesses. You can also set up your plan to incentivize employees to stay at the company and reduce turnover. 

Advantages for Employees

As we said at the end of the last section, the right qualified retirement plan can help you attract and retain high-level employees. But how does the right plan do this?

  • Tax-Free Savings: Employees can contribute income to a plan on a pre-tax or tax-deferred basis, helping them save more for retirement and possibly lower their annual tax bill. 
  • Various Investment Options: Qualified Retirement Plans can offer options such as mutual funds and individual stocks, giving employees individual customization to their needs and tolerance for investment risk.
  • Employer Matching: Some plans, such as a 401k, allow employers to make matching contributions to the employee’s plan, potentially doubling the amount of money an employee can save for retirement.

Disadvantages of the CalSavers Program

The CalSavers program is a great concept for ensuring all workers in California have the right to a retirement program no matter the size of the company they work at. However, the best option for business owners in California is still a qualified retirement plan due to the disadvantages that come with opting into the CalSavers Program. These disadvantages include…

  • Roth IRA Income Limits: The CalSavers Program is a Roth IRA, meaning it’s subject to the income limits that come with that type of plan. If your employees make above a certain amount they can’t participate in the CalSavers program. This could potentially lose you high-level employees, due to the lack of a retirement program option. 
  • Taxes for Employees: CalSavers only allows your employees to make after-tax contributions, reducing the amount of money they save for retirement and not reducing their annual tax bill as other plans offer. 
  • Limited Options: Other plans offer a much broader range of investment options when compared to the CalSavers program, as well as additional resources to help employees make the right decisions based on their needs and risk tolerance. 
  • No Employer Matching: One of the biggest disadvantages of the program is that CalSavers does not allow employers to match their employee’s contributions, which is often a great incentive for employees to participate in the program. Employer contributions are also a great way for business owners to attract and retain employees in a tax-deductible way. 

Learn More About Qualified Retirement Plans

Finding the right retirement plan for your business can be overwhelming. If you want to learn more about how qualified retirement plans work, or need assistance in creating the perfect plan for your business needs, contact us today. We’d love to help you reach your financial goals. 

This material is being provided as a general template for plan sponsor review.  Plan sponsors should seek legal guidance in developing a document specific to their plan.  In no way does advisor assure that, by using this template, plan sponsor will be in compliance with ERISA regulations. 

Should I have Both a 401K AND IRA?

,

Retirement planning can be a daunting task. There are so many different investment options available, it can be hard to know where to start. One of the most common questions people ask is whether they should have both a 401k and IRA. 

The answer to this question depends on a variety of factors, including your income, your age, and how much you want to save for retirement. In this blog post, we will discuss the pros and cons of having both a 401k and IRA, so that you can make an informed decision about which option is best for you!

What is a 401k?

The 401k is a retirement savings plan that is sponsored by an employer. Employees who participate in a 401k plan can choose to have a portion of their paycheck deducted and deposited into their 401k account. The money in a 401k account grows tax-deferred, which means that you will not pay taxes on the money until you withdraw it in retirement. 401k plans also offer a variety of investment options, which can make them a good choice for people who want to have more control over their retirement savings.

What is an IRA?

The IRA is an individual retirement account that is not sponsored by an employer. Anyone can open an IRA, regardless of whether they are employed. Like a 401k, the money in an IRA grows tax-deferred, and you will not pay taxes on the money until you withdraw it in retirement. IRAs also offer a variety of investment options as well.

What’s the Difference Between a 401k and IRA? 

There are a few key differences between 401k plans and IRAs such as:

Contribution Limits

One of the biggest differences is that 401k plans have higher contribution limits than IRAs. For example, in 2019, the contribution limit for 401k plans is $19,000, while the contribution limit for IRAs is $6,000. This means that you can potentially save more money for retirement by contributing to a 401k plan.

Fees

Another difference between 401k plans and IRAs is that 401k plans are typically offered by employers, while IRAs are not. This means that you may have to pay fees to participate in an IRA, but you will not have to pay any fees to participate in a 401k plan.

Loans and Withdrawals

The final difference between 401k plans and IRAs is that 401k plans offer loans and hardship withdrawals, while IRAs do not. This means that you can borrow money from your 401k plan if you need to, but you cannot borrow money from your IRA.

So, Should You Have Both a 401k and IRA? 

The answer to this question depends on your individual circumstances. If you have a 401k plan at work, you may want to contribute to it up to the contribution limit. If you do not have a 401k plan at work, or if you max out your 401k contribution, you may want to consider opening an IRA. Ultimately, the best retirement savings plan for you is the one that you can contribute the most money to.

Is it Good to Have Both?

There are a few advantages to having both a 401k and IRA. For one, it can help you save more money for retirement. Having two accounts also gives you more flexibility in how you Invest your money. You can choose to invest more aggressively in one account and more conservatively in the other, depending on your risk tolerance.

There are a few disadvantages to having both a 401k and IRA as well. For one, it can be difficult to keep track of two accounts. You will also have to pay taxes on the money you withdraw from both accounts in retirement.

Is it Better to Have a 401k or IRA or Both?

There is no easy answer when it comes to deciding whether a 401k or IRA is better for you. It ultimately depends on your individual circumstances. For example, if you are young and have a low income, you may be better off contributing to an IRA because you can get a tax deduction for doing so. On the other hand, if you are older and have a higher income, you may be better off contributing to a 401k because you will not have to pay taxes on your withdrawals in retirement.

There are pros and cons to both types of accounts, so it’s important to weigh all of your options before making a decision. Below, we will take a closer look at the pros and cons of each account:

401k Pros:

  • Employer matching contributions: Many employers will match a percentage of your contributions, which can be a great way to boost your savings.
  • Tax breaks: Contributions to a 401k are made with pre-tax dollars, which means you get a tax break when you contribute.
  • Retirement income: With a 401k, you can choose to receive your retirement income in the form of an annuity, which can provide a steady stream of income in retirement.

401k Cons:

  • Limited investment options: With a 401k, you are limited to investing in the options offered by your employer.
  • Early withdrawal penalties: If you withdraw money from your 401k before you reach retirement age, you will be subject to a 10% penalty.
  • Required minimum distributions: Once you reach age 70 ½, you are required to take minimum distributions from your 401k, which means you will have to pay taxes on the money you withdraw.

IRA Pros:

  • Tax breaks: Contributions to an IRA are also made with pre-tax dollars, which means you get a tax break when you contribute.
  • Flexible investment options: With an IRA, you have a lot of flexibility when it comes to investing your money. You can choose from a wide variety of investment options, including stocks, bonds, and mutual funds.
  • No required minimum distributions: With an IRA, you are not required to take minimum distributions, which means you can leave your money invested for as long as you want.

IRA Cons:

  • Early withdrawal penalties: If you withdraw money from your IRA before you reach retirement age, you will be subject to a 10% penalty.
  • Contribution limits: There are limits on how much you can contribute to an IRA each year. For 2019, the limit is $6,000 ($7,000 if you are age 50 or older).

So, should you have both a 401k and IRA? As you can see, there are pros and cons to both types of accounts. The best way to decide which option is right for you is to speak with a financial advisor who can help you understand your unique circumstances and make the best decision for your future.

Can you have both an IRA and a 401k?

The answer is, yes! In fact, many people find that having both an IRA and a 401k is the best way to save for retirement. Here are some of the benefits of having both types of accounts:

  • You can save more money. If you have both a 401k and IRA, you can contribute a total of $19,500 to your retirement accounts each year (or $26,000 if you’re 50 or older). This is much more than you could save with just one account.
  • You can diversify your investments. When you have both a 401k and IRA, you can spread your money out across different types of investments, which can help you minimize risk and maximize returns.
  • You can take advantage of different tax benefits. 401k contributions are made with pre-tax dollars, which means you get a tax break now. IRA contributions are made with after-tax dollars, but they grow tax-deferred. This means you won’t have to pay taxes on your investment earnings until you withdraw the money in retirement.

There are some drawbacks to having both a 401k and IRA, however. For one thing, it can be confusing to keep track of two different accounts. Additionally, you may have to pay fees to maintain both accounts. But if you’re serious about saving for retirement, having both a 401k and IRA can be a great way to reach your financial goals.

How Much Can I Put in an IRA if I Have a 401k?

The first thing you need to know is that there are limits on how much you can contribute to each type of account. For example, in 2018, the 401k contribution limit is $18,500 for people under the age of 50. This means that if you are over the age of 50, you can contribute up to $24,500 to your 401k. On the other hand, the IRA contribution limit is $5,500 for people under the age of 50, and $6,500 for those over the age of 50.

How Much Will my IRA be Worth in 20 years?

Assuming you start with nothing in your IRA and contribute the maximum each year, you would have $1,048,000 in 20 years.

401K contribution limits for 2019:

The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government Thrift Savings Plan is increased from $18,500 to $19,000.

The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government Thrift Savings Plan is increased from $6,000 to $6,000. 

IRA contribution limits for 2019:

The IRA contribution limit for 2019 is $6,000. The catch-up contribution limit for those aged 50 and over is $1,000.

Final Thoughts

Retirement planning can be confusing, but if you want to make sure you’re doing everything right, consider opening both a 401k and an IRA. With these two accounts, you can take advantage of different tax benefits, save more money overall, and diversify your investments. Just keep in mind that you may have to pay fees to maintain both accounts, and it can be confusing to keep track of two different sets of investments. But if you’re serious about saving for retirement, having both a 401k and IRA is a great way to reach your financial goals.

For a better understanding of retirement savings plans read our article here.

Financial Wealth for Mental Health – 

,

Creating Financial Education for Tribal Communities

Financial wealth for mental health—it’s a mouthful to say and it’s something that is so important, yet often overlooked. Financial stability is one of the key ingredients in having a good mental health outlook on life. Why? Because when you’re worrying about money, you’re not worrying about anything else. 

Financial education is vital for tribal communities who have been historically marginalized and left out of mainstream financial conversations. When tribal communities have access to financial education, they see improvement in their mental health, overall wellness, and economic status. 

In this blog, we’ll explore how financial literacy is the key to unlocking financial stability and mental health for tribal communities. 

Current Financial Landscape for Tribal Communities

It’s no secret that tribal communities have been dealt a hard hand when it comes to financial stability. From being forced to move off of their ancestral lands to being shut out of mainstream financial institutions, tribal communities have had to create their own unique financial systems. This has led to higher rates of poverty and financial insecurity within these communities. 

In fact, according to a report by the Federal Reserve, American Indian and Alaska Native households have a median income that is just 60% of the national median. This financial insecurity can lead to higher levels of stress and anxiety, which can impact mental health.

According to a report by the Financial Industry Regulatory Authority (FINRA), “nearly half of American Indian and Alaska Native adults say they don’t have enough money to live comfortably, and four in 10 say they are not saving enough for retirement.” The same report found that only 40 percent of AI/AN adults feel “very” or “somewhat” confident in their ability to manage their finances.

Contributing Factors

There are many factors that contribute to financial instability and poor mental health in tribal communities. Some of these include historical trauma, systemic racism, and lack of access to resources. 

Many tribal members live in poverty and do not have access to traditional banking services. As a result, they often turn to high-interest payday loans and other forms of predatory lending. This can lead to a cycle of debt that is difficult to break free from. Financial education can help tribal members make better decisions about their money and avoid costly mistakes.

Barriers

There are several barriers to financial education in tribal communities. One barrier is a lack of accessible and culturally relevant resources. Financial education materials that are not culturally relevant or understandable can be ineffective. 

Another barrier is a lack of trust in financial institutions. Many individuals in tribal communities have had negative experiences with banks and other financial institutions. This can make it difficult to build trust and open up about finances. Finally, a lack of financial literacy among adults can make it difficult to teach children and youth about money management.

Financial education can help to mitigate some of these factors by providing tribal communities with the tools and knowledge they need to build financial stability. Financial education can also help to improve mental health by teaching people how to manage their money in a way that is beneficial for their overall wellbeing.

Steps to Creating Financial Wellness 

Establish Financial Literacy

Start with the basics. Financial literacy is key. This means having a clear understanding of money, how it works, and what it can do for you.

It’s crucial to increase financial literacy. This can be done through financial education programs that are specific to the needs of tribal communities. Financial literacy will empower individuals within these communities to make sound financial decisions and build wealth over time.

Provide Access to Financial Education

Create opportunities for financial education. This can be done through online resources, community events, or even one-on-one conversations.

Increasing access to financial institutions and products can be done by working with financial institutions to create products that are accessible and tailored to the needs of tribal communities. It’s important that these products are culturally relevant and meet the unique financial needs of these communities.

Financial education teaches people about: 

  • Money Management
  • Budgeting
  • Saving and investing

And covers topics like: 

  • Credit and debit
  • Loans
  • Interest Rates
  • Financial goal setting
  • Home ownership
  • Financial scams and fraud

Financial education can be taught in formal settings like schools or community organizations. And it can also be taught informally through conversations between family and friends.

Another solution is to provide Financial Literacy Ambassadors in each tribe. These Financial Literacy Ambassadors would be responsible for delivering financial education to adults and children in the community.

Help Make it Easy

Make sure that financial education is “user-friendly” and easy for everyone to grasp. This means breaking down complex concepts and making them understandable for everyone. Most importantly, financial education should be culturally relevant. This means that it should be tailored to the specific needs of the community.

Final Thoughts

Creating financial education and wellness for tribal communities is so important because it can have a ripple effect of positive change. When tribal communities are financially stable, they are able to invest in their mental health, overall wellness, and economic status. This creates a cycle of positive change that can lift up an entire community. Financial literacy is the key to unlocking this potential. By providing access to financial education, we can help tribal communities thrive.

We at RWM Financial Group, specialize in working with tribal communities and offering tribal services. We are committed to the independence, excellence, and pursuit of your tribe’s sovereignty and financial goals. Reach out to our team to learn more.