08/21/2008
Financial Planning: Turning Dreams to Reality
Financial planning is a process that can help you reach your goals by evaluating your whole financial picture, then outlining strategies that are tailored to your individual needs and available resources. A comprehensive financial plan serves as a framework for organizing the pieces of your financial picture. With a financial plan in place, you'll be better able to focus on your goals and understand what it will take to reach them.
Financial goals can include: saving/investing for retirement and college, planning the financial impact to your family of your death, minimizing income and estate taxes, establishing an emergency fund. One of the main benefits of having a financial plan is that it can help you balance competing financial goals. A financial plan will show you how your financial goals are related--for instance, how saving for your children's college education might impact your ability to save for retirement. Then you can use this information to decide how to prioritize your goals and implement specific strategies. And, you'll have the peace of mind that comes from knowing that your financial life is on track.
The financial planning process can involve a number of professionals. Financial planners focus on your overall financial plan, and coordinate the activities of other professionals who have expertise in specific areas. Accountants or tax attorneys provide advice on federal and state tax issues. Estate planning attorneys help you plan your estate and give advice on managing your assets before and after your death. Insurance professionals evaluate insurance needs and recommend products and strategies. Investment advisors provide advice about investment options, asset allocation, and can help you manage your investment portfolio.
Creating and implementing a comprehensive financial plan will involve:
- Developing a clear picture of your current financial situation by reviewing your income, assets, debts, insurance coverage, investment portfolio, tax exposure, and estate plan.
- Establishing financial goals and time frames for achieving these goals
- Forming strategies to eliminate financial weaknesses and enhance financial strengths
- Selecting products and services that are tailored to meet your financial objectives
- Monitoring your plan to make adjustments as your goals, time frames, or circumstances change
The financial planning process doesn't end once your initial plan has been created. Your plan should be reviewed at least once a year to make sure that it's up-to-date.
Your friendly home town banker is prepared to help you plan for your financial future.
08/14/2008
Retirement Plans for Small Business
As a business owner, a retirement plan can help you and your employees save for the future.
Retirement plans are usually either IRA-based or qualified. Qualified plans must be maintained by a third party and are more complicated and expensive to administer because they have to comply with more federal regulations than IRA-based plans do. IRA-based plans can be self-managed and cost less to maintain.
So which plan is right for your business? Start by defining your goals before attempting to choose a plan.
Do you want:
- To maximize the amount you can save for your own retirement?
- A plan funded by employer contributions? Employee contributions? Both?
- A plan that allows you and your employees to make pretax and/or Roth contributions?
- The flexibility to skip employer contributions in some years?
- A plan with the lowest cost? Easiest administration?
Let’s look at the different types of plans.
A SEP allows you to set up an IRA for yourself and each of your eligible employees. Most employers, including those who are self-employed, can establish a SEP-IRA. The plan must cover any employee aged 21 or older who has worked for you for three of the last five years and earns $500 or more. For 2008, employer contributions for each employee are limited to the lesser of $46,000 or 25% of pay.
The SIMPLE IRA plan is for 100 or fewer employees. Each employee who earned $5,000 or more in any two prior years, and who is expected to earn at least $5,000 in the current year, must be allowed to participate in the plan. In 2008, employees can contribute up to $10,500. You must either match your employees' contributions up to 3% of their salary or make a fixed contribution of 2% of compensation for each eligible employee. SIMPLE IRA plans are easy to set up and administrative costs are low.
Profit sharing plans favor the employer because they are qualified and discretionary. There's usually no set amount you need to contribute each year, and you have the flexibility to contribute nothing at all in a given year if you so choose. Employees with a year of service are eligible to participate and the plan must contain a formula for determining how your contributions are allocated among plan participants. A separate account is established for each participant that holds your contributions and any investment gains or losses that it makes for them.
The 401(k) plan is technically, a qualified profit-sharing plan with a cash or deferred feature. Employees with a year of service must be allowed to contribute to the plan. In 2008, employees can make pretax contributions of up to $15,500 of salary. These deferrals go into a separate account for each employee and aren't taxed until distributed. Employer contributions can be made by discretionary profit-sharing contributions or employee matching contributions. Combined contributions in 2008 can't exceed the lesser of $46,000 or 100% of the employee's salary. Most 401(k) plans are subject to discrimination testing to ensure that higher paid employees aren’t being paid plan benefits disproportionately. A safe harbor 401(k) plan avoids discrimination testing by requiring employers to make either matching or fixed contributions to all eligible employees.
A defined benefit plan is a qualified retirement plan that guarantees your employees a specified level of benefits at retirement, like an amount equal to 30% of pay at retirement. This plan defines the retirement benefit, not the level of contributions. In 2008, a defined benefit plan can provide an annual benefit of up to $185,000 or 100% of pay if less. The annual contributions employers make to the plan to fund the promised benefit may vary from year to year, depending on the performance of plan investments. Defined benefit plans are generally too costly and too complex for most small businesses.
Consult your friendly home town banker to help set up your company’s retirement plan.
08/07/2008
Key Documents for Estate Planning
There are four estate planning documents you need, regardless of your age, health, or wealth:
- Durable power of attorney
- Advanced medical directive
- Will
- Letter of instruction
A durable power of attorney (DPOA) can help protect your property in the event you become physically unable or mentally incompetent to handle financial matters. A DPOA allows you to authorize someone else to act on your behalf, so he or she can do things like pay everyday expenses, collect benefits, watch over your investments, and file taxes.
Advanced medical directives let others know what medical treatment you would want in the event you can't express your wishes yourself. If you don't have an advanced medical directive, medical care providers must prolong your life using artificial means, if necessary. The most common type of advanced medical directive is a living will. This allows you to approve or decline certain types of medical care, even if you will die as a result of that choice. Generally, one can be used only to decline medical treatment that "serves only to postpone the moment of death."
A will is the cornerstone of any estate plan. The main purpose of a will is to disburse property to heirs after your death. If you don't leave a will, disbursements will be made according to state law.
There are two important aspects of a will:
- You can name the executor who will manage and settle your estate. If you don’t, the court will appoint an administrator, who might not be someone you would choose.
- You can name a legal guardian for minor children or dependents with special needs. If you don't, the state will appoint one for you.
A will is a legal document. The courts are very reluctant to overturn any provisions within a will. Therefore, it's crucial that your will be properly executed under Alabama law. It's also important to keep your will up-to-date.
A letter of instruction is more commonly called a testamentary letter. This is an informal, non-legal document that accompanies your will and is used to express your personal thoughts and directions about things such as your burial wishes. A testamentary letter is not a substitute for a will. Any directions you include in the letter are only suggestions and are not binding.
There are other considerations in estate planning that may also be tied to tax, gift, and investment planning. These commonly involve the transfer of assets. Assets that are titled jointly pass immediately to the joint owner at your death, thereby avoiding inclusion in your will or being subject to probate. Trusts can also be established to accomplish asset transfers and other purposes.
Contact your friendly hometown banker for all of your estate and financial planning needs.
Back to President's Articles
08/21/2008
Financial Planning: Turning Dreams to Reality
Financial planning is a process that can help you reach your goals by evaluating your whole financial picture, then outlining strategies that are tailored to your individual needs and available resources. A comprehensive financial plan serves as a framework for organizing the pieces of your financial picture. With a financial plan in place, you'll be better able to focus on your goals and understand what it will take to reach them.
Financial goals can include: saving/investing for retirement and college, planning the financial impact to your family of your death, minimizing income and estate taxes, establishing an emergency fund. One of the main benefits of having a financial plan is that it can help you balance competing financial goals. A financial plan will show you how your financial goals are related--for instance, how saving for your children's college education might impact your ability to save for retirement. Then you can use this information to decide how to prioritize your goals and implement specific strategies. And, you'll have the peace of mind that comes from knowing that your financial life is on track.
The financial planning process can involve a number of professionals. Financial planners focus on your overall financial plan, and coordinate the activities of other professionals who have expertise in specific areas. Accountants or tax attorneys provide advice on federal and state tax issues. Estate planning attorneys help you plan your estate and give advice on managing your assets before and after your death. Insurance professionals evaluate insurance needs and recommend products and strategies. Investment advisors provide advice about investment options, asset allocation, and can help you manage your investment portfolio.
Creating and implementing a comprehensive financial plan will involve:
- Developing a clear picture of your current financial situation by reviewing your income, assets, debts, insurance coverage, investment portfolio, tax exposure, and estate plan.
- Establishing financial goals and time frames for achieving these goals
- Forming strategies to eliminate financial weaknesses and enhance financial strengths
- Selecting products and services that are tailored to meet your financial objectives
- Monitoring your plan to make adjustments as your goals, time frames, or circumstances change
The financial planning process doesn't end once your initial plan has been created. Your plan should be reviewed at least once a year to make sure that it's up-to-date.
Your friendly home town banker is prepared to help you plan for your financial future.
08/14/2008
Retirement Plans for Small Business
As a business owner, a retirement plan can help you and your employees save for the future.
Retirement plans are usually either IRA-based or qualified. Qualified plans must be maintained by a third party and are more complicated and expensive to administer because they have to comply with more federal regulations than IRA-based plans do. IRA-based plans can be self-managed and cost less to maintain.
So which plan is right for your business? Start by defining your goals before attempting to choose a plan.
Do you want:
- To maximize the amount you can save for your own retirement?
- A plan funded by employer contributions? Employee contributions? Both?
- A plan that allows you and your employees to make pretax and/or Roth contributions?
- The flexibility to skip employer contributions in some years?
- A plan with the lowest cost? Easiest administration?
Let’s look at the different types of plans.
A SEP allows you to set up an IRA for yourself and each of your eligible employees. Most employers, including those who are self-employed, can establish a SEP-IRA. The plan must cover any employee aged 21 or older who has worked for you for three of the last five years and earns $500 or more. For 2008, employer contributions for each employee are limited to the lesser of $46,000 or 25% of pay.
The SIMPLE IRA plan is for 100 or fewer employees. Each employee who earned $5,000 or more in any two prior years, and who is expected to earn at least $5,000 in the current year, must be allowed to participate in the plan. In 2008, employees can contribute up to $10,500. You must either match your employees' contributions up to 3% of their salary or make a fixed contribution of 2% of compensation for each eligible employee. SIMPLE IRA plans are easy to set up and administrative costs are low.
Profit sharing plans favor the employer because they are qualified and discretionary. There's usually no set amount you need to contribute each year, and you have the flexibility to contribute nothing at all in a given year if you so choose. Employees with a year of service are eligible to participate and the plan must contain a formula for determining how your contributions are allocated among plan participants. A separate account is established for each participant that holds your contributions and any investment gains or losses that it makes for them.
The 401(k) plan is technically, a qualified profit-sharing plan with a cash or deferred feature. Employees with a year of service must be allowed to contribute to the plan. In 2008, employees can make pretax contributions of up to $15,500 of salary. These deferrals go into a separate account for each employee and aren't taxed until distributed. Employer contributions can be made by discretionary profit-sharing contributions or employee matching contributions. Combined contributions in 2008 can't exceed the lesser of $46,000 or 100% of the employee's salary. Most 401(k) plans are subject to discrimination testing to ensure that higher paid employees aren’t being paid plan benefits disproportionately. A safe harbor 401(k) plan avoids discrimination testing by requiring employers to make either matching or fixed contributions to all eligible employees.
A defined benefit plan is a qualified retirement plan that guarantees your employees a specified level of benefits at retirement, like an amount equal to 30% of pay at retirement. This plan defines the retirement benefit, not the level of contributions. In 2008, a defined benefit plan can provide an annual benefit of up to $185,000 or 100% of pay if less. The annual contributions employers make to the plan to fund the promised benefit may vary from year to year, depending on the performance of plan investments. Defined benefit plans are generally too costly and too complex for most small businesses.
Consult your friendly home town banker to help set up your company’s retirement plan.
08/07/2008
Key Documents for Estate Planning
There are four estate planning documents you need, regardless of your age, health, or wealth:
- Durable power of attorney
- Advanced medical directive
- Will
- Letter of instruction
A durable power of attorney (DPOA) can help protect your property in the event you become physically unable or mentally incompetent to handle financial matters. A DPOA allows you to authorize someone else to act on your behalf, so he or she can do things like pay everyday expenses, collect benefits, watch over your investments, and file taxes.
Advanced medical directives let others know what medical treatment you would want in the event you can't express your wishes yourself. If you don't have an advanced medical directive, medical care providers must prolong your life using artificial means, if necessary. The most common type of advanced medical directive is a living will. This allows you to approve or decline certain types of medical care, even if you will die as a result of that choice. Generally, one can be used only to decline medical treatment that "serves only to postpone the moment of death."
A will is the cornerstone of any estate plan. The main purpose of a will is to disburse property to heirs after your death. If you don't leave a will, disbursements will be made according to state law.
There are two important aspects of a will:
- You can name the executor who will manage and settle your estate. If you don’t, the court will appoint an administrator, who might not be someone you would choose.
- You can name a legal guardian for minor children or dependents with special needs. If you don't, the state will appoint one for you.
A will is a legal document. The courts are very reluctant to overturn any provisions within a will. Therefore, it's crucial that your will be properly executed under Alabama law. It's also important to keep your will up-to-date.
A letter of instruction is more commonly called a testamentary letter. This is an informal, non-legal document that accompanies your will and is used to express your personal thoughts and directions about things such as your burial wishes. A testamentary letter is not a substitute for a will. Any directions you include in the letter are only suggestions and are not binding.
There are other considerations in estate planning that may also be tied to tax, gift, and investment planning. These commonly involve the transfer of assets. Assets that are titled jointly pass immediately to the joint owner at your death, thereby avoiding inclusion in your will or being subject to probate. Trusts can also be established to accomplish asset transfers and other purposes.
Contact your friendly hometown banker for all of your estate and financial planning needs.
Back to President's Articles