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Financial and Investment Expert Joseph M. Maas Publishes Second Book – 401(k) Insight: Getting to “Retired!”
Joseph M. Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM, a Principal and Investment Advisor with Seattle-based Synergy Financial Management, LLC, has published the second book in his Insight Series, 401(k) Insight: Getting to “Retired!” Active for over 23 years in the financial services and investment industries, Maas is an expert with helping business owners establish a 401(k) that benefits the company with reduced taxes, and increases retirement savings for both the owner and employees. John A. Flavin, a Certified Financial Planner, joins Mr. Maas as co-author.
This 280-page, soft-cover book addresses two audiences. For the business owner, the book details the steps involved with creating a 401(k), guiding the owner with understanding the financial value of having a 401(k), the sponsor’s role and responsibilities, and familiarity with the RFP process when hiring the professionals who service the plan.
For the employees, Maas and Flavin explain the value of this outstanding financial opportunity and describe how employees can use their 401(k) to build a retirement fund that creates a comfortable lifestyle for their elder years. Maas and Flavin use an in-depth case study of Linda Nelson, a fictional woman in her late 20s who is contemplating her financial future and retirement. The authors demonstrate how Linda can achieve her financial goals with careful planning, and model the decision-making process through Linda’s experience.
Easy-to-follow charts and illustrations provide business owners with a step-by-step guide to starting a 401(k) plan, and employees with knowing how to take full advantage of this wonderful financial instrument for retirement saving and investing.
401(k) Insight: Getting to “Retired!” is the second book of the Insight Series that guides business owners and professionals toward long-term financial success. The premier book, Exit Insight: Getting to “Sold!”, focuses on teaching business owners how to prepare for the sale of their businesses. Future books will share Maas’ expertise and insight on investing, and with starting a new business.
401(k) Insight: Getting to “Retired!” is available for $24.95 at Merrell Publishing and Amazon.com. To learn more about this book, please contact author Joseph M. Maas at 206-386-5455 or email@example.com.
About Joseph M. Maas
Joe Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM, is an unusual financial advisor because he is certified in so many areas of expertise. Maas has earned certificates from nine prestigious organizations. With over two decades of financial industry experience, he offers refined professional advisory skills to business owners, private wealth clients, and trusts. Maas established his company, Synergetic Finance, to provide personalized financial service, customized for each client’s unique circumstances. With a team of capable and broadly experienced financial advisors, Maas provides a complete mix of integrated financial services.
About John A. Flavin
John Flavin is a managing principal with Synergy Financial Management. In this role, John coordinates the efforts of Synergy’s other team members in executing the financial planning and investment process. After completing a postgraduate program in Baltimore, Maryland, John moved to Seattle and began his career in financial services. Mr. Flavin holds the CFP, AIF, CLU, ChFC, and CCIM designations.
For more information, please contact:
Joseph Maas, CFA, CVA, ABAR, CM&AA, CFP®, ChFC, CLU®, MSFS, CCIM
Synergy Financial Management, LLC
701 5th Ave., Ste. 3520, Seattle, WA 98104
It’s tax time and everyone wants to know how to reduce their income tax liability. While it may be too late to make changes that impact 2014, you’ve got plenty of time to make changes for 2015. As you do so, keep in mind the differences between tax exempt and tax deferred income.
Tax exempt income:
Many tax-exempt investments are available that provide interest without taxation. Most common are municipal bonds issued for various government operations like building roads, schools, libraries, etc. These are issued free of federal tax, and may also be free of city and state taxes if the purchaser resides in the locale. Your financial planner will guide you with selecting the best tax exempt investments for your portfolio by comparing the after-tax return rate with other investments of similar risk, so you receive the best return available.
Your financial planner will also advise that though the interest is tax exempt, you may be liable for capital gains tax when these bonds are sold. Tax free growth is one of the most potent investment opportunities available, but there are many rules and tactics to contemplate when considering tax exempt income, and your advisor will help you select the best choice for you.
With tax deferred income, the return on these investments is not taxed until it is withdrawn. Therefore, earnings continue to grow without the restriction of taxation, making these investments another formidable opportunity for investment growth. As these investments have a time-value advantage, your estate may not need to withdraw any earnings for quite a while, at which time you may be retired and in a lower tax bracket.
While there are a seemingly endless variety of taxes that local, state and the federal government imposes on citizens, here are two taxes that are worth a quick description because these may impact you directly.
- The Alternative Minimum Tax (AMT): The AMT is mostly focused on individuals, C corporations, estates and trusts with high income to ensure that these entities don’t completely escape federal-level income tax through the adroit use of deductions, credits and exclusions they may employ. This way, these entities pay income tax through the AMT’s alternative tax system.
- Capital Gains Tax: A capital gain occurs when a capital asset such as stocks, land, buildings or equipment is sold at a higher price than the price of its original purchase. The capital gain is the difference between the two prices. If one of your assets has a capital gain when it’s sold, you have incurred a tax liability on the appreciated value. However, since the current highest tax rate for ordinary income is presently 39.6% and the current highest tax rate for capital gains is presently 20%, or almost half, it’s to your tax-savings advantage if you can precipitate more capital gains, either by selling capital assets or earning certain dividends that are taxed at capital gains’ tax rates.
The purpose of planning a tax strategy on the income you receive is to limit the amount of federal income tax you would otherwise have to pay. There are several ways to do this so you can save your hard-earned money, such as reducing your taxable income, or perhaps deferring income to another tax year, or choosing to shift income to family members in lower tax brackets. Other strategies include investment tax planning, deduction planning, and year-end strategies that reduce your estate’s income tax so you preserve as much of your wealth as possible.
Defer Your Income: By postponing income in the current tax year until a future year, you may be able to reduce your immediate tax liabilities, and also be in a lower tax bracket as well, saving taxes in two ways. An arrangement like this is possible with certain retirement plans, or you may be able to structure the sale of your business so that you receive income from the sale on a schedule.
Shift Income to Family Members: Federal income tax liabilities can also be reduced by shifting income to other members of your family who are in lower tax brackets. You may own a stock that generates a lot of dividend income; when you gift the stock, the tax responsibility is shifted, assuming you don’t exceed the $13,000 ceiling on tax-free gifts. A family limited partnership might also be an appropriate way to shift income so tax liabilities can be reduced. As you realize, there are a number of factors involved when income shifting to family members, including children, in a C corporation, an S corporation, or a Family Limited Partnership. A tax advisor will advise you on the feasibility of these and other tactics, and all the pertinent details you’ll need to know and consider.
Deduction Planning: By claiming all the deductions to which you are entitled, you may be able to significantly reduce your income tax liabilities. In addition, you may be able to control whether a deduction is best placed in one year or another, to provide a greater reduction in your tax liability.
Timing Strategies: By consulting with your financial planner, you will have the benefit of premeditated investment choices that control your vulnerability to taxation. Tax-exempt securities could be a good asset class for you, as well as timing the sale of capital assets. Generally, long-term capital gains (ownership of over one year) are taxed at a lower rate than ordinary income, so holding assets for over a year may contribute to a tax saving. Your financial planner will be indispensable for the value of professional advice he can provide.
Year-End Tax Planning: Because year-end planning is conducted in the last quarter of the year, a more factual tax strategy can be implemented because much of what has occurred during the year is known, or can be anticipated. Your financial planner may now be more precise with recommendations to delay income for subsequent years, and more specific about deductions you should take or delay to limit your estate’s tax exposure.
When considering insurance as a means for financial protection, two main issues must be considered and resolved:
- Your ability to accept the financial risk inherent in insurance policy protection, and
- Your willingness to weather the volatility that sometimes accompanies insurance policies’ value development
There are two main reasons for purchasing insurance policies:
- To protect your financial well-being
- To accumulate cash
- And: a combination of the two
Insurance as a source of financial support for dependents
Insurance can be an excellent tool for providing financial support to the surviving family members. Funds from insurance policies can be used for the typical household expenses of paying bills, maintaining mortgage payments, purchasing food, clothing and health care, and can also be applied to education, day care, legal fees, or business costs.
Insurance to service debt
Insurance is also an effective means for providing resources to pay off a mortgage, vehicle loans, credit card debt, and debts such as college or business loans. Death does not terminate the estate’s obligation to pay back these debts, and an insurance policy could be very useful for preserving your survivors’ finances.
Insurance for personal uses
Insurance policies can also be a great resource during your lifetime. Cash value life insurance policies can potentially accumulate cash you can use for any purpose through a policy loan, or policy termination if circumstances warrant. If you terminate your policy, you would pay taxes on the funds you receive, possibly at a favorable rate.
Assessing your personal needs
Initially, you and your insurance advisor or financial planner should analyze your need for insurance to determine if life insurance fits well into your estate’s strategic plan. The key focus will be to understand the result of your family’s financial situation if the main financial contributor were to die. This analysis of your family’s needs will be a review of the death’s effect on income, existing assets, indebtedness, and living expenses in the future.
Insurance policies can assist with retirement needs, estate and tax planning, educational support for family members, etc. A careful review will determine if your situation would benefit from insurance, and if so, how much should be acquired and what type of policy is best suited for your purposes.
Insurance company risk?
Your advisor should recommend purchasing insurance only from absolutely sound insurance companies. Insurance companies are rated by independent services that assess the financial strength of these companies, and their ability to pay claims. Some of the best rating services are Standard & Poor’s, AM Best, and Moody’s. Your advisor should recommend purchases with high ratings from these companies.
Two types of policies
Term insurance provides only financial protection and has no cash value component. Upon your death, the insurance company pays your beneficiaries.
Term insurance is like renting. You pay rent, and when you leave, you take no equity with you. It provides only financial protection and has no cash value component. Upon your death, the insurance company pays your beneficiaries.
Cash value policies are like owning a home. You can build equity, and when you sell your home, you may even make a profit. They provide a death benefit, and after a period of time, cash value may have accrued and can be loaned to you, or paid out when the policy is terminated.
While there are many other types of polices available, they are all a variation of these two basic types. The right type for you depends on your circumstances.
In our most recent post, we gave a brief overview of trusts and why a business owner might need one as part of an estate planning package. In this post, we’ll explain a few other types of trusts, although our list is not all-inclusive. Synergetic Finance founder and author Joseph M. Maas explains trusts in his book, “Exit Insight: ‘Getting to ‘Sold!’” The following is an excerpt from pages 180-182.
Other Types of Trusts
The following is not a full listing of the many trusts available to you, but is intended instead to demonstrate there are myriad choices available to serve your estate according to the strategic plan you and your financial planner have created.
The basic plan is to retain as much of your estate’s value as possible by limiting tax liability, and transferring your estate’s properties efficiently to your beneficiaries. Each person’s circumstances are unique, so the assortment of trusts from which you can choose provides opportunity to protect the wealth you’ve worked so hard to build. Critical to this endeavor is using the trained skills and talents of a professional and independent financial planner who understands your goals and can guide you toward achieving them.
- Irrevocable Life Insurance Trusts: By shifting your life insurance policies into a trust, these policies avoid probate, the proceeds are also kept out of your estate, and you ensure that your beneficiaries have liquidity to help them through the transitional period following your death. In addition, though you lose the capacity to exercise complete control, additional advantages are that the assets cannot be claimed by creditors, you can name your trustee and specify how the policy proceeds are to be invested, and you can also specify the timing of when the trust’s beneficiaries will receive their proceeds.
- Revocable Life Insurance Trusts: While a revocable life insurance trust won’t provide protection from tax liabilities, it does offer other benefits that may be attractive, such as controlling the trust by yourself or through a professional manager; you can make adjustments according to your life’s changing circumstances of birth, death, divorce, and marriage; and among a variety of other details you will discuss with your planner, including both various advantages and disadvantages, you have shielded these assets from probate.
- Bypass Trust: The assets in this trust bypass the surviving spouse’s gross estate, allowing the surviving spouse to potentially receive distributions without triggering tax liabilities, assuming certain parameters are maintained. This trust is best employed with assets that are expected to appreciate in value.
- Marital Trust: A marital trust, known also as an “A” trust, is established for the use of the surviving spouse and the children of the married couple. The marital trust effectuates on the death of the spouse, at which time identified assets are moved into the trust, and income generated by the assets, and sometimes the principal, can be used by the spouse. These assets avoid probate and prevent taxation.Then, upon the death of the surviving spouse, the marital trust can be used with a credit shelter trust, also known as a “B” trust and a bypass trust. The purpose of a B trust is to assure that the assets go to the married couple’s children, not to the new children of the surviving spouse if there is a remarriage with children.
- The A – B Trust: Also known as a ‘credit shelter trust, or CST, the A – B trust is the name given when the two trusts described above are used to work together. In further explanation, assets are transferred to the beneficiaries, normally the couple’s children, but the surviving spouse retains rights to the assets and the generated income for the rest of their life.
- The Qualified Terminable Interest Property (QTIP) Trust: This trust provides income and sometimes the principal for the use of the surviving spouse, and then for the allocation of the assets after the surviving spouse has died.
- Trusts to Provide for a Dependent with a Disability: In this case, any of several different types of trusts can be established to benefit an individual with a disability, providing supplemental resources for this person’s well-being without jeopardizing the ability to also receive the assistance of public funds. Supplementation may be for additional nursing care, public housing cost differentials, travel expenses for visits by the family to the individual, and any expenditures which benefit the individual without disqualifying the person from any public assistance program.
- Trusts for Minors: As you might imagine, there are also a variety of trusts available for minors.There is the ‘discretionary trust’, also known as the ‘minor’s trust’ which permits tax deductible financial gifts to a minor until they turn 21; it is defined by the Internal Revenue Code, Section 2503(c).
The ‘mandatory income trust’ or ‘income trust’ provides an annual income for a minor’s care and welfare. The income is taxable, but the donor may avoid taxes depending on their meeting the annual gift tax exclusion requirements. This trust is defined by the Internal Revenue Code, Section 2503(b).
The ‘Crummey trust’, named after the first person to use it, provides that the beneficiary has a set time, usually 30 days, to use the newest deposit to the trust; if the newest contribution goes unused, those funds are then added to the inaccessible portion of the trust and released later according to the terms of the trust. This is a ‘use it or save it’ trust.
It’s easy to see there are a variety of trusts available for a variety of purposes, and many more than are mentioned here. As always, it’s important to remember that you don’t know what you don’t know, so it’s the wise person who seeks the counsel of trained professionals who can then provide guidance on the array of choices, and work with you to select the best path to achieve your goals and satisfaction.
Copyright © Joseph M. Maas for Merrell Publishing 2014-2015
Want more information about exit planning, estate planning or trusts? Buy a copy of “Exit Insight” online now at Merrell Publishing or Amazon. A small investment today will give you great peace of mind later!