As a result, in October 2010, the DOL issued new regulations that require self-directed 401(k) plans to provide detailed information to participants about the plan and its investments, on a regular and periodic basis, so that participants can make informed investment decisions. Some information must be provided on an annual basis, and some information must be provided quarterly. For most plans, the initial annual disclosure must be furnished no later than August 30, 2012. The first quarterly statement must be furnished no later than November 14, 2012 (for July through September).

New 401k Changes

If you’re currently participating in a 401(k) plan, chances are you’re already receiving similar information as a result of an earlier set of DOL regulations. However, employer compliance with the older regulations was voluntary, whereas the new disclosure rules are mandatory for all self-directed 401(k) plans. Even participants in plans that previously complied with the earlier disclosure rules will see some changes when the new regulations take effect. For one, you’ll receive more detailed information about investment fees and expenses. Another change is that plan investment information must be provided in a chart, so that you’ll be better able to compare investment alternatives. And plans will no longer be required to automatically provide a prospectus, although one must be provided if you request it.

Contact us today for a financial review.

The following information is reprinted with permission from Forefield, Inc. Copyright 2006-2012.

The employer can purchase annuity contracts for eligible employees, or establish custodial accounts to be invested in mutual funds or other investments. In the case of annuity contracts, a 403(b) plan is sometimes referred to as a tax-sheltered annuity (TSA) plan. (Church plans are subject to several special rules not covered here.)

How Does the Plan Work

Depending on the specific type of 403(b) plan, contributions may be made by the employee, the employer, or both the employee and employer. Many 403(b) plans are similar to 401(k) plans: you elect either to receive cash payments (wages) from your employer immediately, or to defer receipt of all or part of that income to your 403(b) account. The amount you defer (called an “elective deferral”) can be either pretax or, if your plan permits, after-tax Roth contributions.

Employer contributions, if made, may be a fixed percentage of your compensation, or may match a specified percentage of your contribution, or may be discretionary on the part of the employer. One unique characteristic of 403(b) plans is that your employer is allowed to make contributions to your account for up to five years after you terminate employment.

What Are the Contribution Limits

You can defer up to $17,000 of your pay to a 403(b) plan in 2012. If your plan allows Roth contributions, you can split your contribution between pretax and Roth contributions any way you wish. Unlike 401(k) plans, employee elective deferrals to 403(b) plans aren’t subject to discrimination testing (which in 401(k) plans can often significantly limit the amount higher-paid employees can defer).

If your plan permits, you may also be able to make “catch-up” contributions to your account. You can contribute up to an additional $5,500 in 2012 if you’ll be age 50 or older by the end of the year. If you have 15 years of service with your employer (even if you haven’t attained age 50) a special Section 403(b) rule may also allow you to make annual catch-up contributions of $3,000, up to $15,000 lifetime. If you’re eligible for both rules, then any catch-up contributions you make count first against your 15-year $15,000 lifetime limit.

When Can I Access My Money

In general, you can’t withdraw your elective deferrals from your 403(b) until you reach age 59½, become disabled, or terminate employment (deferrals to annuity contracts prior to 1989 aren’t subject to these restrictions). Some plans allow you to make a withdrawal if you have an immediate and heavy financial need (“hardship”), but this should be a last resort–not only is a hardship distribution a taxable event, but you may be suspended from plan participation for six months or more. If your plan allows after-tax (non-Roth) contributions, your plan can let you withdraw these dollars at any time.

Employer contributions to 403(b) custodial accounts are subject to similar withdrawal restrictions. But employer contributions and pre-1989 deferrals to 403(b) annuity contracts are subject to somewhat more lenient distribution rules. Check with your plan administrator for your plan’s specific rules.

If your plan permits loans, you may be able to borrow up to one-half of your vested 403(b) account balance (to a maximum of $50,000) if you need the money.

What Happens When I Terminate Employment

Generally, you forfeit all employer contributions that haven’t vested. “Vesting” means that you own the contributions. Your plan may require up to six years of service before you’re fully vested in employer contributions, although some plans have much faster vesting schedules. (Your own contributions are always 100% vested.) You can generally leave your money in your 403(b) account, transfer it to a new 403(b) account, roll your dollars over to an IRA or to another employer’s retirement plan, or take a distribution.

Contact us today for a financial review.  Manuel A. Martinez is a CERTIFIED FINANCIAL PLANNER™ focused on helping families and small businesses in the Charleston South Carolina area. The following information is reprinted with permission from Forefield, Inc. Copyright 2006-2012.

• Getting married or divorced
• Having a baby or adopting a child
• Paying for your child’s college education
• Buying or selling a family business
• Changing jobs or careers
• Planning for your retirement
• Developing an estate plan
• Coping with the death of your spouse
• Receiving an inheritance or a financial windfall

In these situations, a financial professional can help you make objective, rather than emotional, decisions.

However, you don’t have to wait until an event occurs before you consult a financial advisor. A financial advisor can help you develop an overall strategy for approaching your financial goals that not only anticipates what you’ll need to do to reach them, but that remains flexible enough to accommodate your evolving financial needs.

Contact us today for a financial review.  Manuel A. Martinez is a CERTIFIED FINANCIAL PLANNER™ focused on helping families and small businesses in the Charleston South Carolina area.

The following information is reprinted with permission from Forefield, Inc. Copyright 2006-2012.

• Most people don’t need financial advisors – While it’s true that you may have the knowledge and ability to manage your own finances, the financial world grows more intricate every day. A qualified financial advisor has the expertise to help you navigate a steady path towards your financial goals.
• All financial advisors are the same – Financial advisors are not covered by uniform state or federal regulations, so there can be a considerable disparity in their qualifications and business practices. Some may specialize in one area such as investment planning, while others may sell a specific range of products, such as insurance. A qualified financial advisor generally looks at your finances as an interrelated whole, and can help you with many of your financial needs.
• Financial advisors serve only the wealthy – Some advisors do only take on clients with a minimum amount of assets to invest. Many, however, only require that their clients have at least some discretionary income.
• Financial advisors are only interested in comprehensive plans – Financial advisors generally prefer to offer advice within the context of a client’s current situation and overall financial goals. But financial advisors frequently help clients with specific matters such as rolling over a retirement account or developing a realistic budget.
• Financial planners aren’t worth the expense – Like other professionals, financial advisors receive compensation for their services, and it’s important for you to understand how they’re paid. But a good financial advisor may help you save and earn more than you’ll pay in fees.

Contact us today for a financial review.  Manuel A. Martinez is a CERTIFIED FINANCIAL PLANNER™ focused on helping families and small businesses in the Charleston South Carolina area. The following information is reprinted with permission from Forefield, Inc. Copyright 2006-2012.

Specifically, a financial advisor or planner may help you:

• Set financial goals
• Determine the state of your current financial affairs by reviewing your income, assets, and liabilities, evaluating your insurance coverage and your investment portfolio, assessing your tax obligations, and examining your estate plan
• Develop a plan to help meet your financial goals which addresses your current financial weaknesses and builds on your financial strengths
• Make recommendations about specific products and services
• Monitor your plan and periodically evaluate its progress
• Adjust your plan to help meet your changing financial goals and to accommodate changing investment markets or tax laws

Many families finance a college education with help from student loans and other types of financial aid such as grants and work-study, private loans, current income, gifts from grandparents, and other creative cost-cutting measures. But savings are the cornerstone of any successful college financing plan.

College costs keep climbing

It’s important to start a college fund as soon as possible, because next to buying a home, a college education might be the biggest purchase you ever make. According to the College Board, for the 2011/2012 school year, the average cost of one year at a four-year public college is $21,447 (in-state students), while the average cost for one year at a four-year private college is $42,224.

Though no one can predict exactly what college might cost in 5, 10, or 15 years, annual price increases in the range of 5 to 8% would certainly be in keeping with historical trends. The following chart can give you an idea of what future costs might be, based on the most recent cost data from the College Board and an assumed annual college inflation rate of 5%.

Focus on your savings

The more you save now, the better off you’ll likely be later. A good plan is to start with whatever amount you can afford, and add to it over the years with raises, bonuses, tax refunds, unexpected windfalls, and the like. If you invest regularly over time, you may be surprised at how much you can accumulate in your child’s college fund.

College savings options

You’re ready to start saving, but where should you put your money? There are several college savings options, but to come out ahead in the college savings game, you should opt for tax-advantaged strategies whenever possible.

529 plans

529 plans are one of the most popular tax-advantaged college savings options. They include both college savings plans and prepaid tuition plans. With either type of plan, your contributions grow tax deferred and earnings are tax free at the federal level if the money is used for qualified college expenses. States may also offer their own tax advantages.

With a college savings plan, you open an individual investment account and select one or more of the plan’s mutual fund portfolios for your contributions. With a prepaid tuition plan, you purchase tuition credits at today’s prices for use at specific colleges in the future–there’s no individual investment component. With either type of plan, participation isn’t restricted by income, and the lifetime contribution limits are high, especially for college savings plans.

Coverdell education savings accounts

A Coverdell education savings account is a tax-advantaged education savings vehicle that lets you contribute up to $2,000 per year. Your contributions grow tax deferred and earnings are tax free at the federal level (and most states follow the federal tax treatment) if the money is used for the beneficiary’s qualified elementary, secondary, or college expenses. You have complete control over the investments you hold in the account, but there are income restrictions on who can participate.

U.S. savings bonds

The interest earned on Series EE and Series I saving bonds is exempt from federal income tax if the bond proceeds are used for qualified college expenses. These bonds earn a guaranteed, modest rate of return, and they are easily purchased at most financial institutions or online at www.treasurydirect.gov. However, to qualify for tax-free interest, you must meet income limits and other criteria.

UTMA/UGMA custodial accounts

An UTMA/UGMA custodial account is a way for your child to hold assets in his or her own name with you (or another individual) acting as custodian. Assets in the account can then be used to pay for college. All contributions to the account are irrevocable, and your child will gain control of the account when he or she turns 18 or 21 (depending on state rules). Earnings and capital gains generated by assets in the account are taxed to the child each year.

Under the kiddie tax rules, for children under age 19, and for full-time students under age 24 who don’t earn more than one-half of their support, the first $950 of earned income is tax free, the next $950 is taxed at the child’s rate, and anything over $1,900 is taxed at your rate.

A last word on financial aid

Many families rely on some form of financial aid to pay for college. Loans and work-study jobs must be repaid (either through monetary or work obligations), while grants and scholarships do not.

Most financial aid is based on need, which the federal government and colleges determine primarily by your income, but also by your assets and personal information reported on your aid applications. In recent years, merit aid has been making a comeback, so this can be good news if your child has a special talent or skill.

The bottom line, though, is don’t rely too heavily on financial aid. Although it can certainly help cover college costs, student loans make up the largest percentage of the typical aid package. Generally, plan on financial aid covering the following percentage of expenses: loans–up to 50%, grants and scholarships–up to 15%, work-study–varies. The lesson: the more you focus on your savings now, the less you may need to worry about later.

The following information is reprinted with permission from Forefield, Inc. Copyright 2006-2012.

First, consider a plan loan
Many 401(k) plans allow you to borrow money from your own account. A loan may be attractive if you don’t qualify for a withdrawal, or you don’t want to incur the taxes and penalties that may apply to a withdrawal, or you don’t want to permanently deplete your retirement assets. (Also, you must take any available loans from all plans maintained by your employer before you’re even eligible to withdraw your own pretax or Roth contributions from a 401(k) plan because of hardship.)

In general, you can borrow up to one half of your vested account balance (including your contributions, your employer’s contributions, and earnings), but not more than $50,000.

You can borrow the funds for up to five years (longer if the loan is to purchase your principal residence). In most cases you repay the loan through payroll deduction, with principal and interest flowing back into your account. But keep in mind that when you borrow, the unpaid principal of your loan is no longer in your 401(k) account working for you.

Withdrawing your own contributions
If you’ve made after-tax (non-Roth) contributions, your 401(k) plan can let you withdraw those dollars (and any investment earnings on them) for any reason, at any time. You can withdraw your pretax and Roth contributions (that is, your “elective deferrals”), however, only for one of the following reasons–and again, only if your plan specifically allows the withdrawal:

You attain age 59½
You become disabled
The distribution is a “qualified reservist distribution”
You incur a hardship (i.e., a “hardship withdrawal”)
Hardship withdrawals are allowed only if you have an immediate and heavy financial need, and only up to the amount necessary to meet that need. In most plans, you must require the money to:

Purchase a principal residence or repair a principal residence damaged by an unexpected event (e.g., a hurricane)
Prevent eviction or foreclosure
Pay medical bills
Pay certain funeral expenses
Pay certain education expenses
Pay income tax and/or penalties due on the hardship withdrawal itself
Investment earnings aren’t available for hardship withdrawal, except for certain pre-1989 grandfathered amounts.

But there are some disadvantages to hardship withdrawals, in addition to the tax consequences described below. You can’t take a hardship withdrawal at all until you’ve first withdrawn all other funds, and taken all nontaxable plan loans, available to you under all retirement plans maintained by your employer. And, in most 401(k) plans, your employer must suspend your participation in the plan for at least six months after the withdrawal, meaning you could lose valuable employer matching contributions. And hardship withdrawals can’t be rolled over. So think carefully before making a hardship withdrawal.

Withdrawing employer contributions
Getting employer dollars out of a 401(k) plan can be even more challenging. While some plans won’t let you withdraw employer contributions at all before you terminate employment, other plans are more flexible, and let you withdraw at least some vested employer contributions before then. “Vested” means that you own the contributions and they can’t be forfeited for any reason. In general, a 401(k) plan can allow you to withdraw vested company matching and profit-sharing contributions if:

You become disabled
You incur a hardship (your employer has some discretion in how hardship is defined for this purpose)
You attain a specified age (for example, 59½)
You participate in the plan for at least five years, or
The employer contribution has been in the account for a specified period of time (generally at least two years)
Taxation
Your own pretax contributions, company contributions, and investment earnings are subject to income tax when you withdraw them from the plan. If you’ve made any after-tax contributions, they’ll be nontaxable when withdrawn. Each withdrawal you make is deemed to carry out a pro-rata portion of taxable and any nontaxable dollars.

Your Roth contributions, and investment earnings on them, are taxed separately: if your distribution is “qualified,” then your withdrawal will be entirely free from federal income taxes. If your withdrawal is “nonqualified,” then each withdrawal will be deemed to carry out a pro-rata amount of your nontaxable Roth contributions and taxable investment earnings. A distribution is qualified if you satisfy a five-year holding period, and your distribution is made either after you’ve reached age 59½, or after you’ve become disabled. The five-year period begins on the first day of the first calendar year you make your first Roth 401(k) contribution to the plan.

The taxable portion of your distribution may be subject to a 10% premature distribution tax, in addition to any income tax due, unless an exception applies. Exceptions to the penalty include distributions after age 59½, distributions on account of disability, qualified reservist distributions, and distributions to pay medical expenses.

Rollovers and conversions
Rollover of non-Roth funds
If your in-service withdrawal qualifies as an “eligible rollover distribution,” you can roll over all or part of the withdrawal tax free to a traditional IRA or to another employer’s plan that accepts rollovers. In general, most in-service withdrawals qualify as eligible rollover distributions except for hardship withdrawals and required minimum distributions after age 70½. If your withdrawal qualifies as an eligible rollover distribution, your plan administrator will give you a notice (a “402(f) notice”) explaining the rollover rules, the withholding rules, and other related tax issues. (Your plan administrator will withhold 20% of the taxable portion of your eligible rollover distribution for federal income tax purposes if you don’t directly roll the funds over to another plan or IRA.)

You can also roll over (“convert”) an eligible rollover distribution of non-Roth funds to a Roth IRA. And some 401(k) plans even allow you to make an “in-plan conversion”–that is, you can request an in-service withdrawal of non-Roth funds, and have those dollars transferred into a Roth account within the same 401(k) plan. In either case, you’ll pay income tax on the amount you convert (less any nontaxable after-tax contributions you’ve made).

Rollover of Roth funds
If you withdraw funds from your Roth 401(k) account, those dollars can only be rolled over to a Roth IRA, or to another Roth 401(k)/403(b)/457(b) plan that accepts rollovers. (Again, hardship withdrawals can’t be rolled over.) But be sure to understand how a rollover will affect the taxation of future distributions from the IRA or plan. For example, if you roll over a nonqualified distribution from a Roth 401(k) account to a Roth IRA, the Roth IRA five-year holding period will apply when determining if any future distributions from the IRA are tax-free qualified distributions. That is, you won’t get credit for the time those dollars resided in the 401(k) plan.

Be informed
You should become familiar with the terms of your employer’s 401(k) plan to understand your particular withdrawal rights. A good place to start is the plan’s summary plan description (SPD). Your employer will give you a copy of the SPD within 90 days after you join the plan.

The following information is reprinted with permission from Forefield, Inc. Copyright 2006-2011.

Traditional IRA deduction limits for 2012

While the maximum contribution hasn’t changed, the income limits for determining the deductibility of traditional IRA contributions have increased (for those covered by employer retirement plans). For example, you can fully deduct your IRA contribution if your filing status is single/head of household, and your income (“modified adjusted gross income,” or MAGI) is $58,000 or less (up from $56,000 in 2011). If you’re married filing a joint return, you can fully deduct your IRA contribution if your MAGI is $92,000 or less (up from $90,000 in 2011). If you’re not covered by an employer plan but your spouse is, and you file a joint return, you can fully deduct your IRA contribution if your MAGI is $173,000 or less (up from $169,000 in 2011).

*If you’re not covered by an employer plan but your spouse is, your deduction is limited if your MAGI is $173,000 to $183,000, and eliminated if your MAGI exceeds $183,000.

Roth IRA contribution limits for 2012

The income limits for determining how much you can contribute to a Roth IRA have also increased. If your filing status is single/head of household, you can contribute the full $5,000 to a Roth IRA in 2012 if your MAGI is $110,000 or less (up from $107,000 in 2011). And if you’re married filing a joint return, you can make a full contribution if your MAGI is $173,000 or less (up from $169,000 in 2011). (Again, contributions can’t exceed 100% of your earned income.)

Employer retirement plans

The maximum amount you can contribute (your “elective deferrals”) to a 401(k) plan has increased for 2012. The limit (which also applies to 403(b), 457(b), and SAR-SEP plans) is $17,000 in 2012 (up from $16,500 in 2011). If you’re age 50 or older, you can also make catch-up contributions of up to $5,500 to these plans in 2012 (unchanged from 2011). (Special catch-up limits apply to certain participants in 403(b) and 457(b) plans.)

If you participate in more than one retirement plan, your total elective deferrals can’t exceed the annual limit ($17,000 in 2012 plus any applicable catch-up contribution). Deferrals to 401(k) plans, 403(b) plans, SIMPLE plans, and SAR-SEPs are included in this limit, but deferrals to Section 457(b) plans are not. For example, if you participate in both a 403(b) plan and a 457(b) plan, you can defer the full dollar limit to each plan–a total of $34,000 in 2012 (plus any catch-up contributions).

The amount you can contribute to a SIMPLE IRA or SIMPLE 401(k) plan in 2012 remains at $11,500 ($14,000 if you’re age 50 or older), unchanged from 2011.

Finally, the maximum amount that can be allocated to your account in a defined contribution plan (for example, a 401(k) plan or profit-sharing plan) in 2012 is $50,000 (up from $49,000 in 2011), plus age-50 catch-up contributions. (This includes both your contributions and your employer’s contributions. Special rules apply if your employer sponsors more than one retirement plan.)

Note: Contributions can’t exceed 100% of your income.

The following information is reprinted with permission from Forefield, Inc. Copyright 2006-2011.

To view the Trends in College Pricing 2011 report, click here.  Here are the highlights:

Public colleges (in-state students):

• Tuition and fees increased an average of 8.3% to $8,244
• Room and board increased an average of 4.0% to $8,887
• Total average cost* for 2011/2012: $21,447