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Tuesday, February 21, 2006

Pension Plans

Retirement and the Business Professional

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Don’t Put All Your Eggs in One Basket

Many entrepreneurs who start or purchase a business do so for a number of reasons, both emotional and financial. Social status, the freedom to be your own boss and the potential for a high income are a few of the reasons commonly cited. For some, business ownership is also seen as a primary way to pay for retirement. If everything goes as planned, the business owner works hard and, over time, the business grows and becomes more valuable. When the owner reaches a certain age the business is sold, with the proceeds from the sale funding the retirement years.

The Realities of Business OwnershipUsing the business as the sole means of achieving financial independence amounts to placing a bet that the owner will be able to sell at the right time, the right price and under the right terms. There are several reasons why this may not happen:
Business failure: Despite good intentions and hard work, businesses do fail. In1998, for example, there were 155,141 new business started in the United States; inthe same year, 71,857 businesses failed.1

Timing of the sale: Selling a business is a complex, often time-consumingprocedure. The actual process of finding a buyer, negotiating the deal, arrangingfinancing and finally closing the sale may extend over months or even years.
Proceeds: Depending on market conditions, the amount realized may not be enoughto pay for retirement. Income taxes will inevitably consume some of the proceeds.The owner may have to accept installment payments, rather than a lump sum.
“I am the business:” The value of a business may depend largely on the skillsand /or customer relationships of a particular owner.
Diversification to Reduce RiskA business owner who seeks to reduce risk will view his or her business as one asset among many. In addition to the business, a diversified portfolio could include the following.
Qualified retirement plans: Business income is used to fund employer-sponsoredqualified plans with a current deduction for contributions and tax-deferred growth.
Nonqualified plans: Nonqualified deferred compensation plans are often used toreward selected employees and serve to supplement qualified retirement plans.
General investment portfolio: A business owner can develop a general investmentportfolio, outside of the framework of the business.1 Source: Statistical Abstract of the United States, 2001. See Section 15, “Business Enterprise”, report No. 737, Business Starts and Employment Associated with Start: 1990-1999.Designing the Best Plan for You Presented by:
Qualified Retirement Plans

Qualified retirement plans are Congressionally approved retirement plans, which have major tax benefits.
The employer’s contributions can be deducted for income tax purposes.
The earnings on the plan’s investments accumulate on a tax-deferred basis.
When the funds are distributed at retirement age, they may be eligible for favorabletax treatment.
Taxpayers may be in a lower income tax bracket after retirement.
Two Principal Types of PlansQualified retirement plans can generally be classified as either defined benefit or defined contribution plans.
Defined benefit plans define the benefit amount each participant will receive at retirement age and then estimate how much must be contributed each year to accumulate the necessary future fund. Interest rates, ages of participants, etc., will have an effect on the calculation. An actuary generally determines the amount of the contribution. The investment risk rests on the employer.Defined contribution plans generally put a percentage of current salaries into the plan each year. The amount at retirement will depend on the investment return and number of years until a participant retires. The investment risk rests on the participant
.
Plan Type
Contributions
Retirement
Benefits
Investment Risk
Defined benefit
Vary
Fixed
Employer
Defined contribution
Pension– Fixed Profit sharing – Vary
Vary
Employee

What Is the Best Type of Plan?

There is no best type of plan. The choice of what type of plan to use is an individual one. The answer depends on factors such as employer goals and available cash flow.
1. Those born before 1936 may be able to elect 10-year averaging or capital gains treatment; these strategies are not available to those born after 1935. 2. Note that some plans have features of both types. Designing the Best Plan for You

Qualified Retirement Plans

Defined Benefit Plans The employer contributes an actuarially-determined amount sufficient to pay each participant a fixed or defined benefit at his or her retirement. Methods of defining the benefit may be based on a flat percentage of compensation, a percentage which increaseswith years of service, a percentage which changes at certain compensation levels, etc. This type of plan generally favors older employees, because more of the employer’s contributions must go into his or her account to make certain that there will be enough to pay the promised (or defined) benefit at retirement age.

Defined Contribution PlansThere are several variations of defined contribution plan’s, some of the variations include the following.
Money purchase pension: The employer contributes a specified percentage of the participating employee’s salary each year. Whatever that fund grows to is what the retiring employee receives.
Target benefit pension plan: The target benefit plan has elements of both the defined benefit and defined contribution plans. The benefits are determined as if the plan were a defined benefit plan, while the defined contribution plan annual contribution percentage and dollar amount limitations apply to the actual contributions.
Traditional profit sharing plan: Similar to the money purchase pension, except that contributions do not need to be a specific percentage and they do not need to be made every year, as long as they are substantial and recurring.
Age-weighted money purchase and profit sharing plans: Money purchase and profit sharing plans in which employer contributions are allocated to provide an assumed equivalent retirement benefit at normal retirement age.
Cross-tested or super-integrated money purchase and profit sharing plans: These plans establish groups of participants to which are allocated specified allocation percentages. They must satisfy very complicated discriminatory requirements under Reg. 1.401(a)(4).
Stock bonus plan: Similar to the traditional profit sharing plan. The plan may, but is not required to, invest primarily in the employer’s stock.
ESOP - Employee stock ownership plan: Like a stock bonus plan, to which the employer can contribute company stock instead of cash. The plan must be primarily invested in company stock.

Qualified Retirement Plans

IRC Sec. 401(k) plan: Also called a cash or deferred plan, this plan is any stock bonus plan or profit sharing plan which meets certain participation requirements of IRC Sec. 401(k). An employee can agree to a salary reduction or to defer a bonuswhich he or she has coming.
SIMPLE plans: SIMPLE stands for savings incentive match plan for employees. SIMPLE plans can be in either an IRA format or a 401(k) format.
SEP: This stands for simplified employee plan. An SEP is a group of individual IRAs established for employees to which the employer and employees may contribute more than an individual employee could contribute to a traditional IRA or Roth IRA.

Agency Marketing Services helps you to obtain the information necessary to make the right decision for your company’s pension plan.

Our plans are designed to meet the needs of the business owner over the life of the plan. This means affordable and easy administration combined with plan flexibility to meet changing business conditions. Comparability plans that favor the business owner and key executives allowing for higher limits on contributions by classes of employees than a standard plan. Flexibility in multiple investment options coupled with ease of online computer administration for the employer and employee.

Online Quote Request www.amsinsure.com
Are HSA (Health Savings Accounts) for you and or your company.

These plans require some form of management by the company and or individual considering an HSA plan.

1) Systematic Savings to allow money available for future expenses.
2) Understanding of how to choose a provider. Doing the research and using available PPO networks.
3) Knowning what are fare costs for services, negotiating discuounts for cash and other monetary payment management.
4) Taking responsibility for ones health condition and factors of maintaining good health.

These plans require a greater awarness of health, health care, providers and costs. One way is to use a 3rd party administrator to review costs and make sure that the best discounts where achieved, as well as have a system to review providers and costs of services.

Plans are not the same as a regular health plan, but with higher costs of plans and more exposure to the expenses of health care they do offer tax advantages not found in traditional plans.

The following will assit you with a great understanding of HSA plans.


How much you can save with an HSA....


HSA's

The following are key facts about H S A’s. For more information, please read the complete list of frequently asked questions below.WHAT IS AN HSA?Think of H S A’s as "medical" IRAs. They are tax-free accounts that individuals with high-deductible insurance policies can fund and use to pay for medical expenses. Because they are tax-advantaged and balances can accumulate over time, H S A’s can also be used to accumulate wealth. In addition, H S A’s are owned by the individual account holder and therefore portable.Since inception in January 2004, H S A’s are quickly gaining in popularity among individuals and employers. Key facts from several recent studies indicate strong interest:
Of employers surveyed, 73% said they were very or somewhat likely to offer H S A’s by 2006. ~ Mercer Human Resource Consulting
Among these employers, 21% said employees are inquiring about H S A’s. Among larger employers, 42% of employees expressed interest. ~ Mercer Human Resource Consulting
Among small business owners, 73% found the concept of H S A’s appealing. ~ National Small Business Association H S A’s appeal to all income groups. A recent Health Insurance study shows nearly 50% of HSA purchasers make less than $50,000. HSA ExampleWHO IS ELIGIBLE FOR AN HSA?To be eligible for an HSA, the subscriber must be covered only by an HSA compatible, high deductible health plan, be under 65 years of age, and must not be a dependent on another person's tax return.A high deductible health insurance plan is one with an annual deductible of at least:$1,000 for individuals $2,000 for families Annual out-of-pocket expenses cannot exceed $5,000 for individuals or $10,000 for families WHO CAN CONTRIBUTE & HOW MUCH IS ALLOWED?Individuals and employers can contribute to H S A’s. The maximum annual contributions are equal to the deductible amount of the high deductible plan or $2,600 for individuals and $5,150 for families.WHAT ARE THE INVESTMENT OPTIONS WITH AN HSA?H S A account holders can invest contributions in passbook savings, money market funds, mutual funds, stocks and bonds.HOW CAN FUNDS BE USED?H S A funds can be used to pay for a variety of health care services many that are not traditionally allowed under other plans. For a complete list, see the FAQ section of this site.
Frequently Asked Questions
The following summary of the laws and regulations concerning health savings accounts is presented for informational purposes only. Please consult your tax or legal advisor for more detailed information.
Eligibility Requirements
WHAT IS A HEALTH SAVINGS ACCOUNT?The Medicare Prescription Drug, Improvement, and Modernization Act of 2003 added section 223 to the Internal Revenue Code to permit eligible individuals to establish health savings accounts (H S As) for taxable years beginning after December 31, 2003. An H S A allows individuals to pay for qualified health expenses and save for future qualified medical and retiree health expenses on a tax-free basis. An H S A is similar to an Individual Retirement Account ("IRA"). Like an IRA, an H S A is established for the benefit of an individual, is owned by that individual, and is "portable." Thus, if the individual is an employee who changes employers or leaves employment, the H S A stays with the individual. However, an IRA cannot be used as an H S A nor can you combine an IRA and an H S A in a single account.WHO IS ELIGIBLE FOR AN HSA?To be eligible for an HSA, you must be covered by a high deductible health plan and you must not be covered by other health insurance. (This restriction does not apply to specific injury insurance and accident, disability, dental care, vision care, or long-term care insurance.) In addition, you cannot be eligible for Medicare nor can you be claimed as a dependent on someone else's tax return. You are also ineligible for an HSA if, while covered under a high deductible health plan, you are also covered (whether as an individual, spouse, or dependent) under a health plan that is not a high deductible health plan.WHAT IS A "HIGH DEDUCTIBLE HEALTH PLAN"?A high deductible health plan is a health insurance plan that has an annual deductible of at least: (1) $1,000 for individual (self-only) coverage or (2) $2,000, for family coverage (coverage of more than one individual). The annual out-of-pocket expenses amount that is required to be paid out under the health plan cannot exceed $5,000 for individual coverage or $10,000 for family coverage. Out-of-pocket expenses include deductibles, co-payments, and other amounts the participant must pay for covered benefits, but do not include premiums. High deductible health plans can have first dollar coverage (no deductible) for preventive care and higher out-of-pocket expenses (co pays & coinsurance) for non-network services.(The dollar amounts described above are subject to annual cost of living adjustments.)WHO CAN OFFER A HIGH-DEDUCTIBLE HEALTH PLAN?A high-deductible health plan may be offered by a variety of entities, including insurance companies and health maintenance organizations (HMOs).ARE HAS’S ALLOWED UNDER A CAFETERIA PLAN?If a high-deductible health plan is offered as part of a cafeteria plan, it can be used to establish your eligibility for an H S A. (A cafeteria plan or flexible benefit plan is an employee benefit plan that permits employees to choose from a variety of benefits, including health and accident insurance, cash, tax advantages, and retirement plan contributions.)
Establishing an H S A
HOW DO YOU ESTABLISH AN HSA?If you are an eligible individual, you can establish an HSA with a qualified H S A trustee or custodian, in much the same way that individuals establish IRAs with qualified IRA trustees or custodians. No permission or authorization from the Internal Revenue Service ("IRS") is necessary. The trustee or custodian may require you to complete a written HSA custodial or trust agreement.CAN YOU REVOKE YOUR HSA CUSTODIAL AGREEMENT?You may revoke a Custodial Agreement at any time. Please refer to the custodial agreement of your custodian as to revocation and terms.
Contributions to H S A’s
WHO MAY CONTRIBUTE TO AN HSA?Contributions to H S A plans can be made by an eligible individual, an employer, or both. Contributions made by the individual are deductible from the individual's adjusted gross income. Contributions made by the individual's employer are excluded from the individual's income and are not taxable to the individual. Certain other persons can also make contributions to an H S A on behalf of an eligible individual. Contributions from all sources are aggregated for purposes of applying the maximum annual contribution limit described below.HOW DO YOU MAKE CONTRIBUTIONS TO AN HSA?Contributions to an HSA must be made in cash or its equivalent. Custodian of your H S A, will accept contributions by check or via the Automated Clearing House (ACH) Network. Custodians will also accept rollovers or transfers of assets from a medical savings account ("MSA"), as permitted by the Internal Revenue Code.HOW MUCH CAN YOU CONTRIBUTE TO AN HSA?The maximum contribution for any year is the lesser of the amount of the high-deductible health plan's annual deductible or $2,600 for an individual or $5,150 for a family. (These dollar limits will be adjusted for inflation each year.) These annual contribution limits apply regardless of whether the contributions are made by an individual, the individual's employer, or both. For every month you have an H S A eligible health plan, you may contribute 1/12 (one twelfth) of your maximum annual H S A contribution.WHAT IS THE TAX TREATMENT OF AN ELIGIBLE INDIVIDUAL'S H S A CONTRIBUTIONS?Contributions to your HSA, up to the applicable maximum contribution, are deductible from your adjusted gross income, whether or not you itemize deductions.WHAT IS THE TAX TREATMENT OF EMPLOYER CONTRIBUTIONS TO AN HSA?Employer contributions to an employee's HSA are excludable from the employee's gross income, up to the maximum contribution limit for that employee. Although the employee cannot deduct the employer's HSA contributions, the contributions are not taxable to the employee nor are they subject to withholding from wages for income tax or other employment taxes.IS THERE A DEADLINE FOR CONTRIBUTIONS TO AN HSA FOR A TAXABLE YEAR?Contributions for any taxable year can be made in one or more payments, at any time prior to the deadline, without extensions, for filing your federal income tax return for that year, but not before the beginning of that year. For calendar year taxpayers, this deadline for contributions is generally April 15 following the year for which the contributions are made.Sterling HSA will treat any contribution made between January 1 and April 15 as a contribution for the current taxable year unless you provide written notice to Sterling HSA at the time of such contribution that the contribution is for the preceding taxable year.WHAT HAPPENS WHEN HSA CONTRIBUTIONS EXCEED THE MAXIMUM AMOUNT THAT MAY BE DEDUCTED OR EXCLUDED FROM GROSS INCOME IN A TAXABLE YEAR?An "excess contribution" (a contribution made by you or your employer that exceeds the amount allowed by law) is not deductible by you or your employer and is included in your gross income if made on your behalf by your employer. An excise tax of 6% for each taxable year is imposed on excess individual and employer contributions.If the excess contributions for a taxable year and the net income attributable to such excess contributions are paid or distributed to you before the deadline (without extensions) for filing your federal income tax return for the taxable year, then the net income from the excess contributions is included in your gross income for the taxable year in which the distribution is received. However, the excise tax would not be imposed on the excess contributions nor would the distribution of the excess contributions be taxed. Allowable rollover contributions do not count in determining whether an excess contribution has been made.ARE ROLLOVER CONTRIBUTIONS TO HSA's PERMITTED?Rollover contributions from M S A’s and other H S A’s into an H S A are permitted. Rollover contributions to your H S A need not be in cash and are not subject to the annual contribution limits. Rollovers from an IRA, a health reimbursement arrangement ("HRA"), or a health flexible spending arrangement ("FSA") to your H S A are not permitted.CAN YOU PLEDGE ANY PART OF YOUR HSA AS SECURITY FOR A LOAN?Any portion of your H S A that you pledge as security for a loan will be treated as a distribution for the year the pledge is made. The amount pledged is includable in your gross income and a 10% premature distribution penalty tax on the pledged amount may also be imposed.WILL AN HSA PROVIDE TAX ADVICE IN CONNECTION WITH YOUR HSA?As custodian, an H S A custodian is not required to provide tax advice concerning your H S A. It is your sole responsibility to determine the tax consequences of establishing an HSA. Please discuss any questions you may have with your tax advisor.
Distributions from H S A’s
WHEN CAN YOU RECEIVE DISTRIBUTIONS FROM YOUR HSA?You are permitted to receive distributions from your H S A at any time.IN WHAT FORM CAN YOU TAKE DISTRIBUTIONS FROM YOUR HSA?You may take distributions from your Sterling HSA account by utilizing an custodian’s H S A's bill-paying service, by debit card transaction, or any other method permitted from time to time by an H S A custodian of your account.HOW ARE DISTRIBUTIONS FROM AN HSA TAXED?Distributions from an H S A used exclusively to pay for the qualified medical expenses of you or your spouse or eligible dependents are generally excludable from gross income. The amount of any distribution not used exclusively for such qualified medical expenses is includable in your gross income and may be subject to an additional 10% premature distribution penalty tax on the amount includable. This 10% penalty tax does not apply to distributions made after your death, disability, or attainment of age 65.WHAT MEDICAL EXPENSES ARE ELIGIBLE FOR TAX-FREE DISTRIBUTIONS FROM YOUR HSA?At present, qualified medical expenses include the following, but only to the extent these expenses are not covered by insurance or otherwise:· Abdominal supports · Abortion · Acupuncture · Air conditioner (when necessary for relief from difficulty in breathing) · Alcoholism treatment · Ambulance · Anesthetist · Arch supports · Artificial limbs · Autoette (when used for relief of sickness/disability) · Birth control pills (by prescription) · Blood tests · Blood transfusions · Braces · Cardiographs · Chiropractor · Christian Science Practitioner · Contact Lenses · Contraceptive devices (by prescription) · Convalescent home (for medical treatment only) · Crutches · Dental treatment · Dental x-rays · Dentures · Dermatologist · Diagnostic fees · Diathermy · Drug addiction therapy · Drugs (by prescription) · Elastic hosiery (by prescription) · Eyeglasses (by prescription) · Fees paid to health institute prescribed by a doctor · FICA and FUTA taxes paid for medical services · Fluoridation unit · Guide dog · Gum treatment · Gynecologist · Healing services · Hearing aids and batteries · Hospital bills · Hydrotherapy · Insulin treatment · Lab tests · Lead paint removal · Legal fees · Lodging (away from home for outpatient care) · Metabolism tests · Neurologist · Nursing (including board and meals) · Obstetrician · Operating room costs · Ophthalmologis· Optician · Optometrist · Oral surgery · Organ transplant (including donor's expenses) · Orthopedic shoes · Orthopedist · Osteopath · Oxygen and oxygen equipment · Pediatrician · Physician · Physiotherapist · Podiatrist · Postnatal treatments · Practical nurse for medical services · Prenatal care · Prescription medicines · Psychiatrist · Psychoanalyst · Psychologist · Psychotherapy · Radium therapy · Registered nurse · Special school costs for the handicapped · Spinal fluid test · Splints · Sterilization · Surgeon · Telephone or TV equipment to assist the hard-of-hearing · Therapy equipment · Transportation expenses (relative to health care) · Ultra-violet ray treatment · Vaccines · Vasectomy · Vitamins (by prescription) · Wheelchair · X-rays For more information, see IRS Publication 502: Medical and Dental Expenses. HSA ExampleMUST AN HSA DETERMINE WHETHER HSA DISTRIBUTIONS ARE FOR QUALIFIED MEDICAL EXPENSES?A custodian of an HSA is not required to determine whether distributions from your HSA are used for qualified medical expenses. It is your sole responsibility to make that determination. You are also solely responsible for maintaining adequate records for tax purposes and for paying any taxes and penalties, which may result from any distribution. Please discuss any questions you may have with your tax or legal advisor. We keep copies of medical bills and payments made on your behalf. We can make these copies available to you, as you need them.
Death of an HSA Account Holder
WHAT HAPPENS TO YOUR HSA UPON YOUR DEATH?When you open your HSA account, you will be asked to designate one or more beneficiaries to whom distribution of your HSA will be made upon your death. You may revoke this beneficiary designation at any time and designate different individuals as beneficiaries. Any beneficiary designation you make must be delivered to HAS custodian prior to your death on a form provided by or acceptable to the custodian. If you do not make a valid beneficiary designation prior to your death, the custodian of your HSA will distribute the assets in your HSA to your estate. In some states, your spouse's consent may be necessary if you wish to name a person other than or in addition to your spouse as beneficiary or if you change an existing beneficiary designation. Please consult with your attorney before making your beneficiary designation.WHAT ARE THE INCOME TAX CONSEQUENCES AFTER YOUR DEATH?If your spouse is the named beneficiary of your HSA, your HSA becomes the HSA of your spouse upon your death, subject to the completion of documents required by Sterling HSA. The surviving spouse is subject to income tax only the extent distributions from the HSA are not used for qualified medical expenses. If your HSA passes to a person other than your surviving spouse, the HSA ceases to be an HSA as of the date of your death, and the beneficiary is required to include the fair market value of the HSA assets as of the date of your death in his or her gross income. The includable amount is reduced by any payments from the HSA for your qualified medical expenses, if such payments are made within one year after your death.If you have not made a valid beneficiary designation, your HSA ceases to be an HSA upon your death and the fair market value of the assets in your HSA, as of the date of death, is includable in your gross income for the year of death.WHERE CAN I GO FOR ADDITIONAL INFORMATION?For additional guidance on H S A’s, go to the U.S. Treasury's HSA Website.http://www.treas.gov/offices/public-affairs/hsa/

Additonal information on HSA plans for business and individuals available at www.amsinsure.com .