Simply Junior

A 403b retirement plan is a good option to help you save for retirement years. It is primarily designed for employees of tax-exempt organizations, public schools and for ministers. The 403b plan has a range of options for these types of people and has various benefits to both employer and employee.

Firstly, the employer can take advantage of sharing the cost of the contributions with the employee. In some cases the employee is the only one who can make contributions into the retirement account. Happy workers who benefit greatly from a 403b retirement plan also means that the company is going to be able to keep them from moving to another job.

Employees that have this plan will also benefit from a range of advantages. The main benefit is that they can enjoy a reduction in taxable income as pre-tax contributions are made. They can also benefit from tax deferred earnings on plan contributions. There is also the option of being able to take out a loan or a “hardship withdrawal” on the 403b retirement plan. If withdrawals are made when employees have reached the specified adult retirement age, then they are less likely to pay so much tax on any assets.

The list of vendors should be obtained from the employer who can stipulate which financial institutions an employee may use. If an employee wants to use a certain investment company they can ask their employer to add it to the list of vendors.

Contributions to the 403b retirement plan can be stopped at any time and the amount being paid in can be changed too. Employers may limit the amount of times you can change the contribution value and it is best to check any restrictions before you start the plan.

When you take out a 403b plan, as well as your contributions you will have to pay investment company fees and administration fees. Investment fees can vary and will be specified by the investment company. The amount you pay is calculated on the whole amount you have in the account. For example if you have $100 in your account and the investment fee is 3%, you will be charged $3.

The 403b plan was introduced to ensure that workers in the occupations mentioned above were catered for after the adult retirement age. Employees of educational institutions and non-profit companies are provided with a pension plan, but the amount does not generally equal their salary. The 403b retirement plan therefore gives a supplemental income upon retirement.

If you want to find out more about the 403b retirement plan or its options you will find a myriad of information available on the internet. Alternatively you can speak to a financial advisor who will be able to help you further.

The end of the estate tax during 2010 might only be a temporary reprieve. As the law now stands, beginning in 2011 estates valued above $1,000,000 will be subject to estate tax at very hefty rates rising as high as 55%. This circumstance suddenly creates the real possibility that the estates of surviving spouses who inherit more than $1,000,000 will ultimately incur a significant estate tax when they later die and before their estate moves on down to the couple’s children. That’s the bad news. But, the good news is that there may be an estate planning technique to minimize or avoid this result. It is called a “disclaimer.”

A disclaimer is an irrevocable and unqualified refusal by a person to accept an interest in property. The disclaimer permits the intended recipient to reject all or a portion of a bequest, with the result that it then passes without estate or gift tax directly to the next person or persons named in the trust or will or, if none, then to the disclaimant’s heirs at law. In many families, the next in line after the surviving spouse is usually the couple’s children. With the threat of the return of the estate tax in 2011 for estates valued over $1,000,000, the surviving spouse of a person dying this year may now have good reason to consider a timely disclaimer. Doing so may eliminate tax as assets pass from the surviving spouse’ estate on down to the couple’s children. The use of disclaimers in this context is best explained by the following example:

John and Mary are a married couple and have a combined marital estate worth approximately $2,000,000. They have three loving children. If John dies in 2010, there would be no estate tax under current law. But if he leaves everything to Mary, her estate would then be worth $2,000,000. Absent a further change in the law, if Mary dies in 2011 or thereafter, the excess above $1,000,000 (i.e. $1,000,000) would then be subject to estate tax. Her estate would then owe hundreds of thousands of dollars to the IRS.

But there may be a way to pass the excess on to the children tax free: if within nine months of John’s death she properly disclaims the excess above $1,000,000, the excess would then go directly to their three children, and the disclaimed portion would escape tax entirely on Mary’s later demise because it would never have become a part of her estate. In addition, her retained $1,000,000 would also pass tax free, as it would be within her own exemption. The result: there would be no estate or gift tax, either at John’s death or at Mary’s later death, and the entire estate of $2 Million would then pass on down to their children tax free.

In order to make a valid disclaimer, there are some IRS rules that Mary must follow, including the following: (1) she cannot have used the disclaimed portion of the estate or received any benefit from it; (2) the disclaimed portion must pass without any direction by her (i.e., it must pass automatically to whomever is next in line — presumably the children – and Mary cannot direct it elsewhere); (3) the disclaimer must be in writing; and (4) the disclaimer must be made within nine months of John’s death. Under Internal Revenue Code

Virtualization is the creation of a virtual (rather than actual) version of something, such as an operating system, a server, a storage device or network resources. Virtualization is a computing technology that enables a single user to access multiple physical devices. This paradigm manifests itself as a single computer controlling multiple machines, or one operating system utilizing multiple computers to analyze a database. Virtualization is about creating an information technology infrastructure that leverages networking and shared physical IT assets to reduce or eliminate the need for physical computing devices dedicated to specialized tasks or systems.

Cloud computing is a style of computing in which dynamically scalable and often virtualized resources are provided as a service over the Internet. Through cloud computing, a world-class data center service and colocation provider such as Consonus offers managed IT services through a hosted or “Software as a Service” model. A server or database can be physically located in a highly-secure, remote location while the data is accessed from a client’s computer, using the database’s server to retrieve, sort, and analyze the data. This arrangement eliminates the need for a costly in-house IT department and hardware and the associated capital expense. Instead, a cloud computing provider owns the hardware while providing hosted, managed services to its clients on a usage basis. Cloud computing generally utilizes virtualized IT resources such as networks, servers, and computing devices.

Virtualization Paradigm

Virtualization comes in many types, all focusing on control and usage schemes that emphasize efficiency. This efficiency is seen as a single terminal being able to run multiple machines, or a single task running over multiple computers via idle computing power. Virtualization is also seen in a central computer hosting an application to multiple users, preventing the need for that software to be repeatedly installed on each terminal. Data from different hard drives, USB drives, and databases can be coalesced into a central location, both increasing accessibility and security through replication. Physical computer networks can be split into multiple virtual networks, allowing a company’s central IT resources to service every department with individual local area networks.

A computing device dedicated to individual members of staff or allocated to one specialized software application is highly inefficient, not to mention expensive. . Just as the industrial revolution blossomed when people realized one water wheel could run multiple textile looms, so can today’s high-powered computers run multiple processes. Virtualization is an approach to consolidating technology resources for improved efficiency and the elimination of redundancy by leveraging every opportunity to utilize idle resources and find places where multiple processes can be run at one time.

Cloud Computing

The widespread availability of cheap computing power in business and in homes has created the next advance in information technology. With all of the spare computing devices available, the time has come where the need for a business to own their own central server and database can be considered an obsolete notion.

By not locating a server or database in-house, data center services can be obtain from an IT server provider that has invested in developing world-class IT infrastructures that are secure, resilient, and robust. The entire capital expenditure of a state-of-the-art server room can be avoided while obtaining those services on a usage basis. Managed IT Service fees are similar to or less than the operating costs of an in-house data center solution. With the potential to completely avoid capital costs and eliminate any increases in operating costs, cloud computing is an extremely attractive option.

This cost savings is possible thanks to the leverage of efficiencies. A typical IT department is created to service the peak usage needs of a company. However, the vast majority of the time, that potential sits idle. Most servers are not operational outside of business hours and when they are in use, they rarely operate at 100% of their capabilities. Data center services provided by a third party are in dynamic use. Powerful computing resources and robust hosted, managed services become available 24x7x365. This fluid scaling of computing resources allows each client to utilize those resources at a competitive price.

A key advantage of Virtualization and Cloud Computing is a significant improvement in security, availability, and data protection. A decentralized IT infrastructure managed by an IT service provider that is wholly dedicated to its resilience and availability is immune to physical or data disasters. Replication over multiple systems ensures data backups. A dedicated data center service provider is better able to keep up with the latest security methods and technology upgrades. Through the provision of managed IT services, all of these benefits are embedded in the cloud computing model.

Ultimately cloud computing is about leveraging computing resources to their fullest potential. For the majority of companies outside of the technology industry, this means utilizing hosted, managed services rather than trying to maintain an in-house system that would ultimately prove wasteful. This fits into the virtualization paradigm whereby the efficient utilization of an IT service provider renders unnecessary an in-house IT solution. Together, they represent the next step in IT infrastructure: reducing costs while increasing efficiency.

Many people are aware that there are currently laws that are scheduled to lead to a death tax repeal in 2010. However, this is one area of the law where significant changes should be expected over the next year. President Barack Obama has already announced plans to prevent the estate tax from disappearing in 2010. Due to the current economic emergency, the ability to transfer wealth tax free to the next generation may be reduced to $1 million in 2010 rather than in 2011.

IN MASSACHUSETTS THE ESTATE TAX PROBLEM ALREADY EFFECTS ANY FAMILY WITH OVER $1 MILLION INCLUDING HOMES, INVESTMENTS AND INSURANCE

Many are aware of the importance of eliminating the completely avoidable Massachusetts estate tax on all estates over $1 million. This tax cost families approximately $100,000 in 2008 and that increases to approximately $230,000 in 2009. This tax is completely avoidable if the proper steps are taken to eliminate it. However, eliminating the Massachusetts estate tax is not your family’s only concern– the president and congress have announced plans to reduce the Federal tax free estate threshold. With large projected budget shortfalls over the next years due to the economic crisis, the federal estate tax is a potential source of revenue $324 billion over the next ten years.

THE FEDERAL ESTATE TAX CAN COST YOUR FAMILY SIGNIFICANTLY MORE

If the Massachusetts estate tax will effect your family, you must also address the much larger problem in the scheduled increase in federal estate taxes that will affect many possibly as soon as next year. When you look at your projected estate tax amounts factoring in an increase in your net worth from today’s level, even at a very modest 4% rate of growth, the federal and state estate tax can be quite large– the combined rate is 50%. While a return to growth in the value of your assets is good, it creates a big tax problem when the applicable exclusion is reduced to $1 million. Now may be a good time to review the current value of your assets as well as to consider your tax savings opportunities.

DO YOU HAVE AN ESTATE TAX PROBLEM? WHAT CAN YOU DO ABOUT IT?

This combination of a reduced applicable exclusion (the tax free amount), only $1 million in 2010 or 2011, and an increase in value of your investments and other assets creates a major tax problem for many clients. It is important to be aware of this and begin to take steps to increase the gift and estate tax free amounts for both federal and Massachusetts state tax purposes. There are techniques and planning opportunities available that should be considered, especially with values at lower levels, the opportunity to save gift and estate taxes is much sweeter now. Most people we help do not wish to pay more in estate taxes than absolutely necessary. We are available to review these tax saving opportunities with you.

If you do not take advantage of the annual tax-free amounts, the opportunity is lost as each year goes by. Another problem is, due to IRS regulations, some of the tax reduction planning involves a three-year waiting period to be effective. Because of the combination 3 year waiting period and the 2010 or 2011 reduction in tax free amounts to $1 million, it is critical to evaluate your situation now to see if there is a possible tax problem and if so, take immediate steps to reduce or eliminate it. The time to address and act on tax reduction opportunities that you have is now. Please call our office at 781-237-2815 to review your situation to see if you have a growing tax problem, and if so, develop a plan to reduce or eliminate taxes.

ARE YOU CONFIDENT THAT YOUR INVESTMENTS ARE SAFE AND PRODUCTIVE?

In addition to estate tax considerations, you may wish to review your investments. In a turbulent market it is more important to review your investments to make sure that you are properly positioned to meet your financial goals and objectives over the coming years. Working with a collaborative team of professionals can help develop a comprehensive approach for their tax, retirement, estate and investment planning.

If you wish to protect you retirement and investment assets, while saving more in taxes, please review your situation and consider a current review of your estate tax liability, both at today’s estate tax rates and a projected estate tax for life expectancy. It is also vital to determine that your assets are owned properly so that you will be entitled to the maximum state and federal applicable exclusions.

PROTECTING HOMES AND ASSETS FROM NURSING HOME COSTS

Growing concerns for many clients includes protecting homes and other assets from increasing medical and nursing home costs as well as from lawsuits and other claimants. The 2006 law increased the cost of nursing home and other medical care for many of our clients (currently about $400/day, $12,000/month which equals $720,000 for a 5 year stay at today’s rates). Please call our office at 781-237-2815 if you would like information on the provisions of this law and how it makes it more difficult to protect your life savings from nursing home costs. We will help you evaluate what steps you can take to protect yourself and develop a plan to deal with this possible problem.

PROTECTING IRAS FROM THE 70% TAX AND MAXIMIZING TAX DEFERRED GROWTH

Because the rules for IRA’s, Roth IRA’s, 401K’s, etc., have changed, methods can now be implemented to protect these investments, enabling you to provide significant protected tax deferred growth for children and grandchildren. The results of careful wealth management can be significant. The retirement plans inherited by children and grandchildren can even be protected from lawsuits, divorce and financial problems. Provided your IRA is properly managed and coordinated with your estate plan, it can be a powerful tool to build wealth and pass it on to heirs and beneficiaries.

The term kiddie tax identifies the age in which kids become an individual tax entity separate from their parents for the purposes of calculation of taxes on investment income. Right from birth to the age of fourteen, children might earn investment income of up to double the standard dependent deduction. They are supposed to be taxed on the basis of their tax rate, usually around ten percent. Any sort of investment income above that threshold, would be taxed at the presumably higher tax rate of the parents.

After the age of fourteen, all the investment income has been taxed at the lower rate of the child. The Congress has officially extended the childhood age to 18, for the purpose of calculation of tax on the investment income. As per the Tax Increase Prevention and Reconciliation Act of 2005, passed in May 2006, the age was extended to eighteen. A child is said to be eighteen for the total tax year in which the child turns eighteen. For the year 2006, the threshold in terms of investment income has been fixed at $1,700. The amount is taxed at child’s rate. Anything, which is in excess of this amount, is taxed up at the rate of the parents.

Kiddie tax applies only in case of investment income and not earned income, therefore, teens with jobs would pay income tax as according to their rate and not their parents’. Also, individuals who get married before the age of eighteen are presumed to be adult as they are not children anymore, and in case if filing jointly, they file according to their own rate.

As it is, the change tends to put the future of the accounts set up under the Uniform Gifts to Minors Act, or the Uniform Transfers to Minors Act. As per these acts, the individuals might place the assets in the accounts for benefit of a child, yet retain control over the assets as trustee as long as the child doe not reach the age of majority, generally eighteen. The tax advantage of moving assets to the name of a child might now be deducted as income invested in such accounts over $1,700 would be taxed at the rate of the parent.

With the capital gain rate of five percent, in the ten percent or fifteen percent tax bracket, the parents falling in the higher brackets might still wish to consider the transferring of appreciating assets. However, parents who feel they had the years in between fourteen and eighteen to sell the assets in the portfolio of the child and potentially pay up no capital gain tax have lost the option.