retirement plans http://www.wisebread.com/taxonomy/term/12297/all en-US 8 Cheap, Easy, and Not-So-Obvious Ways to Invest in a Company's Stock http://www.wisebread.com/8-cheap-easy-and-not-so-obvious-ways-to-invest-in-a-companys-stock <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/8-cheap-easy-and-not-so-obvious-ways-to-invest-in-a-companys-stock" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/business-5141293-small.jpg" alt="woman" title="woman" class="imagecache imagecache-250w" width="250" height="167" /></a> </div> </div> </div> <p>Investors typically purchase shares of a stock through an online brokerage or full-service firm. They research possibilities among the universe of available stocks, identify a stock to buy, and place an order online or agree to a purchase based on a broker's recommendation. (See also: <a href="http://www.wisebread.com/begin-your-investing-career-right-with-some-mutual-fund-basics">Begin Your Investing Career Right With Some Mutual Fund Basics</a>)</p> <p>But there are other ways to invest in a company's stock. Some are cheap (or free!) ways to acquire shares while others are simply an alternative to a standard investment account. Here are eight nontraditional ways to make a stock investment:</p> <h2>1. Direct Stock Purchase Plans (DSPPs) or Dividend Reinvestment Plans (DRIPs)</h2> <p>Invest through a <a href="http://www.investopedia.com/terms/d/directstockpurchaseplan.asp">direct stock purchase plan (DSPP)</a> or <a href="http://www.investopedia.com/terms/d/dividendreinvestmentplan.asp">dividend reinvestment plan (DRIP)</a> if such a plan is available for your desired company. Many <a href="http://www.wisebread.com/slow-drip-into-investing">name-brand companies offer a plan</a> administered by a transfer agent.</p> <p>Visit the Shareholder Services section of the company's website to determine if a plan is offered. Alternatively, view participating companies at <a href="http://www-us.computershare.com/investor/3x/plans/planslist.asp?stype=dspp">Computershare InvestorCentre</a>, <a href="http://www.firstshare.com/">First Share</a>, <a href="https://www.shareowneronline.com/UserManagement/WFIndex.aspx">Shareowner Online</a>, or similar sites that facilitate investments in these plans. Note that mutual funds may be listed along with corporations such as Best Buy, Du Pont, Hanesbrands, Nike, Pfizer, and Target.</p> <p>The advantage of investing through DSPPs and DRIPs is that you can avoid charges from brokerage firms. However, you may incur other fees, and you can't specify the price (<a href="http://www.wikihow.com/Place-a-Limit-Order">place a limit order</a>) for the stock; instead, shares are typically purchased on a prescribed schedule for the market price.</p> <h2>2. Mutual Funds</h2> <p>When you buy a mutual fund, you invest in the companies' stocks held by the fund. For a current list of these stocks, view holdings by visiting the fund's website, looking up the ticker on <a href="http://morningstar.com/">Morningstar.com</a>, reviewing the prospectus, or reading the shareholder's report. Note that holdings change periodically.</p> <p>You can't select individual stocks (although you might choose a mutual fund based on its underlying holdings). And you'll pay fees for fund administration, whether the fund is actively or passively managed. However, this method is ideal for the hands-off investor who wants to participate in the growth of the economy without having to scrutinize and keep up with individual securities.</p> <h2>3. Exchange-Traded Funds</h2> <p>Similar to purchasing mutual fund shares, buying shares means you are investing in stock held by the <a href="http://www.sec.gov/answers/etf.htm">ETF</a>. To view a list of its holdings, research the fund on your brokerage firm's website; alternatively, request a prospectus for a breakdown of the stocks represented by the ETF.</p> <p>Again, like the mutual fund, the advantage of the ETF is that you don't have to make stock-picking selections, while the disadvantage is, well, you can't choose individual stocks.</p> <h2>4. Profit-Sharing Plans</h2> <p>You may receive stocks, bonds, or mutual funds through a <a href="http://www.dol.gov/ebsa/publications/profitsharing.html">profit-sharing plan</a> offered by your employer.</p> <p>The employer specifies the securities or other forms of compensation to be distributed through the profit-sharing plan. You might receive company stock, shares of a mutual fund from a pre-selected list, or cash that you can invest yourself.</p> <p>Although you can't control what specific investment your employer shares through its plan, you can benefit from the investments made on your behalf.</p> <h2>5. Stock Options</h2> <p>As a performance incentive and employee benefit, your company may give <a href="http://money.howstuffworks.com/personal-finance/financial-planning/stock-options.htm">stock options</a>. Generally, you'll get the option to buy a certain number of shares at a designated price within a specific time frame.</p> <p>Ideally, you'll exercise the options at a time when the stock price is above the option price. For example, you may be given the option to purchase 100 shares of ABC stock at $10 per share for the next two years. This contract is attractive if the shares are trading at $15 on the NYSE (New York Stock Exchange). You invest $1,000 but increase your net worth by $1,500.</p> <p>Note that stock options are not a sure way to make money. The stock price could fall below the option price, making them worthless.</p> <p>Exercising stock options can be an excellent way to build wealth, albeit in a <a href="http://www.schwab.com/public/schwab/resource_center/expert_insight/investing_strategies/portfolio_planning/the_concentration_trap.html">concentrated position</a> (aka lots of eggs in one basket) that is considered risky.</p> <h2>6. Employee Stock Ownership Plans (ESOPs)</h2> <p>Similar to exercising stock options, you can acquire a large position in single stock through an <a href="http://www.nceo.org/articles/esop-employee-stock-ownership-plan">employee stock ownership plan (ESOP)</a>. Your employer gives you shares of company stock according to a formula that may be based on salary, years of service, etc.</p> <p>Again, like stock options, you can acquire significant assets through an ESOP, especially if the company (and its stock price) performs well over time. On the other hand, the value can easily be diminished if the company and its stock falter.</p> <h2>7. 401(k) or Similar Plan</h2> <p>Through a <a href="http://www.wisebread.com/your-401-k-is-not-an-investment">401(k) or similar plan</a>, you can invest in mutual funds or other securities available from a pre-selected list. Your investments may be boosted if your employer matches your contribution.</p> <p>Your company's 401(k) plan may or may not have a great selection of mutual funds. The fees charged may be reasonable or excessively high. Still, participating in such a plan is an easy and automatic way to invest.</p> <h2>8. Gifts</h2> <p>If you are fortunate to have a wealthy friend or family member who is an investor, you may become <a href="http://www.wisebread.com/do-i-have-to-report-this-income-0">the recipient of a stock gift</a>. Most likely, you'll need to open a brokerage account to receive the shares.</p> <p>Obviously, you won't be able to pick the stock. But typically you'll have the choice to either keep the shares or sell them and invest the proceeds in another investment of your choice.</p> <p>As you can see, you may not be able to invest using all of these techniques. Your employer may not offer stock options or profit sharing, for example. But you could invest through direct stock purchase plans or buy an ETF for a low fee.</p> <p>However you acquire shares, remember to look at your entire portfolio when making investment and asset allocation decisions, not just what's sitting in your brokerage firm's account. The wealth accumulated through these nontraditional methods may be significantly larger than amounts inside your brokerage account.</p> <p><em>Are you an investor? Which of the above methods do you use to buy shares?</em></p> <a href="http://www.wisebread.com/8-cheap-easy-and-not-so-obvious-ways-to-invest-in-a-companys-stock" class="sharethis-link" title="8 Cheap, Easy, and Not-So-Obvious Ways to Invest in a Company&#039;s Stock" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/taxonomy/term/"> articles from Wise Bread</a>.</div></div> Investment DRIPs DSPPs ETFs mutual funds retirement plans stock options wealth accumulation Tue, 30 Jul 2013 10:00:42 +0000 Julie Rains 980926 at http://www.wisebread.com 5 Ways to Save More Taxes in 2011 http://www.wisebread.com/small-business/5-ways-to-save-more-taxes-in-2011 <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/idea-hub/topics/money/article/5-ways-to-save-more-taxes-in-2011-barbara-weltman" target="_blank">http://www.openforum.com/idea-hub/topics/money/article/5-ways-to-save-more-taxes...</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/5-ways-to-save-more-taxes-in-2011" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/iStock_000001966978XSmall.jpg" alt="Working child" title="Working child" class="imagecache imagecache-250w" width="250" height="166" /></a> </div> </div> </div> <a href="http://www.wisebread.com/small-business/5-ways-to-save-more-taxes-in-2011" class="sharethis-link" title="5 Ways to Save More Taxes in 2011" rel="nofollow">ShareThis</a><p>With the new year approaching, taxes continue to be an area of concern for many business owners. Here are some tried-and-true ways you can minimize your 2011 taxes so you can get a jump on the new year.</p> <p><strong>1. Adopt an accountable plan for reimbursing your employees. </strong></p> <p>If you meet IRS requirements, the reimbursements to employees for their travel and entertainment costs are not treated as additional compensation. This saves you employment taxes because the reimbursements are not subject to FICA or FUTA taxes. Employees like this arrangement because they do not have any income included on their W-2 form for the reimbursements.</p> <p>An <a href="http://www.openforum.com/idea-hub/topics/money/article/accountable-plans-are-win-win-taxwise-barbara-weltman">accountable plan</a> is an arrangement adopted by your company that requires:</p> <ul> <li>A business connection for the expense and that the expense is reasonable.</li> <li>Reasonable accounting by employees for the expenses.</li> <li>Repayment by employees in a reasonable time of all excess reimbursements they received.</li> </ul> <p>An accountable plan can be used for more than just travel and entertainment costs. As long as the accountable plan meets IRS requirements, it can be used for reimbursements of employee tools, uniforms, and other items.</p> <p>Details of accountable plan requirements are in <a href="http://www.irs.gov/pub/irs-pdf/p463.pdf">IRS Publication 463, Travel, Entertainment, Gift, and Car Expenses</a> (PDF).</p> <p><strong>2. Keep receipts for vehicle expenses. </strong></p> <p>If you use your personal car, light truck, or van for business, you can rely on a fixed mileage rate set annually by the IRS to determine your write-off for business use of the vehicle. The rate for 2011 is 51&cent; per mile. However, if you keep receipts for gasoline, repairs, and other vehicle-related expenses, you can deduct your actual costs rather than relying on the IRS rate. The only way you&rsquo;ll know whether the IRS rate or the actual expenses result in a greater deduction is to compare the two at the end of the year.</p> <p>Either way:</p> <ul> <li>Be sure to keep a good record of your driving. Include the date, odometer reading, destination, and purpose of each trip. No deduction is allowed without this substantiation.</li> <li>You can deduct your parking fees and tolls as long as you have proof of what you paid.</li> </ul> <p><strong>3. Put children on your payroll. </strong></p> <p>If you have teenagers who live at home and can provide services for your business, you can pay them and save money for the family. They learn responsibility and job skills, and they can receive up to $5,700 of earnings in 2011&nbsp;tax-free. Plus you get work done that needs to be done, transforming a nondeductible allowance into deductible payments:</p> <ul> <li>The earnings paid to your child are a tax-deductible business expense.</li> <li>If you are a sole proprietor and your child is under age 18, you do not have to pay and FICA or FUTA taxes on their earnings.</li> </ul> <p>Keep good records of the time the child works and the work performed in case the IRS questions your return.</p> <p><strong>4. Choose the right retirement plan. </strong></p> <p>If you want to maximize your retirement savings for 2011, especially if you work alone and have no employees, consider using a 401(k) plan rather than a SEP. For example: You work alone, are under age 50, and have net earnings from self-employment of $100,000. If you create a 401(k) plan, you can add a total of $49,000 to the plan, comprised of $16,500 of salary reductions, the so-called employee share, plus $32,500 of employer contributions. (Those who are age 50 or older can add up to $54,500 to the plan in 2011.) In comparison, a SEP, which requires no annual reporting, would limit your annual deductible contribution to $18,587 ($20% of $100,000 reduced by one half of the self-employment tax, or $7,064).</p> <p>Details of retirement plans are in <a href="http://www.irs.gov/pub/irs-pdf/p560.pdf">IRS Publication 560, Retirement Plans for Small Business</a>&nbsp;(PDF).</p> <p><strong>5. Change accounting methods where appropriate. </strong></p> <p>There are a myriad of special accounting rules that can result in quicker write-offs, deferred income, or other tax-saving measures. For example: Your business has inventory and you currently use FIFO (a first-in first-out rule) to determine your cost of goods sold. If you change to LIFO (a last-in last-out rule), you may be able to minimize the income from inventory sales. When changing methods, some changes can be automatic as long as you file IRS Form 3115; some require IRS consent, which is requested by filing the same form. Be sure to work closely with your CPA or other tax advisor to survey the accounting method changes that might benefit your company.</p> <p>Details of changing accounting methods are in <a href="http://www.irs.gov/pub/irs-pdf/p538.pdf">IRS Publication 538, Accounting Methods and Periods</a> (PDF).</p> <br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/barbara-weltman">Barbara Weltman</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/small-business">Small Business Resource Center articles from Wise Bread</a>.</div></div> Entrepreneurship Small Business Resource Center Taxes 401(k) hiring retirement plans small business tax deductions Sat, 25 Dec 2010 13:54:52 +0000 Barbara Weltman 392103 at http://www.wisebread.com The End of the 4% Rule? http://www.wisebread.com/the-end-of-the-4-rule <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/the-end-of-the-4-rule" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/nyse_3.jpg" alt="New York Stock Exchange" title="New York Stock Exchange" class="imagecache imagecache-250w" width="250" height="235" /></a> </div> </div> </div> <p>There's a rule of thumb that's pretty well known to retirement planners: the 4% rule. It states that if you spend 4% of your capital in your first year of retirement, you can go on spending that much &mdash; and even adjust it for inflation &mdash; and you won't run out of money before you die. That rule is starting to look kind of iffy.</p> <p>The rule has its roots in an older 5% rule that's long been used by university endowments and non-profit foundations. If you have a well-diversified portfolio, you can spend 5% of your capital each year and reasonably expect investment returns will grow your capital over time.</p> <p>The rule works for non-profits and such because they can react to market downturns by cutting spending: making fewer grants, canceling projects, etc. If the market goes down 40%, they can cut spending by 40%. Most households don't have the flexibility to do that &mdash; it's not practical to cut your housing, grocery, or health insurance expenses by 40% just because the market was down last year. Hence, the 4% rule, which provides some slack. Since you're spending your capital down more slowly, you have time to wait for the market to recover from a downturn.</p> <h2>Looking at the past</h2> <p>The rule is just an observation: Over the past hundred years you could have followed the 4% rule starting in any year and you wouldn't have run out of money. That's been true because the return to capital has been pretty high, and because downturns have been pretty short.</p> <p>Until the 1990s you could get most of your 4% just from dividends on stocks &mdash; any price appreciation was just a bonus. At the same time, government bonds were returning more than 4% as well. In fact, you could earn more than 4% on cash as well from the late 1970s until just the past 10 years.</p> <p>The upshot was that it was trivially easy to put together a portfolio that had an average return of well over 4%. You had to be careful to allow for inflation (which was pretty high during the late 1970s and early 1980s), but pretty much any portfolio that held a mix of stocks, bonds, and cash was going to return enough over 4% that following the 4% rule worked fine.</p> <h2>Looking at the present</h2> <p>Sadly, recent returns have been lower:</p> <ul> <li>The dividend yield on stocks has been <strong>well under 4% for the past twenty years</strong>. (For the past ten years, it's been under 2%!) Stock investors saw some price appreciation in the 1990s, but there's been no appreciation since then. In fact, your stock portfolio is probably down over the past decade, even with reinvested dividends.<br /> &nbsp;</li> <li>The return on bonds held up somewhat better, but has been <strong>below 4% for most of the past three years</strong>, and below 5% for most of the past 10 years.<br /> &nbsp;</li> <li>The return on cash dropped below 4% in 2001 (during the dotcom bust). It recovered briefly in 2006, but <strong>fell sharply in 2007 and remains near zero</strong>.</li> </ul> <h2>Looking at the future</h2> <p>The 4% rule only works if two things are true:</p> <ol> <li>Periods of low returns are <strong>short enough</strong> that retirees retain substantial capital, even while spending continues based on their old, higher portfolio value.<br /> &nbsp;</li> <li>The returns the rest of the time are <strong>high enough</strong> to restore the portfolio.</li> </ol> <p>As the current period of low returns is already long by historical standards, and there's no sign yet of returns rising at all&mdash;let alone any sign that returns will rise enough to make up for a decade of flat-to-down market&mdash;things don't look good for the 4% rule going forward.</p> <h2>What can you do?</h2> <p>If you're living off capital, you can't depend on any rule of thumb. You need to <strong>pay attention to what's actually happening</strong>. If your capital isn't growing, you need to hold down your expenses. And if your capital shrinks over a period of years (as it probably has been doing lately), then you need to start cutting your expenses (and probably look for some additional income).</p> <p>Fortunately, Wise Bread is full of tips on cutting your expenses and on earning extra income.</p> <p>The 4% rule is still useful as a <strong>planning tool</strong>. It means that, for whatever level of spending you hope to maintain in retirement, you need about 25 times that much capital. But the key word there is &quot;about.&quot; It was never safe to just look at your portfolio level on the first day of retirement, set a 4% payout, and then carry on no matter what the markets did.</p> <p>Back in the days when only rich people had any capital to speak of, nobody thought about the 4% rule. The rule in those days&mdash;for the past several hundred years&mdash;was that you only spent income. Everybody knew that spending down your capital&mdash;even a little bit of capital&mdash;meant that you'd eventually go broke. The 4% rule only works for retirement if you take the position that it's okay to go broke as long as it doesn't happen until after you're dead. Even that is beginning to look a bit optimistic.</p> <p>If you're building a retirement portfolio, you can still use of the 4% rule for making early estimates of its target size. But don't stop there:</p> <ul> <li>As you build your retirement portfolio, invest for income. You're much safer spending income than you are spending capital, even if you spend it slowly.<br /> &nbsp;</li> <li>Pay attention to what your yield actually is, and don't expect your total return to be much higher than your yield. If your actual investments are just yielding 2% or 3%, don't expect some market magic to produce returns that are higher than that.</li> </ul> <p>If you want more information, the book <em><a href="http://www.amazon.com/gp/product/1413307051?ie=UTF8&amp;tag=wisbre08-20&amp;linkCode=as2&amp;camp=1789&amp;creative=9325&amp;creativeASIN=1413307051 ">Work Less, Live More</a></em>, that I <a href="http://www.wisebread.com/book-review-work-less-live-more ">reviewed</a> for Wise Bread, has a carefully worked-out analysis of the 4% rule. I also talk about the rule in the context of figuring out how much you can spend in retirement in my post <a href="http://www.wisebread.com/how-much-do-i-need-to-retire-how-much-can-i-spend ">How much do I need to retire? How much can I spend?</a></p> <p>The 4% rule was never a magic shield. It was just an observation that a certain payout pattern has worked over a historical period during which the return to capital was reasonably high. There's no law of nature that says that that the return to capital will be over 4%, so there's no guarantee that it will work in the future.</p> <p>[Data on stock market returns from <a href="http://www.simplestockinvesting.com/SP500-historical-real-total-returns.htm ">Simple Stock Investing</a>. Data for bond and cash returns from the <a href="http://research.stlouisfed.org/fred2/categories/22 ">Federal Reserve Bank of St. Louis</a>.]</p> <p>&nbsp;</p> <a href="http://www.wisebread.com/the-end-of-the-4-rule" class="sharethis-link" title="The End of the 4% Rule?" rel="nofollow">ShareThis</a><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/philip-brewer">Philip Brewer</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/topic/personal-finance/retirement">Retirement articles from Wise Bread</a>.</div></div> Retirement early retirement retirement funding retirement planning retirement plans Mon, 04 Oct 2010 13:00:07 +0000 Philip Brewer 254168 at http://www.wisebread.com Counting the Cost of 401(k) Plans http://www.wisebread.com/small-business/counting-the-cost-of-401k-plans <div class="field field-type-link field-field-url"> <div class="field-label">Link:&nbsp;</div> <div class="field-items"> <div class="field-item odd"> <a href="http://www.openforum.com/idea-hub/topics/money/article/counting-the-cost-of-401k-plans-julie-rains" target="_blank">http://www.openforum.com/idea-hub/topics/money/article/counting-the-cost-of-401k...</a> </div> </div> </div> <div class="field field-type-filefield field-field-blog-image"> <div class="field-items"> <div class="field-item odd"> <a href="/small-business/counting-the-cost-of-401k-plans" class="imagecache imagecache-250w imagecache-linked imagecache-250w_linked"><img src="http://www.wisebread.com/files/fruganomics/imagecache/250w/blog-images/iStock_000006195372XSmall.jpg" alt="401k nest egg" title="401k nest egg" class="imagecache imagecache-250w" width="250" height="173" /></a> </div> </div> </div> <a href="http://www.wisebread.com/small-business/counting-the-cost-of-401k-plans" class="sharethis-link" title="Counting the Cost of 401(k) Plans" rel="nofollow">ShareThis</a><p>At a time when many corporations are cutting benefits, beefing up your employee benefits can differentiate your small business as a desirable employer. Though 401(k) plans have been under scrutiny for excessive fees, retirement plans are still attractive to prospective employees and long-time employees alike. Sorting through the costs of 401(k) plans can be time consuming, but counting the expenses step by step can be helpful in deciding what type of plan &mdash; if any &mdash; to offer employees.</p> <p>Figuring out-of-pocket expenses is simple but dissecting and segmenting all of the costs involved is messy. In fact, a 2009 survey <i><a href="http://www.hewittassociates.com/_MetaBasicCMAssetCache_/Assets/Articles/2009/Hewitt_Research_Trends_in_401k_Highlights.pdf">Trends and Experience in 401(k) Plans</a></i> by Hewitt Associates indicated that &quot;complexity&quot; is &quot;the number-one reason why employers have not calculated total plan cost.&quot; Over half of those companies surveyed have 10,000 or more employees, so these businesses certainly have the resources to evaluate plan fees.</p> <p>As a small business owner with a 401(k) plan, you'll incur expenses, directly and indirectly, not only as the sponsor but also as a participant. Sponsor fees might be reasonably straightforward, simply equaling the charges that are invoiced by service providers plus company contributions. But expenses for some services are embedded in management fees and deductions from investment returns, and allocated among all participants, including you.</p> <p>Start by considering the services delivered by providers such as plan administrators and investment professionals. Then, track down the expenses.</p> <h3>Plan Setup, Administrative, and Trustee Services</h3> <p>Setup services (or conversion services if your company is changing providers and converting employees to a new plan) involve preparing plan documents, including the summary plan description (SPD) and starting up systems for plan administration.</p> <p>Basic, ongoing administrative activities include:</p> <ul> <li>Recordkeeping of participants' enrollment, investment selections, and contributions;<br /> &nbsp;</li> <li>Trustee services to hold plan assets on behalf of participants;<br /> &nbsp;</li> <li>Nondiscrimination testing and preparation of Form 5500 for compliance purposes;<br /> &nbsp;</li> <li>Preparation of account statements and summary reports;<br /> &nbsp;</li> <li>Distribution of funds to beneficiaries.</li> </ul> <p>Additional services might include:</p> <ul> <li>Communications with employees to discuss the 401(k) plan and its features, and encouraging participation to help satisfy ERISA requirements;<br /> &nbsp;</li> <li>Education on investment risk, options, and methods of diversification;<br /> &nbsp;</li> <li>Loan processing and administration;<br /> &nbsp;</li> <li>Online access to plan information and account balances.</li> </ul> <p>One-time setup or conversion fees may run $500 to $3,000 and administrative fees can cost a few thousand dollars each year. There is often a base price plus per-participant charge. Your business might work with an independent retirement plans provider or online 401(k) provider, such as <a href="http://www.sharebuilder.com/401k.com/401k-benefit.aspx">ING Sharebuilder</a> or <a href="http://dcda.fidelity.com/public/content/WPSProducts/pages/401k">Fidelity</a>. Note that some providers may charge less for setup and annual administration, and recoup costs from asset management and investment management fees.</p> <h3>Employer Contributions</h3> <p>Employer contributions are optional and vary as a percentage (typically 1 to 3 percent) of annual payroll, depending on plan design and <a href="http://www.irs.gov/retirement/article/0,,id=119625,00.html">IRS guidelines</a>. Employers can match employee contributions, fund each employee's account regardless of employee contributions (non-elective contribution), contribute in both ways, or contribute nothing at all.</p> <h3>Investment Management</h3> <p>Investment management and related fees (such as sales charges) and wrap fees may comprise <a href="http://www.hewittassociates.com/_MetaBasicCMAssetCache_/Assets/Articles/2009/Hewitt_Research_Trends_in_401k_Highlights.pdf">50 to 80 percent of total plan cost</a>. Costs are associated with selecting and providing investment options (e.g., mutual funds, annuities), and are generally deducted from investment returns. In practice, then, these expenses are passed along to participants; but as a small business owner you will have dual accountability for controlling these costs as the plan's sponsor as well as paying your portion of these expenses as a participant. These fees can account for 1 to 2 percent of assets for smaller plans (with fewer assets), paid each year.</p> <h3>Strategies for Cost Containment</h3> <p>To contain costs, get a breakdown of expenses from providers to determine the total plan cost (TPC). Out-of-pocket costs invoiced by providers (such as annual administrative fees) are the most visible and simplest to measure and contain. Other fees may be assessed as a percentage of assets or deducted from investment returns. Ask providers for a schedule and explanation of these charges.</p> <p>To save money, limit plan features that may be costly to administer, such as allowing frequent changes in investment selection. Work with your financial adviser to build investment offerings with lower-cost options, such as passively managed investments (e.g., index funds) rather than actively managed investments.</p> <h3>More Retirement Plans</h3> <p>There are a multitude of options for retirement plans besides the 401(k). The SEP (Simplified Employee Pension), SIMPLE IRA, and Profit Sharing Plans, for example, may have lower administrative and management expenses than traditional 401(k)s but require employer contributions.</p> <p>A <a href="http://www.irs.gov/retirement/article/0,,id=108927,00.html">Payroll Deduction IRA</a> is an even less complicated approach, simply involving employee payroll deduction and deposit into an IRA. Investments are owned and controlled by employees, and employers do not make contributions. Though <a href="http://ad.doubleclick.net/clk;218396076;41475586;v?http://www201.americanexpress.com/sbsapp/FMACServlet?request_type=alternateChannels&amp;lpid=298&amp;openeep=17460&amp;ccsgeep=17460">employees</a> could easily take these steps, they may value the ease and convenience of contributing to a retirement fund.</p> <script type="text/javascript"> federated_media_section = "gold"; </script><br /><div id="custom_wisebread_footer"><div id="rss_tagline">Written by <a href="http://www.wisebread.com/julie-rains">Julie Rains</a> and published on <a href="http://www.wisebread.com/">Wise Bread</a>. Read more <a href="http://www.wisebread.com/small-business">Small Business Resource Center articles from Wise Bread</a>.</div></div> Entrepreneurship Small Business Resource Center employee benefits retirement plans small business Sat, 10 Jul 2010 21:50:47 +0000 Julie Rains 127621 at http://www.wisebread.com