Atlantic Capital Management

Atlantic Capital Management (122)

Thursday, 02 October 2014 00:00

Adjusting to Retirement

Submitted by

What people don’t always realize about life after work.


If you have saved and invested consistently for retirement, you may find yourself ready to leave work on your terms – with abundant free time, new opportunities, and wonderful adventures ahead of you. The thing to keep in mind is that the reality of your retirement may not always correspond to your conception of retirement. There will inevitably be a degree of difference.

Some new retirees are better prepared for that difference than others. They learn things after leaving work that they wished they could have learned about years earlier. So with that in mind, here are a few of the little things people tend to realize after settling into retirement.

Your kids may see your retirement differently than you do. Some couples retire and figure on spending more time with kids and grandkids – they hang onto that five-bedroom home even though two people are living in it because they figure on regular family gatherings, or they move to another state to be closer to their kids. Then they find out that their children didn’t really count on being such frequent company.

Financial considerations come into play here as well. Keeping up a big home in retirement can cost big dollars, and if you move to another area, there is always the chance that a promotion or the right job offer could make your son or daughter relocate just a few years later. The average American worker spends 4.6 years at a given job, and less than 10% of U.S. workers in their twenties and thirties stay at the same job for a decade.1   

Medicare falls short when it comes to dental, vision & hearing care. Original Medicare (Parts A & B) will pay for some things – cataract surgery and yearly glaucoma tests for people at risk for that disease, for example, as well as dental procedures that are deemed necessary prior to another medical procedure covered under Medicare. These are exceptions to the norm, however, and as people’s sight, teeth and hearing become more problematic as they age, it can be frustrating to realize what Medicare won’t cover.2

You may lose the impulse to work a little. These days, most retirees at least think about working part-time. Actually doing that may not be as easy as it first seems. It is a lot harder to get hired at age 65 than it is at age 45 – no one is denying that – and part-time work tends toward the mundane and unfulfilling. If you are able to earn income as a consultant or through other types of self-employment, you may be truly satisfied by the work you do and be able to set your own schedule, too.

Retirement income comes with income taxes. While retirees anticipate (and certainly appreciate) distributions from an IRA or an employer-sponsored retirement plan, few retirees map out a sequence or strategy intended to let them take distributions from retirement and investment accounts with the least tax impact. Generally speaking, you want to draw down your taxable accounts first, then the tax-advantaged accounts, and lastly your tax-free accounts. This way, you are giving the retirement money that is taxed least more time to compound.

Under the typical model withdrawal scenario, this sequencing a) offers the potential to reduce the tax bite from all these distributions, b) promotes greater longevity for retirement savings. The wealthier the retiree is and the higher the projected rate of return for his or her portfolio, the more sense the strategy usually makes. If a retiree has very low taxable income or large unrealized gains on taxable assets, it may not be wise to follow this rule of thumb. Health and longevity factors also influence withdrawal strategies, of course.3

Retirees also need to know something about the IRS rules for retirement accounts – if the assets are withdrawn too soon or used for an inappropriate purpose, penalties can result and tax advantages can be lost.

Retirement is a transition, but it isn’t a solution. There are people that are really eager to retire, people that come to believe that retirement will wipe away all that is dull and restrictive from their lives. Retiring often leads to a rewarding new phase of life, but it won’t solve health issues, family dilemmas or business or money problems.

You may have plenty of time on your hands. If you and/or your spouse have routinely worked 50-60 hours a week, it can be tough to come down from that once you are retired. Your urge to be productive will persist, and sooner or later, you will find ways to stay busy, contribute and make a difference. Thinking about how you will spend your time in retirement before retirement is wise, as you don’t want to risk staring at (or climbing) the walls. 

Adjusting to retired life takes a bit of time for everyone. Adjustment can become easier with a candid recognition of certain retirement realities.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note - investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.


1 - [1/10/14]

2 - [4/17/14]

3 - [10/06]



Friday, 05 September 2014 00:00

7 Things To Know About a Solo 401(k) Plan

Submitted by

1.  A Solo 401(k) is Simple

Setting up a Solo 401k makes a lot of sense for sole proprietors, owners of an S Corporation, C Corporation or partnership.  Initially my business was structured as a sole proprietor so setting up a Solo 401k seemed like it made a lot of sense.   Unlike traditional 401ks, there are no complicated discrimination tests or Form 5500 filing.

Not sure what a 5500 is?  It’s a form that larger 401k plans have to file with IRS to be compliant.  A Solo 401k doesn’t have to worry until the plan reaches in excess of $250,000 to have to file a Form 5500.  If and when I have to file a form 5500, I won’t complain that much. 

2. Who is a Solo 401k Plan For?

Although it is called a “Solo” 401k, you can actually set up for you and your spouse.  If you have a bona fide partnership, it would work for them as well.  You are able to exclude any part time employee who works fewer than 1,000 hours per year.

If you have any employee that works these hours, the Solo 401k is not an option for you.  Also, if you plan on hiring employees in the near future, you may want to consider a different plan.

3. Solo 401k Maximum Contribution Limits For 2014


Solo 401k Contribution Limits

There are two types of Solo 401k contributions: elective (meaning you don’t have to contribute; you decide to contribute) contributions of your earned income as the “employee” of the business and nonelective (meaning they have to contribute according to the plan) by the business to your account.

Unlike traditional 401k plans, there is no vesting schedule for Solo 401k. That means when you (or your business) contribute to your account you are 100% vested immediately. Like the regular 401k contribution limits for 2014, you can elect to defer up to $17,500 of your pre-tax income in elective contributions.

If you are over the age of 50, you can do the catch up contribution of $5,500, for a total of $23,000.

On top of the $17,500, as the employer you can also make a nonelective profit sharing contribution up to 25% of your pay (which would be based on your W-2).

Total contributions (not including any catch up contributions for being 50 or older) cannot exceed $51,000 for 2014. (I have an example below). This means that if you max out your elective deductions at $17,500 then the business can contribute a maximum of $33,500 to your account.

4. When Does a Solo 401k Plan Have To Be Established?

The plan has to be established by the end of the business tax year in order to make a contribution for that year (unlike the SEP IRA which can be setup until your tax filing).  This is in part why I passed on the Solo 401k for 2009.

Since 2008 was my first full year in business, I had opted to file an extension to allow some time for me to completely figure out my tax situation.  Since I had missed the year end deadline, the SEP IRA made the most sense.

Since the Solo 401k plan is for you ONLY, your administrative requirements are minimal.  That is one of the major benefits of the plan.

If you maintain a Solo 401k, in addition to a traditional 401k through another employer (yes I’ve seen this done before but rare), the total salary deferral you can make, between all your 401ks combined is $17,500 for 2014.

For example, in addition to your self employment income, you work another job and contributed $10,000 to that 401k for 2014. When it comes to your self employed salary deferral, you can only add an additional $7,500 for 2014.

5. How Do You Contribute to the Plan?

When it comes to making the profit sharing contributions, each owner and spouse must receive the same percentage of pay contribution; there is no flexibility here, as there is with the salary deferral portion of the Solo 401k.

You can wait till year end to make the contribution, just remember that the plan has to be set up before December 31st.

6. Choosing Between Solo 401k Plan vs. SEP IRA


Solo 401k vs. SEP IRA

For somebody like a business owner who has a significant net income and wants to sock away a good chunk of money pretax, the Solo 401k deserves a long hard look.  One big reason is that 100% of your pay can be set aside (unlike a SEP IRA), which allows you to potentially contribute a lot more to a Solo 401(k). Let’s look at a quick example for a self-employed 50 year old business owner who has $100,000 in compensation:

For both the SEP IRA and Solo 401k you would be able to make a $21,175 employer contribution (25% X $84,700, which is Net Earnings after self-employment tax is deducted).

But here is where the Solo 401k kicks into hyper drive.

On the top of the $21,175, the business owner can also make a $17,500 employee contribution and an additional $5,500 catch up contribution.  With the SEP IRA, this is not an option. In 2014 the SEP IRA contribution limit is 25% of compensation, so for our 50 year old business owner that is $25,000. In total, the business owner can contribute $44,175 to a Solo 401k which is $19,175 more than its SEP IRA counterpart.  That is a significant difference and tax savings!

7. Can Your Borrow From a Solo 401k?

Just like a regular 401k, a Solo 401k does have borrowing provisions.  A Solo 401k participant can borrow up to either $50,000 or 50% of their account value (whichever is less) with the following terms:

·        To be repaid over an amortization schedule of 5 years or less

·        Regular payments no less frequently than quarterly

·        At a reasonable rate of interest… generally interpreted as prime rate + 1%

Be sure to check your custodian to make sure that borrowing is allowed.  Some low fee custodians prevent borrowing based on the low administrative fee that they charge. Read the fine print!

A Solo 401k example


Solo 401k Example

Just so I haven’t left you too confused, I thought I would close with another Solo 401k example to bring it all home:

A business owner, 48 year old Tony Stark, founder of Stark Industries, has net earnings $150,000, has no employees, and decides that the Solo 401k is the best plan for him.

Tony decides he will defer the maximum for 2014 $17,500. In addition, the business is typically permitted to deduct contributions up to 25% of Tony’s total compensation. In this case, 25% would be $37,500.

But the business can’t contribute that much to his account this year. Why? 

Remember, the maximum you can contribute in total from both the employee and employer perspective is $51,000. If Tony maxes out his personal contribution at $17,500 and the business contributed $37,500, he would be contributing $55,000 total. Instead the business will only be able to contribute $33,500 this year to bring his total contribution back down to the total limit of $51,000.

Remember the $17,500 salary deferral does not reduce the amount of the business deductible contributions.

If Tony were over the age of 50, he would have been allowed a catch up contribution to be able to max out the full benefit. He would have been allowed to contribute up to $56,500 in that case.

Article written by Jeff Rose, Alliance Wealth Management, LLC

Our Blog


(6 articles)


(23 articles)


(24 articles)


(24 articles)


(15 articles)


(18 articles)


(12 articles)


(3 articles)