News

Retirement Compliance Check

Posted on May 12, 2022 in

Now that tax season is over, this is usually the time employers and CPAs alike are making decisions with respect to retirement plans. This is the time that employers are looking to maximize tax savings by implementing an employer-sponsored retirement plan. And, while the benefits of implementing a plan are significant for not only the owners but also the staff, it is equally important to know the deadlines associated with retirement plans to stay compliant.

This 401(k) Compliance calendar highlights important dates to remember for plan sponsors between now and year-end. All the dates listed are important to take note of, but typically, year-end tax planning brings to light the importance of putting a retirement plan in place.

September 15th 

If an extension was filed in July, September 15th is the deadline to fund employer contributions for Partnerships and S-Corporations. This is also the minimum funding deadline for single and multiemployer defined benefit plans and the last date to make prior-year contributions for defined benefit pension plans.

October 1st

Annual notices to 401(k) participants must be given no earlier than October 1st and no later than December 1st, including the 401(k) Plan Safe Harbor Match Notice, Automatic Contribution Arrangement Safe Harbor, Automatic Enrollment, and qualified default investment alternative.

Annual notices to 401(k) participants must be given no earlier than October 1st and no later than December 1st, including the 401(k) Plan Safe Harbor Match Notice, Automatic Contribution Arrangement Safe Harbor, Automatic Enrollment, and qualified default investment alternative.

December 31st

Today is the final deadline to process corrective distributions for any plans that did not pass ADP/ACP testing. Amendments to change a traditional 401(k) to Safe Harbor design, remove a Safe Harbor feature or change certain discretionary modifications must be completed by today. Plan sponsors must amend plan documents for any discretionary changes made during the year by this date and Ongoing RMDs for 5 percent business owners and terminated participants must be completed.

Since 401(k) plans are subject to many legal compliance requirements, it’s important to review 401(k) plan requirements no less frequently than annually and to comply with such rules. Failure to do so can result in penalties and costs to your business. When choosing who to work with as your plan provider its important you choose a company that will act as a fiduciary. A fiduciary that will ensure your plan is periodically reviewed so you stay compliant and avoid any unnecessary liabilities.

Free Calendar Download: 401k Compliance Calendar – CPSIA

Tamara L Jemison
Retirement Plan Advisor

Markets Resilient Despite Global Turmoil

Posted on April 21, 2022 in

The first quarter of 2022 ended on a positive note, with the major market indexes regaining a significant amount of lost ground. Both the S&P 500 and the Dow Jones Industrial Average finished the quarter within 5% of where they began. Over the past three months, the markets have shown tremendous resilience during a time of geopolitical turmoil.

Bond markets have struggled this year. When interest rates go up, bond prices go down. The Federal Reserve expects to raise interest rates significantly this year. Bond markets have sold off, reflecting expectations for higher interest rates. Higher interest rates will be a drag on economic growth and should also slow the housing market. Policymakers are trying to balance the need to control inflation against the economic costs of higher interest rates. These are normal conditions in the middle to late stage of an economic cycle.

US Economic Growth: The Engine of Wealth Creation

The US consumer continues to be the driving force behind the US and global economy. Consumer spending on goods exceeded pre-COVID levels in late 2020 and has continued to set records since then. Spending on services lagged but has now reached pre-COVID levels and will continue to grow. As long as the US consumer remains unstoppable, the US economy will do well and investors in great American companies will be rewarded.  Despite higher energy costs and inflation, by most measures the US consumer is doing exceptionally well.

The United States is the second-largest energy producer on the globe. We are the world’s largest oil and natural gas producer, and the third-largest food producer. American capitalism continues to produce more innovation and productivity gains than any other system. The United States is home to the broadest and most liquid capital markets. It is easy to see why the US Dollar continues to be the global reserve currency. The United States is still the world’s dominant economic power. Investors in great American companies will continue to reap the rewards of US economic growth.

If a recession happens, history says that high-quality, dividend-paying stocks are the best way to protect and grow wealth.

Interest rates and inflation are rising. Food and energy prices are likely to go higher, and it’s easy to understand why some investors are nervous about the possibility of a recession.

In the long run, stocks reflect economic growth and the growth of corporate earnings. In the short run, stock prices and the economy can often move in different directions. History has many examples of times when the economy entered a recession, and stock prices nonetheless went up. Wise investors understand that recessions are declared in hindsight. Even if we had a perfect ability to predict recessions, history says we should not sell our stocks. The best way to protect against inflation during economic expansions is also a great way to protect and grow wealth through a recession.

The best way to achieve and protect financial independence is by investing in high-quality, dividend-paying stocks. Investing in companies that earn profits, use capital wisely, and return a portion of those profits to shareholders is a time-tested and proven strategy.

As always, focus on the things you can control. Spend less than you make. Save diligently, invest wisely, and most importantly have a plan – and great advisors – for the things you can’t control.

Matthew A Treskovich | CFA, CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer

Protecting Financial Independence

Posted on April 21, 2022 in

Once you have a plan in place to achieve and protect financial independence, you must stay vigilant to protect yourself from cybercrime and identity theft. According to the FBI and cyber security professionals, it is estimated that global cybercrime will be responsible for over $6 Trillion in damages in 2022 with over 33 billion accounts breached by 2023. Below are a couple of tips to help you avoid being a victim.

Avoid Disclosing Personal Information on Social Media

While this sounds like common sense, the way thieves piece together your information from social media may not be so obvious. Criminals will navigate through your social media and stitch together key details used to hack passwords, defeat security questions, and even exploit relatives into divulging even more sensitive information about you. Enjoy keeping up with family and friends on social media but take great care to keep your account private, delete posts made by friends divulging personal info (Happy 40th Birthday), and be smart about participating in surveys or posting personal information.

Be Suspicious of Every Email

Cybercriminals have become very good at slipping through our commonsense safeguards and getting us to click on things we shouldn’t. If you’re not expecting an email from someone, especially with embedded links or attachments, simply call the sender and verify the email is legitimate before clicking links or opening attachments. Be especially skeptical of unexpected password-reset emails or emails with links asking you to log in or to verify your information. Reputable businesses will not ask you for your username or password through email. To be safe, always navigate to websites related to your accounts directly by typing in the appropriate web address in a browser you open from your desktop or smartphone application.

Don’t Answer Unknown Numbers

The phone has become popular again as a source for exploiting the busy and unsuspecting. We’ve all been caught answering those warranty expiration calls because that unknown number seemed so familiar. Hackers also know how to get us to answer the phone and accidentally divulge personal information before we even know it. If a number is unknown, let it go to voicemail. 90% of the time, they won’t leave a message, but if they do you’ll be better positioned to screen the caller and determine the sincerity of the call. Even still, if you’re receiving an unexpected call from a business or person you are familiar with, don’t call the unknown number back, instead call the number of the business or person you’re familiar with directly especially if the caller is asking you to verify your personal or account information.

Your financial planner at CPS Investment Advisors or any of the custodians we work with will never ask you for log in or password information through email or an unsolicited call. If you are ever suspicious of an email or call related to any of your investment accounts, always give your advisor a call just to be safe!

Shawn J McCabe | CFP®, MSA, MBA
CPAlliance™ Director

After a long delay, financial literacy education will become mandatory for Florida high school students. Starting with students who enter high school in the 2023-2024 school year, students will be required to take a financial literacy class before graduating.

Basic education on financial literacy is long overdue and greatly needed. Surveys have shown that over a third of Floridians have more debt than they do savings or investments. Nearly a quarter of Florida’s families are saving nothing toward retirement.

The new financial literacy class will cover topics like opening and managing a bank account, and the basic principles of money management, and how compound interest works. Students will learn about how to save money, and the types of investments that can help them build wealth. Classes will also cover topics like managing debt, applying for loans, and how credit cards work. Other vital topics like how taxes work, how contracts work, how insurance works, and what to do if you receive an inheritance will be part of the new requirements.

This education will give students tools that will help increase their chances of financial success once they leave school and enter the workforce. Early education in personal finances will also give the next generation a head start toward achieving financial independence.

Fortunately, if you or someone you know is interested in becoming more financially literate, free high-quality resources are available online. The American Institute of Certified Public Accountants offers free financial literacy educational materials online at www.360financialliteracy.org.

Matthew A Treskovich | CFA, CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer

IRA vs. Roth IRA – What is the Difference?

Posted on March 30, 2022 in

Question – “What is the difference between a Traditional Individual Retirement Arrangement (IRA) and a Roth Individual Retirement Arrangement (Roth IRA)?”

Answer – The primary difference is the tax treatment of the accounts in three key areas:

  1. Contributions
  2.  Growth
  3. Withdrawals

Contributions

If eligible, contributions to both an IRA and Roth IRA, are capped at $6,000 ($7,000 if age 50 or older) each year. The tax treatment of the contributions differs greatly between both types of accounts. Assuming you are eligible, the traditional IRA allows for a tax deduction the year that you put the money in to the account. In other words, you can “write-off” your contribution on your tax return and receive an immediate tax benefit. On the other hand, a Roth IRA does not allow for a tax deduction when you put funds into the account. Simply stated: The contribution to a Traditional IRA is tax deductible while the contribution to a Roth IRA is not.

Growth

Once you have contributed to the accounts, the next concern is the tax impact of growth within the accounts. Let’s start with a Traditional IRA. The growth of your money within a traditional IRA is tax deferred. Meaning, you are delaying when you will pay the tax. Example: if you put $6,000 into your traditional IRA and after 10 years it grew to $12,000 you would not owe any tax while the account was growing. The taxes are delayed until you start to withdraw from the account. We will discuss withdrawals a bit further in the next section. Conversely, a Roth IRA grows tax-free. Meaning… tax free. Example: if you put $6,000 into a Roth IRA and after 10 years it grew to $12,000 you would not owe tax on the growth. There are a few exceptions to the tax free growth, but in general, the growth is tax free. So to recap, a traditional IRA has tax deferred growth, while a Roth IRA has tax free growth.

Withdrawals

The final difference is the tax treatment of withdrawals from each account. Let’s first start with a Traditional IRA. Withdrawal’s from this type of account are taxable to you. Meaning, the amount that you pull out of the Traditional IRA is included in your taxable income and subject to tax. You may be thinking, “I can avoid paying the tax, if I never pull money from my traditional IRA. Correct?” Good try, however the IRS will require you to take a portion of the funds out of your traditional IRA when you reach the age of 72. This is called a Required Minimum Distribution or (RMD) for short. Alternatively, a Roth IRA is not subject to tax when withdrawals occur from this type of account. (Assuming no exceptions apply) This also means that a Roth IRA is not subject to RMD’s. In short, a traditional IRA has taxable withdrawals, and a Roth IRA has tax free withdrawals.

Overall, each account type has advantages and disadvantages. To help decide the best account type for you, please consult with your advisor. If you would like to meet with one of our CPS Advisors, you can reach out to info@cpsinvest.com. Thank you!

 

Sterling J Searcy | CPA
Financial Advisor

Is the Dollar Done? History Says No.

Posted on March 28, 2022 in

With inflation and energy prices setting records, many investors are wondering what it means for the future of the US dollar.

Over the past year, inflation has significantly reduced the value of the dollar. Most other major economies are experiencing similar inflation and supply chain problems. In the United States, inflation has been accompanied by strong economic growth and exceptionally low unemployment. Many other countries are continuing to struggle economically and have not had the benefit of a strong labor market. Despite recent inflation, holding dollars has still been better than holding most other currencies.

China is reported to be in talks with both Russia and Saudi Arabia to price oil sales in the Chinese currency rather than in US dollars. Some investors are worried that this could mark the end of the dollar as the global reserve currency.

The world consumes over 90 million barrels per day of oil. China imports 7.6 million barrels of oil per day, including 1.5 million barrels per day from Saudi Arabia. Even if the Saudis were to accept the Chinese Yuan as payment for all the oil they sell to China, this would represent less than 2% of total global oil sales. China is Saudi Arabia’s largest trading partner, so no matter whether their oil sales are priced in Dollars or Yuan, a considerable amount of those revenues will be turned around and sent back to China to pay for goods.

The US dollar is still in demand worldwide. Relative to the currencies of countries we trade with, the dollar is stronger now than it has been for most of the past fifty years. There is widespread confidence across the globe in the US dollar. The dollar didn’t become the world’s reserve currency by accident. Confidence in the dollar comes from the strength of the US economy and the US military. It comes from the size and stability of our capital markets, the innovation of American businesses and workers, and the protections for free enterprise that are enshrined within our legal system. As long as America continues to be herself, dollars will remain in demand.

Dollars are still in demand across the globe. The US dollar is backed by the world’s strongest economy, the world’s most capable military, the world’s largest and most stable capital markets, and the world’s best legal protections for free enterprise.

History shows that even a low level of inflation is enough to significantly reduce your purchasing power over time. It is extremely important to invest in assets that will beat inflation over long periods of time, like dividend-paying stocks. The dollar is in no danger of collapse, but it is still important to protect your wealth by investing wisely.

Matthew A Treskovich | CFA, CPA/PFS, CITP, CMA, CFP®, AEP®, MBA, CLU, ChFC
Chief Investment Officer

Ensuring a Comfortable Retirement

Posted on March 17, 2022 in

“How much money will I need for retirement?” This is the question even the brightest financial minds cannot quantify in general terms. The answer all depends on your current lifestyle and the lifestyle you plan on having in retirement. At one time, planners assumed that clients would reduce their outflows and “pull down” their lifestyle after retirement to meet the expected income.

The rule of thumb was that clients should reduce expenses by at least 20% and live on 80% of their pre-retirement income. This may still be true if the client only has pension and Social Security income in retirement; -even living on 60% of that income potentially. However, evidence indicates that today’s retirees continue to spend as they did before retirement, thus needing more savings to offset unexpected expenses such as rising health care costs and home repairs.

…evidence indicates that today’s retirees continue to spend as they did before retirement…

Inflation and Buying Power

As an advisor, I am constantly recommending that my clients maintain an emergency fund. During accumulation years (working years), an easy rule of thumb is to maintain three to six months of bare bones expenses in liquid savings. During retirement, that number should be closer to twelve months if no pension is present or if Social Security benefits are less than current expenses.

However, inflation creates a problem for this cash fund; it loses buying power over time. For example, $100 in 1980 is only worth $28.96 now. Put in another way, a 50 year-old making $60,000 today would need $85,550 by the time they reach 62 to continue the same standard of living.

It’s a good idea to keep some cash ready for emergencies, but do not keep more than what is absolutely necessary and make sure that cash is earning a decent yield for you. Inflation is roughly 3% annually, so carefully consider how your emergency fund is invested. Additional funds should be invested to beat inflation and allow for growth.

Invested Assets and Growth

If you are already saving for retirement, good for you! You are already on your way to a comfortable retirement. For example’s sake, let’s assume someone is starting at zero and has 40 years until retirement when they will need $1,000,000 to meet their goal. Without the power of compound interest and investment performance, that person would have to save $25,000 every year for 40 years to meet their goal.

However, if investing with a 5% rate of return, they would reach $1,000,000 in only 22 and a half years. Of course, maxing out a 401(k) and IRA each and every year is something most investors are not financially able to do. But assuming the same 5% rate of return, and 40 years to retirement, $1,000,000 can be reached by contributing just $8,278 per year; a much more achievable task thanks to compounding! AND, if you have an employer matching your contributions to a retirement savings plan, you can reach that goal even sooner.

So, what can you do? Instead of thinking of the “now” all of the time with spending decisions, think of the future. You know the road map; you know what it takes to get there; now, make it happen wherever possible.

How We Can Help

We encourage you to sit down with your fiduciary advisor to discuss topics like cash inflows and outflows, workplace retirement plans, estate planning, goal-saving, and specific investment strategies that can help you reach your goals.

We take care of your financial plan, so you can focus on what is important to you. It’s our job to know the details and how we can help your reach financial independence. We’re here to help.

Derek M Oxford | CFP®, AEP®
Financial Advisor

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