It’s Time to ‘Fine-Tune’ Your Retirement Plan

When was the last time you reviewed your retirement plan? We don’t mean the value of your investments, we mean the type of plan you are in, your contribution level, the elections you made, and the overall appropriateness of that plan to your current situation. The Economic Growth and Tax Reconciliation Relief Act of 2001 made sweeping changes to everyone’s retirement plans. Are you taking maximum advantage of your retirement plan options? We think it’s time for you to come in for a tune-up.

Here are some of the changes made to retirement plans:

  • Your maximum contribution limits have increased. They vary by the type of retirement plan.
  • There are catch-up provisions for persons 50 years of age and older.
  • You can now rollover those older retirement plans (from previous employers), such as 401(k)s, 403(b)s, and 457s, to your current employer’s retirement plan or to an IRA. Please see our warning at the end of this article.
  • You can also rollover IRA accounts into your current employer’s retirement plan (assuming they allow these types of rollovers). Please see our warning at the end of this article.

Everyone who has a retirement plan should pay some attention to the changes and review their retirement plan features. We’ve attempted to identify the issues for two types of clients, those that are employees and those that are self-employed.

Employees of a larger organization usually have only one choice for their retirement plan, a 401(k), 403(b) or 457 plan. If you have one of those plans, your review should focus on the following:

  • Am I making the maximum allowable contribution to my retirement plan?
  • Do I have older retirement plans from previous employers that could be consolidated into one retirement account or an IRA?
  • If so, to which plan should I transfer the assets? Which assets might not be transferrable?
  • Is my beneficiary designation correct? (For example, if you have had an attorney draft beneficiary language for your retirement plan, does your human resource department have that language?)

Self-employed persons have additional questions to ponder:

  • Do I still have the correct type of retirement plan given the changes to the tax law?
  • If I have employees, is there a better choice of plans available to me that meets all of my goals?’for example, maximizing my contributions to my own account, minimizing my administrative expenses, and rewarding key employees.
  • Is it possible to close and consolidate some older retirement plans into a new plan that gives me fewer accounts to manage, less administrative headaches, and more flexibility? –
  • What are the various deadlines for opening some of these new types of plans? Is there still time to make changes for 2002?

Because of the changes to the tax laws and their effects on retirement plans, we feel that this is the ideal time to visit us and let us ‘fine-tune’ your retirement plan configuration. Let’s make it hum.

Warning: Employees will probably not want to put an existing IRA into their employer plans, because of the additional cost. While 401(k)s and other plans are generally advantageous to employees, these plans do have administrative and investment expenses which are usually charged back against the earnings of the plans. Participants pay for these additional expenses, in the same way they pay for no-load mutual funds, in the form of lower returns. These expenses can be avoided with an IRA.