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Setting Up a SIMPLE IRA Plan: It’s Simple!


You can also set up a 401(k) plan as a SIMPLE plan. However, there’s little advantage in doing so, because you’ll have the same lower contribution limits as a SIMPLE IRA plan while giving up the ease of administration that makes SIMPLE plans attractive in the first place.

*The 3% of pay match may be reduced to as little as 1% in any two of five years.

Looking for a retirement plan for your employees that’s easy and inexpensive to administer?

Well, there may be a simple answer: the Savings Incentive Match Plan for Employees of Small Employers, better known as the SIMPLE IRA plan.

A SIMPLE IRA plan lets your employees defer up to $12,500 in 2017 ($15,500 if age 50 or older). You promise to match employee contributions dollar for dollar up to 3% of pay,* or to make a “nonelective” contribution for all eligible employees, whether or not they contribute, equal to 2% of pay. (No more than $270,000 of pay can be taken into account in 2017.)

Your employees are eligible if they’ve earned at least $5,000 during any two preceding years (whether consecutive or not) and are expected to earn at least $5,000 in the current year. Eligibility does not depend on the employee’s age or how many hours the employee works for you.

You can adopt a SIMPLE IRA plan for 2017 only if you had 100 or fewer employees in 2016 (excluding employees who earned less than $5,000) and you don’t contribute to any other retirement plan. If your business qualifies, follow these three simple steps to set up your SIMPLE IRA plan. (You have until October 1 to set up a new SIMPLE IRA plan for 2017.)

Step 1: Adopt a written plan document

You can set up a SIMPLE IRA plan by completing either a pre-approved document provided by a financial institution (for example, a mutual fund company, insurance company, or bank) or an IRS model document (either Form 5305-SIMPLE or Form 5304-SIMPLE).

Form 5305-SIMPLE lets you specify the “designated financial institution” that will both act as your plan’s trustee/custodian and initially receive all plan contributions. Form 5304-SIMPLE, on the other hand, lets each eligible employee select the financial institution that will serve as trustee/custodian and receive all plan contributions.

Step 2: Provide information

You must provide your eligible employees with the following information before the beginning of each election period:

  • An explanation of the employees’ ability to make or change salary reduction elections
  • Whether you’ll make matching contributions or nonelective contributions for the coming year
  • A summary description of the plan
  • A notice that employees can transfer their account balances to an IRA provider of their choice without cost or penalty, if you use a designated financial institution

The election period is generally the 60-day period prior to the start of each calendar year (November 2 to December 31). However, the election period will be different if you set up a SIMPLE plan mid-year, or if an employee first becomes eligible after the 60-day period ends. Forms 5304 and 5305 contain most of the forms you’ll need to comply with these notice requirements.

Step 3: Set up employee accounts

A SIMPLE IRA account must be set up by or for each eligible employee, and all contributions to the plan must go into these accounts. Employees must make important decisions about investing their SIMPLE IRA retirement dollars based on the investment options available at the financial institution that holds their funds.

SIMPLE IRA 401(k) PLAN
Employee Deferral Limits $12,500, $15,500 if 50 or older $18,000, $24,000 if 50 or older
Roth contributions? No Yes
Complex ERISA/tax compliance? No Generally yes
Employer contributions required? Yes Generally no
Additional employer contributions allowed? No Yes, total contribution (including deferrals) up to $54,000 or more possible
Loans? No Yes
Creditor protection? Yes in bankruptcy; unclear outside bankruptcy Generally yes, inside and outside bankruptcy
Withdrawals
Early withdrawal penalty		 Unrestricted
25% first two years of participation, then 10%		 Generally restricted
10%

About 360 Financial Group

360 Financial Group, founded in 1990, provides a holistic approach to comprehensive wealth management as well as tax and accounting and investment management services. At 360 Financial Group, our MISSION is to be our clients’ primary advisor. We believe our knowledge, experience, and intuitive approach to tax and financial planning gives our clients the confidence they need to help them realize their dreams.

Registered Representative, Securities Offered Through Cambridge Investment Research. Inc., a Registered Broker-Dealer, Member FINRA, SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. 360 Financial Group and Cambridge are not affiliated.

About Cambridge

Cambridge Investment Group, Inc. is a privately-controlled firm with a national reach across the financial services industry consisting of multiple broker-dealers and RIAs, including Cambridge Investment Research Advisors, Inc. – a large corporate RIA; and Continuity Partners Group, LLC – a special purpose broker-dealer and registered investment advisor; and Cambridge Investment Research, Inc. – an independent broker-dealer, member FINRA/SIPC, that is among the largest privately-controlled independent broker-dealers in the country supporting approximately 3,000 independent financial professionals nationwide who serve their clients as registered representatives and investment advisor representatives, choosing to use either Cambridge’s firm Registered Investment Adviser or their own. For more information visit www.joincambridge.com.

IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.

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Withdrawal Options for Your Thrift Savings Plan (TSP)


*You should consider carefully the consequences of an in-service distribution. Distributions from your pre-tax TSP account are subject to federal income tax, and an additional 10% penalty tax will generally apply to distributions made prior to age 59½. The taxation of in-service withdrawals from a Roth TSP account depends on whether the distribution is a qualified or nonqualified withdrawal. Consideration should also be given to the overall depletion of your retirement savings. In addition, if you’re married, your spouse must be notified of any request for an in-service distribution, and in most cases must consent.

The Federal Thrift Savings Plan (TSP) is a tax-deferred retirement savings and investment plan set up to help federal civilian employees and military personnel save for retirement.

The TSP is a defined contribution plan. Employees and service members are eligible to make pre-tax contributions of at least part of their salaries annually to the plan, while the government may match some or all of those contributions.

Since 2012, participants are allowed to designate all or part of their deferrals as Roth contributions, which are funded on an after-tax basis.

Several withdrawal options are available through which participants can access their TSP funds, either while still working for the government or upon retirement.

In-service withdrawals

As a TSP participant, you may be eligible to take a one-time, age-based withdrawal from your TSP upon reaching age 59½.

All or a portion of your vested account balance may be withdrawn at that time. If you elect to take a partial withdrawal, you can’t take another partial withdrawal upon separating from service.

The rules are a little different if you make an in-service withdrawal in cases of financial hardship.

Specific requirements and limits apply, and each time you take a hardship distribution, you are barred from making another hardship distribution for a period of six months.

And you can’t make contributions to your TSP for a six-month period.* While in-service withdrawals may be available, it’s more likely that you’ll take withdrawals from your TSP when you retire or leave federal government employment.

Leave funds in the TSP

You may find that you don’t need to access money from your TSP account immediately upon retirement.

In that case, you can defer taking withdrawals from your TSP and allow it to remain in place.

However, you’ll have to start taking withdrawals by April 1 of the year following either the year you turn age 70½ if you’re no longer a federal employee, or the year you separate from federal service, whichever is later.

Partial withdrawal after leaving employment

You can make a one-time partial withdrawal and leave the rest of your money in your TSP.

To be eligible for a partial withdrawal, you must not have made a prior partial withdrawal or an age-based in-service withdrawal, and your withdrawal request must be for at least $1,000.

Lump-sum withdrawal

When you are ready to withdraw your money from your TSP account, you can do it all at once (commonly referred to as a lump-sum payment) or over a period of time.

Or you can purchase an annuity that will make payments to you for life.

You also can choose any combination of these full withdrawal options.

Keep in mind that withdrawals from a TSP, other than from a Roth TSP, are generally fully taxable as ordinary income.

Series of monthly payments

You can request a specific dollar amount that you’ll receive each month until your entire TSP has been paid to you.

Or you can receive monthly payments according to IRS Life Expectancy Tables based on your age and your account balance.

The TSP will recalculate your monthly payment every year you take withdrawals of this type.

Life annuity

Three types of annuities are available:

  1. an annuity that is paid to you during your lifetime (single life annuity);
  2. an annuity that is paid to you while you and your spouse are alive, then paid to the surviving spouse for the rest of his or her life after one of you dies (joint life with spouse annuity); or
  3. an annuity that is paid to you while you and a person chosen by you (with an insurable interest in you) are alive, then paid to the survivor (beneficiary) for his or her life after you die.

However, if you are a married Federal Employee Retirement System (FERS) participant, you must elect a joint life with spouse annuity with a 50% survivor benefit, level payments, and no cash refund feature, unless your spouse consents to another annuity option.

There are no fees or commissions associated with these options.

Factors that determine how much your monthly annuity payments will be include how large your account balance is, the interest rate at the time the TSP purchases your annuity, the performance of your investment fund, your age (and your joint annuitant’s age, if applicable), and the annuity option you elect.

The TSP website(tsp.gov) has a calculator you can use to project your future account balance.

Your TSP offers several options for withdrawing money from your account. Your specific goals will determine when to take money out and how you wish to receive it.

When making this decision, you should consider your income needs and the lifestyle you would like to have in retirement.

About 360 Financial Group

360 Financial Group, founded in 1990, provides a holistic approach to comprehensive wealth management as well as tax and accounting and investment management services. At 360 Financial Group, our MISSION is to be our clients’ primary advisor. We believe our knowledge, experience, and intuitive approach to tax and financial planning gives our clients the confidence they need to help them realize their dreams.

Registered Representative, Securities Offered Through Cambridge Investment Research. Inc., a Registered Broker-Dealer, Member FINRA, SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. 360 Financial Group and Cambridge are not affiliated.

About Cambridge

Cambridge Investment Group, Inc. is a privately-controlled firm with a national reach across the financial services industry consisting of multiple broker-dealers and RIAs, including Cambridge Investment Research Advisors, Inc. – a large corporate RIA; and Continuity Partners Group, LLC – a special purpose broker-dealer and registered investment advisor; and Cambridge Investment Research, Inc. – an independent broker-dealer, member FINRA/SIPC, that is among the largest privately-controlled independent broker-dealers in the country supporting approximately 3,000 independent financial professionals nationwide who serve their clients as registered representatives and investment advisor representatives, choosing to use either Cambridge’s firm Registered Investment Adviser or their own. For more information visit www.joincambridge.com.

IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.

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Four Numbers You Need to Know


When it comes to your finances, you might easily overlook some of the numbers that really count.

Here are four to pay attention to now that might really matter in the future.

1. Retirement plan contribution rate

What percentage of your salary are you contributing to a retirement plan?

Making automatic contributions through an employer-sponsored plan such as a 401(k) or 403(b) plan is an easy way to save for retirement, but this out-of-sight, out-of-mind approach may result in a disparity between what you need to save and what you actually are saving for retirement.

Checking your contribution rate and increasing it periodically can help you stay on track toward your retirement savings goal.

Some employer retirement plans let you sign up for automatic contribution rate increases each year, which is a simple way to bump up the percentage you’re saving over time.

In addition, try to boost your contributions when you receive a pay raise. Consider contributing at least enough to receive the full company match (if any) that your employer offers.

2. Credit score

When you apply for credit, such as a mortgage, a car loan, or a credit card, your credit score is one of the tools used by lenders to evaluate your creditworthiness.

Your score will likely factor into the approval decision and affect the terms and the interest rate you’ll pay.

The most common credit score that creditors consider is a FICO© Score, a three-digit number that ranges from 300 to 850. This score is based on a mathematical formula that uses the information contained in your credit report.

In general, the higher your score, the lower the credit risk you pose.

Each of the three major credit reporting agencies (Equifax, Experian, and TransUnion) calculates FICO® scores using different formulas, so you may want to check your scores from all three (fees apply).

It’s also a good idea to get a copy of your credit report at least annually to check the accuracy of the information upon which your credit score is based.

You’re entitled to one free copy of your credit report every 12 months from each of the three credit reporting agencies.

You can get your copy by visiting annualcreditreport.com.

3. Debt-to-income ratio

Your debt-to-income ratio (DTI) is another number that lenders may use when deciding whether to offer you credit.

A DTI that is too high might mean that you are overextended.

Your DTI is calculated by adding up your major monthly expenses and dividing that figure by your gross monthly income. The result is expressed as a percentage. For example, if your monthly expenses total $2,200 and your gross monthly income is $6,800, your DTI is 32%.

Lenders decide what DTIs are acceptable, based on the type of credit.

For example, mortgage lenders generally require a ratio of 36% or less for conventional mortgages and 43% or less for FHA mortgages when considering overall expenses.

Once you know your DTI, you can take steps to reduce it if necessary.

For example, you may be able to pay off a low-balance loan to remove it from the calculation. You may also want to avoid taking on new debt that might negatively affect your DTI.

Check with your lender if you have any questions about acceptable DTIs or what expenses are included in the calculation.

4. Net worth

One of the key big-picture numbers you should know is your net worth, a snapshot of where you stand financially.

To calculate your net worth, add up your assets (what you own) and subtract your liabilities (what you owe).

Once you know your net worth, you can use it as a baseline to measure financial progress.

Ideally, your net worth will grow over time as you save more and pay down debt, at least until retirement.

If your net worth is stagnant or even declining, then it might be time to make some adjustments to target your financial goals, such as trimming expenses or rethinking your investment strategy.

About 360 Financial Group

360 Financial Group, founded in 1990, provides a holistic approach to comprehensive wealth management as well as tax and accounting and investment management services. At 360 Financial Group, our MISSION is to be our clients’ primary advisor. We believe our knowledge, experience, and intuitive approach to tax and financial planning gives our clients the confidence they need to help them realize their dreams.

Registered Representative, Securities Offered Through Cambridge Investment Research. Inc., a Registered Broker-Dealer, Member FINRA, SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. 360 Financial Group and Cambridge are not affiliated.

About Cambridge

Cambridge Investment Group, Inc. is a privately-controlled firm with a national reach across the financial services industry consisting of multiple broker-dealers and RIAs, including Cambridge Investment Research Advisors, Inc. – a large corporate RIA; and Continuity Partners Group, LLC – a special purpose broker-dealer and registered investment advisor; and Cambridge Investment Research, Inc. – an independent broker-dealer, member FINRA/SIPC, that is among the largest privately-controlled independent broker-dealers in the country supporting approximately 3,000 independent financial professionals nationwide who serve their clients as registered representatives and investment advisor representatives, choosing to use either Cambridge’s firm Registered Investment Adviser or their own. For more information visit www.joincambridge.com.

IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.

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What is an ERISA fiduciary?


The Employee Retirement Income Security Act (ERISA) was enacted in 1974 to protect employees who participate in retirement plans and certain other employee benefit plans.

At the time, there were concerns that pension plan funds were being mismanaged, causing participants to lose benefits they had worked so hard to earn.

ERISA protects the interests of plan participants and their beneficiaries by:

  • Requiring the disclosure of financial and other plan information
  • Establishing standards of conduct for plan fiduciaries
  • Providing for appropriate remedies, sanctions, and access to the federal courts

It’s the fiduciary provisions of ERISA that help protect participants from the mismanagement and abuse of plan assets. The law requires that fiduciaries act prudently, solely in the interests of plan participants and beneficiaries, and for the exclusive purpose of providing benefits and paying reasonable expenses of administering the plan.

Fiduciaries must diversify plan investments to minimize the risk of large losses unless it’s clearly prudent not to do so. Fiduciaries must also avoid conflicts of interest. They cannot allow the plan to engage in certain transactions with the employer, service providers, or other fiduciaries (“parties in interest”). There are also specific rules against self-dealing.

Who is a plan fiduciary? Anyone who:

  • Exercises any discretionary control over the plan or its assets
  • Has any discretionary responsibility for the administration of the plan
  • Provides investment advice for a fee or other compensation (direct or indirect)

Plan fiduciaries may include, for example, discretionary plan trustees, plan administrators, investment managers and advisors, and members of a plan’s investment committee.

Fiduciaries must take their responsibilities seriously. If they fail to comply with ERISA’s requirements, they may be personally liable for any losses incurred by the plan. Criminal liability may also be possible.

About 360 Financial Group

360 Financial Group, founded in 1990, provides a holistic approach to comprehensive wealth management as well as tax and accounting and investment management services. At 360 Financial Group, our MISSION is to be our clients’ primary advisor. We believe our knowledge, experience, and intuitive approach to tax and financial planning gives our clients the confidence they need to help them realize their dreams.

Registered Representative, Securities Offered Through Cambridge Investment Research. Inc., a Registered Broker-Dealer, Member FINRA, SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. 360 Financial Group and Cambridge are not affiliated.

About Cambridge

Cambridge Investment Group, Inc. is a privately-controlled firm with a national reach across the financial services industry consisting of multiple broker-dealers and RIAs, including Cambridge Investment Research Advisors, Inc. – a large corporate RIA; and Continuity Partners Group, LLC – a special purpose broker-dealer and registered investment advisor; and Cambridge Investment Research, Inc. – an independent broker-dealer, member FINRA/SIPC, that is among the largest privately-controlled independent broker-dealers in the country supporting approximately 3,000 independent financial professionals nationwide who serve their clients as registered representatives and investment advisor representatives, choosing to use either Cambridge’s firm Registered Investment Adviser or their own. For more information visit www.joincambridge.com.

IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.

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Are You Ready to Retire?


Here are some questions to ask yourself when deciding whether or not you are ready to retire.

Is your nest egg adequate?

It may be obvious, but the earlier you retire, the less time you’ll have to save, and the more years you’ll be living off your retirement savings. The average American can expect to live past age 78.* With future medical advances likely, it’s not unreasonable to assume that life expectancy will continue to increase. Is your nest egg large enough to fund 20 or more years of retirement?

When will you begin receiving Social Security benefits?

You can receive Social Security retirement benefits as early as age 62. However, your benefit maybe 25% to 30% less than if you waited until full retirement age (66 to 67, depending on the year you were born).

How will retirement affect your IRAs and employer retirement plans?

The longer you delay retirement, the longer you can build up tax-deferred funds in traditional IRAs and potentially tax-free funds in Roth IRAs. Remember that you need taxable compensation to contribute to an IRA.

You’ll also have a longer period of time to contribute to employer-sponsored plans like 401(k)s — and to receive any employer match or other contributions. (If you retire early, you may forfeit any employer contributions in which you’re not fully vested.)

Will you need health insurance?

Keep in mind that Medicare generally doesn’t start until you’re 65. Does your employer provide post-retirement medical benefits? Are you eligible for the coverage if you retire early? If not, you may have to look into COBRA or an individual policy from a private insurer or the health insurance marketplace — which could be an expensive proposition.

Is phasing into retirement right for you?

Retirement need not be an all-or-nothing affair. If you’re not quite ready, financially or psychologically, for full retirement, consider downshifting from full-time to part-time employment. This will allow you to retain a source of income and remain active and productive.

*NCHS Data Brief, Number 267, December 2016

About 360 Financial Group

360 Financial Group, founded in 1990, provides a holistic approach to comprehensive wealth management as well as tax and accounting and investment management services. At 360 Financial Group, our MISSION is to be our clients’ primary advisor. We believe our knowledge, experience, and intuitive approach to tax and financial planning gives our clients the confidence they need to help them realize their dreams.

Registered Representative, Securities Offered Through Cambridge Investment Research. Inc., a Registered Broker-Dealer, Member FINRA, SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. 360 Financial Group and Cambridge are not affiliated.

About Cambridge

Cambridge Investment Group, Inc. is a privately-controlled firm with a national reach across the financial services industry consisting of multiple broker-dealers and RIAs, including Cambridge Investment Research Advisors, Inc. – a large corporate RIA; and Continuity Partners Group, LLC – a special purpose broker-dealer and registered investment advisor; and Cambridge Investment Research, Inc. – an independent broker-dealer, member FINRA/SIPC, that is among the largest privately-controlled independent broker-dealers in the country supporting approximately 3,000 independent financial professionals nationwide who serve their clients as registered representatives and investment advisor representatives, choosing to use either Cambridge’s firm Registered Investment Adviser or their own. For more information visit www.joincambridge.com.

IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.

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Is It Wise to Trade Your Pension for a Lump Sum?


Most private employers have already replaced traditional pensions, which promise lifetime income payments in retirement, with defined contribution plans such as 401(k)s.

But 15% of private-sector workers and 75% of state and local government workers still participate in traditional pensions.1

Altogether, 35% of workers say they (and/or their spouse) have pension benefits with a current or former employer.2

Many pension plan participants have the option to take their money in a lump sum when they retire.

And since 2012, an increasing number of large corporate pensions have been implementing “lump-sum windows” during which vested former employees have a limited amount of time (typically 30 to 90 days) to accept or decline buyout offers.3 (Lump-sum offers to retirees already receiving pension benefits are no longer allowed.)

By shrinking the size of a pension plan, the company can reduce the associated risks and costs, and limit the impact of future retirement obligations on current financial performance. However, what’s good for a corporation’s bottom line may or may not be in the best interests of plan participants and their families.

For many workers, there may be mathematical and psychological advantages to keeping the pension. On the other hand, a lump sum could provide financial flexibility that may benefit some families.

Weigh risks before letting go

A lump-sum payout transfers the risks associated with investment performance and longevity from the pension plan sponsor to the participant. The lump-sum amount is the discounted present value of an employee’s future pension, set by an IRS formula based on current bond interest rates and average life expectancies.

Individuals who opt for a lump-sum payout must then make critical investment and withdrawal decisions, and determine for themselves how much risk to take in the financial markets. The resulting income is often not enough to replace the pension income given up, unless the investor can tolerate exposure to stock market risk and is able to achieve solid returns over time.

Gender is not considered when calculating lump sums, so a pension’s lifetime income maybe even more valuable for women, who tend to live longer than men and would have a greater chance of outliving their savings.

In addition, companies might not include the value of subsidies for early retirement or spousal benefits in lump-sum calculations.4 The latter could be a major disadvantage for married participants because a healthy 65-year-old couple has about a 73% chance that one spouse will live until at least 90.5

When a lump sum might make sense

A lump-sum payment could benefit a person in poor health or provide financial relief for a household with little cash in the bank for emergencies. But keep in mind that pension payments (monthly or lump sum) are taxed in the year they are received, and cashing out a pension before age 59½ may trigger a 10% federal tax penalty.6 Rolling the lump sum into a traditional IRA postpones taxes until withdrawals are taken later in retirement.

Someone who expects to live comfortably on other sources of retirement income might also welcome a buyout offer. Pension payments end when the plan participant (or a surviving spouse) dies, but funds preserved in an IRA could be passed down to heirs.

IRA distributions are also taxed as ordinary income, and withdrawals taken prior to age 59½ may be subject to the 10% federal tax penalty, with certain exceptions. Annual minimum distributions are required starting in the year the account owner reaches age 70½.

It may also be important to consider the health of the company’s pension plan, especially for plans that don’t purchase annuity contracts. The “funded status” is a measure of plan assets and liabilities that must be reported annually; a plan funded at 80% or less may be struggling. Most corporate pensions are backstopped by the Pension Benefit Guaranty Corporation (PBGC), but retirees could lose a portion of the “promised” benefits if their plan fails.

The prospect of a large check might be tempting, but cashing in a pension could have costly repercussions for your retirement. It’s important to have a long-term perspective and an understanding of the tradeoffs when a lump-sum option is on the table.

1 U.S. Bureau of Labor Statistics, 2016

2 Employee Benefit Research Institute, 2016

3,4 The Wall Street Journal, June 5, 2015

5 Society of Actuaries, 2017

6 The penalty doesn’t apply to employees who retire during or after the year they turn 55 (50 for qualified public safety employees).

About 360 Financial Group

360 Financial Group, founded in 1990, provides a holistic approach to comprehensive wealth management as well as tax and accounting and investment management services. At 360 Financial Group, our MISSION is to be our clients’ primary advisor. We believe our knowledge, experience, and intuitive approach to tax and financial planning gives our clients the confidence they need to help them realize their dreams.

Registered Representative, Securities Offered Through Cambridge Investment Research. Inc., a Registered Broker-Dealer, Member FINRA, SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. 360 Financial Group and Cambridge are not affiliated.

About Cambridge

Cambridge Investment Group, Inc. is a privately-controlled firm with a national reach across the financial services industry consisting of multiple broker-dealers and RIAs, including Cambridge Investment Research Advisors, Inc. – a large corporate RIA; and Continuity Partners Group, LLC – a special purpose broker-dealer and registered investment advisor; and Cambridge Investment Research, Inc. – an independent broker-dealer, member FINRA/SIPC, that is among the largest privately-controlled independent broker-dealers in the country supporting approximately 3,000 independent financial professionals nationwide who serve their clients as registered representatives and investment advisor representatives, choosing to use either Cambridge’s firm Registered Investment Adviser or their own. For more information visit www.joincambridge.com.

IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.

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Tax Benefits of Home Ownership


Buying a home can be a major expenditure.

Fortunately, federal tax benefits are available to make homeownership more affordable and less expensive. There may also be tax benefits under state law.

Mortgage interest deduction

One of the most important tax benefits of owning a home is that you may be able to deduct any mortgage interest you pay. If you itemize deductions on your federal income tax return, you can deduct the interest you pay on a loan used to buy, build, or improve your home, provided that the loan is secured by your home. Up to $1 million of such “home acquisition debt” ($500,000 if you’re married and file separately) qualifies for the interest deduction.

You may also be able to deduct interest you pay on certain home equity loans or lines of credit secured by your home. Up to $100,000 of such “home equity debt” (or $50,000 if your filing status is married filing separately) qualifies for the interest deduction. The interest you pay on home equity debt is generally deductible regardless of how you use the loan proceeds. For alternative minimum tax purposes, however, interest on home equity debt is deductible only for debt used to buy, build, or improve your home.

Deduction for real estate property taxes

If you itemize deductions on your federal income tax return, you can generally deduct real estate taxes you pay on property that you own. For alternative minimum tax purposes, however, no deduction is allowed for state and local taxes, including real estate property taxes.

Points and closing costs

When you take out a loan to buy a home, or when you refinance an existing loan on your home, you’ll probably be charged closing costs. These may include points, as well as attorney’s fees, recording fees, title search fees, appraisal fees, and loan or document preparation and processing fees. Points are typically charged to reduce the interest rate for the loan.

When you buy your main home, you may be able to deduct points in full in the year you pay them if you itemize deductions and meet certain requirements. You may even be able to deduct points that the seller pays for you.

Refinanced loans are treated differently. Generally, points that you pay on a refinanced loan are not deductible in full in the year you pay them. Instead, they’re deducted ratably over the life of the loan. In other words, you can deduct a certain portion of the points each year. If the loan is used to make improvements to your principal residence, however, you may be able to deduct the points in full in the year paid.

Otherwise, closing costs are nondeductible. They can, however, increase the tax basis of your home, which in turn can lower your taxable gain when you sell the property.

Home improvements

Home improvements (unless medically required) are nondeductible. Improvements, though, can increase the tax basis of your home, which in turn can lower your taxable gain when you sell the property.

Capital gain exclusion

If you sell your principal residence at a loss, you can’t deduct the loss on your tax return. If you sell your principal residence at a gain, you may be able to exclude some or all of the gain from federal income tax.

Capital gain (or loss) on the sale of your principal residence equals the sale price of your home minus your adjusted basis in the property. Your adjusted basis is typically the cost of the property (i.e., what you paid for it initially) plus amounts paid for capital improvements.

If you meet all requirements, you can exclude from federal income tax up to $250,000 ($500,000 if you’re married and file a joint return) of any capital gain that results from the sale of your principal residence. Anything over those limits may be subject to tax (at favorable long-term capital gains tax rates). In general, this exclusion can be used only once every two years. To qualify for the exclusion, you must have owned and used the home as your principal residence for a total of two out of the five years before the sale.

What if you fail to meet the two-out-of-five-year rule? Or you used the capital gain exclusion within the past two years with respect to a different principal residence? You may still be able to exclude part of your gain if your home sale was due to a change in place of employment, health reasons, or certain other unforeseen circumstances. In such a case, exclusion of the gain may be prorated.

Other considerations

It’s important to note that special rules apply in a number of circumstances, including situations in which you maintain a home office for tax purposes or otherwise use your home for business or rental purposes.

About 360 Financial Group

360 Financial Group, founded in 1990, provides a holistic approach to comprehensive wealth management as well as tax and accounting and investment management services. At 360 Financial Group, our MISSION is to be our clients’ primary advisor. We believe our knowledge, experience, and intuitive approach to tax and financial planning gives our clients the confidence they need to help them realize their dreams.

Registered Representative, Securities Offered Through Cambridge Investment Research. Inc., a Registered Broker-Dealer, Member FINRA, SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. 360 Financial Group and Cambridge are not affiliated.

About Cambridge

Cambridge Investment Group, Inc. is a privately-controlled firm with a national reach across the financial services industry consisting of multiple broker-dealers and RIAs, including Cambridge Investment Research Advisors, Inc. – a large corporate RIA; and Continuity Partners Group, LLC – a special purpose broker-dealer and registered investment advisor; and Cambridge Investment Research, Inc. – an independent broker-dealer, member FINRA/SIPC, that is among the largest privately-controlled independent broker-dealers in the country supporting approximately 3,000 independent financial professionals nationwide who serve their clients as registered representatives and investment advisor representatives, choosing to use either Cambridge’s firm Registered Investment Adviser or their own. For more information visit www.joincambridge.com.

IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.

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Is Smart Beta a Smart Strategy for You?


Traditional investment indexes such as the S&P 500 are weighted based on market capitalization, the value of a company’s total outstanding stock. This means the largest companies in the index may have much greater influence on index performance than smaller companies.

For example, the 10 largest companies in the S&P 500 account for more than 18% of the index’s performance, as opposed to about 2% if every company were weighted equally.1

Funds that track market-weighted indexes may be the most direct way to participate in broad market performance, but there has been increasing interest in an alternative indexing strategy called smart beta (also known as strategic beta or factor-based investing). More than 100 smart-beta exchange-traded funds (ETFs) were launched in 2016.2

Shifting the weight

Smart-beta funds use factors other than market capitalization to select and weight investments in order to track an existing or newly created factor-based index. Some factors that might be considered are momentum, risk, volatility, earnings, growth potential, price-to-book value, dividend growth or yield, cash flow, or equal weighting of all securities. (Traditionally, beta is a measure of an investment’s volatility, but smart-beta indexes may or may not consider volatility.)

The idea of using factors to select investments is not new. For example, numerous indexes track stocks perceived to have higher growth potential or to offer greater value. However, even if the investments are selected based on a factor, such indexes are typically still weighted based on market capitalization. Though investments tracking such indexes might be considered in the smart-beta category, a true smart-beta growth or value index would be selected and weighted based on a measure of growth or value.

Long-term strategy

The goal of smart-beta strategies is to outperform the broader market, but even if a factor does outperform during one market cycle, it may underperform in the next cycle. This is one of the fundamental challenges not only of smart beta but of any strategy that attempts to outperform the market. Even within a given cycle, a successful strategy may become neutralized or unsuccessful as other investors adopt the same strategy.

Because of these limitations, smart-beta funds are generally not wise for short-term investors, but they may be appropriate as a long-term strategy in a diversified portfolio. Diversification is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss. All investing involves risk, including the possible loss of principal.

The S&P 500 is an unmanaged group of securities considered to be representative of the U.S. stock market in general. The performance of an unmanaged index is not indicative of the performance of any specific investment. Individuals cannot invest directly in an index. Past performance is not a guarantee of future results; actual results will vary.

The principal value of mutual funds and exchange-traded funds will fluctuate with changes in market conditions. Shares, when sold, may be worth more or less than their original cost. Supply and demand for ETF shares may cause them to trade at a premium or a discount relative to the value of the underlying shares.

Mutual funds and exchange-traded funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.

1S&P Dow Jones Indices, 2017

2Morningstar, 2017

About 360 Financial Group

360 Financial Group, founded in 1990, provides a holistic approach to comprehensive wealth management as well as tax and accounting and investment management services. At 360 Financial Group, our MISSION is to be our clients’ primary advisor. We believe our knowledge, experience, and intuitive approach to tax and financial planning gives our clients the confidence they need to help them realize their dreams.

Registered Representative, Securities Offered Through Cambridge Investment Research. Inc., a Registered Broker-Dealer, Member FINRA, SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Small Business Group, Inc. and Cambridge are not affiliated.

About Cambridge

Cambridge Investment Group, Inc. is a privately-controlled firm with a national reach across the financial services industry consisting of multiple broker-dealers and RIAs, including Cambridge Investment Research Advisors, Inc. – a large corporate RIA; and Continuity Partners Group, LLC – a special purpose broker-dealer and registered investment advisor; and Cambridge Investment Research, Inc. – an independent broker-dealer, member FINRA/SIPC, that is among the largest privately-controlled independent broker-dealers in the country supporting approximately 3,000 independent financial professionals nationwide who serve their clients as registered representatives and investment advisor representatives, choosing to use either Cambridge’s firm Registered Investment Adviser or their own. For more information visit www.joincambridge.com.

IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.

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What Do Bond Rating Agencies Use?


Bond rating agencies typically use similar scales, and it may be helpful to understand how to compare ratings from multiple agencies.
This chart compares bond ratings in descending order of creditworthiness (from left to right) as judged by the three best-known credit agencies.

Standard & Poor’s and Fitch Ratings use the symbols + and – to denote the upper and lower ranges of ratings from AA to CCC; Moody’s uses the numbers 1, 2, 3 to denote the upper, middle, and lower ranges from Aa to Caa.


Note: If a bond is insured (typically for lower-rated bonds), there will be two ratings, one for the bond issuer and one for the insurer. Bond insurance adds a potential layer of protection in the event that an issuer defaults, but it is only as good as the insurer’s credit quality and ability to pay. An investor should not buy bonds based solely on the insurance.

About 360 Financial Group

360 Financial Group, founded in 1990, provides a holistic approach to comprehensive wealth management as well as tax and accounting and investment management services. At 360 Financial Group, our MISSION is to be our clients’ primary advisor. We believe our knowledge, experience, and intuitive approach to tax and financial planning gives our clients the confidence they need to help them realize their dreams.

Registered Representative, Securities Offered Through Cambridge Investment Research. Inc., a Registered Broker-Dealer, Member FINRA, SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Small Business Group, Inc. and Cambridge are not affiliated.

About Cambridge

Cambridge Investment Group, Inc. is a privately-controlled firm with a national reach across the financial services industry consisting of multiple broker-dealers and RIAs, including Cambridge Investment Research Advisors, Inc. – a large corporate RIA; and Continuity Partners Group, LLC – a special purpose broker-dealer and registered investment advisor; and Cambridge Investment Research, Inc. – an independent broker-dealer, member FINRA/SIPC, that is among the largest privately-controlled independent broker-dealers in the country supporting approximately 3,000 independent financial professionals nationwide who serve their clients as registered representatives and investment advisor representatives, choosing to use either Cambridge’s firm Registered Investment Adviser or their own. For more information visit www.joincambridge.com.

IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.

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What are Bond Ratings?


Bond ratings are an essential tool when considering fixed-income investments. Ratings provide a professional assessment of credit risk, or the risk of default, which can be measured to some degree by analyzing the bond issuer’s financial condition and creditworthiness.

Credit rating agencies perform this type of analysis and issue ratings that reflect the agency’s assessment of the bond issuer’s ability to meet the promised interest payments and return the principal upon maturity. The best-known independent rating agencies — Standard & Poor’s, Moody’s Investors Service, and Fitch Ratings — use similar scales in descending alphabetical order, ranging from AAA/Aaa for the most creditworthy bonds to C/D for the least creditworthy.

Bonds rated BBB/Baa or higher are considered “investment grade.” Lower-rated bonds commonly called “junk bonds,” are non-investment grade; they generally offer higher yields and are considered speculative with higher credit risks. Bond insurance can add a layer of protection, but it is only as good as the insurer’s credit quality and ability to pay.

A credit rating is not a recommendation to purchase a bond. Even so, higher-rated bonds, in general, may be more appealing to investors, and — due to supply and demand — typically have a lower yield than similar bonds with a lower rating. Investors must balance risk and reward when choosing bonds that present a comfortable risk while providing a yield that is appropriate to help meet investment goals.

Ratings are very important to a bond issuer when the bond is first offered for sale, because a higher rating may reduce interest costs. After the initial sale, significant shifts in the issuer’s financial condition could result in rating changes that may affect the bond’s yield and market value. However, as long as the issuer does not default, a change in a bond’s rating would not affect the coupon rate or the principal due upon maturity.

Bonds carry other risks as well, such as market risk, interest rate risk, and inflation risk. However, these depend on factors that are difficult to measure or predict.

The principal value of bonds fluctuates with changes in market conditions. A bond sold prior to maturity may be worth more or less than its original value.

About 360 Financial Group

360 Financial Group, founded in 1990, provides a holistic approach to comprehensive wealth management as well as tax and accounting and investment management services. At 360 Financial Group, our MISSION is to be our clients’ primary advisor. We believe our knowledge, experience, and intuitive approach to tax and financial planning gives our clients the confidence they need to help them realize their dreams.

Registered Representative, Securities Offered Through Cambridge Investment Research. Inc., a Registered Broker-Dealer, Member FINRA, SIPC and Investment Advisor Representative, Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Small Business Group, Inc. and Cambridge are not affiliated.

About Cambridge

Cambridge Investment Group, Inc. is a privately-controlled firm with a national reach across the financial services industry consisting of multiple broker-dealers and RIAs, including Cambridge Investment Research Advisors, Inc. – a large corporate RIA; and Continuity Partners Group, LLC – a special purpose broker-dealer and registered investment advisor; and Cambridge Investment Research, Inc. – an independent broker-dealer, member FINRA/SIPC, that is among the largest privately-controlled independent broker-dealers in the country supporting approximately 3,000 independent financial professionals nationwide who serve their clients as registered representatives and investment advisor representatives, choosing to use either Cambridge’s firm Registered Investment Adviser or their own. For more information visit www.joincambridge.com.

IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual’s personal circumstances.

To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2017.

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