Hello and welcome today's Backpack to Briefcase Seminar My name ...
Hello and welcome today’s Backpack to Briefcase Seminar My name is Mark Porter, Sloan class of 2005 , a CERTIFIED FINANCIAL PLANNER™ professional and Chartered Financial Analyst. I run my own Financial Planning firm, Northeast Planning Associates and I offer securities through LPL Financial. My primary office is located in Canton, MA but I am also at MIT quite often.
1
Again, my name is Mark Porter. I came to MIT from Canton Ohio and graduated in 2005 with a major in Finance and a minor in economics. After graduation I started my Financial Planning career and in 2008, I became one of the youngest people to earn the Certified Financial Planner certification. In 2011, I left my Fortune 500 firm to start my own independent company. In 2012 I also earned the Chartered Financial Analyst Designation. I volunteer on several committees around MIT, I am on the Item Writing Committee for the Certified Financial Planner Board of Standards I’m Certified Financial Planner Board of Standards, I m the Scoutmaster of Canton the Scoutmaster of Canton’ss Boy Scout Boy Scout Troop and I am the chairman of my town’s Finance Committee. I work with my clients in many ways. While I do work with both investments and insurance, I feel my most important role is acting as my client’s personal CFO. My job is to understand all of the elements of your financial situation, understand your goals, and give you recommendations to help you work towards achieving those goals.
2
In the process of becoming self employed, you may go through a transition. First, you may leave your employer. Often, when folks leave their employer, they roll their retirement plan into an IRA. Rolling over your account, especially if you’ve worked at a few places, consolidates many retirement accounts into one, gives you more investment flexibility and the flexibility to do a conversion, which we will discuss later. Keep in mind, if you have a loan on your 401(k) when you leave, you may end up with a tax bill. Often, you have between 30 and 90 days to pay the loan back. Any unpaid balance is considered a distribution and taxed at your ordinary income rate and assessed a 10% penalty if you are under 59 ½. If you have employer stock in your 401(k), you’ve got a little bit more research to do before you roll it over. Utilizing a strategy called NUA or Net Unrealized Appreciation you can actually remove any employer stock from your 401(k), paying income taxes on the BASIS and without paying the 10% penalty. When you sell the stock, you’ll pay capital gains taxes, rather than ordinary income taxes on the gains. This strategy usually is most effective when you have a significant capital gain on the stock. Keep in mind, you only have one shot to utilize an NUA strategy so consider it BEFORE your rollover. Going out on your own can be tough. You may not have clients right away and you may not have the cash flow to pay your bills. Generally speaking, your 401(k) or IRA should be the last place you go for money. Investments outside of retirement accounts can be sold and only capital gains taxes will be paid on the gains. Your Roth IRA’s basis can be accessed tax free at any time. If you have to access your 401(k) or IRA, understand you’ll be paying ordinary income taxes and, if you are under 59 ½, a 10% penalty. Withholding involves the financial institution taking a certain portion of your distribution and sending it to the government for taxes, much like your employer withheld taxes from your paycheck. If you take a 401(k) distribution, there is a mandatory 20% withholding. y p y y p y y ( ) , y g However, if you roll your 401(k) into an IRA there is no mandatory withholding. Of course, if you do not have any funds withheld, you’ll get a larger tax bill in April but you’ll have more funds now. When putting your estimated tax payments together, make sure to tell your tax preparer about any distributions and withholdings that have gone on for that year. Now as you get started, you may have enough in savings to cover yourself without dipping into your retirement accounts but you still may have low income your first calendar year. If that’s the case, there are some strategies you should consider. First, a Roth conversion. This involves taking some or all of your existing IRA and converting it to a Roth IRA. Whatever amount you convert over becomes taxable as ordinary income but as a result, the account can be accessed tax free after 5 years or the attainment of age 59 ½. A conversion will increase your taxable income for the year, due to your low income, it may simply offset some deductions or be taxed at a low bracket. If you have low income for a year, this is a great strategy to speak with your tax preparer about. Keep in mind, conversions need to be done by December 31st not the contribution deadline of April 15th. Finally, pending legislation, capital gains rates for low income individuals have been 0% for the past few years. Its unclear how the law will read in future years but keep an eye on this possibility. You may be able to pay no taxes on your capital gains. Another great strategy to speak with your tax preparer about.
3
I cannot stress enough, this is a guideline and may not cover every situation. It’s a great idea to talk about to a tax advisor about these issues a tax advisor about these issues. When you start bringing on employees, the most important thing that I can stress is record keeping. If you don’t have records, it doesn’t matter if you do everything right, the IRS won’t believe you. When you pay employees, you must withhold Federal Taxes, State Taxes, FICA and potentially unemployment. The purpose of this slide is not to tell you what you must do, but what you may have to do. Consult your tax advisor to know for sure. IRS publication 15 will tell you how much you need to withhold from your employee’s paychecks. It will also cover Federal unemployment. Publication 15 also walks you through how to file your Withholding Tax cover Federal unemployment Publication 15 also walks you through how to file your Withholding Tax Return, when to file it (usually quarterly) and whether you can mail a check or if you must do it electronically. FICA tax is also covered in these publications. In 2014, employers are required to withhold 6.2% of employees wages for Social Security (up to the wage base) and 1.65% of their wages for Medicare. Additionally, when you file the tax return you’ll need to pay an ADDITIONAL employer contribution of 6.2% to Social Security (up to the wage base) and 1.65% to Medicare. Pay attention to this it can change from year to year. Circular M covers the withholding tables for Massachusetts. You’ll need to not only register for webfile to file your return and pay your taxes, but you’ll need to report the hiring of new employees there. You’ll also be o r ret rn and pa o r ta es b t o ’ll need to report the hiring of ne emplo ees there Yo ’ll also be able to take care of unemployment on Webfile. In Massachusetts, you’ll also need to contact an insurance agent to purchase worker’s comp insurance. If you don’t have it, not only are you breaking the law but you may be financially liable for any injuries or lost wages resulting from a workplace injury. Other states may handle worker’s comp directly through the state. Now that you’ve kept great records, don’t forget you need to send your employees a W2 by January 31st of the following year. N if h Now if that all sounds like way too much work, you may consider hiring a payroll service like ADP or Paychex. ll d lik h k id hi i ll i lik ADP P h They’ll do 90% of this work for you and help make sure you don’t run afoul of any legal issues.
4
You’ve all heard of health insurance reform. It’s a topic all on its own, but lets touch on a few very high level points Everyone in MA needs health insurance, otherwise they pay a penalty. Did you know that if you’re company has more than 10 full time equivalents you may need to offer some health insurance? Again, 10 employees or less, nothing to worry about but as you grow, you’ll need to pay attention. Consider getting more information at the Commonwealth Health Connector Federally, ObamaCare’s requirement of health insurance for employees kicks in at 50 Full Time Equivalents. You also need to make sure that the coverage is deemed ‘Affordable’. Now some of you may have worked as independent contractors in the past, versus working as employees. You may be thinking, “If I just hire contractors I won’t have to worry about any withholding, unemployment or worker’s comp”. That may be true, but the IRS and State of MA have been cracking down recently on employees being misclassified as may be true, but the IRS and State of MA have been cracking down recently on employees being misclassified as independent contractors. As such you need to make sure that your contractors pass the IRS 20‐factor test. Generally speaking, the test reviews 3 categories: Behavioral Control, Financial Control and Relationship. This is not something to mess with. Misclassifying an employee can cost you quite a bit of money. Once your business becomes profitable, you’ll want to start saving for your retirement. Lets take a few minutes to walk through the pros and cons of a few retirement plans. One of the most basic plans is the SEP IRA. With the SEP, you can defer as much as approximately 20% of your Net Schedule C income to a maximum of $50k in 2012 and $51k in 2013. You need to establish the SEP and make the contribution by your tax filing (including extensions) Technically you are not making a SEP contribution as employee contribution by your tax filing (including extensions). Technically, you are not making a SEP contribution as employee contributions are not allowed, the company is making one on your behalf as a percentage of your salary. Keep in mind, if you have employees that have worked for you in 3 out of 5 years, they are entitled to the same percentage SEP contribution. A SIMPLE IRA allows for employee contributions and is available for employers with less than 100 employees. Each employee (including you) can defer as much as $11,500 in 2012 or $12,000 in 2013 (plus an additional $2,500 if you are over 50). The employer must provide a match of 3% to employees but that match can be reduced to 1% for a year or two in a pinch. The plan must be set up by October 1st. Finally, we will touch briefly on 401(k) plans. I say briefly because we could spend hours discussing the ins and outs of the many types of plans. With a 401(k) plan, employees can defer as much as $17,000 in 2012 and $17,500 in 2013 (plus an additional $5,500 if age 50 or older). The employer can match up to 25% of compensation, up to $50k in 2012 or $51k in 2013. Depending on the type of plan you may need to do ‘testing’ to ensure the plan does not overly favor ‘highly compensated’ employees. You can generally avoid this testing by adopting a Safe Harbor plan with automatic employer contributions. Overall, the 401(k) is generally a more expensive plan to administer but it provides for more deferral possibilities and usually has more of a ‘big company’ look.
5
Great, well thanks again for taking the time to come today. I’m now passing around a comment card. I’d ask that you please fill this out to give me some feedback on how I did today. I love speaking to groups like this, so if you are part of a group you’d like me to speak to, please indicate that on the comment card Finally if you’d Finally, if you d like to speak with me one on one, if you have some more specific questions like to speak with me one on one if you have some more specific questions you’d like me to answer, please indicate that on the comment card as well. Thank you and have a great night!
6
1
Again, my name is Mark Porter. I came to MIT from Canton Ohio and graduated in 2005 with a major in Finance and a minor in economics. After graduation I started my Financial Planning career and in 2008, I became one of the youngest people to earn the Certified Financial Planner certification. In 2011, I left my Fortune 500 firm to start my own independent company. In 2012 I also earned the Chartered Financial Analyst Designation. I volunteer on several committees around MIT, I am on the Item Writing Committee for the Certified Financial Planner Board of Standards I’m Certified Financial Planner Board of Standards, I m the Scoutmaster of Canton the Scoutmaster of Canton’ss Boy Scout Boy Scout Troop and I am the chairman of my town’s Finance Committee. I work with my clients in many ways. While I do work with both investments and insurance, I feel my most important role is acting as my client’s personal CFO. My job is to understand all of the elements of your financial situation, understand your goals, and give you recommendations to help you work towards achieving those goals.
2
In the process of becoming self employed, you may go through a transition. First, you may leave your employer. Often, when folks leave their employer, they roll their retirement plan into an IRA. Rolling over your account, especially if you’ve worked at a few places, consolidates many retirement accounts into one, gives you more investment flexibility and the flexibility to do a conversion, which we will discuss later. Keep in mind, if you have a loan on your 401(k) when you leave, you may end up with a tax bill. Often, you have between 30 and 90 days to pay the loan back. Any unpaid balance is considered a distribution and taxed at your ordinary income rate and assessed a 10% penalty if you are under 59 ½. If you have employer stock in your 401(k), you’ve got a little bit more research to do before you roll it over. Utilizing a strategy called NUA or Net Unrealized Appreciation you can actually remove any employer stock from your 401(k), paying income taxes on the BASIS and without paying the 10% penalty. When you sell the stock, you’ll pay capital gains taxes, rather than ordinary income taxes on the gains. This strategy usually is most effective when you have a significant capital gain on the stock. Keep in mind, you only have one shot to utilize an NUA strategy so consider it BEFORE your rollover. Going out on your own can be tough. You may not have clients right away and you may not have the cash flow to pay your bills. Generally speaking, your 401(k) or IRA should be the last place you go for money. Investments outside of retirement accounts can be sold and only capital gains taxes will be paid on the gains. Your Roth IRA’s basis can be accessed tax free at any time. If you have to access your 401(k) or IRA, understand you’ll be paying ordinary income taxes and, if you are under 59 ½, a 10% penalty. Withholding involves the financial institution taking a certain portion of your distribution and sending it to the government for taxes, much like your employer withheld taxes from your paycheck. If you take a 401(k) distribution, there is a mandatory 20% withholding. y p y y p y y ( ) , y g However, if you roll your 401(k) into an IRA there is no mandatory withholding. Of course, if you do not have any funds withheld, you’ll get a larger tax bill in April but you’ll have more funds now. When putting your estimated tax payments together, make sure to tell your tax preparer about any distributions and withholdings that have gone on for that year. Now as you get started, you may have enough in savings to cover yourself without dipping into your retirement accounts but you still may have low income your first calendar year. If that’s the case, there are some strategies you should consider. First, a Roth conversion. This involves taking some or all of your existing IRA and converting it to a Roth IRA. Whatever amount you convert over becomes taxable as ordinary income but as a result, the account can be accessed tax free after 5 years or the attainment of age 59 ½. A conversion will increase your taxable income for the year, due to your low income, it may simply offset some deductions or be taxed at a low bracket. If you have low income for a year, this is a great strategy to speak with your tax preparer about. Keep in mind, conversions need to be done by December 31st not the contribution deadline of April 15th. Finally, pending legislation, capital gains rates for low income individuals have been 0% for the past few years. Its unclear how the law will read in future years but keep an eye on this possibility. You may be able to pay no taxes on your capital gains. Another great strategy to speak with your tax preparer about.
3
I cannot stress enough, this is a guideline and may not cover every situation. It’s a great idea to talk about to a tax advisor about these issues a tax advisor about these issues. When you start bringing on employees, the most important thing that I can stress is record keeping. If you don’t have records, it doesn’t matter if you do everything right, the IRS won’t believe you. When you pay employees, you must withhold Federal Taxes, State Taxes, FICA and potentially unemployment. The purpose of this slide is not to tell you what you must do, but what you may have to do. Consult your tax advisor to know for sure. IRS publication 15 will tell you how much you need to withhold from your employee’s paychecks. It will also cover Federal unemployment. Publication 15 also walks you through how to file your Withholding Tax cover Federal unemployment Publication 15 also walks you through how to file your Withholding Tax Return, when to file it (usually quarterly) and whether you can mail a check or if you must do it electronically. FICA tax is also covered in these publications. In 2014, employers are required to withhold 6.2% of employees wages for Social Security (up to the wage base) and 1.65% of their wages for Medicare. Additionally, when you file the tax return you’ll need to pay an ADDITIONAL employer contribution of 6.2% to Social Security (up to the wage base) and 1.65% to Medicare. Pay attention to this it can change from year to year. Circular M covers the withholding tables for Massachusetts. You’ll need to not only register for webfile to file your return and pay your taxes, but you’ll need to report the hiring of new employees there. You’ll also be o r ret rn and pa o r ta es b t o ’ll need to report the hiring of ne emplo ees there Yo ’ll also be able to take care of unemployment on Webfile. In Massachusetts, you’ll also need to contact an insurance agent to purchase worker’s comp insurance. If you don’t have it, not only are you breaking the law but you may be financially liable for any injuries or lost wages resulting from a workplace injury. Other states may handle worker’s comp directly through the state. Now that you’ve kept great records, don’t forget you need to send your employees a W2 by January 31st of the following year. N if h Now if that all sounds like way too much work, you may consider hiring a payroll service like ADP or Paychex. ll d lik h k id hi i ll i lik ADP P h They’ll do 90% of this work for you and help make sure you don’t run afoul of any legal issues.
4
You’ve all heard of health insurance reform. It’s a topic all on its own, but lets touch on a few very high level points Everyone in MA needs health insurance, otherwise they pay a penalty. Did you know that if you’re company has more than 10 full time equivalents you may need to offer some health insurance? Again, 10 employees or less, nothing to worry about but as you grow, you’ll need to pay attention. Consider getting more information at the Commonwealth Health Connector Federally, ObamaCare’s requirement of health insurance for employees kicks in at 50 Full Time Equivalents. You also need to make sure that the coverage is deemed ‘Affordable’. Now some of you may have worked as independent contractors in the past, versus working as employees. You may be thinking, “If I just hire contractors I won’t have to worry about any withholding, unemployment or worker’s comp”. That may be true, but the IRS and State of MA have been cracking down recently on employees being misclassified as may be true, but the IRS and State of MA have been cracking down recently on employees being misclassified as independent contractors. As such you need to make sure that your contractors pass the IRS 20‐factor test. Generally speaking, the test reviews 3 categories: Behavioral Control, Financial Control and Relationship. This is not something to mess with. Misclassifying an employee can cost you quite a bit of money. Once your business becomes profitable, you’ll want to start saving for your retirement. Lets take a few minutes to walk through the pros and cons of a few retirement plans. One of the most basic plans is the SEP IRA. With the SEP, you can defer as much as approximately 20% of your Net Schedule C income to a maximum of $50k in 2012 and $51k in 2013. You need to establish the SEP and make the contribution by your tax filing (including extensions) Technically you are not making a SEP contribution as employee contribution by your tax filing (including extensions). Technically, you are not making a SEP contribution as employee contributions are not allowed, the company is making one on your behalf as a percentage of your salary. Keep in mind, if you have employees that have worked for you in 3 out of 5 years, they are entitled to the same percentage SEP contribution. A SIMPLE IRA allows for employee contributions and is available for employers with less than 100 employees. Each employee (including you) can defer as much as $11,500 in 2012 or $12,000 in 2013 (plus an additional $2,500 if you are over 50). The employer must provide a match of 3% to employees but that match can be reduced to 1% for a year or two in a pinch. The plan must be set up by October 1st. Finally, we will touch briefly on 401(k) plans. I say briefly because we could spend hours discussing the ins and outs of the many types of plans. With a 401(k) plan, employees can defer as much as $17,000 in 2012 and $17,500 in 2013 (plus an additional $5,500 if age 50 or older). The employer can match up to 25% of compensation, up to $50k in 2012 or $51k in 2013. Depending on the type of plan you may need to do ‘testing’ to ensure the plan does not overly favor ‘highly compensated’ employees. You can generally avoid this testing by adopting a Safe Harbor plan with automatic employer contributions. Overall, the 401(k) is generally a more expensive plan to administer but it provides for more deferral possibilities and usually has more of a ‘big company’ look.
5
Great, well thanks again for taking the time to come today. I’m now passing around a comment card. I’d ask that you please fill this out to give me some feedback on how I did today. I love speaking to groups like this, so if you are part of a group you’d like me to speak to, please indicate that on the comment card Finally if you’d Finally, if you d like to speak with me one on one, if you have some more specific questions like to speak with me one on one if you have some more specific questions you’d like me to answer, please indicate that on the comment card as well. Thank you and have a great night!
6
