Why You May Need a 401(k) Investment Policy Statement
No matter how business savvy you are, choosing how to invest your money can be tricky.
If you are a business owner who sponsors a retirement plan, this becomes even more
worrisome because you are expected to choose investments to offer your employees.
While it is possible to divest yourself from some of the risk involved in this process
(a larger topic for a future article), as a retirement plan sponsor you can never completely
remove yourself from this fiduciary duty. This is why an investment policy statement may be
right for you.
An investment policy statement (IPS) is simply a roadmap that a retirement plan sponsor
uses to select and regularly evaluate the investments that they offer to their employees in
the retirement plan. While there are no government regulations that require you to have
one, adopting an IPS can make it easier for you to operate efficiently, and give you some
much-needed peace of mind on the topic of investments.
When to Consider Target-Date Funds
Since target-date funds were first offered in the early 1990s, they’ve become a widespread investment vehicle for retirement. Their booming popularity is no surprise. After all, a target-date fund (or TDF) is easy for novice investors to manage, and even experienced investors can appreciate the hands-off simplicity they can offer.
But do your research: a TDF may not always be the best choice for you.
TDFs are designed for individuals with particular retirement dates in mind. In fact, the name of the fund often refers to its target date. For example, you might see funds with names like “Portfolio 2030,” “Retirement Fund 2030,” or “Target 2030″ that are intended for individuals who plan to retire in or near the year 2030. The fund’s mix of investments automatically adjusts as time moves on, becoming more conservative as you get older and closer to retirement.
COLA Limits for 2019
The Internal Revenue Service and the Social Security Administration have announced the cost of living adjustments (COLA) applicable to dollar limitations for retirement accounts and the Social Security wage base for 2019. Many of the limits have changed for the 2019 plan year. Changes for 2019 are in bold in the chart below.
IRA and SIMPLE plan limits are both up $500. The annual IRA limit is now $6,000 (catch-up remains the same at $1,000 for those 50 and older) and the SIMPLE limit is $13,000 (catch-up remains at $3,000).
401(k) Limits for 2018
It’s not too early to review how to make the most of your retirement contributions in 2018.
Below you will find a table that shows the contribution limits for retirement accounts. It is for informational purposes only.
Please note that the contribution limit for company sponsored retirement plans increased by $500 this year, which means the contribution limit for 2018 is $18,500. For employees who are at least 50 years of age and eligible to make catch-up contributions, the contribution limit is $24,500 for 2018.
Self-Trustee vs. Corporate Trustee for Your 401(k) Plan
Early in my career, I attended a three-day training in the Twin Cities for 401(k) plan administration. I met my niece one evening for dinner and she was shocked to hear that it took three days to train on 401(k) plans. I didn’t have the heart to tell her that I was attending a basic training!
Retirement plans are complicated to administer. As complicated as the laws are, it is challenging to learn the nuances of this industry while staying abreast of the ever-changing regulations and how to interpret them.
How does all of this tie into self-trustee vs. corporate trustee? While others may downplay the importance of having a corporate trustee, we believe it is critical to the well-being of your business and your retirement plan.
IRA and Retirement Plan Limits for 2018
IRA contribution limits
The maximum amount you can contribute to a traditional IRA or a Roth IRA in 2018 is $5,500 (or 100 percent of your earned income, if less), unchanged from 2017. The maximum catch-up contribution for those age 50 or older remains at $1,000. You can contribute to both a traditional IRA and a Roth IRA in 2018, but your total contributions can’t exceed these annual limits.
Traditional IRA income limits
The income limits for determining the deductibility of traditional IRA contributions in 2018 have increased. If your filing status is single or head of household, you can fully deduct your IRA contribution up to $5,500 in 2018 if your modified adjusted gross income (MAGI) is $63,000 or less (up from $62,000 in 2017). If you’re married and filing a joint return, you can fully deduct up to $5,500 in 2018 if your MAGI is $101,000 or less (up from $99,000 in 2017). Note that these figures assume you are covered by a retirement plan at work.
More Than a Trust Company
Before I joined Heartland Trust Company, I knew about its great reputation in our community and throughout the region. I admired this award-winning organization and its dedicated people, but like many others, I also thought the company only managed trusts. After all, the name is Heartland TRUST Company.
That said, managing trusts is only one part of what HTC does each and every day to serve and advocate for the clients entrusted to our care.
A significant part of our business is devoted to investment accounts like the ones people might have with Fidelity, Edward Jones, Merrill Lynch, Ameriprise, or Wells Fargo Investments. Like these companies, we manage portfolios of stocks, bonds, and more for your retirement, education, and/or other purposes.