Articles tagged with: self-employed

Should the Self-Employed Plan to Work Past Age 65?

Some solopreneurs think they will “work forever,” but that perception may be flawed.

About 20% of Americans aged 65-74 are still working. A 2016 Pew Research Center study put the precise figure at 18.8%, and Pew estimates that it will reach 31.9% in 2022. That estimate seems reasonable: people are living longer, and the labor force participation rate for Americans aged 65-74 has been rising since the early 1990s.1,2

It may be unreasonable, though, for a pre-retiree to blindly assume he or she will be working at that age. Census Bureau data indicates that the average retirement age in this country is 63.3

When do the self-employed anticipate retiring? A 2017 Transamerica Center for Retirement Studies survey finds that 56% of U.S. solopreneurs think they will retire after 65 or not at all.4  

Are financial uncertainties promoting this view? Not necessarily. Yes, the survey respondents had definite money concerns – 28% felt Social Security benefits might be reduced in the future; 22% were unsure that their retirement income and accumulated savings would prove sufficient; and 26% suspected they were not saving enough for their tomorrows. On the other hand, 54% of these self-employed people said that they wanted to work in retirement because they enjoyed their job or profession, and 67% felt working would help them remain active.4

Is their retirement assumption realistic? Time will tell. The baby boom generation may rewrite the book on retirement. Social Security’s Life Expectancy Calculator tells us that today’s average 60-year-old woman will live to age 86. Today’s average 60-year-old man will live to age 83. Leaving work at 65 could mean a 20-year retirement for either of them, and they might live past 90 if their health holds up. Even if these Americans quit working at age 70, they could still need more than a dozen years of retirement money.5

You could argue that an affluent, self-employed individual is hardly the “average” American retiree. Many solopreneurs own businesses; doctors and lawyers may fully or partly own professional practices; real estate investors and developers may have passive income streams. These groups do not represent the entirety of the self-employed, however – and even these individuals can face the challenge of having to sell a business, a practice, or real property to boost their retirement savings.

Successful, self-employed people over 50 need to approach the critical years of retirement planning with the same scrutiny and concerted effort of other pre-retirees.

Look at the years after 50 as a time to intensify your retirement planning. This is the right time to determine how much retirement income you will need and how much more you need to save to generate it. This is the time to evaluate your level of investment risk and to think about when to collect Social Security. This is the time to examine your assumptions.

Mike Moffitt may be reached at ph# 641-782-5577 or email:  mikem@cfgiowa.com.

Website:  www.cfgiowa.com     

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC. Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor. Cornerstone Financial Group and AIM are separate entities from LPL Financial.   

Citations.

1 – nytimes.com/2017/03/02/business/retirement/workers-are-working-longer-and-better.html [3/2/17]

2 – pewresearch.org/fact-tank/2014/01/07/number-of-older-americans-in-the-workforce-is-on-the-rise/ [1/7/14]

3 – thebalance.com/average-retirement-age-in-the-united-states-2388864 [12/24/16]

4 – transamericacenter.org/docs/default-source/global-survey-2016/tcrs2017_pr_retirement_preparations_of_self-employed.pdf [1/31/17]

5 – ssa.gov/OACT/population/longevity.html [3/9/17]

 

 

Section 105 Plans

Medical reimbursement plans to benefit the smallest businesses.

Some businesses start small and stay small, by design. You may own such a business. Perhaps things begin and end with you, or maybe you employ one other person – your spouse. If this is the case, you should know about Section 105 plans.

Being self-employed, you already know that you can deduct 100% of your healthcare premiums from your federal and state taxes. The tax savings needn’t stop there. A properly structured Section 105 plan may let you deduct 100% of your family’s out-of-pocket medical expenses from federal, state and FICA/Medicare taxes.1,2

That’s right – all of them. TASC, a major provider of microbusiness employee benefits administration services, estimates that a Section 105 plan saves a family an average of $5,000 in taxes a year.2

How does this work? Section 105 of the Internal Revenue Code permits a self-employed person to set up a health reimbursement arrangement (HRA) for tax-free repayment of major qualified medical expenses not covered under a health plan. Alternately, that self-employed individual may hire a salaried employee (read: his/her spouse) and offer that employee an HRA.1,3

If the latter choice is made, the benefits offered will not only cover the employee, but also his/her spouse and dependents. So if the new hire is the business owner’s spouse, what results is effectively a family healthcare expense account.1

Most solopreneurs need to hire someone to get this perk. Can you set up a Section 105 plan without hiring an employee? Yes, if your business is a C-corp, an S-corp, or an LLC that files its federal tax return as a corporation. In a corporate structure, the corporation is defined as the employer and the business owner is defined as a salaried employee.1,3

Otherwise, hiring an employee is a precondition to implementing a Section 105 plan. You don’t necessarily have to hire your spouse – the new hire could be your son or daughter, a more distant relative, or even someone to whom you aren’t related.1

Did the Affordable Care Act restrict the implementation of these plans? Not for microbusinesses. When the IRS issued Notice 2013-54 as a follow-up to the Affordable Care Act, most businesses lost the chance to offer a discrete medical reimbursement plan. One-employee HRAs are still allowed under Section 105 using group or individual insurance coverage.2

Look at all you can potentially deduct. A properly designed Section 105 plan allows eligible employee(s) and their family/families to deduct all health and dental insurance premiums, all life and disability insurance premiums, all premiums for qualified long term care coverage, all Medicare Part A and Medigap premiums, all out-of-pocket medical, dental, and vision care expenses, psychiatric care, orthodontics … anything stipulated as a qualified medical expense in Section 213 of the Internal Revenue Code. Section 105 plans can even be structured so that if an employee doesn’t max out his/her yearly deduction, the unused portion can be carried over to subsequent years.1 

To keep up the plan, keep the paper trail going. A business owner and a financial or tax professional should collaborate to put a Section 105 plan into play. The IRS does look closely at these plans to check that the other spouse is legitimately employed – salaried, working a set schedule of hours, and hired per a written agreement. In addition, appropriate tax forms must be filed with the IRS, including Form 940 if the employee is unrelated to the business owner.1

If you want to lessen your tax liability and create an expense account to meet unanticipated medical costs, consider doing what other microbusiness owners have done: set up a Section 105 plan.

Mike Moffitt may be reached at 1-800-827-5577or email mikem@cfgiowa.com

website  cfgiowa.com

Michael Moffitt is a Registered Representative with and Securities are offered through LPL Financial, Member FINRA/SIPC.  Investments advice offered through Advantage Investment Management (AIM), a registered investment advisor.  Cornerstone Financial Group and AIM are separate entities from LPL Financial.

This material was prepared by MarketingPro, Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. This information has been derived from sources believed to be accurate. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.

1 – tasconline.com/products/agriplan/section-105-plan-2/ [4/15/14]

2 – theihcc.com/en/communities/hsa_hra_fsa_admin_finance/hras-are-still-a-viable-tax-savings-device-for-sma_hsnc3u8t.html [3/10/14]

3 – smallbusiness.chron.com/can-business-owners-reimburse-themselves-taxfree-health-insurance-38718.html [4/15/14]