August 28, 2008
The main retirement plan designed for non-profit organizations is the 403(b), but there are also several other options. Here is brief description on each of them.
This plan is similar to a 401(k) but is designed to be more flexible in order to make it easier for non-profit organizations to implement. An excellent benefit of this plan is how it allows for both employer and employee contributions but does not require either. Contributions are pre-tax and grow tax deferred similar to how a 401(k) would work.
Until recently, the 403(b) had very loose regulations. Beginning in 2009, the regulations are becoming tighter which will affect both existing plans and new plans. These new laws will increase the amount of annual administrative measures needed in order for a plan to remain compliant. For example, a plan document will now be required and a third party administrator will most likely be needed. Each year this will cost up to a few thousand dollars for the organization which will make this less appealing to churches of smaller staff size.
This is an employer sponsored plan for organizations of 100 employees or less. It allows for both employee and employer contributions. Compared to the 403(b) it is less flexible, but it does not have any administrative costs. Employees may contribute up to $10,500 in 2008 ($13,000 if age 50 or older). This amount is less than the 403(b) allows but greater than an IRA. The big restriction is a 3% match required by the employer. This would be a great option for smaller churches that would like to contribute to the accounts of the pastors and staff but would like to avoid the administrative costs of a 403(b). Churches have not used Simple IRA plans very much in the past but the new regulations will make this more attractive.
Payroll Deduct IRA/Roth
Given certain income limitations, each individual can open either an IRA or Roth IRA on their own. The maximum contribution is $5,000 for 2008 or $6,000 if age 50 or older. These accounts have similar tax advantages as the other options and are actually the easiest to setup. Unlike the other plans, an individual can setup these accounts without going through an employer. Some organizations may choose to have it run through payroll in order to be more convenient for employees. This would be a great choice if an employer does not desire to make contributions and wants to avoid administrative costs.
No matter which plan option is chosen, good underlying investments are important. The growth of the account is dependent upon the performance of the selected investments. When choosing the investment vehicle, all three of the following variables need to be considered: Risk, Return and Expenses. My advice is to look at an investments long term track record (10-20 years). Also, know what the total expenses are. Although annuities are often used, investing directly with a quality mutual fund company can be a more attractive option as the costs are typically lower. In summary, the investment is the most important decision when choosing a retirement plan.
Overall, there are several good options to choose from and a lot more details than what is listed here. The next step to select the appropriate retirement plan or decide on an investment would be to contact a qualified financial advisor.
Jacob Tuinstra is an experienced financial advisor at Royal Securities Co. in Grandville, Michigan. Royal Securities Co. is a full service brokerage firm. For questions concerning these options contact Jacob at 616-538-2715.
Past results of investments are not indicative of the future. Actual yields may vary based on market conditions and sales charges. Please read prospectus before investing or sending money. Investments are not FDIC insured as CD’s are and may lose value.
August 20, 2008
It was the first evening of the RLCI Summer Conference in Bay City Michigan. As I sat with a group of younger ministers, one of them asked a great question. “What should I be doing with my investments?” I gave them all the best advice I could muster and finished by adding “but I am no expert.” Much to my surprise, the next morning’s newspaper had an article entitled “What should you do about investments?” Click here to read the article by John Waggoner in the July 16, 2008 edition of USA Today.