Masonry Magazine September 2002 Page. 41
Depending on plan rules, you may become eligible to make salary deferral, pre-tax, catch-up contributions beginning January 1st of the year you turn age 50. These contributions are in addition to your regular deferral contributions. Catch-up contributions start at $1,000 for 2002, and increase by $1,000 a year until they reach $5,000 in 2006. Thereafter, the maximum amount will be indexed in $500 increments.
To make sure that an employer's 401(k) plan does not unfairly favor its higher-paid workers, there are also rules governing highly compensated employees, or HCES. The term "highly compensated employee" may include a person who was a five percent owner at any time during the current or prior year or an employee who earned more than $85,000 in 2001. An employee whose salary ranked in the top 20 percent of the company's payroll for the prior year might also be considered an HCE.
Generally, to make sure a 401(k) plan is compliant, each year the plan must pass a non-discrimination test. (Note that some plans are designed so that they do not need to pass these tests each year.) These tests generally compare the amounts contributed by and on behalf of highly compensated employees to those contributed by and on behalf of the non-highly compensated employees. As long as the difference between the percentages of these two groups is within the Internal Revenue Service's Codes guidelines, the plan retains its tax-qualified status. If the plan does not pass the tests, the plan must take corrective action or lose its tax-favored status.
Similarly there are some benefits regarding access to the money and additional contributions to setting up a small company "Defined Contribution" 401(k) plan. The contributions, up to 15 percent of gross compensation with a maximum of $30,000 per year, are tax deductible to employees on a salary reduction plan, and the participating contributions by the employer may not be necessary, depending on choices in the plan document.
Generally, the "boiler plate" documents most investment companies already have to help you set these up-usually available for under $200-will contain borrowing privileges that most employees will find attractive as they invest over time. This benefit allows participants to take out a loan from their accumulated contributions to help with house buying or educational challenges. They can simply pay these loans back later with interest, which of course is going to their own investment account. Each member of the plan has a segregated investment account from which you can direct where you want your contributions invested.
In summary, the real opportunity here is to use the pre-tax dollar to build a significant equity position over a long period of time. If we assume that anyone who is able to contribute a maximum amount is paying tax at the 35 percent rate and possibly a state income tax on top of that, we might be deferring tax of 40 percent on each dollar contributed today to be taxed later, say in 20 or 30 years.
This is an important point because your normal taxed dollars are representative of 60 percent of funds invested. The tax department is, in essence, giving us the 40 percent to invest until later, when we start to draw it out as a pension or a lump sum distribution after age 59.
Thus, if you had a 50 percent drop in your 100 percent contribution, 40 percent of which were deferred tax dollars, you have only lost 10 percent on your own money. Investing outside pension plans or IRA's is a lot more expensive in a down market, even though the future growth on pensions and IRAs will be taxed.
Looking then at what the average person should do with the funds they do save, you should anticipate that a diverse selection of beaten down mutual funds we referred to above, will be the best choices for most now!
Large fund groups, such as Berger, State Street Research, Eaton Vance, Nuveen and Franklin Templeton are examples of fund families with many alternative fund groups that have had quality records in past markets. And, believe it or not, there
CONCRETE, MASONRY
WALL SCRAPER
6' Handle Standard
NEW MASONRY JOINT CLEANER
* 8" halfround slotted carbide/18" cutting slot
One side for vertical/one side for horizontal
* Remove excess mortar from block or brick
* Removes fins and burs from concrete wall form joints
* Less chance for injury while laborers work on scaffold
* Pays for itself in just one day
* Also available 6' extension handle that extends wall scraper to 11'
* Swivel head adjusts for easy use in difficult areas.
WALL SCRAPER
PAYS
CARPAL TUNNEL
SYNDROME
"DOES NOT PAY"
Constructed from lightweight durable aluminum, it features a swivel head for easy use in difficult areas and corners. It has a durable 6-foot powder coated handle. The scraper uses a standard 7" rubbing disc as an abrasive pad. The disc holder is engineered for quick and easy disc changes.
FOR MORE INFORMATION CONTACT: SLIP INDUSTRIES. 115 W. STIEGEL ST. MANHEIM, PA 17545 39 1-800-722-8339-1-717-665-2139 FAX: 1-877-722-6339-WEBSITE: www.slipindustries.com
September 2002
Masonry 39