Category: Retirement Planning

Even America’s Wealthiest Generation Faces a Retirement Crisis, But Icon can Help

Posted on August 15, 2023 by Laurie Rowley - Retirement Planning

It’s true, the Boomer generation (Americans born between 1946 and 1964) is the wealthiest generation in U.S. history. They have a greater percentage of wealth heading into retirement than the two generations before them, and they were wealthier in their younger years than millennials are now. In fact, they held 21% of U.S. wealth when they were the age millennials are now, while millennials hold just 6% of U.S. wealth. They’ve been better savers and yet, many baby boomers are still facing financial crises in retirement.

What’s Happening

A confluence of factors that include early forced retirement, inflation, medical crises, increased debt, recent market fluctuations and a fewer percentage of workers with pensions has created a wealth gap between what baby boomers will need in retirement and what they have.

According to 2019 data from the Employment Benefit Research Institute (EBRI), the median nest egg for a family headed by a 60-65 year old whose annual income was between $71,000 and $126,000, was about $150,000. For people making above $126,000, the average jumped to $535,000. Medicaid and social security are available to supplement retirement savings, and 40% of retired individuals depend on these programs to pay for day-to-day expenses. But even with their support, the EBRI estimates 40% of Americans aged 35-64 are still at risk of experiencing a shortfall in retirement savings during their lifetimes.

That’s because people have underestimated how much it will cost to retire. Expenses include the everyday costs of mortgage, rent, food and utilities, but these pail in comparison to the $315,000 the average couple who retires today can expect to pay in medical expenses in retirement. Additionally, there’s the cost of long-term care which can reach $180,000 a year.

People just aren’t saving enough to keep up with the rising cost of living and the fact that we’re all living longer. But it’s not their fault.

How We Got Here

The baby boomer generation is a kind of transition generation. Before them, the Greatest generation and the Silent generation mostly enjoyed pensions that guaranteed a steady stream of income in retirement. Their life expectancy was also a lot lower so there were fewer non-working years they had to save for. Now, only 15% of workers have pensions so the burden of saving for retirement falls squarely on their shoulders and they’re living longer– sometimes 40 years past retirement. But the retirement savings vehicles haven’t caught up to this new reality.

For the most part, large companies replaced the pension with a 401k in the 1970’s and because of this, workers, who were for the most part, not financial experts, became responsible for investing their retirement savings. Their options were limited to the investments their employers chose to include in their 401k plans and these accounts often charged (and still charge) high fees that ate into baby boomers’ savings. In addition, these portfolios weren’t always managed in the best interests of the plan participants. The investments offered were often those that made fund managers money as opposed to those that contributed to a well-diversified, low-cost portfolio. In fact, a recent study found that baby boomers’ 401ks were heavily invested in stocks, making them vulnerable to recession.

In addition to longer life expectancy and a less secure source of retirement income, many baby boomers have experienced early forced retirement. Whether the cause was a medical issue (theirs or their partner’s) or economic fluctuations that left them unemployed late in their career, many baby boomers have been prematurely cut off from contributing to their 401k, making it more difficult to grow their nest egg.

Recent spikes in inflation and the fact that more than half the families headed by a 75 year old carry debt (versus in 1992 when just ⅓ of families headed by a 75 year old carried debt) mean that their savings won’t go as far as they’d originally planned.

But there is a way to fix this for Boomers and the following generations.

How Icon can Help

One of the worst things that can happen to a worker of any age is being cut off from the ability to save for retirement. This happens because 401ks aren’t portable. They’re tied to the employers through which they’re offered and once a worker is no longer employed with the company, they can’t contribute to that account. They must roll it over to a new employer’s 401k (which can be costly and complicated) or they can leave the money where it is and start a new account with a new employer (which is inefficient), or, worst-case-scenario, they’re working for themselves or for another company that doesn’t offer a 401k so they’re left without any retirement savings vehicle altogether.

That’s where Icon can help. An Icon Retirement Savings account is portable and accepts 401k rollovers so workers who have found themselves prematurely locked out of saving for retirement can ensure they meet their savings goals without managing more than one account. This also applies to workers who change companies frequently and those who work for themselves. Icon is a retirement savings plan that covers every type of worker so that everyone can save for their future.

In addition, Icon isn’t structured to make money off of the investments in our portfolios. We don’t receive kickbacks like many investment management firms so our portfolios are designed to be low-cost and offer a diverse selection of assets.

You can also contribute to a 401k and an Icon plan in the same year so for those nearing retirement that want to max-out their retirement savings opportunities, Icon is an additional investment tool. However, if you’re covered by a 401k at your employer and you’d like to contribute additional money to an IRA (like Icon), your ability to deduct your contributions from your gross taxable income will be limited based on your annual income and how you file your taxes.

Icon Retirement Savings plans are designed to help workers of every stage of life reach their retirement goals. They’re flexible, portable, cost effective and structured so that plan participants get to keep, and keep investing, more of their money. It’s one of the most promising solutions to the retirement crisis we’re seeing today.

Yes! You can Still Make Contributions to Last Year’s IRA

Posted on March 9, 2023 by Laurie Rowley - Retirement Planning

Whether you realized that you didn’t contribute as much to your IRA last year as you wanted to, or you’ve received a year-end bonus or another form of cash that you want to invest, there’s still time to make IRA contributions that count toward last year’s annual limit. When you make a contribution this year that counts towards last year’s limit, it’s called a carryback contribution. These types of contributions can serve many purposes and come with a range of benefits.

What is a Carryback Contribution?

A carryback contribution is a deposit to a Roth or Traditional IRA between January 1st and April 15th (or tax day) that is designated as a contribution for the previous year.

How Do You Make a Carryback Contribution?

To make a carryback contribution, you must:

Have earned taxable income in the previous tax year.
Have not reached the annual IRA contribution limit for the previous year.
Make the contribution before you file your taxes for the previous year or Tax Day, whichever comes first.

To ensure your contribution is counted toward the previous year’s annual contribution limit and that the deduction is taken from your income taxes, you or the IRA account holder must provide the financial institution with a written statement saying said contributions should be designated as a carryback. Your financial institution may have other specific requirements or processes to designate contributions as carryback so make sure you check with your account administrator for instructions.

How Much Can You Contribute?

The IRS sets the annual contribution limits for all retirement accounts each year. The IRA contribution limit for 2022 was $6,000, in 2023 it’s $6,500. If you turned 50 or older by the end of the tax year, you can contribute an additional $1,000 “catch-up” for a total of $7,000 in 2022 and $7,500 in 2023.

The maximum amount you can contribute to your IRA is the lesser of: your annual income for the taxable year or the annual contribution limit. Your carryback contribution can total the difference between your maximum allowable annual contribution and the amount you contributed during the previous year.

What if You Don’t Have an IRA Yet?

If you haven’t yet set up an IRA, you still have time to do so and make a carryback contribution up to your annual limit. The great thing about carryback contributions is that they don’t just apply to people who already have an IRA. Even people who didn’t have an active IRA before the end of the previous year can open and fund an account before they file their taxes (or tax day) and apply those contributions to the previous year.

Are Carryback Contributions Tax-Deductible?

For the most part, yes. Contributions made to a Traditional IRA are tax-deductible in the year they are made (or the year for which they’re designated) and distributions are subject to the appropriate income tax. If you aren’t covered by a workplace retirement plan in the form of a 401k, your entire carryback contribution will be eligible for deduction on your previous year’s taxes.

If you are covered by a 401k, your ability to deduct your Traditional IRA contributions will depend on your income and filing status.

Filing Status	Modified AGI	Deduction
Single or Head of Household	$68,000 or less	Full Deduction
Single or Head of Household	$68,001- $77,999	Partial Deduction
Single or Head of Household	$78,000 +	No deduction
Married Filing Jointly or Qualified Widow(er)	$109,000 or less	Full deduction
Married Filing Jointly or Qualified Widow(er)	$109,001- $128,999	Partial Deduction
Married Filing Jointly or Qualified Widow(er)	$129,000 +	No Deduction
Married Filing Separately	Less than $10,000	Partial Deduction
Married Filing Separately	$10,000 or more	No Deduction

To clarify, you can always contribute up to your annual limit (i.e. the lesser of the IRS limit or your annual income), you just might not be able to deduct the full amount from your tax bill. That’s because the IRS doesn’t want the favorable tax treatment these accounts receive to disproportionately benefit wealthy taxpayers.

Who Should Consider Making Carryback Contributions?

There are many benefits to making carryback contributions, which include:

Maxing out your retirement savings.
Growing your savings at a faster rate because of compound interest.
Saving money on your taxes.
Putting extra cash flow to work instead of spending it.

These benefits can apply to anyone, but for people in the following situations, a carryback contribution might be especially advantageous:

You received a bonus or other unexpected cash flow at the end of the year or early this year. Making a carryback contribution enables you to put this influx of cash to work without dipping into this year’s contribution limit.
You earned more last year than you expect to earn this year. In this scenario, taking the tax deduction on last year’s taxes might save you more money.
You didn’t max out last year’s contributions but expect to have increased cash flow this year and the ability to contribute more. If you have the ability to contribute more than the annual limit this year, and didn’t max out last year, making a carryback contribution enables you to take full advantage of your improved financial circumstances and max out your savings.
You’ve maxed out your 401k. In this scenario, a carryback contribution would allow you to maximize your total retirement savings opportunities.

Should You Make a Carryback Contribution if You Can’t Deduct It?

This will depend on your personal financial circumstances and the other investment opportunities available to you. But there are many benefits to funding your retirement savings accounts, separate from the tax deductions. The principal benefit is that you are investing in your future and taking advantage of compound interest.

According to the EBRI, there is currently a retirement savings gap between what is estimated Americans will need to live comfortably when they retire, and what they have saved. Even the “baby boomer” generation, which is the wealthiest generation in US history, is facing a cash flow crisis in retirement. The fact of the matter is, inflation, market forces and the exponential rise in the cost of medical care has all but ensured that people underestimate what they will need to have saved in order to retire.

So, the more you can save for your golden years, the better. Making a carryback contribution helps you to save more because it allows you to max out your retirement savings deposits for both the previous and present tax years. And the more you save, the faster your savings grow because of the way those earnings compound over the years.

Want to Open an IRA? Icon can Help

Icon Savings Plan is the most cost-efficient way to save for retirement. As long as you earned taxable income last year, we can help you open an IRA and make a carryback contribution to get started on your retirement savings goals. If you’re ready to take control of your financial future, reach out today.

*Disclaimer: This is not tax advice. Please consult a tax expert before making any decisions.

Finally, A Retirement Plan for the Self Employed

Posted on May 20, 2022 by Laurie Rowley - Retirement Planning

Of the more than 150 million workers in the U.S.,16 million identify as self-employed. That means more than 10% of the working population doesn’t even have the option for an employer-sponsored retirement savings plan. Until now.

What is a Retirement Plan for the Self-Employed?

A retirement plan for the self-employed is a way for people who work for themselves to receive tax benefits for saving for retirement. Previously, this was only available to either employees of companies that offered 401ks or workers who navigated the complicated, and sometimes expensive process of opening another type retirement savings account with a financial institution.

Now, self-employed workers can participate in a retirement plan that is easy to manage, inexpensive and portable. So they never lose access or the ability to contribute to their account, they’ll never need to complete an expensive rollover and they’ll never again experience a lapse in coverage.

Icon is the Ideal Retirement Plan for the Self-Employed

Whether you work for yourself as a sole proprietor or individual contractor, or you have employees, Icon is the ideal retirement plan for you. As a self-employed worker, you don’t have a lot of time and financial resources to manage and administer a retirement plan. And high fees will eat into your savings, which in some cases, could force you to delay retirement. You need something that’s simple to manage, inexpensive to maintain and helps to build your financial security in retirement.

That’s where Icon comes in. You can set up your Icon account in minutes, you receive guided portfolio options based on your answers to a short survey and the low, flat fees allow you to retain as much of your savings as possible. This allows them to grow faster because of compound interest. If you choose to hire employees in the future, there’s no need to switch plans.

Details You Should Know

Contributions to Icon’s IRA are typically tax-deductible in the year they’re made. Distributions made in retirement are subject to the appropriate income tax rate.
The annual contribution amount for 2022 is $6,000 for workers under the age of 50, with an additional $1,000 allowed if you’re aged 50+.
You always have access to your account and as long as you earn money, you can contribute to it.
Your contributions to your Icon account aren’t considered a business expense.
Both you and your spouse can open an Icon account as long as you both earn money.
You can roll your old retirement accounts into your Icon account.

No, You Don’t Need a 401k Calculator

Posted on May 20, 2022 by Laurie Rowley - Retirement Planning

Developing a plan to save for retirement can feel daunting. The idea is basic enough: set aside money each month or year, invest it, then use it once you retire. But how much you should set aside and where you should invest it and through which vehicle (e.g. IRA, 401k, etc.), to ensure you’ll have enough money in your golden years is complicated. And the answers change constantly depending on your financial and employment situations.

That’s why 401k calculators are functionally useless.

What is a 401k Calculator?

A 401k calculator is a tool that many financial institutions provide to show you how much you should be saving each month in order to reach a certain retirement goal. It usually takes into account basic inputs like:

Your age,
Your 401k balance (if any),
Annual income,
Percent contribution,
Employer matching,
Retirement age,
Average rate of return,
Investment fees as a percent. Note: they typically leave out administrative fees which can be substantial.

Then the calculator will spit out a combination of the following predictions:

Your monthly costs in retirement,
Your 401k balance when you retire,
How much of your monthly costs your 401k will cover, and sometimes
How much you’ll pay in fees over the course of your working life.

What a 401k Calculator Actually Shows You

You might look at the above list, and think, “That’s useful information.” And it is in the sense that it’ll give you a basic idea of what happens to your savings as you continue to contribute and invest it in the market, and just how far fees can erode your savings. But here’s the hard truth: a 401k calculator is only a snapshot of what your retirement savings journey looks like right now using a standardized set of assumptions.

For instance, you might live in a high cost of living state during retirement, in that case you might need more per month in living expenses than the calculator predicts. Conversely, you might own your home outright and have very low monthly expenses at retirement. It also doesn’t take into account any other investments you might make over the course of your working life or health issues you could develop that need managing. So the calculator’s predictions can only give you a vague, general idea of what your financial situation in retirement could, potentially, maybe look like if everything stayed exactly the same as it is right now.

We don’t have to tell you that this is an unrealistic expectation because, to quote the Greek philosopher, Heraclitus, “Change is the only constant in life.” As you earn raises, suffer unemployment, experience highs and lows in the market, change employers and your contribution percentage, change investment portfolios or perhaps roll your savings into a different savings vehicle, that original snapshot becomes outdated and therefore, irrelevant.

What’s Better than a 401k Calculator? Understanding How Compounding Affects Your Balance

The important thing to understand about saving for retirement is: the more you save (and the earlier you start), the more you earn in the market because of something called “compounding”. Compounding is what happens when the interest you earn on your principal contributions earns interest.The more frequently your money compounds, the faster it grows without any additional contributions.

It’s all about compound interest. Use the slider to see how what you set aside today can grow over time.

$1 Yearly Max

What you set aside today

Adds up over time with compound interest*

Another Important Thing to Understand: High Fees Erode Savings Quickly

Employer sponsored retirement savings plans are often subject to two types of fees: investment fees and administrative fees. Investment fees are what the financial institution charges for managing your portfolio of investments. The average investment fee ranges from 0.58% to 1.2% of the portfolio balance, depending on the type of fund you’re invested in.

In addition to investment fees, employers typically pass on the cost of managing the plan (i.e. administrative fees) to account holders. The administrative fees charged to individual account holders will depend on the employer, the financial institution investing the retirement plan, the company that’s actually managing the plan (this could be the employer, the financial institution or a third party), and the portfolio the savings account is invested in.

How Do I Make Sure I’m Saving Enough?

There are a few different philosophies out there and each espouses a different ideal budget percent allocation. What some people do is, take your total monthly take-home pay for your household (for 1099 employees, this is your gross pay net of taxes, for W-2 employees, this is your paycheck), and allocate the money accordingly:

70% for expenditures (needs + wants)
20% for saving (retirement savings and saving for big purchases like a house)
10% for your emergency fund (for unexpected crises like unemployment or a medical emergency), debt repayment or donations

This isn’t a hard and fast rule and your actual percentages will likely fluctuate depending on your current circumstances. But aiming to save some of your income is a good way to build financial health and ensure that you’ll not only be taken care of in retirement, but in a crisis as well.

The Saver’s Tax Credit Is The Ultimate Retirement Savings Incentive

Posted on April 11, 2022 by Laurie Rowley - Retirement Planning

For some people, allocating even a small amount of their monthly budget for retirement is difficult. That’s where the Saver’s Tax Credit comes in. It rewards you for making retirement account contributions by giving you a dollar-for-dollar break on your tax bill, doubling the retirement savings incentive.

What is the Saver’s Tax Credit?

The Saver’s Tax Credit is a tax break the IRS gives to low and moderate income taxpayers who make contributions to their retirement accounts. The tax break is a dollar-for-dollar reduction in your tax liability based on how much you’ve contributed, your adjusted gross income (AGI), your tax filing status and a couple of other factors.

It’s important to note that this is not a tax refund. It’s a subtraction from your tax bill. That means if you owed $1,000 in income taxes for the year, and your tax credit was $500, you would still owe $500 in income taxes. In this scenario, the Saver’s Tax Credit could still result in a tax refund if, over the course of the year, you paid more than $500 in taxes. If that was the case, you would receive the difference between what you paid and what you owe in the form of a tax refund.

Who is Eligible for the Saver’s Tax Credit?

To be eligible for the Saver’s Tax Credit you must:

Be at least 18 years of age by the end of the tax year.
Not be a full-time student.
Not be claimed as a dependent on someone else’s taxes.
Pay income taxes.
Have an AGI that falls within the IRS guidelines.
Have contributed to a qualifying retirement account.

The following are the types of accounts which qualify for this retirement savings incentive:

Traditional and Roth IRA
401(k)
403(b)
SIMPLE
SEP
Government issued 457
SARSEP
501(c)(18)(D)
ABLE

How Do I Calculate my Savers Tax Credit?

The amount of the credit you can receive depends on your adjusted gross income (AGI). The credit can be 50%, 20%, or 10% of your contributions to a retirement plan or IRA, up to $2,000 if filing single or $4,000 if married and filing jointly.

For 2022, the adjusted gross income (AGI) eligibility requirements for the Saver’s Tax Credit are:

*Credit Rate*	*Married Filing Jointly*	*Head of Household*	All Other Filers*
50% of your contribution	AGI not more than $41,000	AGI not more than $30,750	AGI not more than $20,500
20% of your contribution	$41,001- $44,000	$30,751 – $33,000	$20,501 – $22,000
10% of your contribution	$44,001 – $68,000	$33,001 – $51,000	$22,001 – $34,000
0% of your contribution	more than $68,000	more than $51,000	more than $34,000

*Single, married filing separately, or qualifying widow(er)

When determining your annual contribution amount the following are excluded for the purposes of the Saver’s Tax Credit calculation:

Rollover contributions.
Any distributions you’ve taken during that tax year.
Any contributions made that were in excess of the annual limit.

Here is an example:

Dylon earns $32,000 in 2022 and contributes $1,000 to her Icon account. When filing her taxes, assuming Dylon doesn’t have any other write-offs, her AGI is $31,000 and it qualifies her to claim a Savers Tax Credit of $100 (10% of her $1,000 annual contribution).

Why You Should Claim this Retirement Savings Incentive

Claiming your Savers Tax Credit is as easy as filling out Form 8880 and submitting it along with your income tax filing. And doing so doubles the retirement savings incentive. Most retirement savings plan contributions result in a tax exemption in the year they’re made, which reduces the amount of income on which income taxes are assessed. By claiming the credit, you can reduce your tax liabilities dollar-for-dollar by the credited amount.

The Great Resignation is happening. Here’s what to do with your 401k if you’ve left your job.

Posted on November 4, 2021 by Laurie Rowley - Retirement Planning

We’re over a year and half into Covid and people are still resigning in droves. In fact, a record 3% of the American workforce left their jobs in August (that’s 4.3 million workers), leading economists to refer to this period as the Great Resignation. Some of these workers may have simply switched jobs, but not many, since non-farm employment only rose by 194,000 in September.

So what are people doing? We don’t know for certain. They might be working for themselves, working part time (4.5 million people reported being partially employed in September), or they might simply be taking a break since employee-reported burnout is also at an all-time high, with women suffering more than men.

What we do know for certain is most of these people will lose access to their singular way of saving for retirement: their employer-sponsored 401k. Once you quit, you can no longer contribute to your plan. So if you’re one of the millions of people who has resigned or is thinking about resigning, what will you do with your 401k and how will you continue to invest for retirement? Good news! You’ve got options.

Scenario 1: You’ve switched companies and your new employer offers a 401k

If you’re in this boat, you can choose to rollover your current 401k balance to your new employer’s plan or you can choose to roll it into an IRA. If you’ve researched your new employer’s 401k plan and you like the investment options, you’re comfortable with the fees, and if it accepts rollovers, rolling your current balance into the new plan could be a good option.

If you don’t like the investment options, if the plan doesn’t accept rollovers, or if the administrator charges high fees (or any combination of these reasons), then you can roll it into an IRA. If you choose to do nothing and keep your balance where it is, you won’t be able to continue contributing to that 401k, so you’ll need another way to save for retirement such as an IRA with Icon.

Icon’s retirement savings account was created using the best parts of the 401k and IRA to create a new type of retirement plan called portable retirement. Like a 401k, investments are managed for you. Like an IRA, it’s portable, and you have access to it wherever you go. And if you should decide to take a job with a new employer, they may support your Icon account.

Scenario 2: You’re working part time, you’re taking a break, or you’re working for yourself

If you no longer have access to a workplace retirement plan, that’s ok! You don’t have to push off saving for your future. Even small levels of contributions, once invested, can make a huge difference in later years.

So, you can always choose to keep your 401k where it is and also open an IRA to continue building your retirement savings, but unless you have a large balance and a great plan, 401k fees could eat so far into your savings they all but disappear. The better option is to roll your 401k into an IRA like Icon’s retirement savings account. This way, you continue to contribute to your future, all of your money is in one place, and high fees don’t erase your hard-earned savings.

Like we said above, Icon’s retirement account is plan that offers the best functionality from 401k and IRA accounts. Plus, it’s portable, can be managed from your phone, and can be adjusted to fit all the career decisions you’re likely to make throughout your working life.

The Nuclear Option: Cashing Out

With any of these scenarios, there’s always the option to cash out your 401k. But here’s why that’s not such a good idea:

You’re not only going to pay income taxes on the distributed amount with a traditional 401k, but you’re also going to pay a 10% penalty.
You won’t be saving for retirement unless you open a new retirement savings account.

Right now, more than 50% of both men and women think they’ll have to work part time in retirement given their current savings rate (according to a survey by T. Rowe Price). And 21% of men and 31% of women think they’ll run out of money in their later years. That doesn’t have to be the case.

On average “the market”, which is a commonly used term that refers to the world of traditional investments like mutual funds and ETFs, grows at a rate of 7% per year. That means if you invested $100 the first year, you would earn $7. But that’s not all. Without contributing another dollar to your account, your earnings would start earning money as a function of what’s called “compounding”. Take a look:

It’s all about compound interest. Use the slider to see how what you set aside today can grow over time.

$1 Yearly Max

What you set aside today

Adds up over time with compound interest*

The above example assumes there are no additional contributions to your account. To see the effect of compounding on various contribution levels, check out this calculator from the SEC.