Access Financial University

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Access Financial University

• Establishing your Financial Foundation

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Access Financial University

• Retirement and Investment Planning
• November 16, 2005
• Tax Planning
• December 14, 2005
• Putting your Financial Plan in Motion
• January 11, 2006

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Shannon S. Shareef, CPA

• Bachelors Degree University of TN Knoxville
• Masters of Accountancy (Concentration in
  Taxation) University of TN Knoxville
• Certified Public Accountant
• Member of American Institute of Certified Public
  Accountants
• 360 Degrees of Financial Literacy
• Member of Georgia Society of Certified Public
  Accountants

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Retirement and Investment Planning

• Understand the different investment strategies
• Short Term ( 0 to 5 years)
• Long Term ( 5 years )
• Analyze your Retirement Choices
• Employer Sponsored Retirement Plans
• Individual Retirement Accounts
• Determine your ideal portfolio

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Short Term Investing 0 5 years

• If you need your money in a few years, its
  important to invest your money in less volatile
  investments.
• For example
• Down payment on a Home
• Purchase a car
• College Education
• Capital to start a business

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Short Term Investing 0 5 years

• Certificates of Deposit
• Money Market Accounts
• Short-Term Treasury Securities

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Certificates of Deposit (CD)

• Low risk investment
• Typically offers a higher rate of interest than a
  regular savings account
• Invest a fixed sum of money for a specified
  period of time and in exchange, the bank pays you
  interest at regular intervals
• Upon maturity of the CD the bank will re-pay
  the money originally invested plus any accrued
  interest

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Money Market Accounts

• Money Market Accounts (MMA) are interest-earning
  savings accounts offered by a FDIC-insured
  financial institution with limited transaction
  privileges.
• The interest rate paid by a financial institution
  on a money market account is usually higher than
  a regular savings account. Money market accounts
  may also have a minimum balance requirement.
• Examples of Money Market Accounts include ING
  Direct, Emigrant Direct and ETrade

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Short Term Treasury Securities

• Treasury Bills (T-Bills)
• Securities that can be purchased with a maturity
  date ranging from a few days to 26 weeks
• Bonds are sold at a discount from their face
  value
• For example, a T-Bill with a face value of 1,000
  would be sold at a discount for 900. Upon
  maturity, you would receive the face value of the
  T-Bill. The difference between the purchase
  price and face value of the T-Bill (100) is your
  interest.

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Short Term Treasury Securities

• Treasury Inflation-Protected Securities (TIPS)
  are marketable securities whose principal is
  adjusted by changes in the Consumer Price Index.
  With inflation (a rise in the index), the
  principal increases. With a deflation (a drop in
  the index), the principal decreases.
• Interest is paid every six months at a fixed rate
  based upon the adjusted principal.
• When TIPS are redeemed, you are either paid the
  adjusted principal or original principal. (You
  cannot lose money on the investment.)

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Long Term Investing 5 years

• If you do not anticipate needing your money
  within the next 5 years and you have time to
  ride the waves of the market.
• For example
• Retirement
• College Education
• Starting a business

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Long Term Investing 5 years

• Stocks
• Bonds
• Mutual Funds
• Real Estate

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Stock

• By issuing stock, a company can raise money
  without going into debt. People who buy the stock
  are giving the company the money it needs to
  grow.
• Shares of stock can be bought or sold on the
  stock exchange. If the company does well, the
  price of the stock increases. If the company
  performs poorly, the price of the stock
  decreases.

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Bonds

• A bond is debt that a company or government take
  to finance their operations.
• Similar to Treasury Securities mentioned earlier,
  you pay for the bond and interest is paid at
  maturity.
• Caution Exercise extreme caution in purchasing
  bonds from Corporations. Corporations that go
  out of business are not able to repay the
  interest accrued nor the principal owed on bonds.

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Mutual Funds

• A mutual fund is a form of collective investment
  that pools money from many investors and invests
  the money in stocks, bonds, short-term
  money-market instruments, and/or other
  securities.
• There are three types of stock in a mutual fund
• Growth Shares of companies whose revenues are
  growing fast
• Value Undervalued companies that may grow over
  time
• Blend A combination of growth and value stocks

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Mutual Funds

• Mutual Funds can be actively managed or unmanaged
• Actively Managed Funds have a professional money
  manager that actively buy or sell stock within
  the mutual fund
• Unmanaged Funds do not have a professional money
  manager and are designed to track an existing
  market index.

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Mutual Funds

• Fees and Expenses can reduce the return on any
  investment.
• The expenses charged by the mutual fund company
  are used to pay their annual operating costs
• Fees are sales commissions paid to the adviser
  that sold the mutual fund.

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Mutual Funds

• Items you should consider before purchasing a
  Mutual Fund
• Fees and Expenses
• Front Load
• Back Load
• Fund Manager
• Diversification
• Performance

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Retirement Planning

• All Retirement Plans include Stocks, Bonds and
  Mutual Funds.
• Typical Retirement Plans are
• 401(k)s
• Individual Retirement Accounts
• Roth
• Traditional
• Roth 401(k)s

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401(k)

• A 401(k) plan is an employer-sponsored plan that
  allows employees to set aside funds for
  retirement.
• Any 401(k) contributions are Pre-Tax which reduce
  a taxpayers taxable income.
• You can defer up to 14,000 in a 401(k) plan in
  2005 (increases to 15,000 in 2006 with a 5,000
  catch up contribution for those age 50 or older)

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401(k)

• Qualified Withdrawals
• Loans taxpayers repay principal and interest
• Hardship withdrawals
• Purchase of primary residence
• Payment of post secondary education expenses
• Unreimbursed Medical Expenses
• Prevent eviction or foreclosure from principal
  residence
• Unqualified withdrawals are subject to ordinary
  income taxes plus a 10 penalty
• Qualified withdrawals are only subject to 10
  Federal Tax Withholding and may incur a 10
  penalty.

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Individual Retirement Account

• An IRA is a personal savings plan that allows
  individuals to save for retirement.
• There are two types of IRAs Roth IRAs and
  Traditional IRAs.
• The maximum contribution to an IRA for 2005 (and
  2006) is 4,000.

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Roth IRA

• Eligibility
• Earned Income
• Single Taxpayers
• single filer full contribution if modified AGI
  is less than 95,000.
• partial contribution if modified AGI is between
  95,000 and 110,000.
• No contribution if modified AGI reaches 110,000
• Married Taxpayers
• The phase-out range for a Roth IRA contribution
  for a married couple filing a joint return is
  150,000 to 160,000.

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Traditional IRA

• Eligibility
• Earned Income
• Under the age of 70.5
• Did you participate in a 401(k) or other
  qualified retirement plan ?
• No - Contribution is fully deductible
• Yes - Contribution may be partially deductible
  based upon Adjusted Gross Income (AGI)
• The amount of a traditional IRA contribution that
  is deductible declines to zero between certain
  AGI ranges, as follows
• 0 to 10,000 for married couples filing
  separately
• 50,000 to 60,000 for single or head of
  household filers
• 70,000 to 80,000 for joint filers
• 150,000 to 160,000 you are not covered by a
  qualified retirement plan, but your spouse is
  (and you're filing jointly)

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Roth vs. Traditional IRA

• Roth IRA
• Funded with after-tax dollars
• No income tax liability during retirement
• Contributions limited to 4,000 per year

• Traditional IRA
• Funded with after-tax dollars
• Deduction on tax return converts it to before-tax
  dollars
• Contributions may be limited based upon
  participation in qualified retirement plan
• Must pay income taxes on any withdrawals during
  retirement

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Roth 401(k)

• Authorized by President Bush in 2001 and will
  take effect January 1, 2006.
• Roth 401(k) would be offered by employers as a
  parallel system to the regular 401(k)
• Contributions to a Roth 401(k) plan-and the
  investment earnings-can be withdrawn tax-free.
• However, investment earnings cannot be withdrawn
  tax-free until five years after an employee first
  began to contribute to the plan and after he or
  she reaches age 59½.

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Roth 401(k)

• Under the proposed rules, employers would have to
  keep traditional 401(k) and Roth 401(k) accounts
  separate, but contributions to the two plans
  would be combined when running the basic
  nondiscrimination test that compares
  contributions made by highly and nonhighly
  compensated plan participants.
• The rules also require that Roth 401(k) plan
  participants begin to take distributions from the
  plans no later than age 70½.

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Roth 401(k)

• Employees will be able to contribute to both
  plans, but you will not be able to switch money
  from one plan to the other
• In addition, the contribution limit for both
  401(k) and Roth 401(k) is 15,000.
• Employer matching contributions would be placed
  in the regular 401(k) account - even if the
  employee directs all of their contribution to the
  Roth 401(k).

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Roth IRA vs. Roth 401(k)

• Roth IRA
• Contribution limit 4,000
• Income limits Cannot contribute if you have an
  AGI that exceeds 110,000 (singles) and 160,000
  (married)
• Required distributions None

• Roth 401(k)
• Contribution limit 15,000
• Income limits None
• Required Distributions Must start
  distributions at age 70.5
• Conversion You can convert an Roth 401(k) to a
  Roth IRA

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Create your Ideal Portfolio

• Determine your risk level
• Conservative or
• Aggressive
• Determine your time horizon
• Short Term and/or
• Long Term
• Depending on your risk level and time horizon -
  develop a balanced portfolio

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Create your Ideal Portfolio

• Conservative Portfolio
• 80 Domestic Bonds (or Bond Funds)
• 10 Stocks (including International Stock)
• 10 Money Market Accounts
• Conservative Portfolios are ideal for those near
  retirement age or those who are risk-adverse.

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Create your Ideal Portfolio

• Aggressive Portfolio
• 70 in US Stocks
• 20 International Stock
• 10 Domestic Bonds
• Aggressive Portfolios are ideal for younger
  investors who welcome varying levels of risk

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Contact Us

• Access Financial Management, LLC
• c/o Shannon S. Shareef, CPA
• P.O. Box 724834
• Atlanta, GA 31139
• Email sspencer_at_accessfinmgmt.com
• Office [phone]
• Fax [phone]