March 2024

Some business owners offer a SIMPLE IRA plan to their employees when they start the business with less than 100 employees. A SIMPLE IRA plan is an easy and cost-effective solution to start a qualified retirement plan. Unlike 401(k) plans, it's not subject to nondiscrimination testing and tax reporting and has fewer compliance requirements. When business grows, the number of employees grows, as do the complexities of the business owner’s financial situation. At this point, it is advisable to evaluate the existing SIMPLE IRA plan and reconsider other types of retirement plan to align with the owner’s and business objectives. Oftentimes, a 401(k) Plan will be a better option since it offers a lot of flexibility in plan design and it allows for higher deferral contributions limits. In 2024, the contribution limit for a SIMPLE IRA Plan is $16,000 plus $3,500 catch-up contribution for age 50 and above, whereas a 401(k) Plan allows $23,000 plus $7,500 catch-up contribution. It means more income tax savings for both employers and employees. A 401(k) plan allows business owners to customize several features of their retirement plan including eligibility, matching, automatic enrollment, loans, and vesting provisions. Also, it can be bundled with a defined benefit plan so that business owners can enjoy more tax benefits when it is effectively designed. As such, both business owners and employees can save more for their retirements.

Converting a SIMPLE IRA Plan to 401(k) Plan is subject to quite a few IRS rules. Ensure to consult your tax advisor and financial advisor if the conversion works for you and how to proceed with the conversion correctly to avoid adverse tax consequences.

Full story: nerdwallet

The spot bitcoin exchange-traded fund (ETFs) could be good news for investors who want to participate in Bitcoin investment with a fraction of its price just like other ETFs. Unlike most ETFs with a basket of equities in the funds which can lower the risks, spot Bitcoin ETFs only hold Bitcoins. Therefore, it will not diversify the risk and it is still subject to the volatility risk of holding Bitcoin.

Some Bitcoin investors are however concerned that Bitcoin may not serve its authentic purpose as a digital currency which operates free of any central control or the oversight of banks or governments. Institutions who create these ETFs may serve as surveillance agents for the governments and central banks. When inflows to these ETFs increase significantly, these institutions will own more Bitcoins and eventually manipulate its prices and usage.

Bitcoin is a speculative investment. It has no apparent positive or negative correlation to the stock market. Therefore, it may not serve as a diversifier which can lower the risk in an investment portfolio. At Vibrance Wealth Management, we believe investors who have faith in Bitcoin and see the potential of its future value can have about 3% to 5% in their portfolio as a satellite strategy provided they are aware of the risk and have a high risk appetite.

Full story: Morningstar

If you are looking for tax deductions for 2023, consider setting up and contributing to a Health Savings Account (HSA) if you have not already done so. HSA is a triple tax-free vehicle to help us build a retirement fund for future medical expense use. We get immediate income tax deductions when we contribute. Once there are contributions in the account, you can choose to invest and the funds will grow tax-deferred like the way in qualified retirement plans and accounts. When withdrawing for qualified medical expenses anytime, the distribution is tax-free. The contribution limits for 2023 are $3,850 for self-only coverage and $7,750 for family coverage if you have a high-deductible health insurance plan. Those 55 and older can contribute an additional $1,000 as a catch-up contribution. You generally have until the tax filing deadline to contribute to an HSA. For the tax year 2023, you can make contributions up until April 15, 2024. It is highly recommended to invest the funds in the account without tapping into it before retirement if you have a long time horizon. As such, you can grow the account to supplement your other retirement income.

Full story: The New York Times

Tax planning should be more proactive than reactive. Instead of looking for tax deduction strategies during the tax season, it is recommended to have thoughtful planning year-round to help you reduce your tax liabilities come April.

Some small business owners have a lot on their plates and oftentimes overlook some effective tax savings strategies. Hiring your children can be a great way to save taxes while planning your legacy and inspiring them to be entrepreneurial and responsible for their own finances early on. In addition to having an earned income, your children can take advantage of an after-tax Roth Individual Retirement Account (IRA) if their income is low. If they are minors, parents can establish a custodian Roth IRA for them. As such, they can enjoy the tax-deferred growth in the account and tax-free distributions for a very long time. Consult your tax advisor for your personal tax situation.

Full story: Firmworks