For many, owning a small business is a dream come true. If you have been fortunate enough, and worked hard enough, to make that dream come true, then you likely wish the business to continue to thrive and grow long after you are personally able to be at the helm. If your business, like millions of other small businesses, is a family run business, then you probably want to pass down the business to the next generation.

Whether as a result of retirement, or death, there will come a time when you have to pass down ownership and control of the business to someone else through a well thought-out business succession plan. Simply leaving the business to a family member through your Last Will and Testament can expose the business to a hefty estate tax liability. Likewise, gifting the business outright during your lifetime could result in gift tax consequences. There are a number of options, however, that can allow you to accomplish your goal while limiting the tax consequences of transferring ownership.

Outright Sale: Selling your business outright can avoid both estate and gift taxes if the sale has been completed prior to your death and the sale is for fair market value. The sale can be to a third party or to a family member. Note, however, that the sale could be subject to capital gains taxes.

Private Annuity: You may choose to establish a private, unsecured, annuity with a family member. This option is basically a sales agreement whereby the family member agrees to make payments to you for your lifetime. The advantage to this option is that you avoid both estate and gift taxes; however, as with an outright sale, you may incur capital gains taxes.

Trusts: Using a trust to transfer ownership can be an excellent option for a family owned business. Although there are a wide variety of trust options, both the Grantor Retained Annuity Trust, or GRAT, and the Grantor Retained Unitrust, or GRUT, are options that can allow you to retain an income stream for the life of the trust. By using a GRAT or GRUT, you will pass ownership to the named beneficiary at the termination of the trust period. The benefit of a GRAT or GRUT is that the trust assets — in this case the business — are taxed at a decreased valuation at the trust termination, assuming the business has appreciated in value during the trust period. Note, however, that the grantor must outlive the trust for the benefits of a GRAT or GRUT to be realized.

Family Limited Partnership: If you wish to slowly shift control of the business to a family member, you may wish to consider a family limited partnership. This option allows you to retain the general partner interests, and the day-to-day control of the business for as long as you choose, while slowly gifting the limited partner interests to your family member. The interest you gift may qualify for valuation discounts for minority interest, which will result in limiting the tax exposure of the transfer of ownership.

Leigia Rosales, J.D. is not affiliated with or endorsed by LPL Financial or Mike Bonacorsi LLC

• A study published in the Journal of the American Geriatric Society found that inactivity doubles the risk of mobility limitations as people age.
• Cellular changes associated with aging appear notably slower in the cells of active people than in those of sedentary people, according to research published in the Archives of Internal Medicine. The study looked at 2,400 twins with similar genetic factors.
• Research that appeared in 2011 in The Proceedings of the National of Academy of Sciences found that aerobic exercise by older adults increased the size of the hippocampus, a portion of the brain associated with memory and learning that shrinks as people age.

Even if you’re new to the concept, it’s never too late to start exercising. Swedish researchers who monitored more than 2,200 men from the age of 50 found that those who increased activity levels from ages 50 to 60 ended up living as long as those who were already exercising regularly by middle age.

4 Types of Exercise
An inactive lifestyle can cause older adults to lose ground in areas that are important for staying healthy and independent: strength, balance, flexibility, and endurance. To get the maximum benefits from exercise, the National Institute on Aging recommends focusing on activities that target each area:

Strength. Muscle keeps us strong. It also supports bones, contributes to balance, and helps keep blood sugar and weight in check by increasing metabolism. We begin losing muscle mass around age 30 and the rate of loss accelerates after age 50. Fortunately, it also is possible to build it at any age. Weight-bearing exercises help build muscle.

Balance. Exercise that builds leg muscles helps to prevent falls.

Flexibility. Stretching exercises can give you more freedom of movement, which will allow you to be more active during your senior years.

Endurance. “Aerobic” activity that increases your heart rate and breathing for an extended period of time builds endurance. It brings additional oxygen, glucose and other nutrients to the brain that are crucial to brain cells. Focus on “low impact” activities like walking, swimming, or bicycling that do not place extra stress on the joints.

Getting Started
Committing to an exercise program is one of the healthiest things you can do for yourself, but do it wisely. Here are some recommendations to make it a successful, safe experience:
• Get medical clearance from your doctor first.
• Start slow and set realistic expectations. Even if you are resuming exercise after an extended break, don’t go all out. Aim for consistency rather than time at the beginning. Overdoing it and unrealistic goals are leading reasons that people tend to give up.
• Seek support from family and friends. In fact, find a partner to join you. There are times you will feel unmotivated or possibly discouraged and outside encouragement can help you maintain your resolve.

A different kind of Top Ten list.

Provided by Mike Bonacorsi, CFP ®

You probably read or hear about some “Top Ten” list nearly every day. But take a moment to read this one. This list is different, and probably not the kind of list you’d expect someone to write.

Reason #10: “I’m too busy”
I can’t tell you how often I hear this excuse. So many people want to plan for a better retirement, but they don’t have time. They think they’ll take care of it tomorrow, or the day after that … and before they know it, several years have gone by. The best advice I can give you is to stop procrastinating and start planning today.

Reason #9: “It’s too soon”
I don’t know how this happened, but many people have adopted the notion that you don’t have to start planning for your retirement until you’re almost there. This is totally incorrect. The truth is, the sooner you start planning, the better chance you stand of having the kind of retirement you want. It’s never too soon. Many people start planning in their early twenties!

Reason #8: “It’s too late”
If you’re already near or past your retirement eligibility date, you may think that whatever you’ve got is what you’re stuck with and it’s too late to do anything about it. Think again. If you’re unsure of what your options are, speak to a professional. Even if you’ve already retired, it’s important to consider how you’re receiving income and how long it will last. It’s never too late to revise your income distribution strategy.

Reason #7: “I don’t need to”
I’ve heard this excuse many times and it always baffles me. Many people think that because they’ve been diligent about contributing to a savings account, they’re all set. While saving for retirement is good, you also need a plan for income distribution once you enter retirement. Are you certain that what you’re saving will be enough? Have you considered your distribution plan? What about taxes? What about inflation? And are you sure your money will be properly invested? There may be other, better options for you and it may prove worthwhile to look into them.

Reason #6: “I don’t have enough money to get started”
This excuse seems marginal at first glance, but there is some truth behind it. You need to have money to save or invest money. However, unless your bills are exactly equal to or greater than your net income, you DO have enough to get started. Starting small is better than not starting at all, and if you plan well, you’ll eventually have more to work with.

Reason #5: “My finances are a mess”
This is all the more reason to seek out an advisor who can help you sort through and understand your assets. Perhaps you have a 401(k) from a former employer that has not been rolled over, a couple of savings accounts, a trust from a deceased relative, some stocks that your parents bought in your name when you were younger … a circumstance like this can be confusing, but leaving it as it is won’t improve the situation. Consider speaking with an advisor who can look at your complete financial picture, help you to understand it, and help you to develop a plan to make your “financial mess” work for you.

Reason #4: “The Government will take care of me”
The bottom line is this … there’s a chance Social Security may not be available when you retire, and even presuming it is, it may not be enough to provide your ideal retirement income. If you’re planning to retire on Social Security alone, I would advise you to create a back-up plan at the very least.

Reason #3: “Between my savings and my 401(k), I’ll be fine”
Saving for retirement without an income distribution plan can be a mistake. How will you use that money once you have it? And while you may think you’ll have everything you’re going to need, have you considered inflation? Taxes? And furthermore, some people are living past 90. Will your assets last that long? If you outlive your income, what then? It’s a good idea to look ahead and plan lifelong income.

Reason #2: “I don’t want to think about it”
Many people procrastinate simply because the thought of discussing financial matters (or growing old) is unappealing. I can certainly understand that. But consider this … if you bite the bullet now and put a firm plan in motion, you may not have to think about it again for quite some time.

Reason #1: “I don’t know how”
If you knew everything there was to know about retirement planning, you’d probably be a financial advisor yourself. While it is possible to do everything on your own, that generally involves a great deal of research and a huge time commitment. If you’re putting off retirement planning because you don’t know how, consider speaking to a professional who does.

These are just some of the reasons why people don’t plan for retirement … but these are reasons, and not excuses. If you have retirement goals you want to reach, I would recommend you speak to a qualified advisor and set up an action plan. The sooner the better.

Mike Bonacorsi a Registered Representative with, and securities are offered through, LPL Financial, Member FINRA/SIPC Mike Bonacorsi may be reached at 603-769-3111 or mike.bonacorsi@lpl.com. www.mikebonacorsi.com

This was prepared by Peter Montoya, Inc., not the named Representative or Broker/Dealer, and should not be construed as investment advice. Neither the named Representative or Broker/Dealer give tax or legal advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Please consult your Financial Advisor for further information.

A retirement savings vehicle designed for the smallest businesses.

Presented by Mike Bonacorsi, CFP ®

The solo 401(k), or solo (k) as it is sometimes called, allows a self-employed individual to set up a 401(k) plan combined with a profit-sharing plan. You can set up one of these if you work for yourself or own a small business with just 1-2 full-time employees including yourself (the second FTE must be your spouse).1

You & your business can save for the future at the same time. Imagine nearly tripling your retirement savings potential. With a solo 401(k), that is a possibility. Here is how it works:

• As an employee, you can defer up to $17,000 of your compensation into a solo 401(k) in 2012.
• As an employer, you can have your business make a tax-deductible contribution of up to 25% of your compensation to the plan in 2012.
• Total employer and employee contributions to a solo 401(k) are capped at $50,000 this year; if you are 50 or older, in which case you can also make a $5,500 employee catch-up contribution.1,2,3

The dollar-figure contribution limits stated above are subject to annual COLAs, of course. If you aren’t incorporated or are simply a sole proprietor, the 25% annual employer contribution limit is slightly reduced.1

If you are 50 or older and self-employed, you could potentially put as much as $55,500 into a solo 401(k) in 2012. Now add your spouse to the mix. Is he or she age 50 or older and a full-time employee of your business? Then the two of you could contribute up to $110,000 to the plan this year.1,2

You can skip contributions in a lean year. Employer and employee contributions to a solo 401(k) are wholly discretionary. You determine how much goes in (or doesn’t) each year.3

You can create a Roth solo (k). The Roth version of a solo 401(k) is just like any other Roth account: you contribute after-tax dollars in exchange for tax-free growth and eventual tax-free withdrawal. If you don’t want to go Roth, you can simply have a traditional solo 401(k) with pre-tax dollars going in, tax-deferred growth and eventual taxed withdrawals.2

Loans from the plan & rollovers into the plan are allowed. You can borrow up to $50,000 from a solo 401(k) or up to 50% of the total account balance (whichever is smaller). In certain cases, hardship withdrawals are permitted prior to age 59½. If you have money in a SEP, an IRA or an old 401(k) somewhere, those assets may be rolled over into a solo 401(k).1,4

There are some demerits to the solo 401(k). As you are setting up and administering a 401(k) plan for your business, you have to see that it stays current with ERISA and IRC regulations. Obviously, it is much easier to oversee a solo 401(k) plan than a 401(k) program for a company with 15 or 20 FTEs, but you still have some plan administration on your plate. You may not want that, and if so, a solo 401(k) may have less merit than a SEP or traditional profit-sharing plan. The plan administration duties are relatively light, however. If the assets in your solo (k) exceed $250,000, you will need to file Form 5500-EZ annually with the IRS. If they don’t, no such annual filing is necessary.1,4

What if you hire more employees? If that occurs, your solo 401(k) will be redefined under the IRC as two plans: a standard 401(k) plan and a profit-sharing plan. This makes retirement plan administration more complicated.

One other detail worth mentioning: the passage of EGTRRA made solo (k)s much more attractive for small business owners. Prior to EGTRRA, the contributions had to count toward the maximum profit-sharing contribution for the business, which was typically 15%. If the Bush-era cuts really do sunset in 2013, their expiration could theoretically affect solo 401(k)s.1

On the whole, solo 401(k)s give SBOs increased retirement savings potential. If that is what you need, then take a good look at this option. These plans are very easy to create, their annual contribution limits far surpass those of IRAs and stand-alone 401(k)s, and some custodians for solo 401(k)s even give you “checkbook control” – they let you serve as trustee for your plan and permit you to invest the funds across a variety of different asset classes.4

Mike Bonacorsi a Registered Representative with, and securities are offered through, LPL Financial, Member FINRA/SIPC Mike Bonacorsi may be reached at 603-769-3111 or mike.bonacorsi@lpl.com. www.mikebonacorsi.com

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – www.axa-equitable.com/plan/business/understanding-individual-401k-plans.html [12/09]
2 – www.irs.gov/newsroom/article/0,,id=248482,00.html [10/20/11]
3 – money.cnn.com/retirement/guide/selfemployment_individual401k.moneymag/index.htm [2/14/12]
4 – news.yahoo.com/think-going-solo-401-k-183425759.html [7/15/11]