FREQUENTLY ASKED QUESTIONS

Here are some frequently asked questions for you to read to help you understand insurance and financial planning better.

1)Can a profit sharing plan be combined with a 401(K) plan?

Yes. A 401(K) plan is simply a profit sharing plan with a provision allowing employee salary deferrals. Most 401(K) plans provide employer matching contributions based on a participant's contribution, with an additional option for a profit sharing allocation. Although most 401(K) plans use a salary ratio formula for profit sharing plan allocations. Any of the other formulas could be used.

2) Can an IRA be rolled into a profit sharing plan?

Yes. An IRA can be rolled into a profit sharing plan as long as the profit sharing plan permits a rollover.

3) Do all employees have to be included in a plan?

Certain employees may be excluded if they want, but strict coverage rules prevent the plan from discriminating in favor of highly compensated employees.

4) What is the difference between a profit sharing plan and a SEP plan?

The profit sharing plan allows vesting schedules, while SEP plans require 100% immediate vesting. A profit sharing plan can require employees to work at least 1,000 hours to share in the contribution, but a SEP plan covers all eligible employees, regardless of hours worked.

5) What is financial planning?

Financial planning is the process of meeting your life goals through the proper management of your finances. Financial planning helps you make advance arrangements for financial needs that will arise in the future. The objective of financial planning is to ensure that the right amount of money is available in the right persons’ hands at the right point in the future to achieve an individual’s life goals.

6) Why should I make a financial plan?

Financial planning provides direction and meaning to your financial decisions. It allows you to understand how each financial decision you make affects other areas of your finances. For example, buying a particular investment product might help you save enough money to finance your child’s college education or it may provide enough for a pleasant retirement. You can also adjust more easily to life changes and feel more confident that the goals you have are on track.

7) Who is a financial planner?

A financial planner is someone who uses the financial planning process to help you determine how to meet your and your family’s life goals. The key function of a financial planner is to help people identify their financial planning needs, their present priorities, and the products that are most suitable to meet their needs. He or she normally aquires detailed knowledge of a wide range of financial planning tools and products, but his major role is to help clients choose the best products for each need. The planner can take a big picture view of your financial situation and make financial planning recommendations that are ideal and personalized for you.

8) What should I look for in a financial planner?

A financial planner works for YOU. Their loyalty should be to the client, not the product(s) they are trying to sell. The financial planner should be in a position to provide you with impartial advice and suggest products that match your needs and are the best performing ones available. Unless the financial planner is truly independent, (s)he will not be able to give you objective advice.

9) How can I plan for tomorrow when I can hardly pay for today?

You should create a budget. Determine what you actually spend each month. There are expenses that are fixed, like rent, loan repayments, etc. every month about which we can do little. The fickle items such as food, clothing and entertainment are often what get away from us. Use your discretion to contain these expenses to start saving.

10) How much should I be saving?

It is hard to apply a rule of thumb toward savings, because it varies with age and income level. Ten percent is a good place to start. If you find that is too high for you, don’t let that worry you. You can start by putting a little aside each month and then slowly increasing it as you are able.

11) What if I don’t achieve my goals?

Financial planning is a common sense approach to managing your finances to reach your life goals. It cannot change your situation overnight. It is a lifelong process. Things are always changing. Remember that events beyond your control such as inflation or changes in the stock market or also interest rates will affect your financial planning results.

12) Why do I have to provide so much personal information?

In order to obtain the best service for your financial goals, all details and specifics must be disclosed to your financial advisor.

13) What type of information do I have to provide?

Normally, information regarding investments held, number of dependents, income and expenditure details, savings and financial planning needs, etc. The more accurate information you give, the better the quality of advice given.

14) What should a financial plan include?

A financial plan should include a review of your net worth, goals and objectives, investment portfolio, cash flow, investments, retirement planning, tax planning and insurance needs, as well as a plan for implementing your goals.

15) After a plan is developed, what next?

The best plan is useless unless it is put into action. Your financial planner will assist you completely in implementing the plan, if and when, desired by you.

16) How often should I update the plan?

It is good to review the plan when there is a lifestyle change such as marriage, birth, death or divorce. Any change in financial position should be evaluated as well. If you buy a new house or a business, it should be revisited then as well. Most people have an annual update that reviews how the plan is being implemented. The review also considers changing certain goals and circumstances.

For additional information, please call McFolling Financial.