Guidant Financial Group Blog

It was reported today that the average 401(k) balance rose to an all-time high of $74,900 at the end of the first quarter.

Fidelity Investments, the nation's No. 1 provider of workplace retirement savings plans and individual retirement accounts, began tracking balances 13 years ago. They note in their report that nearly one in 10 participants increased his or her deferral rate during the first quarter, which is the largest amount of employees doing so since 2006, when Fidelity started monitoring those figures.

Why the increase?

Apparently, there's something to be said for employee education on the matter. Those who participated in Fidelity's programs designed to guide employees through the 401(k) planning process showed desirable account results.

They have identified four key factors contributing to retirement readiness: Enrollment Increases, Deferral Rates Growth, Asset Allocation Improvements and a Drop in Cash-Outs.

Executive Vice President of Fidelity Investments Carol Clancy confirms, "Engaging participants over the long term can dramatically increase healthy financial behaviors and the chances to achieve a more successful retirement."

First-time business owners over the age of 50 are featured regularly in SmartMoney's ongoing series "Take Two," authored by Angus Loten of the Wall Street Journal.

Today's profiled business owner is Guidant Financial client Steve Weinrich who successfully launched a Home Helpers franchise, which assists the elderly with non-medical in-home services such as preparing meals and housekeeping.

Read about Steve's success story and gain insight about the rollover process from Guidant Cofounder David Nilssen, in this article titled Funding a New Business with a 401 (k).

The 401(k) is back… in a big way.

With more people contributing a larger percentage of their salaries and a stock market yielding higher returns, the health of 401(k) plans are better than we’ve seen in years.

A recent CNNMoney article highlighted the fact that average 401(k) balances have hit a 10-year high.

For seven straight quarters, more people increased their contribution percentages than decreased them. At the end of 2010, the average 401(k) balance rose 11.5% to $71,500 (up from $64,200 at the end of 2009). On top of that, Fidelity reported that only 8% of employers who use their 401(k) plans reduced or eliminated matching contributions during the height of the recession.

In the wake of this fantastic news, more and more people are discovering the opportunity to use their own money to fund a small business or franchise. Taking charge of your future and creating the life you want can begin by using your existing retirement funds to start a business or franchise, debt-free, without paying any taxes or penalties.

Guidant is committed to providing innovative and easy-to-use small business financing solutions. If you, your attorney or your CPA have questions about the 401k Small Business Financing structure, please contact us via phone at 888.472.4455, or via the contact form on our website.

Businessweek.com recently published a very relevant story called, 10 Ways to Cut Business Costs. There is no doubt that many small businesses are looking for ways to cut costs and improve profits during these turbulent economic times. This article identified great ways to save money by:

A couple of days ago, the Wall Street Journal published an article titled, Despite Slump, Some Small Firms Add 401(k)s. We thought this article did a great job of exposing opportunities for employers to add value to employees through this tough economic climate.

Guidant is an avid fan of this strategy because—as the article points out—a significant percentage of workers are unlikely to save for retirement if their company doesn’t provide the vehicle. One of our core products is commonly used for business and franchise purchases. Called 401(k) Small Business Financing, our product alllows and individual to invest their retirement funds into a business, without incurring penalties or taxes. One of the greatest benefits of the product is that we create a 401(k) for the new business.

Regardless of whether or not you use our product, we advocate that employers provide this benefit for their staff. There is a nominal cost to the employer—one that is far outweighed by the benefits—and your employees will thank you for looking out for them!

In a tight lending market, financing a small business or franchise can seem impossible. Entrepreneurs are finding that it often requires multiple sources of capital to get a project running. The search can be a time-consuming and costly effort, and sometimes a particular kind of financing just isn't right for a project. Here is a short list of sources of capital that entrepreneurs should consider:

Self financing through one's retirement assets: This is first on our list for obvious reasons (it's our business, after all), but it's also the only option on this list that does not result in debt. Too often, entrepreneurs and franchisees believe that only their cash assets and home equity can be tapped for a business, but one's own retirement funds can be used through 401(k) small business financing. It's already the account holder's money, so there is no debt and no outside investor. One only needs the right account to access these funds.

Borrowing from banks: Borrowing from a bank is still the most well-known financing option, but franchisees and business owners know that many banks are hesitant to make any loans to new projects in the current economy and that over time these loans have a huge cost. Despite this, banks are convenient for mid-sized to large loans.

Borrowing from private lenders: Private lending or peer-to-peer lending (P2P lending) is an option for those who need smaller loans or just a little more than is available through other means of financing. These loans usually cap at about $25,000 on the high end, and they can come with high interest rates, though these rates are occasionally better than what the bank might offer. As always, it depends on the project and the lender. NuWire Investor published a summary of some of the P2P lending platforms out there. You may want to check it out.

Getting SBA loans: SBA loans are guaranteed in part by the Small Business Administration, which improves the odds of getting approval. However, they require much more paperwork than other loans and the turn-around time can be three months or longer. Furthermore, new business are less likely to be approved than established ones. For larger projects, the time investment to apply may be worthwhile. One can also find short-term SBA microloans for amounts not exceeding $35,000.

Finding investors: Whether friends and family, partners, accredited angel investors, venture capitalists or even potential clients and customers, this can be the cheapest option in the short-term, but matters are usually less straightforward. Personal relationships, ownership and management issues and end agreements need to be carefully considered. Truly independent entrepreneurs may find some of these complications to be more trouble than they are worth, and loans and self-financing remain a better option.

Business owners can also lower costs by leasing equipment rather than buying an office full at the outset. There are many financing options available to entrepreneurs and franchisees and utilizing a combination of them can make all the difference in getting a project to take flight.

Small business owners whose businesses performed at a loss in 2008 may be eligible to receive emergency refunds within weeks of President-elect Obama’s inauguration. According to a recent BusinessWeek article, business owners who can report a net operating loss (NOL) for the last year will be able to offset income from the business for the last five years instead of the standard two. This could qualify owners of formerly profitable businesses to receive substantial refunds. The Section 179 first-year expensing deduction limit is nearly doubling from $133,000 to $250,000, and these benefits combined could help a struggling business reinvigorate its operations within a few months.

This is great news for all business owners who have seen profits fall and credit tighten in the last year. The increased Section 179 deduction is also great for business and franchise owners who are just starting out. For some, of course, the refunds alone may not suffice to fully recapitalize a business. If that is the case, 401(k) small business financing may provide the additional funds to stabilize a business for better results in the New Year.

The number of loan-guarantees by the Small Business Administration (SBA) reportedly shrunk 57% during the last quarter (ending Dec 31) last year—YIKES!

In addition, a survey of loan officers by the Federal Reserve shows that 75% of banks have tightened their underwriting requirements and 90% were charging more for loans. Again ... YIKES!

If fewer entrepreneurs are being approved for business capital and the cost of obtaining that loan is more expensive, then how can a new business be capitalized?

Consider investing in yourself! There is a way (through Guidant’s 401(k) Small Business Financing vehicle) to invest in a business with your IRA or 401(k) without penalties. In addition, there are no underwriting requirements—you either have the money, or you don’t. Also, you can use your IRA and 401(k) funds as the down payment for a loan if you want to buy a bigger business! Lastly, you get to invest in something that you own, control and can build.

How have your stock market investments performed? If you are like most Americans, then probably not too well. A small business may be an interesting investment alternative worth considering!

If your IRA or 401(k) is heavily invested in the stock market, 2008 is likely a year you’d like to forget. The market’s performance is particularly painful for those individuals who are taking Required Mandatory Distributions (RMD). IRA holders, who have reached the age 70.5, are required by RMDs to withdraw a percentage of funds from their accounts. Unfortunately, most individuals take this distribution in November or December. In most cases this is not of great concern—HOWEVER in 2007 the market was strong. In 2008, not so much. With most accounts losing money, some individuals are still taking withdrawals based on last year’s value.

THE GOOD NEWS: Congress has taken some positive action in reference to RMDs! The President signed the Worker, Retiree and Employer Recovery Act of 2008 on Dec. 23. Section 201 of the Act temporarily suspends Required Minimum Distributions (RMDs) from IRAs and qualified plans for 2009. RMDs will be required again in 2010 unless Congress renews the suspension. It enables retirees the opportunity to reduce their taxable income for 2009 should they determine that doing so is to their advantage and helps retirees and IRA owners avoid having to liquidate investments in a down market. Without the suspension, they could be forced to sell—most likely at a steep loss due to the stock market downturn—investments in their accounts in order to take the distribution, or face a 50 percent tax penalty on the amount that should have been distributed.