Health Savings Accounts: Are They Just What the Doctor Ordered?

Are health insurance premiums taking too big of a bite out of your budget? Do you wish you had better control over how you spend your health-care dollars? If so, you may be interested in an alternative to traditional health insurance called a health savings account (HSA).

How does this health-care option work?

An HSA is a tax-advantaged account that's paired with a high-deductible health plan (HDHP). Let's look at how an HSA works with an HDHP to enable you to cover your current health-care costs and also save for your future needs.

Before opening an HSA, you must first enroll in an HDHP, either on your own or through your employer. An HDHP is "catastrophic" health coverage that pays benefits only after you've satisfied a high annual deductible. (Some preventative care, such as routine physicals, may be covered without being subject to the deductible.) For 2011 and 2012, the annual deductible for an HSA-qualified HDHP must be at least $1,200 for individual coverage and $2,400 for family coverage. However, your deductible may be higher, depending on the plan.

Once you've satisfied your deductible, the HDHP will provide comprehensive coverage for your medical expenses (though you may continue to owe co-payments or coinsurance costs until you reach your plan's annual out-of-pocket limit). A qualifying HDHP must limit annual out-of-pocket expenses (including the deductible) to no more than $6,050 for individual coverage and $12,100 for family coverage for 2012 (increasing by $100 and $200, respectively, from 2011.) Once this limit is reached, the HDHP will cover 100% of your costs, as outlined in your policy.

Because you're shouldering a greater portion of your health-care costs, you'll usually pay a much lower premium for an HDHP than for traditional health insurance, allowing you to contribute the premium dollars you're saving to your HSA. Your employer may also contribute to your HSA, or pay part of your HDHP premium. Then, when you need medical care, you can withdraw HSA funds to cover your expenses, or opt to pay your costs out-of-pocket if you want to save your account funds.

An HSA can be a powerful savings tool. Because there's no "use it or lose it" provision, funds roll over from year to year. And the account is yours, so you can keep it even if you change employers or lose your job. If your health expenses are relatively low, you may be able to build up a significant balance in your HSA over time. You can even let your money grow until retirement, when your health expenses are likely to be substantial. However, HSAs aren't foolproof. If you have relatively high health expenses (especially within the first year or two of opening your account, before you've built up a balance), you could deplete your HSA or even face a shortfall.

How can an HSA help you save on taxes?

HSAs offer several valuable tax benefits:

• You may be able to make pretax contributions via payroll deduction through your employer, reducing your current income tax.
• If you make contributions on your own using after-tax dollars, they're deductible from your federal income tax (and perhaps from your state income tax) whether you itemize or not. You can also deduct contributions made on your behalf by family members.
• Contributions to your HSA, and any interest or earnings, grow tax deferred.
• Contributions and any earnings you withdraw will be tax free if they're used to pay qualified medical expenses.

Consult a tax professional if you have questions about the tax advantages offered by an HSA.

Can anyone open an HSA?

Any individual with qualifying HDHP coverage can open an HSA. However, you won't be eligible to open an HSA if you're already covered by another health plan (although some specialized health plans are exempt from this provision). You're also out of luck if you're 65 and enrolled in Medicare or if you can be claimed as a dependent on someone else's tax return.

How much can you contribute to an HSA?

For 2012, you can contribute up to $3,100 for individual coverage (up $50 from 2011) and $6,250 for family coverage (a $100 increase from 2011.) This annual limit applies to all contributions, whether they're made by you, your employer, or your family members. You can make contributions up to April 15th of the following year (i.e., you can make 2011 contributions up to April 15, 2012). If you're 55 or older, you may also be eligible to make "catch-up contributions" to your HSA, but you can't contribute anything once you reach age 65 and enroll in Medicare.

Note: You may be able to make a one-time tax-free rollover of funds to your HSA from a health flexible spending account (FSA), a health reimbursement arrangement (HRA), or a traditional IRA (certain limits apply).

Can you invest your HSA funds?

HSAs typically offer several savings and investment options. These may include interest-earning savings, checking, and money market accounts, or investments such as stocks, bonds, and mutual funds that offer the potential to earn higher returns but carry more risk (including the risk of loss of principal). Make sure that you carefully consider the investment objectives, risks, charges, and expenses associated with each option before investing. A financial professional can help you decide which savings or investment options are appropriate.

How can you use your HSA funds?

You can use your HSA funds for many types of health-care expenses, including prescription drugs, eyeglasses, deductibles, and co-payments. Although you can't use funds to pay regular health insurance premiums, you can withdraw money to pay for specialized types of insurance such as long-term care or disability insurance. IRS Publication 502 contains a list of allowable expenses.

There's no rule against using your HSA funds for expenses that aren't health-care related, but watch out--you'll pay a 20% penalty if you withdraw money and use it for nonqualified expenses, and you'll owe income taxes as well. Once you reach age 65, however, this penalty no longer applies, though you'll owe income taxes on any money you withdraw that isn't used for qualified medical expenses.

Questions to consider when weighing your options

• How much will you save on your health insurance premium by enrolling in an HDHP? If you're currently paying a high premium for individual health insurance (perhaps because you're self-employed), your savings will be greater than if you currently have group coverage and your employer is paying a substantial portion of the premium.
• What will your annual out-of-pocket costs be under the HDHP you're considering? Estimate these based on your current health expenses. The lower your costs, the easier it may be to accumulate HSA funds.
• How much can you afford to contribute to your HSA every year? Contributing as much as you can on a regular basis is key to building up a cushion against future expenses.
• Will your employer contribute to your HSA? Employer contributions can help offset the increased financial risk that you're assuming by enrolling in an HDHP rather than traditional employer-sponsored health insurance.
• Are you willing to take on more responsibility for your own health care? For example, to achieve the maximum cost savings, you may need to research costs and negotiate fees with health providers when paying out-of-pocket.
• How does the coverage provided by the HDHP compare with your current health plan? Don't sacrifice coverage to save money. Read all plan materials to make sure you understand benefits, exclusions, and all costs.
• What tax savings might you expect? Tax savings will be greatest for individuals in higher income tax brackets. Ask your tax advisor or financial professional for help in determining how HSA contributions will impact your taxes.

IMPORTANT DISCLOSURES The information presented here is not specific to any individual's personal circumstances. To the extent that this material and/or website concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials and/or website are provided for general information and educational purposes only based upon publicly available information. Information throughout these materials and/or website, whether stock quotes, charts, articles, or any other statement or statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe to be reliable - we cannot assure the accuracy or completeness of these materials and/or website. These materials and/or website do not constitute a complete description of our investment services or performance, and nothing in this information should be interpreted to state or imply that past results are an indication of future performance. There are not warranties, expressed or implied, as to the accuracy, completeness, or results obtained from information contained within these materials and/or posted on this website or any "linked" website.   The information in these materials and/or website may change at any time and without notice. This communication is strictly intended for individuals residing in the state(s) of CA. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2012.

Evaluating a Job Offer

If you're considering changing jobs, you're not alone. Today, few people stay with one employer until retirement. It's likely that at some point during your career, you'll be looking for a new job. You may be looking to make more money or seeking greater career opportunities. Or, you may be forced to look for new employment if your company restructures. Whatever the reason, you'll eventually be faced with an important decision: When you receive an offer, should you take it? You can find the job that's right for you by following a few sensible steps. How does the salary offer stack up? What if the salary you've been offered is less than you expected? First, find out how frequently you can expect performance reviews and/or pay increases. Expect the company to increase your salary at least annually. To fully evaluate the salary being offered, compare it with the average pay of other professionals working in the same field. You can do this by talking to others who hold similar jobs, calling a recruiter (i.e., a headhunter), or doing research at your local library or on the Internet. The Bureau of Labor Statistics is a good source for this information. Bonuses and other benefits Next, ask about bonuses, commissions, and profit-sharing plans that can increase your total income. Find out what benefits the company offers and how much of the cost you'll bear as an employee. Don't overlook the value of good employee benefits. They can add the equivalent of thousands of dollars to your base pay. Ask to look over the benefits package available to new employees. Also, find out what opportunities exist for you to move up in the company. This includes determining what the company's goals are and the type of employee that the company values. Personal and professional consequences Will you be better off financially if you take the job? Will you work a lot of overtime, and is the scheduling somewhat flexible? Must you travel extensively? Consider the related costs of taking the job, including the cost of transportation, new clothes, a cell phone, increased day-care expenses, and the cost of your spouse leaving his or her job if you are required to relocate. Also, take a look at the company's work environment. You may be getting a good salary and great benefits, but you may still be unhappy if the work environment doesn't suit you. Try to meet the individuals you will be closely working with. It may also be helpful to find out something about the company's key executives and to read a copy of the mission statement. Deciding whether to accept the job offer You've spent a lot of time and energy researching and evaluating a potential job, but the hardest part is yet to come: Now that you have received a job offer, you must decide whether to accept it. Review the information you've gathered. Think back to the interview, paying close attention to your feelings and intuition about the company, the position, and the people you came in contact with. Consider not only the salary and benefits you've been offered, but also the future opportunities you might expect with the company. How strong is the company financially, and is it part of a growing industry? Decide if you would be happy and excited working there. If you're having trouble making a decision, make a list of the pros and cons. It may soon become clear whether the positives outweigh the negatives, or vice versa. Negotiating a better offer Sometimes you really want the job you've been offered, but you find the salary, benefits, or hours unfavorable. In this case, it's time to negotiate. You may be reluctant to negotiate because you fear that the company will rescind the offer or respond negatively. However, if you truly want the job but find the offer unacceptable, you may as well negotiate for a better offer rather than walk away from a great opportunity without trying. The first step in negotiating is to tell your potential employer specifically what it is that you want. State the amount of money you want or the exact hours you wish to work. Make it clear that if the company accepts your terms, you are willing and able to accept its offer immediately. What happens next? It's possible that the company will accept your counteroffer. Or, the company may reject it, because either company policy does not allow negotiation or the company is unwilling to move from its original offer. The company may make you a second offer, typically a compromise between its first offer and your counteroffer. In either case, the ball is back in your court. If you still can't decide whether to take the job, ask for a day or two to think about it. Take your time. Accepting a new job is a big step.

IMPORTANT DISCLOSURES The information presented here is not specific to any individual's personal circumstances. To the extent that this material and/or website concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials and/or website are provided for general information and educational purposes only based upon publicly available information. Information throughout these materials and/or website, whether stock quotes, charts, articles, or any other statement or statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe to be reliable - we cannot assure the accuracy or completeness of these materials and/or website. These materials and/or website do not constitute a complete description of our investment services or performance, and nothing in this information should be interpreted to state or imply that past results are an indication of future performance. There are not warranties, expressed or implied, as to the accuracy, completeness, or results obtained from information contained within these materials and/or posted on this website or any "linked" website.   The information in these materials and/or website may change at any time and without notice. This communication is strictly intended for individuals residing in the state(s) of CA. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2012.

Retirement Plans for Your Small Business

A retirement plan is a critical part of a competitive benefits package. Although small business owners can sponsor a qualified retirement plan like a traditional 401(k), profit-sharing, or defined benefit plan, these plans can be expensive to maintain and relatively difficult to administer. Luckily, there are a number of simpler alternatives.

Simplified employee pension (SEP) plans

A SEP plan allows small business owners to set up traditional IRAs, called SEP-IRAs, for themselves and each employee. You must generally contribute a uniform percentage of pay, up to 25%, for each eligible employee (up to $50,000 in 2012), but you don't have to make contributions every year. The plan must generally cover any employee aged 21 or older who has worked for you for three of the last five years and who earns $550 or more during the year.

Your employees don't directly contribute to the SEP plan, although they can make their regular annual IRA contributions to their SEP-IRAs if they choose (SEPs are traditional IRAs and can't accept Roth IRA contributions). All contributions to the plan are fully vested (that is, immediately owned by your employees), and your contributions are fully deductible.

Most employers, regardless of size, can establish a SEP plan. SEP plans have low startup and operating costs, and can be established using a two-page IRS form.

SIMPLE IRA and SIMPLE 401(k) plans

You can adopt a SIMPLE IRA plan if you have 100 or fewer employees who earn $5,000 or more. A SIMPLE IRA plan lets your eligible employees contribute a percentage of their salary on a pretax basis, up to $11,500 in 2012 ($14,000 for employees age 50 and older). Each employee who earned $5,000 or more in any two prior years, and who is expected to earn at least $5,000 in the current year, must be allowed to participate in the plan.

You're required to either match each employee's contributions dollar for dollar--up to 3% of the employee's compensation--or make a fixed contribution of 2% of compensation for all eligible employees. (The 3% match can be reduced to 1% in any two of five years.) Like SEPs, all contributions to the plan are fully vested, and your contributions are fully deductible.

SIMPLE IRA plans are easy to set up (you fill out a short IRS form to establish the plan), easy to administer, and inexpensive to maintain. You can let each employee set up a SIMPLE IRA account at a financial institution of his or her choosing, or you can select the financial institution that will serve as trustee and initially hold all plan contributions.

Note that unlike any other retirement plan, early withdrawals (before age 59½) from SIMPLE IRAs during the first two years of participation are subject to a 25% penalty tax, unless an exception applies. After the first two years of participation, the penalty tax drops to 10% (consistent with other retirement plans).

SIMPLE 401(k) plans are similar to SIMPLE IRAs, but can also allow loans and Roth contributions. And in most cases, you don't have to perform complicated discrimination testing. But because they're still qualified plans (and therefore more complicated and costly to establish and administer than SIMPLE IRAs), and allow less deferrals than traditional 401(k)s, SIMPLE 401(k)s haven't become popular retirement plans.

But don't rule out a 401(k) plan entirely

No employees? Then there is one qualified plan you should consider--the individual 401(k) plan (also known as a solo 401(k) plan).

An individual 401(k) plan is a regular 401(k) plan combined with a profit-sharing plan. You can elect to defer up to $17,000 of your compensation to the plan for 2012 ($22,500 if you're age 50 or older), just as you could with any 401(k) plan. Contributions can be pretax or Roth. In addition, as with a traditional profit-sharing plan, your business can make a tax-deductible contribution to the plan of up to 25% of your compensation.

Total contributions to your account in 2012 can't exceed $50,000, plus any catch-up contributions (or, if less, 100% of your compensation). If you're self-employed, compensation is your earned income from your business.

Since an individual 401(k) plan can cover only the business owner and his or her spouse, it isn't subject to the often burdensome and complicated administrative rules and discrimination testing requirements that generally apply to regular 401(k) and profit-sharing plans.

If you're a small business owner and haven't established a retirement savings plan, what are you waiting for? It's time to select the plan that best fits your needs, and the needs of your employees.

IMPORTANT DISCLOSURES The information presented here is not specific to any individual's personal circumstances. To the extent that this material and/or website concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials and/or website are provided for general information and educational purposes only based upon publicly available information.  Information throughout these materials and/or website, whether stock quotes, charts, articles, or any other statement or statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe to be reliable - we cannot assure the accuracy or completeness of these materials and/or website.  These materials and/or website do not constitute a complete description of our investment services or performance, and nothing in this information should be interpreted to state or imply that past results are an indication of future performance. There are not warranties, expressed or implied, as to the accuracy, completeness, or results obtained from information contained within these materials and/or posted on this website or any "linked" website.   The information in these materials and/or website may change at any time and without notice.    This communication is strictly intended for individuals residing in the state(s) of CA. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2012.

The Alternative Minimum Tax (AMT)

In the past ten years there have been eight temporary legislative AMT-related "patches," designed to forestall a sudden dramatic increase in the number of individuals who are affected by the AMT. The latest two-year patch, included as part of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, is effective through December 31, 2011. That means you can expect additional AMT legislation later this year or in early 2012.

What is the AMT?

The AMT is essentially a separate federal income tax system with its own tax rates, and its own set of rules governing the recognition and timing of income and expenses. If you're subject to the AMT, you have to calculate your taxes twice--once under the regular tax system and again under the AMT system. If your income tax liability under the AMT is greater than your liability under the regular tax system, the difference is reported as an additional tax on your federal income tax return. If you're subject to the AMT in one year, you may be entitled to a credit that can be applied against regular tax liability in future years.

How do you know if you're subject to the AMT?

Part of the problem with the AMT is that, without doing some calculations, there's no easy way to determine whether or not you're subject to the tax. Key AMT "triggers" include the number of personal exemptions you claim, your miscellaneous itemized deductions, and your state and local tax deductions. So, for example, if you have a large family and live in a high-tax state, there's a good possibility you might have to contend with the AMT. IRS Form 1040 instructions include a worksheet that may help you determine whether you're subject to the AMT (an electronic version of this worksheet is also available on the IRS website), but you might need to complete IRS Form 6251 to know for sure.

Common AMT adjustments

It's no easy task to calculate the AMT, in part because of the number and seemingly disparate nature of the adjustments that need to be made. Here are some of the more common AMT adjustments:

• Standard deduction and personal exemptions: The federal standard deduction, generally available under the regular tax system if you don't itemize deductions, is not allowed for purposes of calculating the AMT. Nor can you take a deduction for personal exemptions.
• Itemized deductions: Under the AMT calculation, no deduction is allowed for state and local taxes paid, or for certain miscellaneous itemized deductions. Your deduction for medical expenses may also be reduced, and you can only deduct qualifying residence interest (e.g., mortgage or home equity loan interest) to the extent the loan proceeds are used to purchase, construct, or improve a principal residence.
• Exercise of incentive stock options (ISOs): Under the regular tax system, tax is generally deferred until you sell the acquired stock. But for AMT purposes, when you exercise an ISO, income is generally recognized to the extent that the fair market value of the acquired shares exceeds the option price. This means that a significant ISO exercise in a year can trigger AMT liability. If ISOs are exercised and sold in the same year, however, no AMT adjustment is needed, since any income would be recognized for regular tax purposes as well.
• Depreciation: If you're depreciating assets (for example, if you're a sole proprietor and own an asset for business use), you'll have to calculate depreciation twice--once under regular income tax rules and once under AMT rules.

AMT exemption amounts

While the AMT takes away personal exemptions and a number of deductions, it provides specific AMT exemptions. The amount of AMT exemption that you're entitled to depends on your filing status.

 

AMT Exemption Amounts by Filing Status	2011	2012
Married filing jointly	$74,450	$45,000
Single or head of household	$48,450	$33,750
Married filing separately	$37,225	$22,500

Note: The 2012 figures assume no additional Congressional action.

Your exemption amount, however, begins to phase out once your taxable income exceeds a certain threshold ($150,000 for married individuals filing jointly, $112,500 for single individuals, and $75,000 for married individuals filing separately).

What happens in 2012?

AMT exemption amounts and phaseout thresholds are not adjusted for inflation--they only change through legislation. This is one of the principal reasons that more people tend to be subject to the AMT each year. The increased AMT exemption amounts included in the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 are for the 2010 and 2011 tax years only. Unless Congress passes new legislation, 2012 AMT exemption amounts will return to pre-2001 levels. In addition, without new legislation, the AMT rules could limit your ability to claim certain nonrefundable personal tax credits in 2012, including the American Opportunity (Hope) and Lifetime Learning tax credits, the dependent care credit, and the credit for the elderly and disabled.

AMT rates

Under the AMT, the first $175,000 of your taxable income is taxed at a rate of 26%. (If your filing status is married filing separately, the 26% rate applies to your first $87,500 in taxable income.) Taxable income above this amount is taxed at a flat rate of 28%.

The lower maximum tax rates that apply to long-term capital gain and qualifying dividends apply to the AMT calculation as well. So, even under AMT rules, a maximum rate of 15% (0% for individuals in the lower two tax brackets) applies. However, long-term capital gain and qualifying dividends are included when you determine your taxable income under the AMT system. That means large capital gains and qualifying dividends can push you into the phaseout range for AMT exemptions, and can indirectly increase AMT exposure.

Technical Note: In the context of AMT exemption amounts and tax rates, taxable income really refers to your alternative minimum taxable income (AMTI). Your AMTI is your regular taxable income increased or decreased by AMT preferences and adjustments.

Summing up

Owing AMT isn't the end of the world, but it can be a very unpleasant surprise. It also turns a number of traditional tax planning strategies (e.g., accelerating deductions) on their heads, so it's a good idea to factor in the AMT before the end of the year, while there's still time to plan.

If you think you might be subject to the AMT, it may be worth sitting down to discuss your situation with a tax professional.

 

IMPORTANT DISCLOSURES

The information presented here is not specific to any individual's personal circumstances.

To the extent that this material and/or website concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances.

These materials and/or website are provided for general information and educational purposes only based upon publicly available information. Information throughout these materials and/or website, whether stock quotes, charts, articles, or any other statement or statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe to be reliable - we cannot assure the accuracy or completeness of these materials and/or website.

These materials and/or website do not constitute a complete description of our investment services or performance, and nothing in this information should be interpreted to state or imply that past results are an indication of future performance. There are not warranties, expressed or implied, as to the accuracy, completeness, or results obtained from information contained within these materials and/or posted on this website or any "linked" website.

The information in these materials and/or website may change at any time and without notice.

This communication is strictly intended for individuals residing in the state(s) of CA. No offers may be made or accepted from any resident outside the specific states referenced.

 

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2012.

Women: What You Should Know When Starting a Business

According to the Small Business Administration (SBA), the number of women-owned businesses grew 44% from 1997 to 2007--twice as fast as male-owned firms. Many of these businesses started small, begun by women seeking the exciting and potentially rewarding experience of "being their own boss" while doing something they enjoy. If you're thinking about starting your own business, you'll need a sound plan, a little creativity, personal dedication, and probably some form of financial investment.

But before you make the commitment to starting your own business, the first question to consider is whether owning your own business is right for you. Here are a few of the important factors to consider when starting your business.

Personal investment

Why do you want to start a business? For the most part, you should believe you have a great idea that you are passionate about. Giving your business a chance to be successful will require a personal commitment and probably some sacrifices. Are you prepared to invest the time, money, and personal resources to get your business started?

As you might imagine, there's a lot that goes into starting a business. You'll have to do some market research to determine the potential size of your market, identify the competition, and set the price of the goods or services you'll offer. You should develop a written business plan, research the best legal form to use for your business, and understand what licenses and/or permits you'll need. And you'll have to figure out how much capital you'll need to start your business, and where that capital will come from.

Type of business

What kind of business do you want? Do you have a unique idea, or do you want to get involved in a type of business that already exists, like a franchise? What products or services will your business provide? Have you identified your target market? Who is your competition, and what will separate your business from your competition? Depending on the type of business, how long will it take before your products or services are available to your target market? How big and how quickly do you want your business to grow?

The type of business you choose should not only match your talents, abilities, and interests, but it also should have a viable place in the market, based on your competition and the potential demand for the products or services your business will offer. Getting this information will take some time and effort, but many businesses fail simply because they're in the wrong market or the competition is too strong.

The business plan

It's one thing to have a great idea for a business, but it becomes much more real when you put it down on paper. A business plan is essentially the story of your business: the name of your business, what your business does, how you came up with the idea for your business, what markets you serve, what differentiates your business from the competition, where your business is now, and where you see it in the future. Not only should your business plan serve as a road map to a successful business venture, but if you're going to seek financing for your business, you'll almost certainly be asked for a business plan. There's generally no set form for use in developing a business plan, but most plans cover these essential elements:

• An executive summary, which briefly describes your business as a whole and touches on your business's profile and goals
• An in-depth explanation of the history and development of your business
• A summary of the products and/or services you offer
• A customer description, market analysis, and competitor analysis
• A description of your business's legal structure (e.g., corporation, partnership, sole proprietorship) and management organization
• An explanation of your marketing plan and sales strategy
• A capitalization plan including projected revenues, cash flow projections, pro forma financials, and an explanation of how you'll use funds

Selecting a business form

One of the first decisions you'll need to make is what form of legal entity your business will take. If you're starting a business from scratch (as opposed to buying an established business), your options are many. The type of entity you select is important because it can determine the types of permits you'll need, where and how your business should be registered, the extent of protection from personal liability each type of entity affords, and the amount and form of taxes that may have to be paid. While it's a good idea to consult a financial or legal professional before selecting the type of entity for your business, here's a brief description of the more common forms of business structures.

Sole proprietorship: A sole proprietorship is the most straightforward way to structure your business entity. As a sole proprietor, your business is simply an extension of you. Sole proprietors are liable for all business debts and other obligations the business might incur. This means your personal assets can be subject to the claims of your business's creditors.

Partnership: A partnership is a business entity where two or more people enter into a business relationship for mutual profit. Partnerships are organized in accordance with state law. In a general partnership, all partners can act on behalf of one another in furtherance of partnership business, which means each partner is personally liable for the acts of the other partners, and all partners are personally liable for the debts and liabilities of the partnership. Limited partnerships and limited liability partnerships may provide some liability protection for partners according to the state law where the partnership is formed.

Corporations: There are several different types of corporations. Generally, two advantages of corporations are that they provide a shield from individual liability and are the easiest type of entity to use to raise capital. Some common types of corporations are S corporations and limited liability corporations or companies. A C corporation is taxed as a separate entity, whereas S corporations and most limited liability corporations pass income, gains, deductions, and losses of the business through to the shareholders.

Financing your business

Your business plan is in place. Now you have to figure out how and where you'll get the funds to set your dream in motion--and sustain it. Figuring out how much money you'll need is not always an easy question to answer. The first step in determining your financing needs is to develop a line-item budget, projected over a period of months and/or years.

Next, you'll need to figure out how to finance your business. The two general categories of financing available for businesses are debt and equity. Debt requires repayment of a loan. Equity involves raising capital by selling parts of the business to investors.

One place to look for capital might be your own assets. You may be able to raise money for the business from your savings or borrow against a retirement plan, life insurance policy, credit card, or the equity in your home.

Another common source of funds for new businesses is what's called "friends and family." However, such funding is most likely to be successful if it's structured in a businesslike way, with clear terms of repayment or ownership participation.

You can apply to banks or credit unions for loans. The Small Business Administration has a website devoted to women-owned businesses at www.sba.gov. There you can find resources to help you start and finance your business. Also, your local chamber of commerce may be able to refer you to state and local agencies that provide financial assistance to new businesses located within your geographic area.

Anything else?

There are plenty of other things to consider, such as taxes, licenses, fees, and permits. You'll need to think about where to locate your business and how you'll market it. Will you have employees? Will you add a retirement plan? If so, you'll have regulatory requirements and tax responsibilities, as well as possible workers' compensation to consider. But you don't have to go it alone. There are experts available to serve as mentors or counselors. Check the Women's Business Resources section of the Small Business Administration website at www.sba.gov for information on locating a mentor.

IMPORTANT DISCLOSURES The information presented here is not specific to any individual's personal circumstances. To the extent that this material and/or website concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials and/or website are provided for general information and educational purposes only based upon publicly available information. Information throughout these materials and/or website, whether stock quotes, charts, articles, or any other statement or statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe to be reliable - we cannot assure the accuracy or completeness of these materials and/or website. These materials and/or website do not constitute a complete description of our investment services or performance, and nothing in this information should be interpreted to state or imply that past results are an indication of future performance. There are not warranties, expressed or implied, as to the accuracy, completeness, or results obtained from information contained within these materials and/or posted on this website or any "linked" website.   The information in these materials and/or website may change at any time and without notice. This communication is strictly intended for individuals residing in the state(s) of CA. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2012.

Is Your 529 Plan Making the Grade?

As of June 2011, there were 8.8 million open 529 college savings plan accounts (Source: College Board, Trends in Student Aid, 2011). If you're one of the millions of parents or grandparents who've invested money in a 529 college savings plan, the arrival of a new academic year may be a good time to see how your plan stacks up against the competition. Mediocre investment returns, higher-than-average fees, limited investment options and flexibility--these are some of the things that might have you thinking you could do better with another plan. If you discover that your 529 plan's performance has been subpar, what options do you have?

Roll over funds to a new 529 plan

One option is to do a "same beneficiary rollover" to a different 529 plan. Under federal law, you can roll over the funds in your existing 529 plan to a different 529 plan (college savings plan or prepaid tuition plan) once every 12 months without having to change the beneficiary and without triggering a federal penalty.

Of course, you'll need to research other plans and then choose one, which may take some time. Once you decide on a plan, the rollover process is fairly straightforward. Call your existing 529 plan manager to see what steps are required (some plans may impose a fee for a rollover, so make sure to ask); your new plan should have a system in place to accept rollover funds. You must complete the rollover within 60 days of receiving a distribution to avoid paying a penalty.

If you want to roll over the funds in your 529 college savings plan account more than once in a 12-month period, you'll need to change the beneficiary to another qualifying family member to avoid paying a federal penalty. As a workaround, you can change the beneficiary back to the original person later.

Change your investment strategy in your current 529 plan

Just because you can switch to a different 529 plan doesn't necessarily mean you should. If the new plan has roughly the same mix of investment choices and similar fees as your current plan, you might ask yourself if you'd be better off staying put and simply changing your current investment allocations. This is especially true if you have invested in your own state's 529 plan and the availability of related state tax breaks depends on you remaining in a state plan.

Section 529 college savings plans generally allow you to change the way your future contributions are invested at any time. So, for example, if you originally picked a more aggressive investment option, you can choose a different one (or more than one) for your future contributions.

However, the rules are stricter when it comes to your existing contributions. If you're unhappy with the performance of your current investment portfolio but don't want to switch plans completely (using the rollover option described earlier), you may have another option. Specifically, 529 college savings plans are federally authorized (but not required) to let you change the investment option for your existing contributions once per calendar year without having to change the beneficiary. (This is different from a plan allowing you to pick a new investment option for your future contributions.) Before joining a 529 plan, check to see if it offers this flexibility for existing contributions.

Other options to consider

Some 529 college savings plan investors may wonder whether they should continue putting money into their accounts if their investment returns have been lackluster, or even in negative territory. Although more 529 plans nowadays are likely to offer more conservative investment options, such as certificates of deposit or money market funds, you still might decide that you'd like to have more control over your college investments. In that case, you might consider a Coverdell education savings account or an UTMA/UGMA custodial account, both of which let you choose your underlying investments.

Finally, keep in mind that any college investment strategy should be reexamined periodically in light of new tax laws and changes in individual circumstances. A financial professional can help you understand your options, compare 529 plans, and select the right investment strategy for your situation.

Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about specific 529 plans is available in each issuer's official statement, which should be read carefully before investing. Also, before investing, consider whether your state offers a 529 plan that provides residents with favorable state tax benefits.

IMPORTANT DISCLOSURES The information presented here is not specific to any individual's personal circumstances. To the extent that this material and/or website concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials and/or website are provided for general information and educational purposes only based upon publicly available information. Information throughout these materials and/or website, whether stock quotes, charts, articles, or any other statement or statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe to be reliable - we cannot assure the accuracy or completeness of these materials and/or website. These materials and/or website do not constitute a complete description of our investment services or performance, and nothing in this information should be interpreted to state or imply that past results are an indication of future performance. There are not warranties, expressed or implied, as to the accuracy, completeness, or results obtained from information contained within these materials and/or posted on this website or any "linked" website.   The information in these materials and/or website may change at any time and without notice. This communication is strictly intended for individuals residing in the state(s) of CA. No offers may be made or accepted from any resident outside the specific states referenced.

Concentrated Stock Positions: Considerations and Strategies

Whether you inherited a large holding, exercised options to buy your company's stock, sold a private business, hold restricted stock, or have benefitted from repeated stock splits over the years, having a large position in a single stock carries unique challenges. Even if the stock has done well, you may want more diversification, or have new financial goals that require a shift in strategy.

When a single stock dominates your portfolio, however, selling the stock may be complicated by more than just the associated tax consequences. There also may be legal constraints on your ability to sell, contractual obligations such as lock-up agreements, or practical considerations, such as the possibility that a large sale could overwhelm the market for a thinly traded stock. The choices appropriate for you are complex and will depend on your own situation and tax considerations, but here is a brief overview of some of your options.

Sell your shares

Selling obviously frees up funds that can be used to diversify a portfolio. However, if you have a low cost basis, you may be concerned about capital gains taxes. Or you may want to avoid any perception of market manipulation or insider trading. You might consider selling shares over time, which can help you manage the tax bite in any one year, yet allow you to participate in any future growth. However, remember that long-term capital gain tax rates are currently at historically low levels (current rates carry through tax year 2012). If you plan to sell and will face taxes anyway, now might not be the worst time to have to pay them.

If you hold restricted shares, you might set up a 10b5-1 plan, which spells out a predetermined schedule for selling shares over time. Such written plans specify in advance the dates, prices and amounts of each sale, and comply with SEC Rule 144, which governs the sale of restricted stock and was designed to prevent insider trading. A 10b5-1 plan demonstrates that your selling decisions were made prior to your having any insider knowledge that could influence specific transactions. (However, terminating the plan early or selling too much too quickly could raise questions about the plan's legitimacy.)

You might also be able to avoid some of the restrictions on how much and when you can sell by selling shares privately rather than on the public market. However, you would likely have to sell at less than the market value, and would still face capital gains taxes.

Hedge your position

You may want to try to protect yourself in the short term against the risk of a substantial drop in price. There are multiple ways to try to manage that risk by using options, which can be especially useful if you're legally restricted from selling your shares. However, bear in mind that the use of options is not appropriate for all investors.

Buying a protective put essentially puts a floor under the value of your shares by giving you the right to sell your shares at a predetermined price. Buying put options that can be exercised at a price below your stock's current market value can help limit potential losses on the underlying equity while allowing you to continue to participate in any potential appreciation. However, you also would lose money on the option itself if the stock's price remains above the put's strike price.

Selling covered calls with a strike price above the market price can provide additional income from your holdings that could help offset potential losses if the stock's price drops. However, the call limits the extent to which you can benefit from any price appreciation. And if the share price reaches the call's strike price, you would have to be prepared to meet that call.

A collar involves buying not only protective puts but also selling call options whose premiums offset the cost of buying the puts. However, as with a covered call, the upside appreciation for your holding is then limited to the call's strike price. If that price is reached before the collar's expiration date, you would not only lose the premium you paid for the put, but would also face capital gains on any shares you sold.

Monetize the position

If you want immediate liquidity, you might be able to use a prepaid variable forward (PVF) agreement. With a PVF, you contract to sell your shares later at a minimum specified price. You receive most of the payment for those shares--typically 80% to 90% of their value--when the agreement is signed. However, you are not obligated to turn over the shares or pay taxes on the sale until the PVF's maturity date, which might be years in the future. When that date is reached, you must either settle the agreement by making a cash payment, or turn over the appropriate number of shares, which will vary depending on the stock's price at the time of delivery. In the meantime, your stock is held as collateral, and you can use the upfront payment to purchase other securities that can help diversify your portfolio. In addition, a PVF still allows you to benefit to some extent from any price appreciation during that time, though there may be a cap on that amount.

Caution: PVF agreements are complicated, and the IRS warns that care must be taken when using them. Consult a tax professional before using this strategy.

Borrow to diversify

If you want to keep your stock but need money to build a more diversified portfolio, you could use your stock as collateral to buy other securities on margin. However, trading securities in a margin account involves risks which you should discuss with a financial professional before considering this strategy.

Exchange your shares

Another possibility is to trade some of your stock for shares in an exchange fund (a private placement limited partnership that pools your shares with those contributed by other investors who also may have concentrated stock positions). After a set period, generally seven years, each of the exchange fund's shareholders is entitled to a prorated portion of its portfolio. Taxes are postponed until you sell those shares; you pay taxes on the difference between the value of the stock you contributed and the price received for your exchange fund shares. Though it provides no liquidity, an exchange fund may help minimize taxes while providing greater diversification (though diversification alone does not guarantee a profit or ensure against a loss). Be sure to check on the costs involved with an exchange fund as well as what other securities it holds. At least 20% must be in nonpublicly traded assets or real estate, and the more overlap between your shares and those already in the fund, the less diversification you achieve.

Donate shares to a trust

If you want income rather than growth from your stock, you might transfer shares to some form of trust. If you have highly appreciated stock, consider donating it to a charitable remainder trust (CRT). You receive a tax deduction when you make the contribution. Typically, the trust can sell the stock without paying capital gains taxes, and reinvest the proceeds to provide an income stream for you as the donor. When the trust is terminated, the charity retains the remaining assets. You can set a payout rate that meets both your financial objectives and your philanthropic goals; however, the donation is irrevocable.

Another option is a charitable lead trust (CLT), which in many ways is a mirror image of a CRT. With a typical CLT, the charity receives the income stream for a specified time; the rest goes to your beneficiaries. You receive no tax deduction for transferring assets unless you name yourself the trust's owner, in which case you will pay taxes on the annual income. Other philanthropic options include donating directly to a charity or private foundation and taking a tax deduction.

Managing a concentrated stock position is a complex task that may involve investment, tax, and legal issues. Consult professionals who can help you navigate the maze.

IMPORTANT DISCLOSURES The information presented here is not specific to any individual's personal circumstances. To the extent that this material and/or website concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials and/or website are provided for general information and educational purposes only based upon publicly available information. Information throughout these materials and/or website, whether stock quotes, charts, articles, or any other statement or statements regarding market or other financial information, is obtained from sources which we, and our suppliers believe to be reliable - we cannot assure the accuracy or completeness of these materials and/or website. These materials and/or website do not constitute a complete description of our investment services or performance, and nothing in this information should be interpreted to state or imply that past results are an indication of future performance. There are not warranties, expressed or implied, as to the accuracy, completeness, or results obtained from information contained within these materials and/or posted on this website or any "linked" website. The information in these materials and/or website may change at any time and without notice.    This communication is strictly intended for individuals residing in the state(s) of CA. No offers may be made or accepted from any resident outside the specific states referenced.

Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2012.