For those who need their money now, market gyrations weigh heavily; “It will never be the same”

Most mornings, Brunswick resident Tom McGrath turns on his computer to check the newspaper and his 401(k). Lately, both have presented dire economic news.

McGrath estimates the value of his retirement investment has dropped by about 50 percent from its peak.

And he’s hardly alone. After a wild week in which the stock market sank like a rock in a pond, before moderating on Friday, many Capital Region residents are bewildered and stunned by losses in the accounts designed to finance their retirements.

Among some, there is anger. Among others, resignation. And some are taking action, moving to reduce their cost of living as concerns about the economy mount.

Latham resident Paul DeRusso, a 61-year-old retired state worker, said he’s avoiding taking unnecessary trips and buying clothes that aren’t an absolute necessity. Roy and Lee Burns, retired and living in Colonie, are delaying replacing their home’s drafty windows.

Getting some outside advice can make the difference between going it alone and going under, or making an idea work. For small businesses, this translates into soliciting advice and guidance from a board of directors or advisors. Some are trying it and finding the results more than worth the effort.

Kathleen Godfrey, sole proprietor of Kathleen Godfrey Financial Planning of Colonie, was in business four years when she heard about the idea of assembling an advisory board. She invited five professionals whom she knew and respected from various fields to serve for one year. They would meet once every two months and listen and comment while she presented her marketing plans and financial statements. In turn, Godfrey committed to donating one-quarter of her net profits at the end of the year to a charity of the advisory group’s choosing.

Since the 401(k) retirement plan was introduced more than 20 years ago, American workers have stashed away billions of dollars in this popular savings plan.

The 401(k), with its complicated rules, discrimination testing and fiduciary and administrative responsibilities, has generally not been an effective savings tool for self-employed people, independent contractors and small businessowners.

For these individuals, other retirement savings options, such as the SEP IRA, SIMPLE IRA, or Keogh generally proved to be more appropriate choices.

However, the Economic Growth and Tax Relief Reconciliation Act, which took effect Jan. 1, 2002, made the benefits of 401(k) plans available to individual, self-employed businessowners.

Known as Individual 401(k), Solo 401(k), Uni 401(k), etc., this retirement savings option offers more and better retirement planning opportunities than ever before.

Anyone who is self-employed can establish a Solo 401(k). This plan works well for independent contractors with 1099 income, home-based businesses, real estate brokers, attorneys, CPAs, consultants, small retailers and virtually any independent one-person enterprise.

What’s more, if two spouses work in the same business, each can set up a Solo 401(k) plan, effectively doubling their annual contributions

Why solo 401(k) plans are so attractive

The Solo 401(k) plan offers several unique benefits:

• Higher contribution limits than were previously allowed for the self-employed–A successful self-employed individual would be able to make a maximum contribution of $56,000 to a Solo 401(k) in 2005, because employee deferrals and employer contributions can be combined.

In contrast, SEP IRAs, money-purchase or profit-sharing plans do not allow salary-deferral contributions, and thus limit annual contribution rates.

The catch-up contribution (available to individuals over the age of 50) is also significantly higher for Solo 401(k)s than that offered by other retirement plans.

These increased contribution levels are a tremendous benefit, particularly as the future of the Social Security program remains unclear.

• Easier administration–Because the Solo 401(k) is for one person or for one person and his/her spouse, the usual discrimination testing required for larger 401(k) plans is not necessary.

All contributions are made with pre-tax dollars, and moreover, the employer portion of the Solo 401(k) plan is not subject to FICA or self-employment tax.

Tax returns are not necessary as long as the plan assets are under $100,000; above that amount, a streamlined filing is required.

• Rollover provisions–A Solo 401(k) plan can accept rollover funds from prior retirement plans including IRA, SEP IRA, SIMPLE IRA, or a previous employer’s 401(k), 403b, governmental 457, or Keogh, profit-sharing or money-purchase plan.

Consolidating all other retirement assets into one plan will save money on the custodial fees that are charged on multiple individual accounts in different places.

• Loans–It is common for employees to take loans against their 401(k) plan balances. Before the Solo 401(k), small business owners and the self-employed could not do this.

Instead, business owners needing to tap into their retirement funds were forced to take a cash distribution from their IRA or other retirement accounts.

As a result, they had to pay federal and state taxes on the withdrawal, and those under age 59 1/2 were also charged a 10 percent tax penalty.

In addition, those withdrawn funds could not be put back into their retirement account in the future.

Borrowing from an IRA is still not allowed; however, self-employed individuals can opt to roll over IRA and other retirement assets to a Solo 401(k), and then borrow from that 401(k). This loan is tax-free and penalty-free, providing it is repaid.

Every year thousands of people launch new businesses, and many take cash distributions from their retirement accounts to pay their start-up expenses.

In the process, entrepreneurs permanently lose a large portion of those assets to taxes and penalties.

The loan provisions of a Solo 401(k) offers small businessowners more flexibility in handling short-term cash-flow needs.

A solo 401(k) is not for everyone

Among other things, it comes with more responsibility than a SEP or SIMPLE IRA.

The assets in Solo 401(k) plans must be held by a trustee on the individual’s behalf. Individuals can act as their own trustee, if they follow the rules carefully, and prepare and retain proper documentation about the plan and its activities. Solo 401(k) plans are not designed for businesses planning to expand in the immediate future (beyond adding a spouse) because with each employer-employee relationship, new layers of administrative, fiduciary and financial responsibility are added.

When it comes to saving for retirement, successful sole proprietors will find the Solo 401(k) Plan an attractive and smart choice, thanks to its many benefits, above all the higher contribution limits and its loan and rollover provisions.

KATHLEEN GODFREY is owner and principal of Kathleen Godfrey Financial Planning in Latham.

The Women in Insurance and Financial Services has picked a local businesswoman as its next national president.

Kathleen Godfrey, owner of Godfrey Financial Associates Inc. of Latham, will assume the position of president at the association’s conference in San Antonio, Texas, this week. The conference runs from Oct. 22-24.

Godfrey started the business 15 years ago after her husband died.

“It’s hard enough to survive in the financial industry as a female,” she said, “but operating independently without the support of a parent company made it lonely at times as well.”

Godfrey said she found support early in her career by attending a WIFS meeting and has been helped over the years by WIFS mentors.

“Now I’m in a position to help other professional women nationwide in achieving their dreams,” she said.

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“I consider life the ultimate road trip, and financial planning is akin to map-making.”

For Kathleen Godfrey, owner of Godfrey Financial Associates, owning a financial firm in a traditionally male-dominated business is satisfying. It’s also her way of adapting to change.

“I find that my gender has become more and more an asset in this industry. Many people, particularly women, want to work with someone who can relate to them as people first, and not just an account within a large financial organization.”

Godfrey, 50, came from Buffalo in 1980 to attend UAlbany. With a graduate degree in finance and management, she worked for more than 81/2 years as a senior budget analyst for the state.

She wasn’t prepared for what happened next: She suddenly became a widow raising her two daughters alone. Then she was laid off from her state career in 1995.

What she did, she said, is reflected in these Bob Dylan lyrics: “And you better start swimmin’ or you’ll sink like a stone. For the times they are a-changin’.”

So, she started her own company.

Louise Frances, Vice-President of Godfrey Financial Associates was featured in Registered Rep, a national trade magazine. To read the full article, click on the link below: http://registeredrep.com/advisorland/career/finance_wirehouse_ria/

President Kathleen Godfrey is featured on local Public Television (PBS) series. Click the link below to view
http://helpwantedinteractive.org/episode-19/

COLONIE – It was the underwear comment that got to her, Kathleen Godfrey remembers.

A few days after Hurricane Katrina dismantled the Gulf Coast, Godfrey like many others, had had picked up pen and checkbook. But she also made a call to Robelynn Abadie, the immediate past president of Women in Financial Services, who lives and works in Baton Rouge, La.

“Robelynn said, `How often have you had to wear the same underwear two days in a row?’ and I said, `Probably less than a handful.’ She then said, `A lot of these people are wearing the same underwear every day.’”

“It was her way of saying they didn’t need money,” Godfrey said.

A financial planner herself with her own business in Colonie, Godfrey decided she would try to gather some goods through donations from clients and friends.

She then sent out an e-mail in early September announcing her own personal relief drive and that she would be accepting donations at her office on British American Boulevard.

She also provided a list of most-needed items, such as disposable diapers, baby items, shampoo, lotion, soap, toothpaste, deodorant and, of course, underwear.

She limited collection to just a week because, the note said, “time is of the essence.

Within a few days, the conference room was piled high with donations. She also got a discount on shipping from United Parcel Service and two commercial clients offered to pick up that cost.

Godfrey, 49, then enlisted, with the enticement of a pizza, her daughters, Carlene, 22 and Molly, 14, to help pack up the donations.

“That next day, I thought about the boxes making their way to people who have nothing,” Godrey recalled.

When the shipment arrived in Baton Rouge, Abadie acknowledged with a note: “It is so wonderful to know that others, just like you, are willing to go the extra measure.”

Abadie had begun her own collections because she was upset over the slowness of government to respond. All the goods donated to her went to churches, shelters and service groups who were helping the refugees coming out of New Orleans to Baton Rouge.

Godfrey’s efforts are in keeping with some of her other volunteer work. She is first vice president of the Hudson Valley Girl Scout Council and is a member of the board of directors of the Women’s Employment and Resource Center, a place which helps displaced homemakers find new employment.

The Women in Financial Services group is holding its national meeting next week, Godfrey said, and she is to be seated on the board of directors. But, more importantly, she said she’s thinking of what further can be done for the people.

“They’ve lost everything,” she said. “I’m especially sad for the many parents who can’t find their children and the children who can’t find their parents. And, Christmas is coming.”