Financial Planning in Challenging Times

Presenter: Daintry Price, CFP

Day of Meeting: January 12, 2009

Daintry Price, CFP, and Fritz Bowman, co-­owners of Bowman Price Financial Advisors (BP), have a combined 50 years of experience advising people in Seattle.

Daintry's Talk

Daintry distributed a checklist of financial­-planning discussion topics that she uses as part of an initial consultation. She told us: “You start with what do you need to survive, and then go beyond simple survival.” She discussed the following topics:

  • Succession. Some of us have a partner in the business or might want to sell the business someday, and need to plan the handoff.

  • Qualified plans. These include retirement and other investment accounts.

  • Business structure. It’s important that you choose the right one for you, whether it be a sole proprietorship, a partnership, or a corporation. BP does not dispense tax advice; Daintry recommended that you discuss business structure and the various pros and cons with a certified public accountant (CPA), who will look at your previous three to five years of income. She did say that being a sole proprietor can allow you to apply all your deductions to your personal income, whereas an S-­corporation is a separate identity, so if the corporation goes bankrupt, you don’t.

  • Individual Retirement Account (IRA). Under age 50, you can put away $5,000 per year; over 50, it’s $6,000 per year. You may take money out for education or your primary home. With the traditional IRA, money goes in tax free and you then pay tax on the distributions, so it may make the most sense for someone in the 25% tax bracket on up. You must start taking distributions at age 701⁄2. In contrast, the Roth IRA is taxed money and no tax is paid when you take it out, so this may make more sense for someone in the 15­-18% tax bracket. There is no age requirement about withdrawals, though you must have had the plan for five years. You can pass a Roth on to your heirs.

  • Defined benefit plan. A company pension plan that locks you into paying the amount you set up every year.

  • Individual 401(k). Since about four or five years ago, this plan has been available to the sole proprietor or individual business owner. You need not file a tax return until you have $100,000 in the account. Unlike an IRA, you can take a loan on the amount and deduct it on your taxes, and you need pay only $75 to open one. Here’s an example of how the loan works: you set up paying yourself back over a five-­year period with interest. The Individual 401(k) gives you the most flexibility because of the amount you can put in; the maximum contribution for 2009 is $16,500.

  • Saving and investing. Daintry emphasized, “You have to start!” A member asked how one invests for a goal with a short term, e.g., three to five years. Daintry answered that you need a low-­risk investment that preserves what you have and gives you a fixed income. For saving, look for a money market account with a good rate or a flexible certificate of deposit (CD).

  • Professional liability insurance. Ask an independent property/casualty insurance agent for advice on professional liability insurance and whether you really need it.

Resources

Bowman Price offers a free initial consultation.

At www.expertplan.com, you can learn more about the Individual 401(k) plan and set one up.

More suggestions: the Small Business Administration (SBA), www.irs.gov, Guild archives, WA state tax phone number, consulting a CPA, community college courses.

Moderator: Robyn M Fritz

Notetaker: Beth Chapple

Location: Hugo House