June 30, 2020 | Category: Banking

Wealth Management Division, BPPR

Retirement is expensive. Supplementing social security income has become a reality faced by many retirees and future generations. Therefore, early planning for retirement is essential. During this process, it is important to be aware of and understand the savings vehicles specifically designed for retirement in Puerto Rico.

In Puerto Rico there are various Treasury Department-qualified vehicles through which contributions are tax-deferred until retirement. These include Individual Retirement Accounts (IRAs); 1165(e) Plans and Keogh Plans.

Individuals aiming to maximize their savings for retirement whose salaries account for 100 percent of their income can make annual contributions to an IRA or 1165(e) Plan. Self-employed individuals have the option of making annual contributions to IRAs and Keogh Plans. A Keogh Plan is a type of qualified retirement plan available for self-employed individuals, owners of unincorporated businesses, owners of more than 10 percent of a special partnership or a corporation of individuals, or individuals who earn a substantial portion of their income through self-employment.

Funds contributed to the plan are taxed when the participant receives them. The tax is determined according to whether the funds are disbursed in a lump sum or in partial payments. Funds received in a lump sum can be taxed at a special rate for capital gains while partial payments are taxed as ordinary income.

Keogh Plans are established through a trust. It is important to note that such a trust is considered a separate legal entity that provides additional protection against third-party claims. The trust receives the contributions, which can then be invested prudently. The trust is exempt from paying taxes on income generated by the investments.

For plans with more than one participant, federal regulations require that fiduciaries managing any plan that covers employees must exercise care, skill, prudence, and diligence when selecting investments. Among the factors that should be taken into consideration when making investments are: maintaining sufficient liquidity to allow the disbursement of benefits for participants who retire or resign; diversification to minimize the risk of losses; and seeking alternatives aimed at providing predictable growth without undue risks.

The type of plan is selected according to the specific circumstances of the individual or entity establishing it. Qualified types include pension, stock option and profit sharing plans. Pension plans can either be defined as benefit plans or defined contribution plans. We recommend the evaluation of vehicles such as Keogh Plans as part of your tax planning in conjunction with planning for retirement and the protection of assets. An important final point to note is that Keogh Plans, as with any other qualified retirement plan, must be established before the end of the taxable year of the participating individual or entity. The fiduciary services experts in Banco Popular’s Wealth Management division can work along with your financial advisors to help define the retirement strategies that fit you best.

The content of this material has been prepared for educational purposes and your independent consideration. This information does not contain, constitute or provide accounting, financial or investment advice. This material does not include or consider all the factors that may be relevant to your financial needs, it should not be considered as a personalized investment recommendation or a suggested course of action and is not intended nor should it be considered as investment advice. The information and overviews included are designed to help you understand some of the factors you should generally consider when evaluating the relevance of any financial strategy. By providing this information, we assume that you can evaluate this information and exercise your independent judgment. Banco Popular de Puerto Rico and / or its subsidiaries and affiliates do not engage in the provision of legal, accounting or tax advisory services. If you require legal, accounting or tax advice services, you should seek the services of a competent professional. Investment products are not insured by the FDIC, or by any other government agency, are not deposits or obligations and are not guaranteed by the Banco Popular de Puerto Rico or subsidiaries and/or affiliates; they involve risk and may lose value, including the loss of the invested principal.

Banco Popular de Puerto Rico offers numerous investment alternatives for IRA accounts. You can obtain detailed information at any of our branches to determine which investment alternative is best for you.

Your contributions to a Keogh Plan could be invested in investment products that are not insured by the FDIC, are not deposits or obligations, nor are they guaranteed by Banco Popular de Puerto Rico and involve risks, including the possible loss of the principal invested.

Wealth Management services are generally available to clients who maintain deposits and/or investments of $500,000 or more at Popular.