Help Your Clients Take Control of Their Retirement Assets

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By Jim Wagner, President & CEO, Trust Administration Services - Do you have clients that are frustrated with their retirement plans because of limited investment options or poor investment performance? Today many accountants are finding the answer to this question is a resounding YES.

It is easy to understand why. It is estimated that investors lost in excess of $7 trillion in the equity markets from 2000 to 2002. This fact, combined with an uncertain economy, ongoing market volatility and a low interest rate environment has caused many investors to go looking for alternatives.

Fortunately, investors today have more opportunities to exert control over their retirement plan assets. Thanks to the Economic Growth and Tax Reconciliation Act of 2001 (EGTRA), employees now have greater access to their funds held in employer-sponsored retirement plans. In addition, with the growth of self-directed IRAs, investors now have the freedom to expand their investment options into assets which have heretofore been utilized primarily by high net worth individuals.

Accessing Retirement Plan Assets

Thanks to the portability provisions of EGTRA, many defined contribution plans, including profit sharing, 401(k) and ESOP plans allow non-hardship in-service withdrawals.

Prior to EGTRA, employees were only able to access their funds due to a financial hardship or triggering event. To qualify for a hardship withdrawal, distributions had to be made for one of the following reasons:

Medical Care - Medical care for the employee, the employee s spouse, and any dependents of the employee.

Principal Residence - the purchase of a principal residence by the employee.

Tuition And Related Educational Fees - post-secondary education needs of the employee, the employee s spouse, and the employee s children and dependents.

Preventing Eviction – to prevent the eviction of the employee from his or her principal residence or the foreclosure on the mortgage for that residence.

A triggering resulted from the attainment of normal retirement age, death, disability, plan termination or separation from service.

Under the new rules, if the employer plan permits, employees now have the ability to take in-service withdrawals. Eligible funds include profit sharing accounts and matching contribution accounts under a 401(k) plan.

However, elective deferrals under a 401(k) plan are subject to more restrictive provisions than profit sharing dollars. Generally elective deferrals may not be distributed prior to death, disability, attainment of age 59½, separation from service, or plan termination.

The portion of an employee's vested account balance which is eligible for an in-service withdrawal depends on the length of time the employee has participated in the plan.

If an employee has participated in his or her employer s profit sharing plan for fewer than five years, the employee may not receive an in-service withdrawal of funds that have been credited to his or her account for less than two years at the time of the in-service withdrawal (see Revenue Ruling 71-295). This rule, known as the “Two-Year-Bake Rule,” states that the dollars must remain in the employee s account for two years before he or she is eligible to receive the dollars as an in-service withdrawal if the employee has not participated in the plan for five or more years.

If an employee has been a participant in his or her employer s profit sharing plan for five or more years, the Two-Year-Bake Rule does not apply (see Revenue Ruling 68-24).

The Power and Lure of Alternative Investments

According to Merrill Lynch's World Wealth Report (2004), more and more investors are turning to alternative investments in search of performance, better management of portfolio volaitility and wealth protection.

Let's take a look at the alternative investments which are attarcting investors. These include, but are not limited to, real estate, tax liens, mortgages, trust deeds and partnerships. Many of these non-equity-based investments provide a good defense against stock market dips, since there tends to be a low correlation between these investments and the stock market's returns over time. In addition, yields generated by these investments are often higher compared to traditional investments.


Stock Dividends – Dow Jones Industrial Average 2.31%
Treasuries – one year maturity 2.18%
Certificate of Deposit – one year maturity 2.14%
Mutual Fund Money Market Accounts .54%
Trust Deed 6% - 10%+

* estimated average annual return, as of July 27, 2004
Self-Directed Retirement Accounts

Financial institutions offering retirement plans to the public have traditionally limited the types of assets that investors can hold. The vast majority of employer-based retirement plans and IRA custodians offered only marketable securities like stocks, bonds and mutual funds. However, there are a dozen or so independent (non-product source) IRA custodians located across the United States, such as Trust Administration Services Corporation (TASC) in Carlsbad, California (

TASC, a subsidiary of First Regional Bank, allows clients to invest in both traditional and non-traditional assets. Such firms do not sell investment products or offer advice to clients; however, their experienced staff helps investors and their advisors with some of the more technical aspects of IRA rules and regulations, as well as the ins-and-outs of alternative assets.


Investors today are more informed, more empowered and more engaged in the management of their financial lives than ever before. This is good news for accountants! Individuals are turning to their accountants in greater numbers asking for advice and for good reason. Tax professionals are perceived as trustworthy, conservative, and knowledgeable about taxes. Accountants who familiarize themselves with the portability provisions under EGTRA and the benefits of self-directed retirement plans will be positioned to become one of their clients trusted advisor.

James R. Wagner is the president and chief executive officer of Trust Administration Services Corp., where he is responsible for strategic planning, product development, implementation of budget and business plan, building the company's infrastructure and maintaining a high quality of service. He brings to Trust an extensive background as an entrepreneur, a legal background in the securities and trust industry, and over 40 years experience in the financial services arena. Previously, Wagner founded Transcorp Pension Services, a trust administration services company where he served as a director and CEO until he sold the company and helped start an Internet communications company. Wagner began his career as an attorney in Kansas City, Missouri and later in Denver, Colorado. He also served as director, vice president and general counsel for Westamerica Financial Corporation and Lincoln Trust Company. Wagner received his BA degree from the University of Missouri and his Juris Doctor with an emphasis on corporate and tax law from the University of Missouri at Kansas City School of Law. More information about his company is available at

The information in this article is provided for personal, educational and informational purposes only and does not constitute a recommendation or endorsement with respect to any company, security or investment. All investments involve risk, including the possible loss of principal. Individuals should work closely with their accountant, financial advisor, and/or attorney before implementing any significant change to their portfolio.

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