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Module 1.4

Module 1.4. Retirement Pensions. Questions to ask a potential employer “ When do company contributions start? ” “ When will my account be credited with 100% of company ’ s contributions as my own? ” “ Does your company do a graduated vesting? ”. Retirement Pensions. Defined-Benefit Plan

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Module 1.4

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  1. Module 1.4

  2. Retirement Pensions Questions to ask a potential employer “When do company contributions start?” “When will my account be credited with 100% of company’s contributions as my own?” “Does your company do a graduated vesting?”

  3. Retirement Pensions Defined-Benefit Plan Traditional company pension plan; ultimate retirement benefit is definite and determinable as a dollar amount Example is a military retirement pension • Funded mostly by the employer • Responsibility for payment of the benefit & risk on funds invested rests with the employer • Like separation pay & unemployment pay, it is considered a type of compensation

  4. Retirement Pensions Defined-Contribution Plan A qualified retirement plan in which the contribution is defined yet the ultimate benefit to be paid is not Examples are 401(k) and 403(b) plans, Roth 401(k), Thrift Savings Plan (TSP), SIMPLE IRA, SEP, Employee Stock Ownership (ESOP), and profit sharing • Contributions are from the employee • A portion may/may not be matched by employer • Each participant has an individual account • The benefit at retirement depends on amounts contributed + investment performance of account • Investment risk may rest solely with the employee due to opportunity to choose from a number of investment options

  5. Thrift Savings Plan (TSP) Options • Leave funds in TSP account • Roll your TSP into another eligible account i.e., IRA, annuity, civilian 401(k) • Withdraw your TSP funds completely Some funds may include tax-exempt contributions! Contact ThriftLine (1-TSP-YOU-FRST) www.tsp.gov

  6. Early TSP Withdrawal Example Member @ 42 withdrawals $10,000 balance from TSP Before 59 1/2 Penalty Taxes A premature withdrawal penalty costs $1,000 Not waiting will cost a minimum of $3,000! Factor in a minimum 20% tax rate that will cost $2,000

  7. New Tax Considerations • No more automatic extension on the April 15th tax filing deadline • Interest will be charged on unpaid amount • You may have to start paying state taxes again if you weren’t (this includes spouses) • No more tax exempt allowances • No more exemptions from property taxes, sales taxes, etc…

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