Individual Retirement Accounts and Employer Retirement Plans

1. Individual Retirement Accounts and Employer Retirement Plans Presented by: Diana Theis

2. Retirement Accounts • Traditional IRA • Roth IRA • Simplified Employee Pension Plans • Employer Retirement Plans

3. Investments Statistics Complied by the Federal Reserve Board as of 12/2007 • Defined Contribution Plans = $3.5 trillion • IRAs = $4.7 trillion

4. Two Types of Individual Retirement Accounts, Which One is Best for Me? • Eligibility rules determine the IRA (or IRAs) to which IRA an individual may contribute • An individual may be eligible for only one, both, or neither of the IRAs

5. Traditional IRA Features • Contributions • Deductible • Earnings • Tax deferred • Distributions • Required distributions begin at age 70 ½ • Taxable when withdrawn

6. Roth IRA Features • Contributions • Nondeductible • Earnings • Tax deferred • Distributions • Tax-free

7. Eligibility Younger Than Age 70½ Roth IRA Traditional IRA MAGI Ranges Compensation

8. IRS Form W-2

9. Contribution Limits

10. Example—Contribution Limit 2008 • Lesser of annual contribution limit, or • 100 percent of compensation Heidi: Age 22, $3,600 MAGI Traditional IRA Roth IRA $2,500 $2,000 $1,000 $ 1,100 $1,600 $2,600 Aggregate Contribution Amount

11. Simplified Employee Pension Plan (SEP)

12. Simplified Employee Pension Plan (SEP) • SEP contributions are deposited into the employee’s traditional IRA by employer • Employer receives a tax deduction for all SEP contributions made for all employees • Employee’s retirement plan savings are increased by SEP contribution • Traditional IRA owner (employee) pays tax on amounts when withdrawn from the traditional IRA

13. SEP and Traditional IRA Documents • Creates the SEP Plan for employer and employees • Defines employee eligibility • Accepts the SEP contribution • Employer takes deduction • Assets are taxed when distributed

14. SEP Contribution Limits

15. Allowable Compensation • W-2 wages for common law employees • Earned income for self-employed people • Subject to adjustments • IRS Publication 560 provides guidance and a work sheet

16. Employer Retirement Plans

17. Employer Retirement Plans • 401(a) qualified plans • Profit sharing • 401(k) • ESOPs • Stock bonus • 403(a) qualified employee annuity plans • 403(b) tax-sheltered annuity plans • 457(b) deferred compensation plans for state and local governments • Money purchase • Defined benefit • Federal thrift savings

18. 401(k) or 403(b) or 457(b) Employer Sponsored Retirement Plans An additional ‘catch-up’ contribution of $5,000 is allowed for employees age 50 or older.

19. Elective Salary Deferral • The salary deferral is not included as income in the year it is deposited into the employer plan. This may benefit the individual by keeping him in a lower tax bracket. • Included as taxable income for the year withdrawn from the employer plan.

20. Employer Contributions to Defined Contribution Plans • An employer may choose to make a matching contribution into the employee’s retirement account. • The employer contribution is used as a tax deduction for the employer.

21. Employer Sponsored Retirement Plans • Employees may have various investment options available through the plan. • All funds are managed by the administrator of the plan, not by the employee. • Employees may access their plan balance through a web site, or a paper statement provided by the plan administrator.

22. Retirement Plan Distributions

23. Traditional IRA Distributions • Younger than age 59½ • IRS 10 percent early distribution penalty applies • There may be an exception to the penalty • Age 59½ and older • No IRS penalty • Required distributions begin at age 70 1/2

24. IRA Penalty-Free Distributions • First-time homebuyer • Medical expenses • Health insurance premiums • Higher education expenses • Qualified reservist • Substantially equal periodic payments • IRS levy • Conversion (traditional IRA only) • Disability • Death • Age 59½ (normal)

25. Employer Plan Distribution Reasons • Separation from service • Retirement • Plan termination • Death • Disability • Divorce

26. Moving Assets Between Like Accounts—Rollovers and Transfers

27. Method of Moving Assets Employer Plan Employer Plan Plan Rollover or Direct Rollover Rollover or Direct Rollover

28. Thank-you! Have a good day.