|
You can "Rollover" your vested balance from a previous employer's retirement plan into an IRA in your name with no tax penalties.
You gain control over how the money is invested and all earnings on a Rollover IRA remain tax deferred. If you would like more information on how Evergreen Consulting, Inc. can assist you with your rollover, contact Max Poppel.
There are generally two different types of plans that are appropriate for the Individual Investor. - Americans love IRAs. Currently, according to the U.S. Government, there are more than $1.4 trillion in assets invested in
IRAs in this country, and this number is growing by leaps and bounds with no end in sight.
A large component of the popularity of IRAs is their simplicity. Anyone under age 70 1/2 with earned income can open one,
and your choice of investments is nearly unlimited. For 2008 individuals can contribute up to $5,000 annually tax-deferred,
$10,000 for couples filing jointly. For individuals that are over 50 or will reach age 50 on or before December 31, 2008,
there is an additional catch up contribution that may be made of up to $1,000 per person. You have until April 15 to contribute
to an IRA to enjoy the tax benefit for the previous year.
For anyone covered by an employer's plan, the amount of your contribution that you can deduct from your taxes is phased out
according to your adjusted gross income (AGI). However, there is no phase-out for anyone who is not covered by any other retirement
plan. You may also rollover distributions from another retirement plan into an IRA (refer to "Managing Your Retirement Plan
Distribution").
In the summer of 1997, the IRA landscape was completely altered by the Taxpayer Relief Act of 1997. Effective in 1998, this
legislation created several new retirement plan options and greatly changed the traditional IRA.
For the traditional IRA, a number of important changes have been made. The phase out of deductibility (for those covered by
another plan) has increased to between $53,000 and $63,000 for 2008 ($85,000 and $105,000 for couples filing jointly).
IRA owners can now tap their savings--up to a $10,000 limit--to pay for qualifying "first-time home buying expenses" and qualifying
educational expenses without incurring the 10% early withdrawal penalty-fee which normally applies to withdrawals made prior
to age 59 1/2; although they still have to pay income tax on the amount withdrawn. You can also withdraw money from your IRA,
subject to the same limitations stated above, to help a child or grandchild with up to $10,000 of first-time home buying costs
or for college costs.
The Taxpayer Relief Act of 1997 also created Education IRAs (Also known as Coverdell Education Savings Accounts). These allow
singles with annual incomes under $110,000 and couples with annual incomes under $220,000 to save up to $2,000 per child (under
18 years old) each year. Money can be withdrawn tax-free from these Education IRAs to fund most education and education-related
expenses.
Roth IRAs are one of the most exciting results of the Taxpayer Relief Act of 1997. They allow those whose incomes have exceeded
the deductibility limits for traditional IRAs to contribute $5,000 ($6,000 if 50 or older) a year after taxes to a Roth IRA.
While these contributions are not tax deductible, earnings, interest, and dividends are all tax-free. As long as the account
has been established for at least 5 years, and the account holder is older than 59 ½, distributions are all tax free.
Here's an example of the power of the Roth IRA (and tax-deferred compounding). If an 18 year old puts away $5,000 a year in
a Roth IRA for just four years-assuming a 10% rate of return--at the age of 65, he will have $1.5 million dollars that is
completely tax free!!!
In terms of the Roth IRA's eligibility, the phase out for singles is between $110,000 and $116,000 in adjusted gross income
(for couples it is between $159,000 and $169,000). Like the traditional IRA, you can withdraw up to $10,000 from your Roth
IRA for first time home buying and education expenses. In addition, contributions to a Roth IRA may be made after age 70 1/2
and the normal minimum distribution rules applicable after age 70 1/2 do not apply.
For those who are eligible for both traditional IRAs and Roth IRAs, the choice of which one to use should depend on whether
you think your income tax rate will be substantially lower in retirement (or when you plan to withdraw the money). The accounting
firm of Deloitte & Touche has calculated that the Roth IRA is slightly more profitable for people whose tax rates will be
the same both when they contribute and when they withdraw. But for people whose tax rates would be less at the time of withdrawal
than when they contributed, the traditional IRA, according to Deloitte & Touche, would be more profitable. Individuals with
incomes of less than $100,000 can roll their existing traditional IRAs over into Roth IRAs without the early distribution
penalty. But regular taxes will be due on the rolled over amount. (If the rollover was made before January 1, 1999, that taxable
amount may be reported pro rata over 4 tax years). Taxpayers with an adjusted gross income over $100,000 and married couples
filing separately are not eligible for rollovers. In general, financial experts agree that the most likely people to roll
over from a traditional IRA into a Roth IRA will be those who anticipate continuing in high tax brackets after retirement--since
withdrawals from the Roth IRA would be tax free.
Annuities come in a variety of forms, but most feature tax-deferred savings as well as a death benefit. There are three main
types: Immediate (provides regularly scheduled payments for a specified period of time, beginning when the annuity is purchased);
Fixed Dollar (at a predetermined future time-such as retirement--you receive a regular, predetermined minimum payments for
a specific period or life) or Variable.
Variable Annuities are perhaps the most widespread form of annuities today. This is how they work: your premium(s) are invested
in your choice of investment vehicles where they grow tax-deferred until a predetermined time when you can begin withdrawing
your money. Instead of being fixed, the amount of your payments will depend on how well your investment choices have done
based on fluctuations in the market. As values will fluctuate, when redeemed the annuity may be worth more or less than the
original cost. While Variable Annuities are more risky than Fixed Rate Annuities, they offer the potential for increased returns.
They also allow you to periodically adjust your portfolio, so that you can invest more conservatively as you near retirement.
For Additional Information Please Click Here For all employers, whether small or large, there is a myriad of plan options, ranging from those that are relatively simple
and easy to administer, to large scale plans with detailed reporting requirements.
SEP IRAs are a simple and practical alternative to traditional retirement plans. They are designed for self-employed individuals
(and employers with 25 or fewer workers) and feature employer contributions into individual IRA accounts that are set up for
the employer and-where applicable--each eligible employee. The simplicity of these plans, their high maximum contributions
(particularly appealing to sole proprietors), and their ease of operation (including reporting exemptions) have made them
extremely popular. Unlike traditional IRAs, all contributions are made solely by the employer. The maximum contribution is
25% of compensation (up to $46,000 in 2008).
Employers with 100 or fewer employees can establish a SIMPLE plan as either a 401(k) or a group of IRAs. SIMPLE plans allow
employees to make elective contributions and require employers to make matching or non-elective contributions. In 2008, employees
can defer up to $10,500 ($13,000 if 50 or older) of their salary per year into the plan--through salary reductions--on a tax-deferred
basis. Employer matching requirements vary but are usually either 2% - 3% of the employee's salary. The main advantages of
the SIMPLE plans are their salary deferral feature, ease of administration (no discrimination testing) and the low cost associated
with operating these retirement plans.
The 401(k) has become the retirement plan of choice in corporate America. However, 1/3 of those who have 401(k) plans available
to them choose not to participate.
Traditional 401(k) plans offer employees the opportunity to defer part of their salary on a pre-tax basis until retirement.
Employers have the option to provide matching contributions based on the amount each employee decides to defer. In 2008, employees
can make a maximum tax-deferred contribution of up to 100% of their salaries or $15,500 whichever is less ($20,500 for those
50 and older). This amount will be adjusted for inflation in future years.
A Traditional 401(k) plan is very flexible with regards to plan design. A company sponsoring this plan has the ability to
customize the plan to their organization. This includes structuring the matching contribution, vesting schedule, eligibility
rules, etc. However, with this freedom of design comes a higher administrative cost due to the complex reporting and administration
requirements.
403(b) plans are tax-deferred retirement plans for employees of certain tax-exempt organizations such as schools, foundations,
and hospitals. In addition to the employee contributions, 403(b) plans may also feature employer contributions. Beginning
in 1997, tax-exempt employers were permitted to sponsor 401(k) plans.
ESOPs are stock bonus plans. The basic purpose of an ESOP is the investment of plan assets in employer securities. ESOPs may
be used to provide a market for a company stock, to increase the company's cash flow, as an estate planning tool for the owner
of a closely held corporation and as a means of financing a company's growth.
With a Keogh plan, you can save up to 25% of your net income (maximum of $46,000). Profit Sharing Plans are the most flexible and least complicated kind of Keogh plan. They allow the employer the option of
contributing a variable percentage from 0% to 25% of the employee's compensation up to $46,000 for 2008 ($51,000 if combined
with the 401(k) provision). This means that in a good year, you can contribute more, and if, there's a bad year, you can cut
back, even contribute nothing. However, according to the IRS, over the long run, contributions must be "substantial and recurring."
Contact the IRS to ascertain what constitutes "substantial and recurring."
Money Purchase Plans are not based on employer profits. Contributions must be made every year and must be a fixed percentage
of each participant's compensation.
This percentage can be as low as 3% of compensation and, in 2008, as high as 25% of compensation up to $46,000. However, after
an annual contribution percentage is established when the plan is set up, you cannot change it. The IRS even levels penalties
if you fail to meet the required contribution level.
Paired plans are a combination of Money Purchase and Profit Sharing Plans. Until the enactment of the Economic Growth & Tax
Reform & Refund Act (EGTRRA) of 2001, Paired Plans allowed a contribution from 10% up to 25% of compensation (with 15% as
the Profit-Sharing maximum). This meant that in a good year, you could contribute the full 25%, but in a year when cash was
short, the contribution could drop as low as 10%. Many employers particularly valued this flexibility, but the enactment of
EGTRRA essentially did away with the need for Paired Plans. By increasing the maximum contribution limit for Profit Sharing
Plans to 25% of compensation there is no current need to maintain a Money Purchase Pension Plan in order to reach the combined
cap of 25%. Additionally, Money Purchase Pension Plans had to be funded at the same percent level each year while Profit Sharing
Plans are completely flexible from year to year with annual additions ranging anywhere from 0% up to 25%.
Whatever retirement plan you participate in, if there is an employer match, you should try and contribute at least the maximum
amount that the employer matches (typically the match is between 2% and 3 % of salary). This is essentially free money, and
if your contribution is less than the maximum match, you are simply throwing it away.
For more information on Employer Sponsored Retirement Plans please contact our Retirement Plans Division at (423) 756-3828
x114
|
|
|