The Retirement Plan for Everyone
Today more than ever before, one of the greatest challenges facing American workers is ensuring their financial security in retirement.
With uncertainty over the adequacy of Social Security to meet the needs of future retirees, Americans forced to rely more heavily on their own resources to support their retirement lifestyle.
At the same time, the world of employer based pensions is also changing. Each year, there are fewer and fewer employer-sponsored defined benefit plans--the kind of plan that assures employees that they will receive a dependable income throughout their retirement years. Today, employees must make an affirmative decision to put money aside for their retirement. And even when an employer retirement plan is available, employees may be required to make most or all of the contributions.
How can I begin to save for retirement?
Individual retirement arrangements (IRAs) are one of the most viable tools to ensure a secure retirement.
Traditional IRAs offer
What are the basic contribution restrictions?
The requirements for contributing to a Traditional IRA are few.
You can contribute if
You can contribute each year up to
If eligible, your spouse may be able to contribute the amounts listed above to his or her traditional IRA as well.
Are all traditional IRA contributions tax-deductible?
One of the immediate benefits of contributing to a Traditional IRA is the potential income tax deduction. Traditional IRA contributors receive a deduction if:
For those who are participants in an employer sponsored retirement plan, Traditional IRA deductibility is gradually phased out above certain income levels. Contributions can still be made on a nondeductible basis.
Should I Contribute if I can’t take a deduction?
Yes! There are significant benefits to making Traditional IRA contributions, even if they are not tax-deductible.
A nondeductible contribution
Am I eligible to take a tax credit for my IRA contributions?
If you fall within certain income limits, you may be eligible for an income tax credit of up to 50 percent of your retirement savings contributions that do not exceed $2,000. An eligible individual is someone who is
Please see a competent tax advisor to determine if you qualify for this credit.
Can Traditional IRA assets be moved?
Traditional IRA holders can take comfort in the fact that their Traditional IRA assets are always available to them, and can be moved to certain IRA’s or retirement plans.
Traditional IRA assets may be
Can other assets be combined in a Traditional IRA?
Contributions made by an employer under a simplified employee pension (SEP) plan are actually contributed to a Traditional IRA, and can be combined with other Traditional IRA contributions. Assets from a qualified retirement plan, 403(b) plan, governmental 457(b) plan, or savings incentive match plan for employees of small employers (SIMPLE) plan can also be moved to a Traditional IRA.
When can I use my Traditional IRA assets?
Unlike ,most employer-sponsored retirement plans (in which access is limited to events such as a change of employment, plan termination, reaching retirement age, death, or disability), access to Traditional IRA assets is always guaranteed. If withdrawn before reaching age 59 ½, however, a 10 percent early distribution penalty applies unless you qualify for one of the following exemptions.
Am I ever required to distribute assets from my Traditional IRA?
Traditional IRA holders who turn age 70 ½ must begin to take annual distributions from their Traditional IRAs. These distributions are generally based on the Traditional IRA account balance divided by an applicable distribution period. Because the purpose of Traditional IRAs is to provide for retirement-not to be a tax shelter-IRA holders who fail to take their required distributions are subject to a hefty IRA tax penalty.
A Tax-free Source of Retirement Income
Concern regarding the instability of Social Security continues to grow, and Americans are looking for new ways to secure their financial future. The Roth IRA gives you the option to invest after-tax dollars today, let the investment grow tax deferred, and take qualifying withdrawals tax free.
ROTH IRA FAQ’s
Is investing for retirement important?
Many ideals are changing in today’s society.
Individuals need to take the lead in building their retirement nest egg if they want to live comfortably during retirement.
What makes the Roth IRA unique?
Unlike any other type of IRAs, your Roth IRA can provide you with tax-free income during your retirement. Your money going into the Roth IRA is taxed; your money later withdrawn, which may potentially include significant amounts of earnings, is tax-free if you follow certain requirements.
Two factors make this possible
Who is eligible?
Unlike the Tradition IRA, there is no 70 ½ age limit on making contributions. You must, however, have earned income equal to the amount you contribute, and your modified adjusted gross income (MAGI) must be below a certain amount for 2013:
If your MAGI is within the following phase-out ranges, you may make a partial prorated contribution.
The phase-out ranges for 2009 - are $105,000-$120,000, $166,000-$176,000, and $0-$10,000, respectively.
If your MAGI exceeds these limits, you are not eligible to make Roth IRA contributions. You might, however, consider a Traditional IRA, which generally does not have income restrictions and also offer certain tax advantages.
If I am eligible, how much can I contribute?
The maximum amount per year is $5,500 for 2013. In addition, if you reach age 50 or older be the close of the taxable year, you may also make a catch-up contribution up to $1,000. As discussed previously, however, there are income thresholds that may reduce the amount you can contribute.
Even though I cannot deduct my Roth IRA contributions, is there any income tax credit available?
If you are an eligible individual and fall within certain income limitations, you may be eligible for a tax credit of up to 50 percent of your retirement savings contributions that do not exceed $2,000. An eligible individual is defined as someone who is
Please see a competent tax advisor to determine if you qualify for this credit.
When can I use my Roth IRA assets?
If you satisfy two conditions, you may take tax-free and penalty-free withdrawals from your Roth IRA. First, a Roth IRA must have been open for minimum of five years. Second, the withdrawal must be made after one of the following events occurs:
Distributions that meet the above requirements are referred to as “qualified” distributions. While you may take distributions from your Roth IRA at any time, distributions that are not qualified are subject to taxes ( and in some cases early distribution penalties) to the extent they might exceed your aggregate contributions to Roth IRAs.
Withdrawing your Retirement Plan Dollars
You’ve worked hard to save money for retirement. You’ve made contributions to your IRA, to an employer-sponsored retirement plan, or perhaps to both. Now the time has come to withdraw some of your retirement assets. It’s time for a distribution.
Understanding when and how distributions can or must be taken, and the options available at such times, is vital if you hope to make tax-wise decisions regarding your retirement plan assets. For specific details about receiving distributions form a particular type of retirement plan, seek the advice from a competent tax professional.
When can I take a distribution?
Taking a distribution is much easier wit IRAs than with most employer-sponsored qualified retirement plans. IRA assets are essentially available on demand. Qualified plans, on the other hand, generally require an event-known as a “triggering event”- to occur before assets can be withdrawn. These events may differ slightly from plan to plan, but generally include
Some plans allow distributions while still employed, without requiring a true triggering event. These distributions are known as “in-service withdrawals.”
Are there any age restrictions?
Whether the plan is an IRA or a qualified plan, withdrawing funds before age 59½ generally means paying an IRS penalty of 10 percent of the amount withdrawn, with certain exceptions.
These exceptions include
Withdrawals after age 59½ are not subject to the IRS penalty.
Am I required to take distributions?
Congress’ purpose in creating IRAs and qualified plans was to help make retirement more secure, not to provide tax shelters that would delay taxation indefinitely. Congress, therefore, established age 70½ as the time when distributions from retirement accounts are generally required to begin.
Qualified retirement plan participants may have the option to delay distributions until retirement, if they remain employed after age 70½ and are less than a five-percent owner.
How is the required minimum distribution calculated?
Generally, the required minimum distribution is calculated bu dividing the participant’s year end balance by the applicable distribution period found in the Uniform Lifetime Table, which is provided by the IRS.
How are distributions taxed?
When withdrawn, contributions, plus the tax-deferred earnings, are generally included in ordinary income and taxed in the year distributed. However, Traditional IRAs and some qualified plans do not allow after-tax contributions. These amounts are not taxed when distributed, but their tax-deferred earnings are.
Are there options to reduce my tax liability?
Special tax options may apply to certain distributions form qualified plans. If the distribution qualifies, income tax liability may be reduced by using
Can distributions be rolled over?
Distributions from Traditional IRAs or qualified plans that exceed amounts needed to satisfy the required minimum distributions rules may be eligible plan such as an IRA, or to an eligible employer-sponsored retirement plan.
Under the portability rules of the Economic Growth and Tax
Relief Reconciliation Act of 2001 (EGTRRA), rollovers from qualified retirement plans can be rolled to another qualified retirement plan, IRA, 403(b) or eligible 457(b) deferred compensation plan. The surviving spouse of the employee that takes an eligible rollover distribution may apply the rules as if he spouse were the employee.
Are there special rules for beneficiaries?
Both IRAs and qualified plans allow the naming of beneficiaries, in the event that the IRA holder or plan participant dies before all assets are paid out.
Depending on the age of the IRA holder when he or she dies, and his or her relationship to the beneficiary may
Qualified Retirement Plan Beneficiaries
Qualified retirement plan beneficiaries in general have slightly
different options than IRA beneficiaries, and distribution options for qualified plan beneficiaries may differ from plan to plan. Qualified retirement plan beneficiaries may
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