Invesco SIMPLE IRA Employee guide

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1 Invesco SIMPLE IRA Employee guide

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3 Invesco SIMPLE IRA A Retirement Strategy for You Retirement. The word evokes dreams of relaxation and adventure. The sad fact is many people won t realize their dreams because of inadequate financial planning. Now your employer is offering a benefit that could make you an exception. It s called a Savings Incentive Match Plan for Employees SIMPLE IRA. What is the Invesco SIMPLE IRA? An Invesco SIMPLE IRA is a retirement plan offered by your employer that allows you to make pre-tax salary deferral contributions along with your employer s contributions. 1 All contributions are deposited in your Invesco SIMPLE IRA. How does it work? Your employer will choose from two contribution options: A dollar-for-dollar match of your contribution up to 3% of your compensation (in two years of any five-year period an employer can elect to reduce the match to 1% of compensation). A nonelective contribution of 2% of each eligible employee s compensation, whether or not an employee elects to participate in the plan. 2 Who should invest in an Invesco SIMPLE IRA? Employees who are looking to: Begin retirement savings within a fund family that has a history of consistent investment discipline and money management expertise. Close the gap between Social Security income and retirement expenses. Reduce tax bills. Receive a tax credit. Increase tax-deferred compounding of earnings. Take full advantage of benefits offered by an employer. 1 You can participate in a SIMPLE plan if you have earned at least $5,000 in compensation from your company in any prior two years and expect to earn at least $5,000 in the current year. 2 Salary maximum of $245,000 in 2011 This information is not intended as tax advice. Investors should consult a tax advisor. Invesco SIMPLE IRA: Employee guide 1

4 Six Reasons to Open an Invesco SIMPLE IRA Key benefits of an Invesco SIMPLE IRA Higher contribution limits. You can make much larger contributions than those allowed for traditional IRAs. For instance, in 2011, the traditional IRA limit is $5,000 versus $11,500 allowed for SIMPLE IRA participants. 1 Contributions from your employer. You ll receive contributions from your employer in one of two ways: Your employer matches your salary deferrals dollar for dollar, up to 3% of compensation (not to exceed the deferral limit). 2 Your employer contributes 2% of each eligible employee s compensation (limited to $245,000 in 2011) 3, whether or not an employee elects to make salary deferrals. Tax deduction. Your salary deferral contributions are made automatically and reduce your federal income tax liability. Plus, you may benefit from tax-deferred growth of contributions and reinvested dividends. Tax credit. Depending on your tax filing status, marital status and adjusted gross income (AGI), you may qualify for a tax credit for up to 50% of your contribution. See page 7 for more information. Employee-directed investing. Using any Invesco fund, you may create your own investment portfolio based on your personal investment objectives. Immediate ownership. Both your contributions and your employer s are always 100% vested. And if you change employers, you do not forfeit any contributions. 1 For 2011, catch-up contributions of $1,000 for traditional IRAs and $2,500 for SIMPLE IRAs are available for investors 50 or older. 2 Your employer has the option to reduce the dollar-for-dollar matching contribution to as low as 1% of salary in any two out of five years. 3 Subject to cost of living adjustments Unless specifically stated otherwise, any tax information presented in this guide is based on federal income tax law, which may differ from state or local income tax laws. 2

5 Tax-Deferred Investments May Help Build Savings Faster You may accumulate assets faster in a SIMPLE IRA than in a taxable savings account. Contributions plus earnings (including reinvested interest, dividends and capital gains) compound tax deferred until you take a distribution. The hypothetical example below shows how much faster assets can grow in a 25-year period in a SIMPLE IRA than in a taxable account. Please keep in mind that any withdrawals made prior to age 59½ will be taxed as ordinary income and may be subject to an additional 10% or 25% tax penalty. 1 Also, consider your current and anticipated investment horizon and income tax bracket before making an investment. The Power of Tax-Deferred Compounding The chart below shows how an annual $4,000 SIMPLE IRA contribution earning 6%, compounded annually for 25 years, will grow approximately $51,000 more than the same investment in an account that is taxable at 25%. Tax Deferred $ 300,000 Taxable $232, ,000 $181, , Years This hypothetical example and estimate of a 6% average annual total return are for illustrative purposes only and are not intended to represent the performance of any particular investment product or a real investor. Your actual return and tax bracket aren t likely to be consistent from year to year, and there is no guarantee that a specific rate of return will be achieved. The example assumes that an individual with a $70,000 salary made annual $2,000 salary deferrals and that the contributions were matched dollar for dollar up to 3% of compensation for an additional $2,000, totaling $4,000. It also assumes the investor was in the 25% tax bracket. A 25% federal tax bracket is based on a $34,500 to $83,600 income for an individual filing a single return and a $69,000 to $139,350 income for persons filing a joint return for tax year Tax rates and brackets are subject to change. You will be taxed on the money when you withdraw it from your retirement account. Lower maximum tax rates on capital gains and dividends would make the return of the taxable investment more favorable, reducing the difference in performance between the two. This information is not intended as tax advice. Investors should consult a tax advisor. 1 Early withdrawals taken from a SIMPLE IRA within the first two years after the account is established are subject to a 25% premature withdrawal penalty. Early withdrawals taken from the account after two years are subject to a 10% premature withdrawal penalty, unless an exception applies. Invesco SIMPLE IRA: Employee guide 3

6 Invesco SIMPLE IRA Q&A What is a SIMPLE IRA? A SIMPLE IRA is a retirement plan that enables employees of small businesses to make pre-tax payroll deduction contributions in conjunction with a matching or nonelective contribution from the employer. Contributions are made to each eligible employee s Invesco SIMPLE IRA and invested in Invesco funds. Who are eligible employees? Eligible employees may be restricted to those who earned at least $5,000 from the employer in any two preceding years and are expected to earn at least $5,000 in the current year 1. Nonresident aliens and employees subject to collective bargaining agreements may be excluded. Your employer will provide you with a Summary Description which will outline eligibility requirements for your Plan. What information must employers give employees about the retirement plan? By Oct. 1, employers establishing a new plan must provide to each eligible employee copies of the Plan Document and the SIMPLE IRA Custodial Agreement and Disclosure Statement. When a plan is amended, employers must provide copies of the amendment by Nov. 1, along with an explanation of its effects on employees. Each year, employers must provide the Employee Notification and a Summary Description of the plan to eligible employees by Nov. 1. What information does Invesco provide employees? Quarterly and annual participant account statements. IRS Form 1099-R for reporting distributions and Form 5498 for reporting contributions. A nontechnical SIMPLE IRA Disclosure Statement with their account application. Are Invesco SIMPLE IRA investments guaranteed? No. The historical returns of Invesco funds are not a guarantee of future performance. The earnings and principal value of an investment in an Invesco fund will vary with market conditions. All investments are subject to certain risks so that shares, when sold, may be worth more or less than their original cost. 1 Employers may designate less restrictive requirements at their discretion. In addition, although the IRS does not impose an age or years of service requirement, minors may not open an Invesco SIMPLE IRA. 4

7 Also note that if employer contributions are made to a SIMPLE IRA other than an Invesco SIMPLE IRA, the other SIMPLE IRA may provide different rates of return and may have different terms concerning, among other things, transfers and withdrawals of funds from the SIMPLE IRA. Are Invesco SIMPLE IRAs entitled to a reduced sales charge? Invesco SIMPLE IRAs may receive a reduced sales charge on Class A shares based on the aggregate value of the plan. Contributions Are there any fees? Yes. The annual maintenance fee is currently $10 per employee and is automatically deducted from your account. Must an employer contribute annually to a SIMPLE IRA? Option A: 3% match contributions. A dollar for dollar match, up to 3% of each participating employee s compensation (match not exceeding $11,500 for employees younger than 50 and $14,000 for employees 50 and older for 2011) Option B: 2% non-elective contribution. A contribution equal to 2% of each eligible employee s compensation (compensation limited to $245,000 for 2011 subject to cost-of-living adjustments), whether or not they elect to make salary deferrals How does the match work? It s a dollar-for-dollar match up to the amount deferred by the employee, but not more than 3% of the employee s compensation. For example, a participating employee with compensation of $30,000 who defers 3% or more of his or her salary could receive a match of $900. How does the nonelective contribution work? The 2% nonelective contribution is given to all eligible employees whether or not they make salary deferrals. It s based on a maximum compensation of $245,000 for For example, an individual making $300,000 would receive a contribution of $4,900 (2% of $245,000) in Subject to cost-of-living adjustments Invesco SIMPLE IRA: Employee guide 5

8 Invesco SIMPLE IRA Q&A (continued) How much can an employee contribute to a SIMPLE IRA? Employees may defer any percentage of compensation up to $11,500 ($14,500 if 50 or older) for Can an employee stop making salary deferrals? Yes, employees can stop deferrals at any time by contacting their employer. However, it may not be possible to resume deferrals until the next plan year. Check your plan documents. Must all employees make contributions to a SIMPLE IRA? No. Any eligible employee may elect whether to make salary deferrals. There is no requirement that a minimum number of employees participate in a SIMPLE IRA. Do traditional IRA contributions count as part of employee salary deferral (SIMPLE) contributions? No. However, SIMPLE IRA contributions may affect the deductibility of an employee s or spouse s traditional IRA contributions. Talk to your tax advisor for more information. Who is responsible for selecting the funds for the plan? Each employee is responsible for choosing his or her own fund(s). Employees have the ability to invest in one or more of more than 100 Invesco funds and are encouraged to consult their financial advisor to determine which investments may suit their personal investing goals. If a fund selection is not made, Invesco will invest all contributions in the Cash Reserve Shares of Invesco Money Market Fund. An investment in a money market fund is not a deposit in a bank and is not insured by the Federal Deposit Insurance Corp. or any other government agency. Although the fund seeks to preserve the value of your investment at $1 per share, it is possible to lose money by investing in the fund. Tax considerations How are salary deferral contributions treated for tax purposes? The amount contributed to a SIMPLE IRA is excluded from the employee s income and is not included as federal taxable wages on the employee s Form W-2. Salary deferral contributions are subject to Social Security (FICA) and federal unemployment insurance (FUTA) taxes and must be reported on Form W-2. 6

9 Can an employee who is older than 70½ make contributions? Yes, but the employee must also receive a distribution that satisfies the age 70½ required minimum distribution rules for IRAs. What tax credits are available for employees? Tax credits, also referred to as the Savers Credit, are available for eligible lowand middle-income savers based on adjusted gross income (AGI), taxpayer s marital status and tax filing status. The maximum annual contribution eligible is 50% of the individual s first $2,000 ($1,000 maximum per individual). Taxable retirement plan distributions received by the employee or employee s spouse may reduce the credit. This credit is not available to individuals who are younger than 18, full-time students or dependents claimed on another tax return. For more tax credit information, please visit Tax Credits Credit Rate (%) Joint Filer ($) AGI Head of Household ($) AGI Single/Other AGI ($) , , , ,001 36,500 25,501 27,375 17,001 18, ,501 56,500 27,376 42,375 18,251 28, , , ,250+ Withdrawals Are loans or life insurance permitted? No. Loans are not permitted from a SIMPLE IRA, and life insurance may not be purchased. What happens if an employee dies? The IRA assets are distributed to the employee s designated beneficiary. Please refer to the Invesco SIMPLE IRA Custodial Agreement and Disclosure Statement for more information. This information is not intended as tax advice. Investors should consult a tax advisor. Invesco SIMPLE IRA: Employee guide 7

10 How are withdrawals taxed? Employees younger than 59½ that distribute from a SIMPLE IRA within the first two years after the initial contribution are subject to a 25% premature withdraw penalty. This penalty decreases to 10% after the first two years. Employees 59½ or older are not subject to these penalties, but withdrawals made prior to age 59½ may be subject to tax penalties. The following exceptions to the premature withdrawal penalty may also apply: Death of the employee Disability of the employee An IRS tax levy Medical expenses that exceed 7.5% of the employee s AGI Medical insurance premiums during a period of the employee s unemployment Higher education expenses Expenses related to a first-time home purchase Distributions made in a series of substantially equal periodic payments A period of active military duty that began after Sept. 11, 2001, and that is of indefinite duration or for a period of 180 days or longer If I retire or change jobs, can I move my account to another investment? Yes. Since SIMPLE contributions are made to employees IRAs, all account transactions are the responsibility of the employee. A current or former employee can request a distribution, roll over the funds to another IRA or other eligible plan or leave the existing SIMPLE IRA in place. Note that within the first two years after the date the first contribution is deposited into your SIMPLE IRA, transfers and rollovers may be made only to another SIMPLE IRA. Thereafter, transfers and rollovers may be made to any eligible plan. What if I have additional questions? Please consult your financial advisor or call Invesco Client Services department at You may also request IRS Publication 590 (Individual Retirement Arrangements) or IRS Publication 560 (Retirement Plans for Small Business) by calling 800 TAXFORM, or you can download it from 8

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12 Before investing, investors should carefully read the prospectus and/or summary prospectus and carefully consider the investment objectives, risks, charges and expenses. For this and more complete information about the fund(s), investors should ask their advisors for a prospectus/summary prospectus or visit invesco.com/fundprospectus. Note: Not all products, materials or services available at all firms. Advisors, please contact your home office. All data provided by Invesco unless otherwise noted. invesco.com/us SIM-IVG-2 10/11 Invesco Distributors, Inc