Understanding the Payroll Deduction IRA

Transcription

1 Understanding the Payroll Deduction IRA Date Presented by: Name, Title This presentation is the property of ICMA-RC and may not reproduced or redistributed in any manner.

2 Agenda ICMA-RC Overview Payroll Deduction IRA Roth vs. Traditional IRA Investments Establishing a Payroll Deduction IRA 2

3 Corporate Overview

4 We Serve Only the Public Sector Exclusive public sector focus created by and for public sector employees Over $32 billion plan assets* Over 8,500 plan sponsors* Over 900, participants* * As of December 31,

5 Payroll Deduction IRA Roth vs. Traditional IRA

6 Benefits of Payroll Deduction IRA Additional tax-advantaged advantaged opportunity Convenient Encourages disciplined saving No annual fee 1,2 No minimum investments 2 Simplified financial records Consolidated statements and online account information 1 Mutual fund expenses still apply. Please see prospectus for details. 2 $25 annual maintenance fee and initial minimum investment of $1,500 are waived if IRA funded through automatic investment program, such as payroll deduction. 6

7 Benefits of a Roth IRA Tax-deferred earnings Withdrawals are not restricted Withdraw contributions ti any time, tax- and penalty-free Potential for 100% tax-free withdrawals No age limit for contributing No required minimum withdrawals at age 70½ * See IRS Publication 590 for complete IRA rules. 7

8 Benefits of a Traditional IRA Tax-deductible contribution potential Tax-deferred earnings Withdrawals are not restricted t * See IRS Publication 590 for complete IRA rules. 8

9 Avoiding IRA Withdrawal Penalty Taxes Age 59½ Qualified higher education expenses* Qualified first-time home purchase ($10k limit)* Major medical expenses Payment of health insurance premiums by certain unemployed individuals* Death of IRA owner Disability Annuity payments Substantially equal periodic payments * These exceptions apply only to IRAs; not employer-sponsored retirement plans See IRS Publication 590 for complete IRA rules 9

10 IRA/457Plan Comparisons Earnings are Always Tax-Deferred, But There are Key Differences Roth IRA Traditional IRA Key Tax Advantage Tax-free growth potential Contributions may be tax-deductible 457 Contributions are pre-tax Eligibility No age limit Income limits apply 1 Under age 70½ 1,2 Depends on plan Earnings Taxed at Withdrawal No, if meet 5-year holding period and age 59½, disability, death, or first-time home purchase Yes Yes 1 Individuals must also have IRS-defined taxable compensation, such as salaries or wages, equal to or greater than the amount of the contribution. 2 IRA contributions are not allowed if individual is age 70½ or greater as of the end of the year. See IRS Publication 590 for complete IRA rules. 10

11 Roth vs. Traditional IRA Comparison Roth IRA Traditional IRA Key tax advantage Tax-free growth potential Contributions may be tax deductible Maximum annual contribution $5,000 or earned income $5,000 or earned income (2009, 2010) ($6,000 if age 50 or older) ($6,000 if age 50 or older) Eligibility No age requirement. Must have qualifying compensation, such as wage or salary. Must have income within allowable guidelines 1 Contribution ti Married, Joint 2 Single Full <$167,000 <$105,000 Partial $167,001- $105,001 $177,000 $120,000 Must be under the age of 70½ (as of December 31 st of the year). Must have qualifying compensation, such as wages or salary. Contributions deductible from Depends on income and participation No Income Tax in employer retirement t plan Contributions allowed after age 70½ Yes No Earnings tax-deferred Yes Yes Contributions taxed upon withdrawal No Yes, if deductible Earnings taxed upon withdrawal Earnings subject to penalty taxes upon withdrawal No, if held for five-year holding period and age 59½ or older (or due to death, disability, or firsttime home purchase) No, if you are 59½ or older, or other rules are met 11 Yes No, if you are 59½ or older, or other rules are met For more information: 1 Modified Adjusted Gross Income, as defined by IRS MAGI limits differ slightly: <$166,000, $166,001 - $176,000, and > $176,000. See IRS Publication 590 for complete IRA rules.

12 Investments

13 What Investment Options are Available? Complete lineup All Vantagepoint Funds Funds from outside fund families Funds ranging from conservative to aggressive 13

14 Establishing a Payroll IRA

15 What Steps are Involved? Letter Agreement Addendum Amends the existing Agreement between you and ICMA-RC Vantagepoint IRA Implementation Data Form Provides necessary information to establish your Payroll IRA Program EZLink Access Electronic processing via the Internet, in order to implement a Payroll Deduction IRA plan 15

16 How ICMA-RC Assists with Contribution Limits We monitor, including catch-up contributions, on a best-effort basis If we determine a participant is over the limit, we will contact you to stop payroll deductions You or the participant must restart the next tax year 16

17 How Do Employees Establish the Account? Vantagepoint Payroll Deduction Application Complete and return to ICMA-RC Vantagepoint Payroll Deduction IRA Authorization Form Complete and return to you It s that easy! 17