IRA
General Description
An Individual Retirement Annuity or Account (IRA) is a retirement savings program to which an individual can make annual contributions or roll over contributions from certain other qualified plans.

Who May Establish the Plan?
Individuals.

Tax Law Eligibility Rules
Individuals with earned income who have not reached age 70 1/2.

Limits on Contributions/ Benefits
Contributions (other than rollovers) are limited to 100% of compensation up to a maximum of $2,000. Deductions are phased out if the individual or spouse is a participant in an employer-sponsored plan and income is $30,000-$40,000 (single), $50,000-$60,000 (married filing jointly), or $0-$10,000 (married filing separately). Deductions for a spouse who is not a participant are phased out if income is $150,000-$160,000 (filing jointly).

Social Security Integration?
No

Tax and Benefit Law Minimum Vesting Requirements
100% immediately.

Forfeitures
N/A

Tax Law Restrictions on Distributions
Distributions may be made at any time but may be subject to 10% tax penalty if prior to age 59 1/2. All proceeds are subject to income tax except for nondeductible contributions.

Loans
Not permitted.

Plan Reporting and Disclosure
Deductible contributions are reported on Form 1040. Non-deductible contributions shown on Form 8606, filed with Form 1040.

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ROTH IRA
General Description
Under a Roth IRA, beginning in 1998 an eligible individual may make annual contributions or rollover contributions from regular IRAs.

Who May Establish the Plan?
Individuals.

Tax Law Eligibility Rules
An individual with earned income, but subject to limits on total income described below.

Limits on Contributions/ Benefits
Contributions (other than rollovers) are limited to 100% of compensation up to a maximum of $2,000, reduced by any regular IRA contributions. Contributions are phased out if income is $95,000-$110,000 (single), $150,000-$160,000 (married filing jointly), or $0-$15,000 (married filing separately). No rollover contributions are permitted if income is over $100,000 or if married filing separately.

Social Security Integration?
No

Tax and Benefit Law Minimum Vesting Requirements
100% immediately.

Forfeitures
N/A

Tax Law Restrictions on Distributions
Distributions may be made at any time. Distributions made after 5 years and after age 59 1/2, disability, death, or for first-time homebuyer expenses are completely tax free. Otherwise, distributions in excess of contributions are subject to income tax and may be subject to 10% tax penalty if prior to age 59 1/2.

Loans
Not permitted.

Plan Reporting and Disclosure
Not determined at time of printing.

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SEP IRA
General Description
Under a Simplified Employee Pension (SEP) Plan, the employer makes contributions to IRAs established and maintained for each eligible employee on a non-discriminatory basis.

Who May Establish the Plan?
All employers. #

Tax Law Eligibility Rules
Must cover all employees who are 21, have worked 3 of the previous 5 years, and earn at least $400. * @ #

Limits on Contributions/ Benefits
Contributions for each participant are limited to the lesser of 15% of compensation or $24,000. *

Social Security Integration?
Yes, but requires a customized plan document.

Tax and Benefit Law Minimum Vesting Requirements
100% immediately.

Forfeitures
N/A

Tax Law Restrictions on Distributions
Distributions may be made at any time but may be subject to 10% tax penalty if prior to age 59 1/2. All proceeds are subject to income tax.

Loans
Not permitted.

Plan Reporting and Disclosure
Form 5305-SEP may be used to establish the plan, with a copy given to each plan participant. Other rules may apply if customized plan document is used.

* Except as noted, limits in effect for 1998 are shown in this summary. These figures are indexed for inflation and may change yearly. In determining the amount of any contribution or limit under an employer-sponsored plan, compensation over $160,000 is disregarded. Limits on deductions, contributions, and benefits are coordinated with other plans of the employer and may be reduced on account of such other plans. Limits on employee deferrals apply to total elective deferrals of the employee to all plans. Employee deferrals and employer matching contributions for highly compensated employees may be subject to additional limits.

@ Requirements vary by plan document, but the age, years of service, and length of vesting schedule can be less than shown but not greater.

# A self-employed person is generally considered both the employer and an employee for this purpose.


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SIMPLE IRA
General Description

Under a Savings Incentive Match Plan for Employees (SIMPLE) IRA, eligible employees may make deferrals to SIMPLE IRAs through salary reduction agreements. Employer contributions are required.

Who May Establish the Plan?
Employers with no more than 100 eligible employees. #

Tax Law Eligibility Rules
Must cover all employees who received at least $5,000 of compensation during the current year and any two prior years.

Limits on Contributions/ Benefits
Employee deferrals are limited to $6,000 per year or 100% of compensation. Employer contributions require a dollar for dollar match, up to 3% of compensation, or a contribution of 2% of compensation for all employees. The $160,000 compensation limit does not apply.

Social Security Integration?
No

Tax and Benefit Law Minimum Vesting Requirements
100% immediately.

Forfeitures
N/A

Tax Law Restrictions on Distributions
Distributions may be made at any time, but distributions prior to age 59 1/2 may be subject to a 10% tax penalty (or a 25% tax penalty if the distribution is made during the first 2 years of participation).

Business Loans
Fundring through Advantage or Citiwide Merchant Funding.

Plan Reporting and Disclosure
Form 5304 - SIMPLE may be used to establish the plan.

# A self-employed person is generally considered both the employer and an employee for this purpose.


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401(k)
General Description
A profit sharing plan, with an added Cash or Deferred Arrangement which permits employee deferrals through salary reduction agreements, and may also provide for employer matching contributions.

Who May Establish the Plan?
All employers except state or local government agencies. #

Tax Law Eligibility Rules
Must be open to employees who are 21 and have completed 1 year of service and meet non-discrimination tests. @ #

Limits on Contributions/ Benefits
Total contributions are generally limited to 15% of participant compensation. Allocation to each participant is limited to the lesser of 25% of pay or $30,000. Employee deferrals are limited to $10,000 per calendar year. *

Social Security Integration?
Yes

Tax and Benefit Law Minimum Vesting Requirements
Employer contributions must be 100% vested after 5 years or graded vesting over a maximum of 7 years. Employee deferrals are 100% vested immediately. If plan is top heavy, must be 100% vested after 3 years or graded vesting over up to 6 years. @

Forfeitures
May be reallocated to accounts of remaining participants or used to reduce employer contributions.

Tax Law Restrictions on Distributions
Distributions attributable to employee deferrals are only allowed on attainment of age 59 1/2, death, disability, separation from service, financial hardship, or plan termination. All proceeds are subject to income tax with a possible 10% tax penalty if prior to age 59 1/2. Special tax averaging treatment is available for certain distributions.

Loans
Must be repaid within 5 years (longer if for primary residence), installments at least quarterly. Aggregate loans from all employer plans are limited to the lesser of $50,000 or 50% of the participant's vested account balance.

Plan Reporting and Disclosure
Full ERISA reporting is generally required, including annual Form 5500.

* Except as noted, limits in effect for 1998 are shown in this summary. These figures are indexed for inflation and may change yearly. In determining the amount of any contribution or limit under an employer-sponsored plan, compensation over $160,000 is disregarded. Limits on deductions, contributions, and benefits are coordinated with other plans of the employer and may be reduced on account of such other plans. Limits on employee deferrals apply to total elective deferrals of the employee to all plans. Employee deferrals and employer matching contributions for highly compensated employees may be subject to additional limits.

@ Requirements vary by plan document, but the age, years of service, and length of vesting schedule can be less than shown but not greater.

# A self-employed person is generally considered both the employer and an employee for this purpose.


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457 Plan
What is a 457 plan and what does it stand for?
A Section 457 plan is a deferred compensation program for employees of state and local governments and other tax-exempt employers. 457 refers to the relevant section in the Internal Revenue Code.

What types of business can establish a 457 plan?
Any state, county or municipality and any agency or instrumentality of either a state, county or municipality, as well as any non-governmental tax-exempt organization.

Who can participate in the plan?
Eligibility is determined under the terms of the 457 plan document adopted by the employer. Any person who is paid for services by the employer maintaining the 457 plan, including employees, elected or appointed officials and independent contractors, may be eligible.

How much can a participant defer each calendar year?
The most that can be deferred under a 457 Plan is 33 1/3 percent of the participant's "includable compensation" or $8,000 whichever is less. Inflation indexing on the $8,000 limit began in 1997. For salary reduction contributions and similar deferrals, 33 1/3 percent of "includable compensation" usually equals 25 percent of compensation before deferrals.

May a participant borrow from a 457 plan?
Participants in a 457 plan of a non-governmental employer cannot borrow from their 457 plan accounts. Participants in a 457 plan of a state or local government may be allowed to borrow from their 457 plan accounts if permitted by the 457 plan document. (If permitted, a participant's loans(s) from all retirement plans may not exceed the greater of 50% of his or her total benefits or $10,000, and may in no event exceed $50,000 reduced by any loan amount paid off within the last 365 days. Any such loan must provide for substantially equal payments, at least quarterly, and the loan term cannot exceed 5 years unless the loan is used to purchase the participant's primary residence.)

What vesting rules apply?
Vesting is determined under the terms of the 457 plan document adopted by the employer. In most cases, contributions by the participant are immediately 100% vested.

Can funds be withdrawn before retirement?
Distributions are only allowed on attainment of age 70 1/2, death, disability, separation from service, unforeseeable emergency, or for cash-outs of small accounts. A cash-out of a small account may occur only if there is a 2 year gap in contributions and the account balance is less than $5,000 and there has been no prior withdrawal under this rule.

What is an Unforeseeable Emergency?
An "unforeseeable emergency" is a severe financial hardship caused by:

  • A sudden, unexpected illness or accident to the participant or his or her dependent.
  • Casualty loss of personal property
  • Any similar type of unanticipated emergency for which the participant could not have budgeted and which is beyond the participant's control.
  • Tuition and home purchase expenses do not qualify as hardships.
     
In practice, these emergencies are hard to qualify for, and demand that the participant tried many other resources first.

If a participant doesn't defer the maximum each year, can those amounts be made up later?
Yes. The law includes a "catch-up" provision, which lets a participant make additional deferrals during the last three years before the year in which the participant reaches "normal retirement age." The catch-up amount plus regular annual deferral cannot exceed $15,000 for each of the three years.

May a 457 Deferred Compensation funds be rolled over into an IRA?
No, federal tax law does now allow funds from a 457 account to be rolled over into an IRA.

May funds in a 457 account be transferred to another eligible 457 Plan?
Yes, a 457 plan may allow a participant to transfer any portion of his or her 457 account to another 457 account to another 457 plan. This transfer will not cause the funds to be taxed in the participant's current income. The plan administrators of both plans must agree to the transfer.

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Profit Sharing
General Description
A plan which allows an employer to make discretionary contributions. Contributions may be, but are not required to be, based on profits.

Who May Establish the Plan?
All employers. #

Tax Law Eligibility Rules
Must cover employees who are 21 and have completed 1 year of service (2 years if 100% immediate vesting) and meet non-discrimination tests. @ #

Limits on Contributions/ Benefits
Total contributions are generally limited to 15% of participant compensation. Allocation to each participant is limited to the lesser of 25% of pay or $30,000. *
Social Security Integration?
Yes


Tax and Benefit Law Minimum Vesting Requirements
Must be 100% vested after 5 years or graded vesting over a maximum of 7 years. @

Forfeitures
May be reallocated to accounts of remaining participants or used to reduce employer contributions.

Tax Law Restrictions on Distributions
All proceeds are subject to income tax with a possible 10% tax penalty if prior to age 591_2. Special tax averaging treatment is available for certain distributions.

Loans
Must be repaid within 5 years (longer if for primary residence), installments at least quarterly. Aggregate loans from all employer plans are limited to the lesser of $50,000 or 50% of the participant's vested account balance.

Plan Reporting and Disclosure
Full ERISA reporting is generally required, including annual Form 5500.

* Except as noted, limits in effect for 1998 are shown in this summary. These figures are indexed for inflation and may change yearly. In determining the amount of any contribution or limit under an employer-sponsored plan, compensation over $160,000 is disregarded. Limits on deductions, contributions, and benefits are coordinated with other plans of the employer and may be reduced on account of such other plans. Limits on employee deferrals apply to total elective deferrals of the employee to all plans. Employee deferrals and employer matching contributions for highly compensated employees may be subject to additional limits.

@ Requirements vary by plan document, but the age, years of service, and length of vesting schedule can be less than shown but not greater.

# A self-employed person is generally considered both the employer and an employee for this purpose.


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Defined Benefit
General Description
A pension plan which provides a participant with a specified benefit at retirement, with employer contributions actuarially determined to provide future benefits.

Who May Establish the Plan?
All employers. #

Tax Law Eligibility Rules
Must cover employees who are 21 and have completed 1 year of service (2 years if 100% immediate vesting) and meet non-discrimination tests. @ #

Limits on Contributions/ Benefits
Employer contributions are actuarially determined to provide future benefits. Annual benefits are limited to the lesser of 100% of compensation or $130,000. *

Social Security Integration?
Yes

Tax and Benefit Law Minimum Vesting Requirements
5-year 100% vesting or 7-year graded vesting is permitted. If plan is top heavy, must be 3-year 100% vesting or 6-year graded vesting. @

Forfeitures
Used to reduce employer contributions.

Tax Law Restrictions on Distributions
Distributions are only allowed on death, disability, separation from service, or plan termination. All proceeds are subject to income tax with a possible 10% tax penalty if prior to age 59 1/2. Special tax averaging treatment is available for certain distributions.

Loans
Must be repaid within 5 years (longer if for primary residence), installments at least quarterly. Aggregate loans from all employer plans are limited to the lesser of $50,000 or 50% of the participant's vested account balance.

Plan Reporting and Disclosure
Full ERISA reporting is generally required, including annual Form 5500. Actuarial report and Form PBGC-1 are also required annually.

* Except as noted, limits in effect for 1998 are shown in this summary. These figures are indexed for inflation and may change yearly. In determining the amount of any contribution or limit under an employer-sponsored plan, compensation over $160,000 is disregarded. Limits on deductions, contributions, and benefits are coordinated with other plans of the employer and may be reduced on account of such other plans. Limits on employee deferrals apply to total elective deferrals of the employee to all plans. Employee deferrals and employer matching contributions for highly compensated employees may be subject to additional limits.

@ Requirements vary by plan document, but the age, years of service, and length of vesting schedule can be less than shown but not greater.

# A self-employed person is generally considered both the employer and an employee for this purpose.


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