Retirement Plans

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Retirement Plans

• Victoria Barros
• Ragveer Bains
• Sunny Gill
• Lourdes Duran
• Nina Aujla

• Jeanette Limcolioc
• Survjit Cheema
• Amandeep Sangha
• Scott Benson
• Francisco Gonzalez

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401(k) Retirement Plan
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What is a 401(k) plan?

• A 401(k) plan is a contribution plan that enables
  employees to choose between receiving current
  compensation and making pre-tax contributions to
  an account through a salary reduction agreement.
• Lay-Mans Term Money automatically deducted from
  your paycheck that goes into a fund for your
  retirement.

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Benefits of a 401(k)

• For the Employer
• - It attracts and retains employees.
• - Helps their employees plan for retirement
• - Gives their employees a choice in their
  financial future.

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More Benefits

• For the Employee
• - Defers federal and state taxes
• - Simplifies Investment decisions
• - Immediate investment return

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How would you like more money in your paycheck?

• With 401ks you can increase your take home pay
  and decrease your current taxable income.
• This money is tax deferred.
• Lay-mans Term You dont pay tax on this money
  until you withdraw it.

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Tax Deferment Limits
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Match Pay

• A company match can help your investments grow.
• Will contribute up to a certain limit.

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Match Pay Example
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Easy As ABC - 123

• 1. Automatic Payroll Deductions
• 2. Brokers or portfolio managers manage your
  account
• 3. Contribution access in case of emergencies
• - Loans
• - Withdrawals

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Simple as Do Re Mi

• Account Services Keep you informed.
• - Phone, Internet, Monthly Publications, etc..
• Your money can go with you from job to job.
• - Rollovers

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Excuses Excuses!!!

• I cant afford to save
• Double Decaf Mocha Frappachino Iced Latte
  Grande with Whip Cream Caramel, low fat milk,.
  What the ?....
• Lets do some math..
• 3.50 X 7 days a week x 52 weeks 1274
• Good Lord thats a lot!!

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More Excuses

• I dont understand investing
• I worry about losing money
• Ive waited too long
• I wont be able to get my money

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We Want You To Start Saving

• Provides funds to the financial markets.
• Money can be transformed into new factories,
  plants, creation of new jobs.
• In 2002, 40 Million workers had 401(k) accounts
  totaling over 1.8 million dollars in assets.

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IRAs

• Traditional IRA
• Roth IRA
• Spousal IRA
• Educational IRA
• Savings Incentive Match Plan for Employees
  (SIMPLE) IRA
• Simplified Employee Pension (SEP) IRA

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Traditional

• Must be under 70 ½
• Minimum 500 to open
• No AGI requirement
• Maximum Contribution 3,000
• Tax deferred until money is withdrawn
• Temporary Tax credit 2002-2006

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Roth

• Created by Senator William V. Roth Jr.
• No age requirement
• Minimum 500 to open
• AGI Requirement
• 110,000 (single)
• 160,000 (joint-filing)
• Maximum Contribution 3,000
• Temporary Tax credit 2002-2006

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Spousal

• Little or No earned income
• No Retirement Plan at Work
• Must file Joint Tax Returns
• May Contribute a Maximum of 2,000 to both plans

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Educational

• Coverdell Education Savings Account
• Purpose is to Provide a Higher Education
• Non-deductible Contributions up to 500 for each
  child per year.
• No Contribution can be made after the 18th
  Birthday
• Can Change Beneficiary After Age 30

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SIMPLE

• Offered By Business with 100 employees or less
• Contribution limit is 6,500 and will increase in
  500 increments after 2006.
• Employer matches contribution based on employees
  pay

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SEP

• Low Cost retirement Plan for Employees and
  Self-Employed
• Contributions can be up to 15 or up to 30,000
  of employees annual compensation

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IRA Assets
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Distribution of IRA Assets
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Simplified Employee Pension(SEP)

• arrangement under which an employer makes
  contributions to the individual retirement
  accounts of its employees.
• ideally suited for small businesses as well as
  self-employed individuals. A SEP plan combines
  many of the advantages of more complex plans,
  such as 401(k) plans, but is as simple to
  understand as an IRA.

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SEP

• Contributions
• Only the employer can contribute to SEP.
• The SEP IRA contribution dollar limit is 40,000
  per participant.
• the employer can elect how much to contribute to
  the SEP IRA on behalf of eligible employees, from
  0 to 25 of compensation, subject to an annual
  cap of 40,000 per participant.
• all contributions are tax-deductible as a
  business expense.

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Simplified Employee Pension(SEP)

• Employees can exclude all SEP contributions from
  current income.
• All SEP employer contributions go directly in a
  traditional IRA in the name of the employee,
  giving employees tax-deferred earnings, a variety
  of investment choices.
• Funds in the SEP plan are tax deferred until
  money is distributed or withdrawn.

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Simplified Employee Pension(SEP)

• REQUIREMENTS OF SEP PLAN
• at least 21 years of age,
• worked for the employer during the year the
  contribution is made and for any 3 of the
  preceding 5 years, and
• earned the minimum compensation during the year
  for which the contribution is made.
• The employer may exclude all employees covered by
  a collective bargaining agreement (if retirement
  benefits were the subject of good-faith
  bargaining).

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Simplified Employee Pension(SEP)

• BENEFITS OF SEP IRA INCLUDE
• Tax-deferred earnings for the employee.
• Tax-deductible contributions for employers.
• Setup is easythe employer completes a one-page
  IRS form, and employees complete the IRA
  application.
• Employers and Employees get the benefits of an
  IRA with higher contribution limits.

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Simplified Employee Pension(SEP)

• BENEFITS OF SEP IRA INCLUDE
• Wide range of investment productsincluding
  stocks, bonds, and mutual funds, and bank
  products such as FDIC-insured CDs and money
  market accounts.

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Simplified Employee Pension(SEP)

• An IRA deduction is limited to 2,000 per year.
  Under a SEP plan, an employer can contribute up
  to 15 of his employee's income, not to exceed
  30,000. The plan works the same if you are
  self-employed. If your income is 40,000 and you
  contribute your maximum of 6,000 to a SEP IRA,
  your taxable income will be reduced to 34,000.
  Assuming a 28 tax bracket, this produces a tax
  savings of 1,680.

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Annuities

• What are annuities
• Different types of annuities
• Purchasing annuities
• Cashing out your annuity
• Annuity fees and expenses

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What are Annuities?

• Annuities are flexible insurance contracts
  designed to provide income and achieve long-term
  savings goal.
• The principals of annuities are fairly easy to
  understand.
• When you pay the premiums you are guaranteed a
  fixed amount of income annually at a certain age
  and it continues for the rest of your life.

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Types of Annuities

• Fixed annuity
• Straight life annuity
• Life annuity with installments
• Refund annuity
• Joint and survivor annuity
• Variable annuity

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Purchasing Annuities

• Immediate Annuity
• Payoff occurs immediately
• Deferred Annuity
• Payoff begins in the future
• Interest Rate

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Cashing out your Annuity

• Lump sum payments
• Payment is given to you right away
• Monthly payments
• Payment is given to you on a monthly basis
• Split-funding technique
• Early retirement

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Annuity Fees and Expenses

• Mortality and Expense Charges
• Surrender Charges
• Administration Charges

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Profit Sharing

• What is Profit Sharing
• Profit Sharing defined in 1800s
• One of the original definitions of a profit
  sharing is an agreement freely entered into, by
  which the employees receive a share, fixed in
  advance, of the profits.
• History.

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Introduction of Profit Sharing

• Why Profit Sharing was implemented
• Difference between 401(k) and Profit Sharing

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Different types of Plans

• Employee Profit Sharing Plan (EPSP)
• Under an EPSP, employer contributions are paid to
  a trust for the benefit of employees or former
  employees who participate in the EPSP (the
  participants). These funds are invested within
  the trust until they are paid to the
  participants.
• Cash Profit Sharing Plan (CPSP)
• Cash profit sharing plans are plans in which
  profits are paid directly to employees in cash,
  check or stock as soon as profits are determined.
  (This type of profit sharing plan is not a
  qualified retirement plan.) Normally this is
  done monthly, quarterly, biannually or
  semiannually.

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Continued

• Deferred Profit Sharing Plan (DPSP)
• In this type of plan employees are not required
  to pay taxes, until they take the funds out of
  the plan.
• Combination Type Plan
• Another type of profit sharing plan is
  combination type. It is made up using advantages
  of all the different types of plans discussed
  above.

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Considerations

• Only the employer can make contributions
• Employer Contributions are tax deductible
• Maximum deductible contribution
• 25 of compensation or up to 40,000 can be
  contributed.
• Example To determine maximum contribution
• .25 Total Wages
• Note Maximum amount of wages used for
  determining contribution is 200,000.

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Continued

• Excluding Persons
• Certain people can be eliminated depending on
  months of employment and age.
• Ex Persons under 21 can be excluded from the
  plan.
• How much will there be at retirement
• The frequency and the amount of contributions
• The number of years until retirement
• The investment return

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Source
http//www.individual-k.com/theMathCorporation.asp

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Profit Sharing-Employer Advantages

• Why Employers have Profit Sharing in place.
• Employees to be more productive and efficient..
• To create better relationships between employees.
  
• Overall reason for having Profit Sharing..

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Profit Sharing for employees

• Advantages to Employees
• Disadvantages to Employees

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Example

• A company that uses profit sharing program is
  Southwest Airlines. They invest 15 of their
  pretax operating income in a profit sharing plan.
  
• - Southwest is the only airline that has made
  money every year since 1973. - This past year,
  Fortune magazine ranked Southwest Airlines the
  2nd best company to work for in America. - The
  Department of Transportations Air Travel
  Consumer Report has ranked Southwest number one
  in fewest Customer complaints for the last nine
  consecutive years and number one in on-time
  performance for seven out of the last eight
  years.

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Current Update on Bushs Proposal

• Lifetime Savings Account
• Retirement Savings Account
• Employer Retirement Savings Account
• 401(k), 403(b), 457, SEP-IRA, Simple 401(k)

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Source Treasury
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Questions??????