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401(k), 403(b), IRA, SIMPLE, TSP, 457, SEP, DC, DB What a collection of numbers and letters! What are they? Is this some special code that insiders use to keep the general public from knowing what is going on with their retirement? Did you even know these acronyms and collections of numerals had anything to do with retirement? Click here to read the rest of the article. Distribution from Retirement Plans
Retirement Information Have you accumulated enough to retire? History of Monte Carlo Simulation: A concise and readable review of a computer based simulation technique that has recently become prominent in retirement planning, from Yahoo! Finance. FCVA provides a service to our clients that allows the client and advisor to partner via the Internet to create various Capital Needs Planning scenarios including advanced Monte Carlo simulations. To access that web site, click here. AARP's Retirement Income: Presented by the American Association of Retired Persons, the largest special interest group representing senior citizens. Offers a wide range of information on all forms of retirement and is not a bad place to start. Two well written and straightforward explanations of the danger presented by old fashioned fixed rate of return retirement planning software are The Flaw of Averages, a witty explanation of how deceptive that "average return" can be, and the delightfully titled "The Retirement Calculator from Hell," Part I and Part II. The mission of Know Your Pension is: to help educate pension participants; to help pension participants demand accountability from those responsible for overseeing and keeping pension funds solvent; to help pension participants improve the way union pension savings funds are managed; to identify and correct abuses. One of the common concerns of retired people is the need to make quarterly estimated income tax payments because their taxable Social Security benefits cause the normal tax withholding amount to be insufficient. Go here to access a voluntary federal tax withholding form for Social Security. You can type directly on the form before you print it. You then sign it and return it to your local Social Security office. Accumulation for Retirement Here is the IRS introduction to the 401(k). The 401k.org website is a public service to help individuals learn about saving and investing for retirement. This site is maintained by the Profit Sharing/401(k) Council of America. 401kHelpCenter.com is a deep site chocked full of 401k information. This link takes you to the Plan Participant section. Want tax-free retirement income? Check out the Roth 401k. Roth 401(k) Web Site is published by Brentmark Software Company, a leading manufacturer of retirement plan tools and software. Made much more attractive by EGTRRA, the Individual or Solo 401(k) may be exactly what the self-employed person is looking for. No other employees besides your spouse allowed, though . . . How much can I contribute to my Individual 401(k) this year? IRS Publication 571 tells all. How much can I contribute to my 403(b) this year? Intuit's Quicken has a pretty good basic explanation of what a 403(b) is and isn't. 403bwise is an "unbiased" site that is sponsored by TIAA-CREF and T. Rowe Price. Both are good companies but because they sponsor the site, they are referenced quite often. Read the text for the information you can glean. The Internal Revenue Code summary of 403(b) plans can be found here. When Financial Counselors of Virginia sets up a 403(b) plan, we usually use the resources of TD Waterhouse and their bank as the custodian. Their forms can be found here. 457(b) A 457(b) plan is a non-qualified tax-deferred compensation plan that works very much like other retirement plans such as the 403(b) and 401(k). Created in 1978 the name refers to the relevant section [457] in the Internal Revenue Code that governs the plan. Two main types of 457 plans exist: governmental and tax-exempt 457(b) plans. A companion site to the 403bwise sited above, the 457bwise site is chock full of information about the 457 plan. The Internal Revenue Service's description and guidance can be found here. IRS Pub 590 Individual Retirement Arrangements: To get IRAs straight, start here. Presented as a link for easier navigation. . . and you always thought they were called "accounts!" "How much can I contribute to my IRA this year?" What's the effective difference between a Traditional IRA and a Roth IRA? The Traditional may give you current tax breaks but is taxable when you withdraw it. The Roth does not effect your current taxes but is not taxable upon withdrawal. To further complicate matters, on January 2, 2006 the Roth IRA came to corporate retirement plans in the form of the Roth 401(k). A short but very thorough review of Traditional IRAs appearing in the September 2005 AAII Journal. Roth IRA Web Site The purpose of this site is to provide technical and planning information on Roth IRAs to practitioners and consumers. IRAHelp.com: Presented by Ed Slott, CPA, the site is a bit gaudy and very promotional but offers a good deal of information. When Financial Counselors of Virginia sets up an IRA, we usually use the resources of TD Waterhouse and their bank as the custodian. Their forms can be found here. In the sad event that you need to declare bankruptcy, will your retirement assets be protected from creditors? How you title them may make a difference. Click here to read a relevant article from our friend Kevin Rack of The Rack Law Firm. IRA -- SEP and SIMPLE If you're self-employed, or if you have a few employees in a small business, you may want to consider setting up a SEP or a SIMPLE as a retirement plan. Regarding SEPs, Quicken from Intuit offers some good basic information here including comparisons with other small company retirement plans. F SEPs have all but been replaced by the newer and more flexible SIMPLE plans. The IRS definition and explanations of SEP and SIMPLE plans. Again from Quicken, a good explanation and comparison of SIMPLE plans and other retirement plans. A new subset of the 401(k) plan is the SIMPLE 401(k) Plan. Just like the SIMPLE-IRA, this is a plan for the small business owner with 100 or fewer employees. How much can I contribute to my SIMPLE this year? Self-Employed and need to put away more $$ than your SIMPLE will allow? See the Solo 401(k) above Employee Stock OptionsStock options are a rapidly growing and increasingly important form of employee compensation, and not just for the highest level corporate executives anymore. More and more people find themselves having to deal with a very complex process, the timely and tax efficient way to realize their benefits by exercising their options. While you should always consult an competent advisor before actually taking action, the more you know the better prepared you will be both to find and accept sound advice. myStockOptions and Should I exercise my stock options? appear to be good resources. Government Plans
FERS is the currently available retirement plan for Civil Service workers. It is comprised of three components, Social Security, the Basic Benefit and the Thrift Savings Plan. See Pub 90-1 for an overview of the plan. Here is a calculator to estimate your potential benefits at retirement. The official site for the US Government's Thrift Savings Plan. The federal version of a 401(k). Social Security Administration ; The "safety net."US OPM ; U.S. Government: Office of Personnel Management Virginia
The official web site for the
Virginia
Retirement System. Contains information and calculators to estimate your
retirement income. Distributions from Retirement Plans So now that you are retired, how and when should you withdraw dollars from your accumulated retirement assets? The IRS has mandated that you begin withdrawing assets, called Required Minimum Distributions (RMD), from your IRAs and Qualified Retirement Plans by April 1 of the year following the year in which you attain the age of 70 1/2. For example, if your birthday is August 16, 1935, you will be age 70 in 2005 and 70 1/2 in February 2006. That means you are required to take your first retirement distribution by April 1, 2007. However, you are also required to take your second distribution by December 31, 2007. That means you would be required to pay tax on two years' of distributions in one tax year. It may be better to take your first required minimum distribution early, in this example by December 2006. There is no IRS imposed early withdrawal penalty for taking a distribution from your retirement plan after you have reached age 59 1/2. How much must I withdraw for my Minimum Required Distribution? The IRS now requires that almost everyone use the Uniform Lifetime Table III to calculate the annual Required Minimum Distribution. The one exception to that rule is if the sole beneficiary of the retirement account is the IRA owner's spouse and that spouse is more than 10 years younger than the owner; you then use Table II. To calculate your required minimum distribution, you must know the balance of all of your different IRAs, if you have more than one account, as of December 31 of the previous year. You then look up your age on either the Uniform Table III or the Joint and Survivor Table II, determined by the age of your spouse, and you then simply divide the 12/31 balance by the IRS factor corresponding to your attained age on the Table. Those IRS Tables can be found here. An online calculator can be found here if you don't want to do the math yourself. Click here for an audio explanation of how to use the calculator. The beneficiary of an inherited retirement account must also take minimum required distributions. The calculations are similar to those described above, but they use a different IRS Table. Here is the online beneficiary calculator. Remember, you can designate a charity as the recipient of your minimum required distribution. If you designate that charity before you take it, the distribution will go directly to the charity bypassing your income tax return. Such a reduction in reportable income may reduce the amount of tax due on other income particularly your Social Security benefits. In 2006 and 2007 only, you can give up to $100,000 of you IRA to a charity of your choice. That would accomplish several things; it would reduce the balance of your IRA which would require lower minimum required distributions in future years, it would help your chosen charity and it would make you feel better. Of course, the wisdom of giving away your money at any time depends on your need for that money. If you need the distributions to meet living expenses, don't give it away. If you wish you didn't have to take the distributions because all it does is increase your tax burden, consider it. For more information, go to the Portsmouth Community Foundation web site. Early Retirement Distributions
401(k), 403(b), IRA, SIMPLE, TSP, 457, SEP, DC, DB What a collection of numbers and letters! What are they? Is this some special code that insiders use to keep the general public from knowing what is going on with their retirement? Did you even know these acronyms and collections of numerals had anything to do with retirement? What happened to my pension? My father never had to worry about any of this. His company provided a DB (Defined Benefit) pension for him. We will attempt to answer some of these questions and provide you with links to other sites that offer pertinent and important information. The predominance of the traditional defined benefit pension has been changed over the past several years being supplemented and sometimes replaced by the DC (Defined Contribution) plan. There are still many good DB pensions in use; the Virginia Retirement System is a prime example. Many private companies, especially the smaller companies that employ the majority of the nation's workers, have switched either partially or entirely to the DC plans. The administration and required financial burden is much less onerous to the employer but in a DC plan, the responsibility of providing for financial security in retirement is shifted to the employee. You have the choice of spending your salary now or saving for retirement. If you don't save for retirement, neither does your employer. The prudent worker who understands this concept can save a very large amount of money over his or her working career and accumulate quite a substantial amount of capital. The era of the Defined Contribution plan has created the new class of millionaire retirees who never before thought of themselves as wealthy. The income derived from that accumulated capital may, indeed, provide greater security than the pre-defined income available from the older DB pension plans. Many people are familiar with the 401(k) plan, or at least they are familiar with the numbers and letter. The 401(k), the 403(b), the TSP and the 457 are all employer-sponsored Defined Contribution plans. The 401(k) is perhaps the most widely used plan. It is the plan offered to most of the workers in the general, civilian workforce. The 403(b) is (loosely defined) the not-for-profit sector's version of the 401(k). It is typically offered to teachers, workers in religious organizations and employees of not-for-profit hospitals. The 457 is offered to employees of certain municipal and state governments and the TSP (Thrift Savings Plan) is offered by the U. S. Government to its military and civil service workers. All of these plans offer the opportunity for the worker to save for retirement on a pre-tax basis, that is, the salary not taken now and invested for retirement is not taxed until it is withdrawn in retirement. In addition, all the gains earned within the retirement plan are taxed only when withdrawn. Self-employed persons have several options to establish plans for themselves, too. The SEP (Simplified Employee Pension) has been around for a good while now but is being upstaged and replaced by the newer SIMPLE (Savings Incentive Match Plan for Employees) plans that are more streamlined and easier to administer. The new kid on the block is the SIMPLE 401(k) in both tax-deferred and Roth versions. It allows the self-employed person to potentially put away more dollars each year than a standard SIMPLE. For circumstances that warrant them, tried and true Profit Sharing plans may be the best choice. Beyond the plans offered by employers to their workers, the individual has the opportunity to save for retirement using the IRA (Individual Retirement Arrangement) in either its Traditional or Roth formats.
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