retirement plan outline

Qualified retirement plan

·        Tax deferred

·        Banned-collectables

·        Investment separate from income to save for retirement

·        Deduct $ from salary, not taxed as income year received

·        For 401k, IRA, self employed defined contribution retirement plan

·        Penalty tax-10% if withdraw before 59.5

·        Withdrawals taxed as ordinary income

·        After tax contributions to IRA not taxed, added to cost basis

·        MUST withdraw by April 1 after age 70.5

·        Whole payment taxed as ordinary income if no payment made with after tax $

·        Take payments for retirement, no penalty tax if not 59.5 and if payments are long enough to equal a life expectancy. Ex. 55 year old could take 12 payments a year for 25 years without tax penalty.

 

Nonqualified

·        Contributions made with after tax $

·        Not tax deferred

·        Banned-collectables

·        $ taxed before annuity bought

·        Dividends, interest, capital gains-tax deferred

·        Investments in variable annuities and mutual funds

·        Taxed at annuity period

·        taxed when lump sum withdrawn

·        10% penalty if not 59.5 years

·        MOST QUESTIONS

·        Annuity payment-part return of capital, part taxed as ordinary income

Lump sum

·        Beginning $ is appreciation-all taxed

·        Contribution portion-not taxed

·        Partial withdraw-first $ withdraw is taxed as appreciation

·        Under 59.5, 10% penalty + taxed as ordinary income

Exceptions to 10% penalty

·        Death

·        Disability

·        Payments for higher education for a family member

·        First home purchase-$10,000. Not for building a new home. Can buy,build or renovate a first home.

·        Medical expenses

·        Payments taken in amounts paid over life expectancy

Investors in a nonqualified variable annuity cannot withdraw any money without penalty before what age (excluding disability or other medical emergencies)?

·        59.5 years old

·        Can withdraw for early retirement, medical expenses or permanent disability

·        Still have to pay ordinary taxes