Retirement


Secure Debt Solutions wants to ensure your financial future with a retirement plan. List below of all the retirement plans offered and which is best for you along with rates and best selections in which to choose your retirement plan. We are not licensed financial advisors and offer only our opinion.

401(K) - this is an employment sponsored retirement plan. It allows you to contribute to a retirement fund all the while deferring the payment of taxes. The plan has the employee select a desirable amount from his/her check into the retirement plan. The employee is entitled to select from a number of different investment options, this is referred to as a participant-directed plan and is one of the most common plans offered. Of the investment options it usually stems from an assortment of mutual funds dealing with stocks, bonds, or money market investments. Another option of investing is called a trustee-directed 401(k) in which the employer elects a trustee to decide how the plan will be invested in.

Contributions: contributions are set to a limited called the 402(g) limit which states that as of 2007 no employee may contribute more than $15,500 to their retirement 401(k). With the years to come the amount will adjust according to inflation and usually increases yearly by 500.00 and projected contribution limit to be $16,000.00 for 2008. If that contribution is exceeded it must be withdrawn by April 15th of the following year. This is common when an employee has transferred or switched companies and the previous employer isn't aware that they must enforce the contribution limit.
Those that are of the age of 50 or older, any time during that year may be allowed to add an additional contribution known as "catch up", up to $5,000.00 in 2006 and 2007 and as well will be increased based upon inflation up to 500 per year.
Note: Eligible plans allow employees can have their contribution put into a pre-tax contribution or an after-tax Roth 401(k) contribution, or a combination of the two but the total of the retirement 401(k)'s must not exceed the annual contribution amount stated above.

Roth 401(k): This plan is a nice combination of the Traditional Roth IRA and the 401(k) listed above. In short, what a Roth IRA is, is an employee or self employed contribution which is "post-tax" into the retirement account, and it ends up being a tax free growth and disbursement. However, it is limited to only 4,000.00/year contribution max.
The Roth 401(k) does combine some of the more advantageous aspects of the 401(k) and the Roth IRA which are:

1. Employees can choose between having their contribution "pre-tax" or "post-tax" as listed above, or a combination of the two. The advantage here is that if you think that you're in a lower tax bracket now as opposed to the future when you retire, this might be a better option to going "post-tax". You're going to be taxed on your retirement contributions one way or the other; now or later. You can decide if you want the lesser of the taxes taken now, or a greater amount in the future if you disburse more than you are currently earning today.

2. Cannot exceed more than $15,500 a year whether its combined or not.

3. The employer match or contribution is based on a "fractional formula" and doesn't include the $15,500 but is considered for the maximum section 415 limit which is $45,000 in 2007. However the contribution by the employer must be on the "pre-tax" basis and not be into the designated Roth account and can't receive the Roth tax treatment.

403(b) this is a tax advantage retirement plan that applies to public education organizations and some non-profit employers and self-employed ministers. It is similar to the 401(k) in that its pre-tax contributions and its generally based upon payroll deductions on a pre-approved list you provide to your employer.


IRA- Individual Retirement Accounts


This is a retirement plan that has some tax advantages for those living and working in the United States. There are a few different types; of them are Roth IRA, Traditional IRA, SEP, SIMPLE and Self-Directed.

Roth IRA - This is a retirement plan that the contributions are made "post-tax" and all transactions both present and future are pretty much tax free because its based on the fact that the funds/contributions have already been taxed. There are many advantages to enrolling in this type of retirement plan, and unfortunately there are some disadvantages. Its up to you to decide which is most beneficial to you since each and every person has a different situation.

Of these Advantages, as stated above, you may withdrawal any amount up to and including the total amount of your contributions without any tax or penalty and you may do this at any time but the account must be a "seasoned" account which means it has been established for more than 5 years. Tax bracket advantage applies here as well. If you are currently in a lower tax bracket than you feel you'll be while in retirement this might be the better option for you since you are paying less in taxes now as opposed to later.

The Disadvantages of the Roth is that the contributions are NOT tax deductible like on some other IRA's. There are some heavy penalties for any early withdrawals (a federal income tax and 10% of the amount withdrawn). There are some exceptions to that rule; i.e. if you're a very first time home buyer (See Home Buyer Guide) or for some qualified educational expenses.

Congress has put a limit on how much and who can contribute to a Roth IRA and based upon income. Tax payers may only contribute the maximum amount if their Modified Adjusted Gross Income (MAGI) is below a specific level. Those ranges are listed below:

- Single filers: up to $99,000 (for qualifying for full contribution) $99,000-$114,000 for partial contribution
- Joint Filers: up to $156,000 for full contribution and $156,000 to $166,000 for partial contribution
- Married Filing Separately: $0.00 for full contribution and $0.00-$10,000 for partial contribution

*the smaller of the amounts indicates when the tax payer isn't able to contribute to the maximum amount per year. The larger of the numbers indicates when they can't contribute at all.

Traditional IRA - these contributions are usually tax deductible. Money is usually deposited before tax or contributions are made with pre-tax dollars. All transactions and earnings within the IRA have no tax impact; however withdrawals at retirement are taxed as income.

Contributions
2005: 4,000/year or 4,500 (if older than 50)
2006/2007: 4,000/year or 5,000 (if older than 50)
2008: 5,000/year or 6,000 (if older than 50)

Along with the Traditional there come some of its advantages. As stated above the contributions are often tax-deductible and that is if the maximum amount has been contributed ($4,000) then 25% of the marginal tax bracket is realized for the year, in this case $1,000. Also, the reverse of the Roth applies here. If you think that you might be in a lower tax bracket when retiring as opposed to being in a higher bracket, the traditional IRA might be a better choice.

The disadvantages of this retirement plan are that the eligibility requirements of the tax deductibility. If you are eligible for a retirement plan at work your income must be below a specific amount for the filing status. Also, all withdrawals are included in gross income and subject to federal income tax. The biggest disadvantage you might find is the forced disbursements; which states that you must begin withdrawals at 70.5 years of age, more specifically April 1st of the year following being 70.5 years of age. If not, the IRS will confiscate half of the mandatory withdrawal amount automatically. OUCH! So make sure you plan on being retired by 70! There are also income limits for this plan. If you are married and filing jointly or are a qualified widow and MAGI (remember MAGI, Modified Adjusted Gross Income) must be between $75,000 and $85,000. If you're married and filing separately (and live with your spouse at anytime during the year) and MAGI is $0.00 and $10,000. Finally, being single, head of the household or Married yet filing separately (don't live with spouse anytime during the year) and MAGI is between $50,000 and $60,000.

*the smaller of the amounts indicates when the tax payer isn't able to contribute to the maximum amount per year. The larger of the numbers indicates when they can't contribute at all.

SEP IRA - Simplified Employee Pension: this plan allows an employer; typically a small business or self-employed individual to make contributions in a Traditional IRA which is set up in the employers name instead of a pension set up in the company name (which can be lost if the company files bankruptcy or goes out of business).

With a SEP, the funds can be invested the same way as any other IRA; for a more complete understanding of a SEP visit http://www.irs.gov/pub/irs-pdf/p560.pdf In order for you to qualify for this plan you have to be at least 21 years old and have been employed with the company 3 of the last 5 years and earned at least $450.00 during the tax year.

Contributions to the SEP can get a little tricky and to get a more thorough explanation check the irs.gov pdf linked above. However, the contributions are treated as a profit sharing plan and the employer may contribute up to 25% of the employee's wages to the SEP. so if you're earning 100,000 they may contribute up to 25,000. A total contribution cap is the lesser of a 25% or 44,000 as of 2006. If you are self employed it is 18.6% of net profits.

SIMPLE IRA - Savings Incentive Match Plan for Employees: this is the simplified pension plan for any employee which allows contributions by both the employer and the employee which is similar to that of the 401(k).
To qualify for this plan you must, as an employer, have no more than 100 employees. If you qualify and have already established SIMPLE IRA's for your employees and break that 100 employee barrier you may continue to be "eligible" for the next 2 years. Also, employees may not make regular IRA contributions to their account, and it requires a minimum contribution by employer. There is a "catch-up" policy offered to participants over the age of 50.

Transfers and Rollovers: just moving sheltered IRA funds or assets between institutions.
Transfer is usually initiated by the institution receiving the funds. A request is sent to the disbursement company and a check is cut out to the other institution. This transaction is NOT reported to the IRS.
A rollover or 60 day rollover is somewhat similar to a transfer in that it is going from on company to the other. However, the big difference is that the check that is cut doesn't go to the other company it goes to the participant and they would have to turn around and make a rollover contribution within a 60 day period so the funds can retain the IRA status. This process can only be done every 12 months with the same funds and this transaction is reported to the IRS and you must fill out a 5498 form on your tax to nullify any tax consequence of initial distribution.

Borrowing From an IRA This is strictly prohibited. The IRS may disqualify your plan and tax you on the assets. However, there is a loop hole, just as with anything else. You can do the 60 day rollover and when you receive your disbursement check, you use all or some in the rollover but you are penalized and taxed on what you use. We don't recommend that.

Other forms:
Publication 560 http://www.irs.gov/pub/irs-pdf/p560.pdf

Individual Retirement Arrangements:
IRS Pub 560 (Retirement Plans for Small Business - SEP, SIMPLE, and Qualified Plans)
IRS Pub 590 (Individual Retirement Arrangements)
IRS Form 5305 (SEP Agreement)