KingdomTrust, Inc. Rollover IRA Presentation

Transcription

1 KingdomTrust, Inc. Rollover IRA Presentation STRATEGIES FOR JOB CHANGERS AND RETIREES. Not FDIC Insured May Lose Value No Bank Guarantee FOR INVESTORS

2 Agenda Why people take their money out of retirement t plans before retirement t Understanding your distribution options Next steps you can take

3 Changing jobs? Retiring early? Close to retirement? YOU RE NOT ALONE The median tenure with a current employer for employed wage and salary workers is 4.1 years. 1 The average person born in the later years of the baby boom held 10 jobs from ages 18 to The average age for retirement has dropped from 62 to More than 10,000 Americans become eligible for Social Security everyday Bureau of Labor Statistics of the U.S. Department of Labor, September Bureau of Labor Statistics, Publication USOL , August The baby boom covers those individuals born between 1957 and The McKinsey Quarterly What US workers don t know about retirement, David A. Hunt, Janice Revell, and Joanna Rotenberg, January Social Security Administration, February 2008.

4 Your distribution options 1 Take the distribution in cash Leave the money in your former employer s retirement plan Roll the eligible assets into your new employer s retirement plan Roll the eligible assets into a Rollover IRA

5 Distribution option 1 TAKING THE DISTRIBUTION IN CASH Potential implications of a $30, early cash distribution of an eligible rollover amount from a 401(k) plan assuming: 20% mandatory federal income tax withholding 10% early-distribution penalty 5% additional federal income taxes may be owed Taxes and penalties $10,500 $19,500 Money remaining Among the options available for 401(k) assets are directly rolling over the assets to another tax-deferred retirement account or taking a lump-sum cash distribution. This chart illustrates the potential impact of taxes and penalties that a cash distribution from a 401(k) plan might trigger if taken before age 59½, assuming a 25% federal ordinary income tax rate. Local and state taxes, account fees, and expenses are not taken into account. If such taxes, fees, and expenses were deducted, the amount of assets eligible for rollover would be lower.

6 Distribution option 2 LEAVE THE MONEY IN YOUR FORMER EMPLOYER S RETIREMENT PLAN Potential Advantages Potential Disadvantages No immediate decision required Limited investment flexibility (if certain requirements are met) Potentially limited distribution Continues tax-deferred status options No current taxationti Potential fees for participants who are no longer employed No early-distribution penalties Multiple retirement plans with separate account statements Offers federal creditor protection; taxable accounts do not

7 Distribution option 3 ROLL ASSETS OVER TO A NEW EMPLOYER S RETIREMENT PLAN Potential Advantages Potential Disadvantages Continues tax-deferred status New plan may not accept No current taxation rollovers No early distribution penalties Possibly limited investment choices Consolidated investment and reporting May offer investment options unavailable in former plan Offers federal creditor protection; taxable accounts do not Potentially limited distribution options* Potential surrender and other types of charges may apply *Starting in 2007, nonspouse beneficiaries may now roll over inherited workplace savings plan assets to an inherited IRA.

8 Distribution option 4 ROLL THE ASSETS TO A ROLLOVER IRA Potential Advantages Potential Disadvantages Continues tax-deferred status No ability to take loans which No current taxation or penalties may be available with new employer s plan May offer creditor protection 1 Potential surrender and other Potential ti to convert to a Roth IRA 2 types of fees may apply 1. The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 shields certain retirement assets from creditors in case of bankruptcy. For Rollover IRAs, there is no limit on the assets protected. Please consult a qualified bankruptcy attorney and/or tax professional for further information on the Act and how it may affect your personal situation. 2. As of 2008, if you qualify, you'll be able to directly roll over eligible 401(k) assets into a Roth IRA. Amounts are subject to income taxes in the year of rollover to the Roth IRA.

9 Tax-deferred vs. taxable account Potential advantages of $30,000 (pretax) rolled directly to an IRA versus taking a lump-sum cash distribution and investing the net proceeds of $19,500 (after-tax)* in a taxable account $350,000 $300,000 $250,000 $200,000 Potential growth after taxes (7% annual rate of return) Taxable Account Rollover IRA $240,223 $150,000 $100,000 $50,000 $33,626 $44,261 $76,143 $122,117 $131,302 $0 10 Years 25 Years 35 Years *The $19,500 assumes the $30,000 cash distribution was subject to a 25% federal ordinary income tax rate and a 10% early distribution penalty. This hypothetical ti compares a $30, (pretax) distribution ib ti from a 401(k) plan taken as a direct rollover to a Rollover IRA to a lump-sum early cash distribution from a 401(k) plan with the net proceeds of $19,500 (after-tax) invested in a taxable account and after-tax amounts potentially available with each. Assumptions include a 7% annual rate of return and blended annual income tax rate of 20% on taxable account earnings deducted at the end of the year. State and local taxes and account fees and expenses are not taken into account. If they were deducted, performance would be lower. The hypothetical is not intended to predict or project the investment performance of any security. Your own results will vary.

10 Account consolidation POTENTIAL ADVANTAGES OF CONSOLIDATING MULTIPLE ACCOUNTS A clear view of your retirement portfolio Potentially more investment options Flexible distribution options Simplicity

11 Summary of distribution options Take cash Leave in former employer s plan Roll over to new employer s plan Rollover IRA Roth IRA 1 Tax-deferred status No Yes Yes Yes Tax Free Avoid current taxation & IRS early-distribution penalties No Yes Yes (if eligible distribution is directly rolled over) Yes (if eligible distribution is rolled over) Yes (if eligible distribution is rolled over) Offers investment flexibility Yes May be limited May be limited Depends on IRA Depends on IRA Available to all Yes If permitted under employees plan pa and baa balance is $5,000 or more 2 May be limited Yes Yes Can add more eligible NA No May be limited Yes Yes money later Eligible for 72(t) distributions NA Maybe; not relevant if age 55 or older Maybe; 3 not relevant if age 55 or older Yes; not relevant if 59½ Yes; not relevant if 59½ or older or older 1. As of 1/1/08, assets in employer-sponsored plans may be directly rolled over to a Roth IRA. Amounts are subject to income taxes in the year of rollover to the Roth IRA. 2. This may not be an option if your previous employer terminated the plan or if your plan maintains certain cash-out limits. The minimum required account balance may include or exclude any rollovers you may have made into the plan. Please check with your Plan Administrator for the specific plan account requirements for your plan. 3. But not while you are employed.

12 1. Reevaluate your goals with a financial advisor TO HELP YOU BETTER PREPARE FOR RETIREMENT: Reassess your goals and current financial situation Develop a plan for pursuing your retirement goals Understand your distribution options Review your overall financial planning strategy

13 2. Understand your options Know the tax implications Be aware of timing issues Direct rollover: assets are directly transferred to the new custodian Indirect rollover: you generally have 60 days to roll over the money you received to the new custodian to avoid taxes* Look ahead weigh the potential effects on long-term planning and future income *Any portion not rolled over within the time limit, including the 20% withheld, is considered income in the year distributed, and may also be subject to a 10% penalty if you are under 59½. If you wish to roll over the 20% that was withheld, you will have to fund it from another source and then seek the return of the amount withheld when you file your federal tax return. The 60-day time limit for rollovers is increased to 120 days for amounts (up to $10,000) distributed from an IRA for a qualified first-time home purchase that does not materialize.

14 3. Review your investments WE WORK WITH YOU TO: Ensure your investment strategy is in tune with your risk tolerance and time horizon Rebalance your investments t moving and consolidating assets is an ideal time to revisit your asset allocation Take advantage of new investment products that may fit your needs Keep current regarding regulation changes that may affect your savings strategy

15 4. Work with a retirement specialist KingdomTrust, Inc. AND FIDELITY Fidelity the Number 1 recordkeeper based on assets* IRAs Traditional, Rollover, Roth, SIMPLE, SEP Fidelity Advisor Funds: covering fixed-income, equity, and dinternational ti linvestments t throughout h tthe world Fidelity Advisor Freedom Funds: a single investment strategy that automatically adjusts asset allocation in sync with a target retirement date Stock markets, especially foreign markets, are volatile and can decline significantly in response to adverse issuer, political, regulatory, market, or economic developments. Foreign securities are subject to interest rate, currency exchange rate, economic, and political risks, all of which are magnified in emerging markets. The Advisor Freedom Funds are subject to the risks of their underlying funds, including the volatility of the financial markets in the U.S. and abroad, as well as the additional risks associated with investing in high yield, small-cap, and foreign securities. *PLANSPONSOR MAGAZINE 2008 Recordkeeping Survey, June 2008.

16 Before you leave today... Call or stop by KingdomTrust, Inc. to set up a confidential, no-obligation appointment: (301) Understand your options Evaluate your needs Receive helpful follow-up materials

17 Important information Before investing, consider the funds' investment objectives, risks, charges, and expenses. Contact your investment professional for a prospectus or visit advisor.fidelity.com for a Fidelity Advisor fund prospectus containing this information. Read it carefully. Not NCUA or NCUSIF insured. May lose value. No credit union guarantee. The tax and estate planning information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Fidelity does not provide legal or tax advice. Fidelity cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws which may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Fidelity makes no warranties with regard to such information or results obtained by its use. Fidelity disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation. Fidelity Investments and [insert firm name here] are not affiliated. Fidelity Investments & Pyramid Design, Fidelity Advisor Funds, and Fidelity Advisor Freedom Funds are registered service marks of FMR LLC. Fidelity Investments Institutional Services Company, Inc., 82 Devonshire Street, Boston, MA Your Advisor and Fidelity Insight Diversification Dedicated Support