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Tax Strategies for Now and in Retirement

UNDERSTANDING TAX SPEAK Exemptions reduce amount of taxable income Deduction can reduce amount of taxable income Credits subtracted from tax amount due

WHAT DOES IT ALL MEAN? Gross income Adjusted gross income (AGI) Modified adjusted gross income (taxable income) (MAGI)

HOW MUCH WILL YOU PAY? If taxable income is over But not overThe tax is: $0$18,15010% of the amount over $0 $18,150$73,800$1, plus 15% of the amount over $18,150 $73,800$148,850$10, plus 25% of the amount over $73,800 $148,850$226,850$28, plus 28% of the amount over $148,850 $226,850$405,100$50, plus 33% of the amount over $226,850 $405,100$457,600$109, plus 35% of the amount over $405,100 $457,600No limit$127, plus 39.6% of the amount over $457,600 Couple with $121,000 of MAGI pays: $10, $11,800 (25% of the amount over $73,800) $21, in federal income tax Example for illustrative purposes only. This tax table is for a married person filing jointly for the 2014 calendar year from the instructions. Income tax rate is 18.15% Federal income tax/MAGI

THE COST OF YOUR TAX REFUND $2,918! 1 The average refund in 2014 was 1 As of December 26, 2014,

IF YOUR WITHOLDING IS TOO MUCH, OR NOT ENOUGH, IN TAXES* Contact your human resources or personnel office Ask for Form W-4 Include exemptions and adjustments that accurately reflect your tax situation *See instructions for IRS Form 1040 related to a penalty you may owe for under payment or not making timely estimated tax payment.

TAX-SMART RETIREMENT SAVINGS Qualified retirement plans and individual retirement accounts (IRAs) are naturally tax-advantaged Ordinary income taxes vs. capital gains taxes Stay invested

TAX CONSIDERATIONS IN RETIREMENT Will Social Security payments be taxed? What’s your tax bracket in retirement? Which retirement investments should you tap first?

DISTRIBUTION OPTIONS AT RETIREMENT OPTIONTAXATIONPROSCONS Lump sum withdrawal Pay income tax on entire pre-tax amount Immediate access to retirement funds Potential for higher tax bracket May outlive income Early withdrawal penalties 1 Leave it as-is Potential tax- deferred growth Pay income tax on withdrawals from tax- deferred account balance Potential tax-deferred growth Possibly a lower tax rate Stretches retirement income Remains under previous employer’s retirement plan terms and conditions Annuity option, periodic withdrawals 2 Potential tax- deferred growth Pay income tax on withdrawals from tax- deferred account balance Potential tax-deferred growth Possibly a lower tax rate Lifetime income stream option Lifetime income option can reduce annual income 1 If prior to age 59½ or age 55 and separated from service. 2 Guarantees are based upon the claims-paying ability of the issuing insurance company

OPTIONTAXATIONPROSCONS Traditional IRA rollover Potential tax- deferred growth Pay income tax on withdrawals from tax- deferred account balance Potential tax- deferred growth Possibly a lower tax rate Stretches retirement income Potential for higher account fees and investment expenses compared to remaining in plan Roth IRA rollover from Traditional IRA Pay income tax on rollover amount Potential tax- deferred growth Tax-free withdrawals 3 Rolled-over amount can put you in higher tax bracket first year 3 When account is owned for at least five years and payment or distribution is made on or after the date you reach age 59½ because you are disabled, in the event of your death or when meeting the requirements listed under First-Time homebuyer exceptions (up to a $10,000 lifetime limit). ROLLOVER OPTIONS AT RETIREMENT

IMPORTANT POINTS TO REMEMBER Qualified retirement plan contributions can reduce your current taxable income Qualified retirement plan contributions may help ensure a more secure retirement

IMPORTANT POINTS TO REMEMBER Time and compounding have the potential to help grow your retirement savings Tax liabilities will have an impact on your retirement income * *Distributions from pre-tax retirement funds are subject to federal and possibly state taxes.

INTERNAL REVENUE SERVICE (IRS) CONTACT INFORMATION irs.gov Local IRS Taxpayer Assistance Center

Questions?

PT | 08/2015 | t oum ©2015 Principal Financial Services, Inc. Insurance products and plan administrative services are provided by Principal Life Insurance Company a member of the Principal Financial Group ®, Des Moines, IA The subject matter in this communication is provided with the understanding that The Principal ® is not rendering legal, accounting, or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Guarantees are based on claims-paying ability of the issuing insurance company. No part of this presentation may be reproduced or used in any form or by any means, electronic or mechanical, including photocopying or recording, or by an information storage and retrieval system, without prior written permission from the Principal Financial Group ®. Disclosures WE’LL GIVE YOU AN EDGE ®