1. Solid Finances Sponsors MSU Extension This program is made possible by a grant from the FINRA Investor Education Foundation through a partnership with United Way Worldwide.

2. IRAs, 457s & 403b Plans Joel Schumacher Sponsored by: MSU Extension

3. Schedule Estate Planning – Think you know who gets your property when you die? Think Again. March 8 th – Power of Attorney, Trusts and More March 22 th – Wills, Living Wills, End of Life Registry, Advance Directives & POLST April 5 rd – Estate Planning Tools & Tips April 19 th

4. Question A: IRA represents Individual Retirement Account True False

5. IRA IRS Terminology: Individual Retirement Arrangement Everybody Else’s Terminology: Individual Retirement Account

6. Two Types of IRAs Traditional IRAs – Deductible: Contributions are deductible on your taxes in the year in which they are made. – Non-Deductible: Contributions are not deductible or are only partially deductible in the year in which they are made. Roth IRAs – Contributions are not tax deductible. – Withdrawals are tax free.

7. Question B: Do you currently have a Traditional IRA Roth IRA Roth & Traditional Neither

8. How much can I save? 2011 & 2012 Contribution Limit – $5,000 2011 & 2012 Catch-up Limit – Must be age 50 or over – $1,000

9. Contribution to an IRA Contributions can be made during the year or until due date for income tax returns for that year – Eligible dates for 2011 IRA contributions are: January 1, 2011 to April 17, 2012

10. Who is eligible? Requirements: You must have taxable income You cannot be age 70 ½ or older – Age limit does not apply to Roth IRAs You must meet income limits

11. Traditional IRAs Income Limits (Adjusted Gross Income) – Single: Full Deduction: $58,000 or less Partial Deduction:$58,000 to $68,000 No Deduction: $68,000 or more – Married Filing Jointly: Full Deduction:$92,000 or less Partial Deduction:$92,000 to $112,000 No Deduction:$112,000 or more

12. Traditional IRAs Exception to these rules if you are not covered by a retirement plan at work. Special Rules for Spouses – A spouse with no income can contribute in some cases. A joint tax return must be filed.

13. Traditional IRA How it works: 1. Make a contribution 2. Report your contributions on your income taxes – The contribution is deducted from your taxable income – This lowers the federal and state taxes you owe 3. Account grows tax free 4. Withdrawals are taxed as regular income

14. Question C: Do the partial or no deduction rules apply to your situation? Yes No Maybe

15. Roth IRAs 2012 Income Limits (Adjusted Gross Income) – Single: Full Contribution Limit: $110,000 or less Partial Contribution Limit:$110,000 to $125,000 Not Eligible: $125,000 or more – Married Filing Jointly: Full Contribution Limit: $173,000 or less Partial Contribution Limit:$173,000 to $183,000 Not Eligible: $183,000 or more

16. Roth IRAs How it works: 1. Make a contribution 2. Your taxable income remains the same 3. Your account grows tax free 4. Distributions are tax free

17. Withdrawing IRA Funds When can I withdraw my money? – Anytime However, Non-Qualified withdrawals are assessed a 10% penalty Withdrawals from a traditional IRA are included in income

18. Withdrawing Money A 10% penalty is imposed unless the individual meets one of these: – Age 59 ½ or older – Disabled – Deceased – First Time Home Purchase ($10,000 maximum) – Higher education expenses – Qualified Medical Expenses (over 7.5% of gross income) – Qualified Health Insurance Premiums (while unemployed) – Distributions are received in the form of an annuity

19. Extra Rule for Roth’s 5-Year Test – Withdrawal must be 5 or more years after the first contribution was made. Example: – Janice opens a Roth IRA at age 58 in 2012. – She retires at age 61 in 2015. – She will have to pay a 10% penalty if she withdrawals funds before 2017.

20. Question D: When do you have to start taking Required Minimum Distributions? Age 65 Age 67 Age 70 ½ Age 75 When you claim Social Security Benefits

21. Required Minimum Distributions (RMDs) Only applies to traditional IRAs Must be taken for the calendar year in which you reach age 70 ½ and each year after that Calculating RMDs: – January 1 st balance divided by a factor from an IRS Table. The factor gets smaller as you get older. – Your IRA Custodian will likely calculate this for you.

22. Which is best for me? Tax Rates – Current and During Retirement Eligibility – Higher earners may not be eligible for traditional Diversification – The bulk of most people retirement savings is “pre-tax”; a Roth is “post-tax”

23. Question E: Do you expect to have lower income during retirement? Yes No Not Sure

24. Question F: Do you expect to pay a higher marginal income tax rate during retirement? Yes No Maybe

25. Converting to a Roth IRA You can convert a Traditional IRA to a Roth IRA Why? You changed your mind on which is better for you. You can convert some or all of your Roth.

26. Converting to a Roth IRA 1. Contact your current IRA custodian. 2. Tell them how much you want to convert. 3. They will transfer the funds to a Roth account for you. 4. You need to report the conversion as regular income. No early withdrawal penalties apply You will need to pay taxes on the conversion amount

27. Roth IRA Conversion Example – Jim Earns $30,000 in 2012 – Converts $3,000 from his traditional IRA to a Roth – Jim’s taxable income is increased to $33,000 This increases Jim’s taxes by $657 Jim’s Federal Income Tax Rate: 15% 15%x $3,000 = $450 Jim’s State Income Tax Rate 6.9% 6.9% x $3,000 = $207

28. Rollover IRAs IRAs can be funded by transferring funds from: 1. Your account in a former employer’s retirement plan 2. From another IRA No tax implications if done correctly

29. IRA Questions For More Information: IRS Publication 590

30. Employer Plans Most employer plans allow an employee to select their contribution level – For example: 5% of compensation; 10% of compensation; or $250 per month IRS has maximum employee contributions – 2012 Limit:$17,000 Catch-Up Contributions are allowed – 2012 Limit: $5,500 – Must be Age 50 or older

31. MUS Retirement Plans Your job “classification” and your hire date determine your MUS retirement plan. MUS Standard Retirement Plans – Public Employees Retirement System (PERS) – TIAA-CREF – Teachers Retirement System (TRS) – Federal Employees Retirement System (FERS) – Civil Service Retirement System (CSRS)

32. MUS Supplemental Retirement Plans Section 403b Plans ING MetLife TIAA-CREF Valic-American General Section 457 Plan Great-West Retirement Services

33. Question G: University System Employees: Do you participate in a Supplemental Plan Retirement Plan? Yes No Not currently, but I have in the past

34. Contributions Contributions are Tax Deductible – Withdrawals are taxable Annual Maximum Limits for 403(b) Plans – $17,000 per year – $5,500 per year “catch-up” if you are age 50 or older Limit applies to all supplemental 403(b) plans

35. Contributions % of salary or fixed amount each month – Example: 2% of pay or $75 each month Must fill out a new form each year Amount can be changed during the year

36. 457 Plan $17,000 annual maximum deferral amount $5,500 additional catch-up contributions are allowed for those over 50 Special rules for those within 3 years of the plan’s normal retirement age. These rules may allow for additional deferrals of up to $17,000 annually for 3 years.

37. Questions www.msuextension.org/solidfinances/