Understanding the
Payroll Deduction IRA
Date
Presented by: Presented by: Name, Title
0110-3705 This presentation is the property of ICMA-RC and may not reproduced or redistributed in any manner.
Agenda
• ICMA-RC OverviewICMA RC Overview
• Payroll Deduction IRA R th T diti l IRA
• Roth vs. Traditional IRA
• Investments
• Establishing a Payroll Deduction IRA
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Corporate Overview
We Serve Only the Public Sector
• Exclusive public sector focus – created byExclusive public sector focus created by and for public sector employees
• Over $32 billion plan assets*
• Over 8,500 plan sponsors*
• Over 900 000 participants*Over 900,000 participants
* As of December 31, 2009 4
Payroll Deduction IRA Roth vs. Traditional IRA
Benefits of Payroll Deduction IRA
• Additional tax-advantaged opportunityAdditional tax advantaged opportunity
• Convenient
Encourages disciplined saving
• No annual fee1,2
• No minimum investments2
• No minimum investments2
• Simplified financial records
Consolidated statements and online account information
Consolidated statements and online account information
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1Mutual fund expenses still apply. Please see prospectus for details.
2$25 annual maintenance fee and initial minimum investment of $1,500 are waived if IRA funded through automatic investment program, such as payroll deduction.
Benefits of a Roth IRA
• Tax-deferred earningsTax deferred earnings
• Withdrawals are not restricted
Withd t ib ti ti t d lt f
• Withdraw contributions any time, tax- and penalty-free
• Potential for 100% tax-free withdrawals
• No age limit for contributing
• No required minimum withdrawals at age 70½
* See IRS Publication 590 for complete IRA rules. 7
Benefits of a Traditional IRA
• Tax-deductible contribution potentialTax deductible contribution potential
• Tax-deferred earnings
Withd l t t i t d
• Withdrawals are not restricted
* See IRS Publication 590 for complete IRA rules. 8
Avoiding IRA Withdrawal Penalty Taxes
• Age 59½Age 59½
• Qualified higher education expenses*
• Qualified “first-time” home purchase ($10k limit)*
• Major medical expenses
• Payment of health insurance premiums by certain unemployed individuals*
• Death of IRA owner Disability
• Disability
• Annuity payments
• Substantially equal periodic payments
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Substantially equal periodic payments
* These exceptions apply only to IRAs; not employer-sponsored retirement plans See IRS Publication 590 for complete IRA rules
IRA/457Plan Comparisons
Key Tax Earnings Taxed
Earnings are Always Tax-Deferred, But There are Key Differences
y
Advantage Eligibility
g
at Withdrawal Roth IRA Tax-free growth
potential
No age limit Income limits
No, if meet 5-year holding period and age 59½ disability Income limits
apply1
age 59½, disability, death, or “first-time” home purchase
Traditional IRA
Contributions b
Under age 70½1,2 Yes
IRA may be
tax-deductible 457 Contributions are
“pre-tax”
Depends on plan Yes p
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1Individuals must also have IRS-defined taxable compensation, such as salaries or wages, equal to or greater than the amount of the contribution.
2IRA contributions are not allowed if individual is age 70½ or greater as of the end of the year. See IRS Publication 590 for complete IRA rules.
Roth vs. Traditional IRA Comparison
Roth IRA Traditional IRA
Key tax advantage Tax-free growth potential Contributions may be tax deductible Maximum annual contribution
(2009, 2010) $5,000 or earned income
($6,000 if age 50 or older) $5,000 or earned income ($6,000 if age 50 or older) (2009, 2010) ($6,000 if age 50 or older) ($6,000 if age 50 or older)
Eligibility No age requirement.
Must have qualifying compensation, such as wage or salary.
Must have income within allowable guidelines1 C t ib ti M i d J i t2 Si l
Must be under the age of 70½ (as of December 31st of the year).
Must have qualifying compensation, such as wages or salary.
Contribution Married, Joint2 Single Full <$167,000 <$105,000 Partial $167,001- $105,001 $177,000 $120,000 Contributions deductible from
I T No Depends on income and participation
i l ti t l
Income Tax No in employer retirement plan
Contributions allowed after age 70½ Yes No
Earnings tax-deferred Yes Yes
Contributions taxed upon withdrawal No Yes, if deductible
No, if held for five-year holding period and age Earnings taxed upon withdrawal 59½ or older (or due to death, disability, or “first-, y g p g
time” home purchase) Yes
Earnings subject to penalty
taxes upon withdrawal No, if you are 59½ or older, or other rules are met No, if you are 59½ or older, or other rules are met
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For more information: www.icmarc.org/whichira
1Modified Adjusted Gross Income, as defined by IRS.
22009 MAGI limits differ slightly: <$166,000, $166,001 - $176,000, and > $176,000. See IRS Publication 590 for complete IRA rules.
Investments
What Investment Options are Available?
• Complete lineupComplete lineup
All Vantagepoint Funds
Funds from outside fund families
• Funds ranging from conservative to aggressive
• www.icmarc.org/irafunds
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Establishing a Payroll IRA
What Steps are Involved?
• Letter Agreement AddendumLetter Agreement Addendum
Amends the existing Agreement between you and ICMA-RC
• Vantagepoint IRA Implementation Data Form
Provides necessary information to establish your Payroll IRA Program
• EZLink Access
Electronic processing via the Internet, in order to implement a Payroll Deduction IRA planp y p
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How ICMA-RC Assists
with Contribution Limits
• We monitor, including catch-up contributions,We monitor, including catch up contributions, on a best-effort basis
If we determine a participant is over the limit, we will contact you to stop payroll deductionsy p p y
You or the participant must restart the next tax year
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How Do Employees Establish
the Account?
• Vantagepoint Payroll Deduction ApplicationVantagepoint Payroll Deduction Application
Complete and return to ICMA-RC
• Vantagepoint Payroll Deduction IRA Authorization Form
Complete and return to you
It’s that easy!
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