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Retirement Planning
Understanding Key Tools Of Retirement Planning
Roll Over
The transfer of a distribution from certain specified tax-advantaged plans that follows the rules set out in the Internal Revenue Code and Regulations, and enables the individual to maintain the former plan’s tax advantages with respect to the amount transferred.
Roth IRA
A personal retirement savings plan, funded by an annuity or trust/custodial account, that provides income tax deferral and may provide tax-free distribution of earnings. Eligibility for a Roth IRA is limited to individuals, regardless of age or qualified plan participation, provided their income doesn’t exceed certain adjusted gross income limits.
Simplified Employee Pension (SEP)
An employer’s agreement to contribute to traditional IRAs or Roth accounts that are maintained by employees. The plan can be adopted by an employer by completing a fairly simple IRS form. A SEP allows for higher contribution levels than traditional or Roth IRAs, has fewer restrictions than qualified retirement plans and, unlike SIMPLEs, there is no limit on the number of employees in the plan. Employees are immediately 100 percent vested in their accounts. Similar to a SEP, a SIMPLE allows for higher contributions than permitted in a traditional or Roth IRA.
Spousal IRA
An individual retirement plan designed to provide retirement benefits for an uncompensated spouse. Although the participant in a spousal IRA is not required to meet the earned income requirement for contribution to an IRA, the spousal IRA is available only if the participant is married and filing a federal income tax return on a joint basis. A spousal IRA, if established, must be a separate account and not commingle with the working spouse’s IRA.
Traditional IRA
A personal retirement savings plan, funded by an annuity or a trust, that meets certain requirements and may permit tax-deductible contributions and tax deferral of earnings. Individual retirement accounts, initially authorized by Congress to enable individuals to make tax-deductible contributions to their personal retirement plans, have expanded to provide spousal benefits, education benefits, and, in certain cases, tax-free retirement benefit.
Active Participant
An active participant for traditional IRA purposes is an individual that participates in his or her employer’s retirement plan. An employer-sponsored retirement plan includes a pension plan, profit-sharing plan, 401(k) plan, 403(b) tax-sheltered annuity plan, SEP, or SIMPLE.
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