An IRA is a personal pension plan. Like all retirement plans, an IRA is designed to help you accumulate money for retirement.

• If you qualify, you can deduct your IRA contributions for federal tax purposes.
• Interest earnings on an IRA are tax-deferred until you take them out.

An IRA can be established and funded at any time between January 1 of the current year, up to and including the date an individual’s income tax is due, not including extensions.

IRA ROLLOVER

When an employee leaves a job, or a qualified plan is terminated, a special IRA arrangement - the IRA "ROLLOVER" - can be used to hold a qualified plan distribution until it is transferred into a new qualified retirement plan, or it is later distributed to the individual. Tax-sheltered annuity (TSA) distributions may also be transferred to an IRA ROLLOVER.

If the distribution is transferred to an IRA ROLLOVER account (traditional IRA or another qualified plan) in a direct rollover, no income tax is withheld and the individual avoids current income tax on the distribution.

EDUCATION IRA’s

The Taxpayer Relief Act of 1997 (TRA’97) created a new, tax-favored account, the "Education Individual Retirement Account" (Ed-IRA) designed to help certain taxpayers save for their children’s education. Money contributed to an Ed-IRA is nondeductible and earnings on the account accumulate tax-deferred. These new accounts will be available to taxpayers beginning in 1998.

Contributions to an Ed-IRA account are treated as gifts to the beneficiary and, when distributed, in general, to the extent that earnings on the account are distributed to pay qualified post-secondary educational expenses, the earnings are excluded from the beneficiary’s income, and are received free of federal income tax.

ROTH IRA’s

Beginning in 1998, taxpayers have a new, tax-favored retirement accumulation vehicle in the ROTH IRA. Similar in concept to the traditional IRA, the ROTH IRA differs in that contributions are never deductible, and, if certain requirements are met, distributions from the account may be received free of federal income tax.

A ROTH IRA may be established and funded at any time between January 1 of the current year, up to and including the date an individual’s income tax return is due, not including extensions. The account must be designated as a ROTH IRA at the time it is established.

PENSION RETIREMENT PLANS

It is estimated that close to 39 million Americans have no form of retirement plan other than Social Security.

Qualified retirement plans are an excellent way to supplement Social Security. They offer sponsoring employers tax advantages and, at the same time, help attract and retain quality employees.

SIMPLE RETIREMENT PLANS

The Small Business Job Protection Act of 1996 created an entirely new type of retirement plan called "SIMPLE," an acronym which stands for "Savings Incentive Match Plan for Employees."

SIMPLEs are exempt from the complex rules and reporting requirements that govern other qualified retirement plans. Employees can elect to defer a portion of their earnings into a SIMPLE plan, and employers can either elect to match each "participant’s" contributions, or make a contribution to all "eligible" employees.

SIMPLE retirement plans are available for any business which:

• Has 100 or fewer employees (including employees of related entities).
• Does not maintain another tax-qualified retirement plan to which contributions are made.
• Can be either an incorporated or unincorporated firm.

There are two different types of SIMPLE plans which, although similar, do have distinct differences. There is an IRA version and a 401(k) version.

KEOGH PLANS

KEOGH Plans are retirement plans for self-employed individuals, i.e., sole proprietors, partners, or employees of either. KEOGH plans may be either defined contribution or defined benefit plans. The plan must be in writing and meet certain coverage and non-discrimination requirements for present and future employees.

TAX SHELTERED ANNUITIES (TSA’s)

TSA’s are available to employees of religious, charitable, educational, scientific, and literary organizations described in IRC Sec 501(c)(3) or public school systems. (Public Law 87-370)

Employers make contributions to TSA’s, but typically the employee agrees to have his or her salary reduced by the amount to be contributed. If the Employer contributes its own funds the arrangement is subject to the same rules that govern regular qualified plans.

The employee avoids current income taxation on the deferred amount and the earnings on the accumulating funds are not taxed until they are distributed.

A TSA can be set up at any time during the year, however, the salary reduction agreement must be entered into before the reduced amounts are earned.

SIMPLIFIED EMPLOYEE PENSION PLAN

A SEP provides an employer with a simplified way to make contributions to an employee’s Individual Retirement Account or Individual Retirement Annuity.

Employer contributions are made directly to SEP-IRAs set up for each employee. The employer contributions are tax deductible and the contributions are not taxed currently to the employee. SEP earnings accumulate income tax-deferred.

No annual contribution is required and contributions can be made until the due date (plus extensions) of the employer’s tax return.

CORPORATION QUALIFIED RETIREMENT PLANS

Qualified retirement plans can generally be classified as either "Defined Benefit" or "Defined Contribution" plans. Employer’s contributions can be deducted for income tax purposes; earnings on the plan’s investments accumulate income tax free; when the funds are distributed at retirement age and they may be eligible for favorable tax treatment. Taxpayers are often in a lower income tax bracket after retirement.

Defined Benefit Plans identify or define the benefit amount each participant will receive at retirement age and then estimate how much must be contributed each year to accumulate the necessary future fund. Interest rates, ages of participants, etc., will have an effect on the calculation. The amount of the contribution is generally determined by an actuary. The investment risk rests on the employer. This type of plan generally favors older employees.

Defined Contribution Plans generally put a percentage of current salaries into the plan each year. The amount at retirement will depend on the investment return and number of years until a participant retires. The investment risk rests on the employee /participant.

There are several variations of Defined Contribution Plans. Some of the more common ones include:

1. MONEY PURCHASE PENSION.

   The employer contributes a defined or fixed percentage of the participating employee’s salary each year. Whatever that fund grows to is what the retiring employee receives.

2. TRADITIONAL PROFIT SHARING

   Similar to the Money Purchase Pension, except that contributions do not need to be a specified percentage and they do not need to be made every year, as long as they are "substantial and recurring."

3. SEC. 401(k)

   Profit Sharing or Stock Bonus plans which meet certain participation requirements of IRC Sec. 401(k). 401(k) plans can be either a salary reduction or a cash or deferred plan. An employee can agree to a salary reduction which the employer can then pay to the Retirement Plan Trust or the employer can decide to pay a bonus and give the employees the choice of taking it in cash, deferring it to the Trust or take part and defer the rest.

   Employee salary reductions are deductible to the employer but is not included in the employees gross income. Employer additional contributions are tax deductible and are not taxed currently to the employee. Earnings accumulate income tax-deferred and distributions can be tax-favored.