Some people have the option of contributing to a 401(k), 403(b) or similar plan at work. If you participate in such a plan, that is a good start. Unfortunately, even if you’re saving the maximum allowed, it may not be enough to pay for the type of retirement you want to have. That is where an Individual Retirement Arrangements (IRA) may help.
IRA Administration
Old Second offers an array of IRAs:
We can help you choose an IRA consistent with your long-term goals. Our knowledge of tax code regulations will ensure that assets continue to grow tax-deferred as long as the law allows. We provide periodic statements concerning your IRA, and we file any necessary forms with the government.
IRA Investments
We offer various levels of investment services. When you open your IRA, one of our representatives will sit down with you to discuss your present situation, your objectives and your risk tolerance. Then, we work out an investment strategy that is right for you. In addition, we have experienced, professional investment officers who have access to information and analytical tools that are generally unavailable to the average investor. And, we’re on the job full-time—an important consideration if you don’t want to assume the responsibility for investing your retirement monies at this stage in your life. These services provide you with physical protection for your securities, collection of investment income, reinvestment or disbursement as you have directed, execution of buy and sell orders, record keeping, and periodic statements of your IRA.
Types of IRA’S offered by Old Second
Suitable for: Wage earning individuals and/or their at-home spouses.
Who's Eligible: Individuals with earned income (and / or their at-home spouses) who have not attained age 70-1/2.
Maximum Individual or Employee Contribution: Lesser of $3,000 or 100% of earned income, if under 50 years of age. Basic limit increases to $4,000 in 2005-2007 and $5,000 in 2008 (thereafter indexed for inflation in $500 increments). Catch-up provision for individuals age 50 and over: $500/year for 2002-2005; $1,000/year for 2006-2010. The limits referenced are the maximum cumulative IRA contributions allowed for all IRAs. Subject to sunset provision on December 31, 2010, which would return limits to 2001 levels.
Tax Treatment of Contributions: May be tax deductible. Tax deductibility subject to retirement plan participation status and modified adjusted gross income limits.
Tax Treatment of Growth: Tax deferred
Tax Treatment of Distributions: Earnings and deductible contributions taxed at ordinary income tax rates. A premature distribution tax penalty of 10% may also apply.
Mandatory Distributions: Beginning at age 70-1/2.
Contribution Deadline: Tax-filing deadline (usually April 15), not including extensions.
Other Key Points: Conversion from traditional to Roth IRA is permitted if adjusted gross income is $100,000 or less (for all filers except married filing separately, who are not allowed to convert). Income taxes are due at conversion.
TOP
Suitable for: Individuals who are retiring or changing jobs.
Who’s Eligible: Individuals who are eligible to receive a lump sum distribution from a qualified retirement plan.
Maximum Individual or Employee Contribution: No maximum on the rollover contribution; may deposit individual contributions up to the limits described above under Traditional IRA.
Tax Treatment of Contributions: Pretax balances from a qualified plan rolled directly into an IRA are not taxable; individual contributions deposited to the IRA may be tax deductible as noted above under Traditional IRA.
Tax Treatment of Growth: Tax deferred
Tax Treatment of Distributions: Earnings, deductible contributions, and rollover balances taxed at ordinary income rates. A premature distribution tax penalty of 10% may also apply.
Mandatory Distributions: Beginning at age 70-1/2
Contribution Deadline: No deadline for a direct rollover from a qualified plan; 60 days if rollover from a qualified plan and taxes were withheld; tax filing deadline (usually April 15), not including extensions for individual deductible contributions.
TOP
Suitable for: Wage earning individuals and/or their at-home spouses.
Who’s Eligible: Individuals with earned income (and/or their at-home spouses) who meet adjusted gross income limits. Allowable contribution is phased out if modified adjusted gross income is $95,000-$110,000 for single filers, or $150,000-$160,000 for joint filers.
Maximum Individual or Employee Contribution: Lesser of $3,000 or 100% of earned income, if under 50 years of age. Basic limit increases to $4,000 in 2005-2007 and $5,000 in 2008 (thereafter indexed for inflation in $500 increments). Catch up provision for individuals age 50 and over: $500/year for 2002-2005; $1,000/year for 2006-2010. The limits referenced are the maximum cumulative IRA contributions allowed for all IRAs. Subject to sunset provision on December 31, 2010, which would return limits to 2001 levels.
Tax Treatment of Contributions: Not tax deductible
Tax Treatment of Growth: Tax deferred
Tax Treatment of Distributions: Tax free if account held for 5 years and additional requirements are met. Additional requirements are that owner has attained age 59-1/2, is disabled, has died, or uses the distribution for a qualified home purchase. Subsequent withdrawals of assets converted from a traditional IRA to a Roth IRA may be subject to the premature withdrawal tax penalty.
Mandatory Distributions: None
Contribution Deadline: ax-filing deadline (usually April 15), not including extensions.
Other Key Points: May withdraw basis (original contributions) at any time without penalty; may not accept rollovers from qualified plans.
TOP
Suitable for: Small to medium businesses (most popular with small), self-employed individuals, partnerships, non-profit groups.
Who’s Eligible: Employees who are at least age 21, who worked for the employer at least 3 years in the last 5, and who received at least $450 (for 2002, indexed going forward) of compensation in the current year. Employer may have less restrictive requirements, such as excluding certain union employees and certain non-resident aliens.
Maximum Individual or Employee Contribution: Individuals can make traditional IRA contributions to the SEP-IRA. See limits for traditional IRA.
Maximum Employer Contribution: Lesser of 25% of annual compensation or $41,000 (indexed; based on the first $205,000 of compensation); employer contributions discretionary (not mandatory). Subject to sunset provision on December 31, 2010, which would return limits to 2001 levels.
Tax Treatment of Contributions: Tax deductible for employer. See traditional IRA for individual/ employee.
Tax Treatment of Growth: Tax deferred
Tax Treatment of Distributions: Taxed at ordinary income tax rates. A premature distribution tax penalty of 10% may also apply.
Mandatory Distributions: Beginning at age 70-1/2
Contribution Deadline: Tax filing deadline for year of contribution plus extensions for employer. See traditional IRA for individual/employee contribution.
TOP
Simple IRA
Suitable for: Small businesses, self-employed individuals, and qualified tax-exempt organizations with no more than 100 employees (including Indian tribes and government entities).
Who’s Eligible: Employees receiving annual compensation of at least $5,000 in any two prior years of service with company and in current year. Employer may have less restrictive requirements, such as excluding certain union employees and certain non-resident aliens.
Maximum Individual or Employee Contribution: $9,000, subject to sunset provision on December 31, 2010, which would return limits to 2001 levels. SIMPLE elective deferral limit increases to $10,000 by 2005. Catch-up provision for individuals age 50 and over of an additional $1,000 in 2003, $1,500 in 2004, $2,000 in 2005, and $2,500 in 2006 (indexed for inflation beginning in 2007).
Maximum Employer Contribution: Employer contributions are required and are based on one or two formulas: match employee deferrals (up to $9,000) dollar for dollar up to 3% of employee compensation (can be lowered to 1% in two out of five years), or make a 2% nonelective contribution for each eligible employee (based on the first $205,000 of compensation). Subject to sunset provision on December 31, 2010, which would return limits to 2001 levels.
Tax Treatment of Contributions: Tax deductible for employer; employee generally has pretax options
Tax Treatment of Growth: Tax deferred
Tax Treatment of Distributions: Taxed at ordinary income tax rates. Premature distributions taken within first 2 years of participation are subject to a 25% penalty tax. Premature distributions taken after 2 years of participation are subject to a 10% penalty tax.
Mandatory Distributions: Beginning at age 70-1/2
Contribution Deadline: Before tax filing deadline for year of contribution plus extensions. Employee contributions must be made during calendar year.
Plan Set-Up Deadline: Between January 1 and October 1 of the plan year.
Other Key Points: May be rolled over into an IRA after 2 years of participation.
For more information on Old Second’s IRA plans, contact us at 630-906-2000.