Retirement Plans can be divided into 2 categories; qualified plans and non-qualified plans. The following is designed to present a broad overview rather than something overly technical and boring about qualified plans.
First there are Qualified Retirement Pension Plans. These types of plans allow for an employee to put pre-tax, (that being tax sheltered) dollars into the plan. This allows for the money to work and earn interest and can gain in some value before the funds are taken out for social security, Medicare or federal income taxes. The plan participant can literally put 100 cents of each dollar into the retirement plan to accumulate income for retirement.
Increases in value from interest earnings or appreciation in value grow tax deferred in the plan.
Importation please remember that that income that has not been taxed will be taxed when the income is received from the retirement plan.
The IRS has set some rules for eligibility and gives overall limits for percentage of earnings and dollar amounts per year limits. Employer plan documents for establishing retirement plans must comply with the rules and limits of the Internal Revenue Code.
Distributions from a retirement plan prior to age 59 and a half years of age are subject to a 10 percent early withdrawal tax penalty. However there are 3 exceptions.
Death of the retirement plan participant, disability and hardship, and start of a distribution over the expected lifetime of the person annuitization.
Distributions must be started by April 1st following the year the plan participant reached age 70 and a half. An exception was put in for 1997 and later. A person who is still employed and does not own 5% or more of the company does not have to start receiving funds until they cease work.
Ways to take money out of a plan would be to arrange for a direct transfer - IRA rollover - and put the funds into another qualified retirement plan. Another way would be to request a lump sum distribution. 20 % of the funds will be withheld when selecting this method of distribution. Check with your plan administrator for more details. The money withheld is sent to the IRS as a prepayment of taxes that may be due.
This is a brief over look of qualified plans for retirement planning, IRA rollovers and annuitization of money.
First there are Qualified Retirement Pension Plans. These types of plans allow for an employee to put pre-tax, (that being tax sheltered) dollars into the plan. This allows for the money to work and earn interest and can gain in some value before the funds are taken out for social security, Medicare or federal income taxes. The plan participant can literally put 100 cents of each dollar into the retirement plan to accumulate income for retirement.
Increases in value from interest earnings or appreciation in value grow tax deferred in the plan.
Importation please remember that that income that has not been taxed will be taxed when the income is received from the retirement plan.
The IRS has set some rules for eligibility and gives overall limits for percentage of earnings and dollar amounts per year limits. Employer plan documents for establishing retirement plans must comply with the rules and limits of the Internal Revenue Code.
Distributions from a retirement plan prior to age 59 and a half years of age are subject to a 10 percent early withdrawal tax penalty. However there are 3 exceptions.
Death of the retirement plan participant, disability and hardship, and start of a distribution over the expected lifetime of the person annuitization.
Distributions must be started by April 1st following the year the plan participant reached age 70 and a half. An exception was put in for 1997 and later. A person who is still employed and does not own 5% or more of the company does not have to start receiving funds until they cease work.
Ways to take money out of a plan would be to arrange for a direct transfer - IRA rollover - and put the funds into another qualified retirement plan. Another way would be to request a lump sum distribution. 20 % of the funds will be withheld when selecting this method of distribution. Check with your plan administrator for more details. The money withheld is sent to the IRS as a prepayment of taxes that may be due.
This is a brief over look of qualified plans for retirement planning, IRA rollovers and annuitization of money.
