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Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for.

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Presentation on theme: "Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for."— Presentation transcript:

1 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Capitalizing on the Retirement Opportunity Jeff Van Keulen, National Sales Manager, Retirement Wealth Strategies January 6, 2006

2 2 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Rollovers are Hot >Searching Rollover IRA’s on ‘Google’ brings up 64,000 hits

3 3 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Agenda >Turning the new, more flexible portability rules into opportunities >Understanding the rollover and distribution options in a Summary Plan Description (SPD) >Understanding the distribution options generally available to participants

4 4 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Portability Options Qualified Plan (QP) (b) IRA

5 5 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Qualified Plan IRA >In 2001, the IRS began to allow the roll over of after-tax dollars to an IRA >Considerations: –After-tax basis in an IRA must be tracked by taxpayer –All of a taxpayer’s IRAs are aggregated for determining after- tax/non-deductible basis –IRS Form 8606 is filed each year distributions are made from any of the IRA owner’s IRAs and when any after tax or non-deductible dollars are added to the IRA –After rolling after-tax dollars to an IRA, any IRA distribution will include after-tax basis

6 6 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Example >Qualified plan After-tax basis available for withdrawal: – No withholding – No taxes – No penalty $50,000Gain and pre-tax dollars $50,000After-tax basis $100,000Fair Market Value

7 7 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Government 457 IRA >Governmental 457 plans can be rolled to an IRA, after triggering event >Governmental 457 plans can be amended to accept rollovers from other qualified plans

8 8 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Nonqualified Deferred Compensation Arrangements >Deferred compensation plans –Distributions based on contract –Portability rules do not apply –Not rollable to IRA or other plans

9 9 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. 403(b) IRA >Employer-sponsored and employee contribution 403(b)s can be rolled to an IRA, after triggering event >IRAs can be transferred to 403(b) plans, if 403(b) contract or plan permits >TSA balances may be transferred to other TSAs while employed

10 10 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Qualified Plan vs. an IRA >Reasons to keep funds in QP: –Age 55 rule –Loans –Federal protection from creditors –Net Unrealized Appreciation tax benefits –Forward averaging for those born before 1936 >Reasons to consider rollover to an IRA: –Generally more investment choices –Greater control over distributions –IRA owner versus qualified plan participant –Generally more flexible beneficiary options for heirs

11 11 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Portability’s Main Point >Understanding portability will help you: –Differentiate yourself as a retirement expert –Reassure clients that you consider all the alternatives when creating a financial plan –Position yourself to ask for referrals

12 12 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Summary Plan Document Key Issues >Distribution options >In-service withdrawals, loans and hardship withdrawals >Investment options

13 13 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Normal Retirement Age >SPD Covers Normal Retirement Options –Time specified in SPD stating when participant is entitled to a distribution of all the amounts in the plan, typically age 65 –Generally, later of time participant attains age 65 or fifth anniversary of initial plan participation

14 14 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Age 55 Rule >If termination of employment occurs on or after age 55, withdrawals are not penalized the >10% premature distribution penalty

15 15 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Qualified Plan Distribution Options * Including Forward Averaging Partial IRA Rollover Full IRA Rollover Distribution of Employer Securities Partial Withdrawals Income Stream Cash Distribution* Qualified Plan

16 16 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Qualified Plan Distribution Options Summary >Cash Distribution (partial or full) –Taking the dollars in cash: subject to income taxes, 20% withholding and possible 10% premature distribution penalty –Forward Averaging* >Distribution is taxed at 1986 tax rates when withdrawn >Lump sum distribution requirements must be met >Must be born before January 1, 1936 >Cannot roll any portion of the lump sum distribution or forward averaging is forfeited

17 17 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Qualified Plan Distribution Options Summary >Employer securities: in-kind distribution of qualifying employer securities –Lump sum distribution requirements* must be met for NUA treatment for all securities, except the five year plan participation rule does not apply –Income taxes due on cost basis –NUA taxed at capital gains rates –For distributions not qualifying as a lump sum distribution, NUA tax treatment applies only to securities purchased with after-tax contributions

18 18 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Net Unrealized Appreciation >The difference between the cost basis (the amount paid at purchase) and the fair market value of the stock at the time of distribution

19 19 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Net Unrealized Appreciation Example Future Appreciation Fair Market Value = $100/share at time of distribution Basis = $10 ??? NUA $90/share Cost Basis $10/share 1,000 Shares

20 20 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Net Unrealized Appreciation Example Further Gain Fair Market Value = $100/share Basis = $10 ??? NUA $90/share Cost Basis $10/share 1,000 Shares $100/share$100,000 $10/share$ 10,000 NUA$ 90,000 The $90,000 NUA would be subject to Long Term Capital gains taxes when stock is sold rather than income taxes at time of distribution if distribution is done correctly Always work with an Accountant

21 21 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Qualifying for Special Tax Treatment >Forward Averaging and NUA –At least one triggering event is met: >Age 59 ½ >Death >Severance from employment >Disability (if self employed) –Entire balance must be distributed within one year* >For forward averaging, two additional requirements must be met: –Person must have been plan participant for at least five years –Born before 1936 *For NUA, if this requirement is not met, NUA treatment applies only to employer securities purchased with after-tax dollars.

22 22 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Client’s 401(k) >$350,000 Mutual Funds >$100,000 Fair Market Value of company stock with a $10,000 cost basis >$70,000 Fair Market Value after-tax account with a $40,000 cost basis

23 23 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. IRA Rollover >Direct Rollover the $350,000 in mutual funds to an Ameriprise Financial IRA –No 20% tax withholding –No 10% early distribution penalty tax –No taxes due on the distribution

24 24 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Company Stock >Complete an “in kind” distribution of the company stock –No 20% withholding –10% early distribution penalty tax depending on age –Basis taxed as ordinary income –Later if you sell the stock, the profit is taxed at the capital gain rate

25 25 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. After Tax Money >$40,000 after tax cost basis distributed and $30,000 gain in after tax account rolled to IRA –No 20% withholding –No 10% early distribution penalty tax –No taxes due on the distribution

26 26 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Income Streams >Annuitization: –Qualified joint and survivor annuity based stream of income –Certain plans are required to offer an annuity to married participants –No 20% withholding (if 10 years or more) >Partial Withdrawals –May be allowed (plan document) –Changeable –May invalidate Lump Sum Distribution eligibility –20% withholding would apply

27 27 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Substantially Equal Periodic Payments >Provide premature withdrawals from a qualified plan or IRA without 10% penalty >Payment amount is determined by one of three formulas >Brentmark software can help determine payment amount >SEPP rules are different for IRAs and Qualified Plans

28 28 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. SEPP >From IRA –Income can be level or variable –Duration: later of 5 years or age 59 ½ –Possible penalty: >10% premature distribution penalty tax on full amount distributed >Proper forms need to be filed to waive 10% penalty (“code 2” 1099R or IRS form 5329) more…

29 29 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. SEPP >From Qualified Plan –Income can be level or variable –Duration: later of 10 years or age 59 ½ to avoid withholding –Possible penalty: 20% withholding for income taxes on full distribution –Special considerations >SEPP from qualified plans make entire plan ineligible for rollover during duration of SEPPs >Election for Recipients of Periodic Payments must be filed with Plan Trustee to avoid 20% withholding

30 30 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Question >Are you aware that choosing one distribution option may invalidate the ability to do another? –Rolling employer securities to an IRA forfeits NUA treatment –For those eligible (born before 1936), rolling plan assets to an IRA forfeits forward averaging treatment for entire lump sum distribution –Income stream payments from a qualified plan may make the entire plan ineligible for rollover –Income stream payments are also ineligible for rollover

31 31 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Question >Do you know the tax consequences of each of these distribution options? >Taxes are dependent on the action taken: –Due immediately –Deferred –Portion immediately taxed at regular income tax rates with a portion at capital gains rate when sold –Premature distribution penalty

32 32 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Question >Are you aware that some distribution options are irrevocable? –Some options such as forward averaging cannot be reversed once selected –Taking an income stream commits the client to take distributions for a specified period of time

33 33 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Question >Are you aware that most distribution options are not “all or nothing”? >Participants can take an in-kind distribution of some employer securities and roll the rest of the securities and remaining plan assets to an IRA

34 34 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Accessing Qualified Plan Assets During Employment >In-service distributions >Hardship distributions >Loans

35 35 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Determine Eligibility >The ability to take in-service distributions is determined by the plan document >Eligibility rules vary widely >The only way to know the ‘ifs’ and ‘hows’ is to review the plan document that the client can get from the administrator

36 36 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Advantages of In-service Distributions >Control and ownership >Diversification >Beneficiary options

37 37 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. In-service Distribution Checklist >Are in-service distributions right for my client? >Issues/Concerns: –Retirement age –Highly appreciated employer stock –After-tax money –Creditor protection –Will it prohibit me from making future retirement plan contributions?

38 38 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Death Distributions >Spousal Beneficiaries –Roll it to own IRA or another qualified plan –Leave it in plan in inherited status –Distribute it >Non-Spouse Beneficiaries –Leave it in plan, if permitted –Distribute it –Cannot transfer or roll over to an Inherited IRA

39 39 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Investment & Other Options >Many 401(k) plans limit the number of choices >IRAs generally offer more investment options and more control >Remember that a plan participant is not an owner of the plan, but is only a participant bound by the rules of the plan document >An IRA holder is an owner and generally has more flexibility and full control of the account

40 40 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Owner vs. Participant >Diversification –Some qualified plans limit investment options or force people to follow complex self-directed options –IRAs generally offer more investment options than qualified plan >Plan participants do not ‘own’ the plan and are bound by the rules of the plan document >IRA holders are ‘owners’ which generally offers more flexibility and control of the account

41 41 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Custodian Checklist

42 42 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. What is a Stretch IRA? >Stretch IRA Sample Tom Stinson IRA Owner Anita Stinson, wife Tom’s IRA beneficiary, rolls to her own IRA Ruby Harper, Anita’s IRA beneficiary

43 43 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Stretch IRA Case Study

44 44 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Stretch IRA Case Study

45 45 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Stretch IRA Case Study

46 46 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2006 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Summary >Portability of qualified plans, 403(b)s, 457s and IRAs >Summary Plan Description >Consolidation Ideas

47 Ameriprise Financial Services, Inc. Member NASD and SIPC. ©2005 Ameriprise Financial, Inc. All rights reserved. For internal use only. Not approved for use with clients. Thank You


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