More on Annuity Accounts

Disclaimer: this document is for information purposes only, and should not be considered professional financial investment advice.

Introduction to retirement accounts                                                                     Local 1650

At HFC, we have access to two types of employer-sponsored retirement plans: 403(b) and 457 (https://www.smart401k.com/resource-center/retirement-investing-basics/retirement-plan-types)

403(b): a tax-deferred retirement plan at tax-exempt organizations (e.g., public schools, colleges, etc.). These are comparable to 401(k) plans for private-sector employees.  These are sometimes referred to as a “tax-sheltered annuity (TSA),” but investments are not limited to annuities. You can start taking distributions at age 59.5, even if you are still working for that organization. See for example: (http://www.investopedia.com/video/play/403b-plan/)

As a provision of the 1650 contract, the College contributes $1,650 per year to this account.  Beginning in your 10th year of employment, an additional amount is contributed by the College if you adjust your 403b  accordingly. See Jeff Morford’s recent article in the 1650report.org for more details. In 2017, the maximum tax-deferred contribution to a 403(b) plan is $18,000 ($24,000 if you are 50 or over).

Also, Roth versions of these plans are an option with some vendors – see the list below. In a Roth account, contributions are not tax-deferred, but you would not pay income taxes on the contributions or earnings in retirement.

(Contact Information for 403(b) Providers)

457: a tax-deferred compensation plan offered in some states at tax-exempt government employers (e.g., public schools, colleges, etc.). The contribution limits for 2017 are the same as for 403(b) plans. You can contribute to both plans in the same year, for a total of $36,000 ($48,000 if age 50 or older). The College does not make any contribution to this type of account. The major difference between 403(b) and 457 plans are the distribution rules. In particular, if you are no longer working for that employer, you can take distributions from a 457 plan at any age without penalty.

(Contact Information for 457 Providers)

At HFC, you current have the choice of setting up a custodial account with the vendors listed below (current as of April 2017). Contact Sandy Cartwright in Payroll (slcartwright@hfcc.edu, ext. 9866) with questions.

403(b) vendors 457 vendors
VALIC (AIG Retirement)* VALIC (AIG Retirement)
Ameriprise Financial Services
AXA Equitable AXA Equitable
Consolidated Financial (Great American)* Consolidated Financial (Great American)
Fidelity* Fidelity
TIAA-CREF* TIAA-CREF
Vanguard
Vanguard products (through Lincoln Investment)*« Vanguard products (through Lincoln Investment) «

*Roth 403b plans are offered

«note that as of 2014, additional fees were assessed by this vendor to purchase Vanguard products. Members are encouraged to investigate this carefully and compare costs to a 403b account directly with Vanguard.

 You can switch vendors (rollover) – but be sure to follow the rules to avoid tax liability

You can change the amount you contribute at any time during the year – contact Payroll

Other resources:

(http://www.fool.com/retirement/401k/401kintro-is-your-retirement-plan-foolish.aspx)

(http://money.cnn.com/retirement/guide/401k_403bplans.moneymag/)

(http://www.investopedia.com/university/retirementplans/403b/)

(http://www.investopedia.com/terms/1/457plan.asp)

 

Individual retirement accounts (IRAs)

You can also set up your own IRA. You can do this at many of the same vendors listed above (e.g., Vanguard, Fidelity, etc.), as well as with low-cost vendors (e.g., TD Ameritrade, eTrade, etc.) or full-service firms.

There are two types of IRAs: traditional and Roth. Here are some of the differences:

  • Eligibility: anyone can participate in a traditional IRA. Roth IRAs have income limits: in 2017, the income threshold (adjusted gross income) starts at $118,000 (single) and $186,000 (married).
  • Tax deductions: contributions to a traditional IRA may be deductible (depending on your modified adjusted gross income, mAGI). Since you are covered by a retirement plan at work, you can deduct your contribution if your mAGI is under $60,000 (single) or $96,000 (married). Roth contributions are never tax-deductible.
  • Tax on withdrawals: withdrawals from a traditional IRA are taxes at federal and state income tax rates. Withdrawals from a Roth IRA are tax-free.
  • Penalties: withdrawals from a traditional IRA before age 59.5 have a 10% penalty (or more). Withdrawals on contributions from a Roth IRA generally have no penalty; withdrawals of earnings before age 59.5 have penalties (with certain exceptions).
  • Required minimum distributions (RMDs): Traditional IRAs require RMDs by age 70.5; Roth IRAs do not require this in your lifetime.

Contributions for IRAs are limited to the total in the table below – so in 2017, you can contribute up to $5,500 to one IRA, or divide it between Roth and traditional IRAs. So unlike 403(b) and 457 accounts, you cannot “double-dip” and contribute the limit to both.

(https://www.smart401k.com/resource-center/retirement-investing-basics/individual-retirement-account-(ira))

More info on traditional IRAs      (http://www.investopedia.com/university/retirementplans/ira/)

More info on Roth IRAs                 (http://www.investopedia.com/university/retirementplans/rothira/)

http://www.rothira.com/)

Contribution limits – 2017

Type of account Under age 50 Age 50 or older
Traditional and Roth IRA $5,500 $6,500
403(b), 457 $18,000 $24,000

 

Tax filing status AGI – full contribution Partial contribution allowed No contribution
Single or head of household $118,000 $118,000-
$132,999
$133,000
Married filing jointly $186,000 $186,001-
$195,999
$196,000 or more
Married filing separately $0 $0-$9,999 $10,000 or more

However, if your income is too high for a direct contribution to a Roth IRA, you can open a traditional IRA and get access to a Roth by the “back door” (http://www.rothira.com/what-is-a-backdoor-roth-ira)

Disclaimer: this document is for information purposes only, and should not be considered professional financial investment advice.

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