Transcript S&L SAVINGS INVESTMENT PLAN

SARGENT & LUNDY
SAVINGS INVESTMENT PLAN
ROTH 401(k) & CONVERSION
September 7, 2012
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SIP History
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1977
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1981
1984
1986
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1987
2000
2001
2003
2006
2007
2009
2010
Voluntary Employee Contribution Plan (VECP) started at S&L
(after-tax contributions only)
Renamed Savings Investment Plan, employer match added
401(k) pretax contributions added
Tax Reform Act of 1986
(Created after-tax Pre-87 and Post-86 sources, changed withdrawal rules)
Loan program added
Changed record keeping from in-house to Fidelity, added daily accounting & processing
Economic Growth & Tax Relief Reconciliation Act
(Added catch-up contribution for employees age 50 and older, and rollovers from other 401(k)
plans)
Employer Non-Matching Contribution added
Roth 401(k) added
Pension Protection Act
(Allowed SIP to IRA rollovers for non-spouse beneficiaries, direct rollover to Roth IRA for
those eligible)
Addition of lower cost share class investments, such as Fidelity “K” shares
Expanded eligibility for rollovers to Roth IRA (January), allowed Roth In-Plan Conversion
(December), (Income eligibility removed for rollover to Roth IRA)
Sources of Money
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Assets in the Savings Investment Plan are classified as different “Sources.” Rules for contributions,
taxes, and distributions vary by the Source designation:
401(k)
Employer Match
Post-86 SIP
Pre-87 SIP
Employee Pretax Catch-up
Employer Non-matching Contribution
Rollover (from a pretax IRA or another qualified plan)
After-tax Rollover
Roth 401(k)
Roth Catch-up
Roth Rollover
Roth In-Plan Conversion
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A list of Sources in your account can be found under the Summary “Sources” tab.
Roth 401(k)
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Only available through employer-sponsored plans, but not all plans
Eligible for pretax employer matching contributions
Available to all employees, regardless of income
Contributions and earnings withdrawn proportionally for IRS-approved hardship only (if <59-1/2)
Earnings can be withdrawn tax free five years after the first deposit ONLY if:
You are at least age 59-1/2
Payment is made to a beneficiary after your death
You are disabled
Can be rolled into a Roth IRA or employer-sponsored retirement plan (but not all plans)
Roth IRA
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Only available through banks and financial institutions
Eligibility rules:
Single or Head of Household
Wages <$110,000
Married Filing Jointly
Wages <$173,000
Married Filing Separately
Wages $10,000 or less
Contribution limits (2012) - $5,000 ($6,000 if age 50 or over by year end)
Contributions are separate from, and in addition to, any Roth 401(k) contributions
Your contributions can be withdrawn at any time, for any reason
Earnings can be withdrawn tax free five years after the first deposit ONLY if:
You are at least age 59-1/2
Payment is made to a beneficiary after your death
You are disabled
Money is used for a qualified first-time home purchase
Withdrawals from a Roth IRA that was created from a converted traditional pretax IRA are more
complicated (see your IRA provider)
Can accept rollovers from a Roth 401(k), but cannot be rolled into an employer-sponsored retirement plan
Benefits of Roth 401(k) & Roth IRA
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Earnings grow tax free, not taxed upon withdrawal if “qualified”
Roth IRAs are exempt from minimum distribution requirements (MRD) at age 70-1/2. However, SIP Roth
sources are included in the Plan’s MRD calculations & distributions.
May be passed to heirs tax free, both SIP Roth and Roth IRAs
It could be more advantageous to pay taxes now on the Roth 401(k) contributions; tax rates may be lower
now than in the future, even at retirement
If withdrawn during retirement, not considered as income when calculating Social Security eligibility
All employees are eligible for SIP Roth 401(k) contributions; Roth IRA eligibility is determined by wages
Types of Contributions
Through Payroll
Pretax 401(k) & Catch-up
$1,000
- 60
$ 940
Gross wages
6% Pretax Contribution
Taxable wages
Roth 401(k) & Catch-up
$1,000
- 60
Taxable wages
6% After-tax Contribution
$1,000
- 60
Taxable wages
6% After-tax Contribution
Contributions withdrawn - taxable
Earnings withdrawn – taxable
Contributions withdrawn - tax free*
Earnings withdrawn - tax free*
Contributions withdrawn - tax free
Earnings withdrawn - taxable
Receives employer match (if eligible)
Receives employer match (if eligible)
Receives employer match (if eligible)
Early Withdrawal Requirements:
• IRS-approved hardship
• 2 loans outstanding
• No contributions or match for 6 months
• 10% federal penalty before age 59-1/2
Early Withdrawal Requirements:
• IRS-approved hardship
• 2 loans outstanding
• No contributions or match for 6 months
• 10% federal penalty before age 59-1/2
Withdrawal Requirements:
• No hardship needed
• No loans required
• Contributions don’t stop
• 10% federal penalty before age 59-1/2
(on earnings only)
* Must be age 59-1/2 with 5 years of Roth
participation for a “qualified” distribution.
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Post-86 After-tax
Catch-up Contributions
Through Payroll
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Available to all employees age 50 (by year end) or older. (Not available for the January 10
paycheck of the year you turn 50.)
A separate deduction election, up to 35%.
Eligible for employer matching contribution.
Limit for 2012: $5,500.
Can be deducted as either pretax 401(k), Roth 401(k), or any combination of both.
May be deducted after reaching the initial $17,000 limit, or simultaneously during the year.
Employer Contribution Sources
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All full-time employees are eligible for the following types of employer contributions:
* Non-matching Contribution: 3%** of regular wages, regardless of contribution
percentage.
* Matching Contribution: Calculated on regular wages, 50% of the first 6%**
of payroll contribution (all types of payroll contributions).
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Employer contributions are always pretax .
Employer contributions are deposited into your account each payday, and are 100% vested
after one year of full-time employment.
Employer contributions cannot be invested in the brokerage option until 100% vested.
**The level of employer contribution is evaluated by management every 6 months.
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Annual Contribution Limits
2012
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$17,000 – Pretax 401(k), Roth 401(k), or any combination of both.
(If hired mid-year, limit applies to all employers combined.)
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$ 5,500 – Pretax catch-up, Roth catch-up, or any combination of both.
Available to employees who are at least age 50 by year end.
(If hired mid-year, applies to all employers combined.)
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$50,000 – Maximum total SIP contributions (or 100% of S&L wages,
whichever is less). Includes all 401(k), Roth 401(k), after-tax, employer
matching and employer non-matching contributions. Excludes pretax
and Roth catch-up contributions.
After-tax Contributions
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Taxable wages are not reduced by amount of contribution.
Pre-87 refers to after-tax contributions made prior to January 1, 1987.
Post-86 refers to after-tax contributions made after December 31, 1986.
May be made through payroll contributions or as a lump sum contribution (cashier’s check or money
order), typically at year end.
Payroll contributions receive an employer match (if eligible), lump sum contributions do not.
Money in the after-tax sources (Pre-87 and Post-86) can be withdrawn for any reason.
All earnings, including capital gains and dividends from mutual fund investments, are reinvested.
Accumulated earnings are tax-deferred, not reported as income until withdrawn.
Consider as an option if needing withdrawals prior to retirement.
Invested in the same funds as other contributions. If you want this money invested in fund options that are
more conservative than those for long-term retirement, you can change the investments through an
Exchange or Rebalance of the Post-86 source only.
Withdrawals From After-tax Sources
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Withdrawals from the Pre-87 source come from employee contributions first. Those contributions are tax
free at the time of withdrawal.
Withdrawals from the Post-86 source must be taken proportionally between tax free employee
contributions and taxable earnings.
For example:
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$4,000 Contributions (80% of source)
1,000 Earnings (20% of source)
$5,000 Total
Based on the example above, for every dollar withdrawn 80 cents would come from the after-tax
contributions and 20 cents would come from the earnings.
You have the option of taking the earnings as additional income. Fidelity is required to withhold 20% for
federal tax; the 10% penalty for those under age 59-1/2 will be included on your federal tax return for that
year.
OR, you can defer taxes on the taxable earnings. Fidelity would issue two distributions: one to you for the
after-tax contributions, and a second check for the taxable earnings which can be payable to an IRA
rollover. This would be a pretax (traditional) IRA at a bank or financial institution of your choice. The
rollover check would be mailed to your home (if not a Fidelity IRA) payable to the bank/financial institution.
Withdrawal of Employer Sources
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Employees with >5 years of plan participation may withdraw from the two employer contribution sources (accounts) for any
reason.
Employees with <5 years of plan participation may withdraw for one of the following hardships:
* Expenses arising out of a financial emergency due to accident, sickness,
disability or death within your immediate family, or resulting from a natural disaster
* Significant medical expenses (not reimbursed by insurance) incurred by you, your
spouse, your qualified dependents, or a named SIP beneficiary.
* The purchase (excluding mortgage payments) or your principal residence.
* Payment of tuition and related educational fees for the next 12 months of postsecondary education for you, your spouse, your qualified dependents, or a named
SIP beneficiary.
* To prevent foreclosure of or eviction from your principal residence.
* Burial or funeral expenses for your parent, spouse, children, qualified dependent or
named SIP beneficiary.
* To meet expenses for the repair of your principal residence that would qualify as
deductible casualty expenses.
Documentation supporting the hardship need must be provided with the withdrawal request.
If not rolled over into a IRA or another qualified employer-sponsored plan, the withdrawal will be subject to federal and state
taxes (depending on the state). A 10% federal early withdrawal penalty may apply for those under age 59-1/2. At the time of
distribution, 20% will be withheld for federal tax.
Hardship Withdrawals
401(k) & Roth 401(k)
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Employees age 59-1/2 or over may withdraw for any reason, no hardship needed.
Employees under age 59-1/2 must withdraw all other available funds in the Plan first and have 2 loans
outstanding. Then a withdrawal may be requested for one of the following hardships:
* Significant medical expenses (not reimbursed by insurance) incurred by you, your
spouse, your qualified dependents, or a named SIP beneficiary.
* The purchase (excluding mortgage payments) of your principal residence.
* Payment of tuition and related educational fees for the next 12 months of postsecondary education for you, your spouse, your qualified dependents, or a named
SIP beneficiary.
* To prevent foreclosure of or eviction from your principal residence.
* Burial or funeral expenses for your parent, spouse, children, qualified dependent or
named SIP beneficiary.
* To meet expenses for the repair of your principal residence that would qualify as
deductible casualty expenses.
Documentation of the need must be provided at the time of withdrawal.
Payroll contributions (and employer match) will stop for 6 months.
The withdrawal of pretax money (including any non-qualified earnings on Roth 401(k) contributions) will be
subject to federal and state taxes (depending on the state). 10% will be withheld for federal tax at the time
of distribution. A 10% penalty may apply to any taxable funds withdrawn if under age 59-1/2.
Hardship requirements DO NOT apply to the Rollover and Roth Conversion sources.
Roth IRA Rollovers
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Since January 2010, all participants have the option of rolling non-Roth plan assets into a Roth IRA
(outside the plan).
A “qualified rollover contribution” is a distribution from a qualified retirement plan (SIP) to a Roth IRA.
When selecting which of the following options is best for you, consider the amount of earnings that
would be taxable income and any amount you want to remain in the Plan for a future withdrawal.
Pretax money rolled into a traditional IRA can subsequently be rolled back into the Plan.
This type of distribution is requested through Kathy Davis, NOT Fidelity.
A rollover of after-tax money from the Plan can be done two ways:
1. Split the rollover between two types of IRAs. The after-tax contributions
can be directed to a Roth IRA, with the associated taxable earnings on those
contributions directed to a pretax traditional IRA. This would defer the
taxes on those pretax earnings until a later date.
2. Roll over the after-tax contributions and associated taxable earnings to a Roth
IRA. By paying taxes now on those pretax earnings, they will grow tax-free.
Roth In-Plan Conversions
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Became available through the Small Business Jobs Act of 2010.
Eligible money sources may be converted to Roth without leaving the Plan or selling investments.
Converted pretax amounts are considered taxable income, but 10% penalty does not apply.
Federal tax is not withheld from any converted pretax amount.
Converted pretax amounts are taxed as income in the year of conversion.
There is no minimum or maximum amount for conversion, nor are you required to convert an entire money
source. Smaller amounts may be converted each year.
The 5-year period needed for a qualified distribution starts with the year of first Roth 401(k) contribution or
the year of conversion, whichever is earlier.
Conversion forms are available from Kathy Davis, and returned to her for processing.
Hardship requirements do not apply to the Roth Conversion sources, but any “unqualified” earnings
withdrawn will be subject to federal and state taxes (depending on the state). A 10% federal early
withdrawal penalty may apply for those under age 59-1/2. At the time of distribution, 20% of any taxable
portion will be withheld for federal tax.
Roth Conversion-Eligible Sources
Employees with <5 years participation:
Post-86 SIP After-tax (contributions and earnings, proportionally)
Pretax and After-tax Rollovers
Employees with >5 years participation:
Pre-87 SIP After-tax (contributions only can be converted, earnings optional)
Post-86 SIP After-tax (contributions and earnings, proportionally)
Pretax and After-Tax Rollovers
Employer Match
Employer Non-Match
Employees age 59-1/2 & older, regardless of participation:
Pre-87 SIP After-tax (contributions only can be converted, earnings optional)
Post-86 SIP After-tax (contributions and earnings, proportionally)
Pretax and After-tax Rollovers
Employer Match
Employer Non-Match
Pretax 401(k)
Pretax Catch-up
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Changing Contribution Percentage
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You can change your contribution percentage at any time, up to the maximums below:
* 401(k) – up to 65%
* Roth 401(k) – up to 65%
* 401(k) and Roth 401(k) combined – up to a total of 65%
* Pretax catch-up – up to 35%
* Roth catch-up – up to 35%
* Pretax and Roth catch-up combined – up to a total of 35%
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* After-tax – up to 45%
Note: When selecting a combination of contribution percentages, it is the employee’s responsibility to
ensure enough money is available in each paycheck to cover other payroll deductions such as FICA,
transit, or after-tax insurance deductions.
After you log into your account at 401k.com, go to Contribution Amount.
The deadlines are the 12th and 27th of each month (NOT the end of our pay periods), or the previous
business day if on a weekend or holiday.
S&L Contact Information
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Sargent & Lundy:
Kathy Davis, Plan Administrator
Phone: 312-269-2130
Fax: 312-269-1943
[email protected]
Lotus Notes SIP Discussion Group
Website www.sargentlundy.com/sip
* all SIP newsletters, since 1996
* Rates of Return, updated monthly
* Deadlines of payroll changes
* Plan announcements & related articles
* Summary Plan Description
* Plan Documents
* Fidelity Excessive Trading Policy