Your Retirement Plan Options

1. Contributions: Tax deductible.
2. Distributions: Taxed as ordinary income unless you make non-deductible contribution.
3. Requirement Minimum Distribution:
   If required minimum distributions are not made at age 70 1/2, you may have to pay a 50% excise tax on the amount not distributed as required.

* Temporary waiver of required minimum distribution for 2009: you are not required to take a minimum distribution.

10% penalty will be waived if you are in one of the following situations:

1. You have unreimbursed deductible medical expenses.
2. You are disabled.
3. Distributions are not more than your qualified higher education expenses.
4. You use the distributions to buy or build a first home, but it is limited to $10,000 during individual's lifetime.

1. Single or Head of Household: $55,000 to $65,000
2. Qualifying Widow(er): $89,000 to $109,000
3. Married Filing Jointly
   a. Both are covered by another plan: $89,000 to $109,000
   b. Only one spouse is covered by another plan and the other doesn't participate in the active plan: $159,000 to $169,000

1. Contributions are tax deductible.
2. Taxpayer gets tax benefit immediately.

Disadvantages:

1. Contribution limit is low.
2. All distributions are taxable.
3. Deduction amount is limited depending on your income.

Strategy:

1. A taxpayer who expect lower tax bracket in retirement than during the working years.

1. Contributions: Not tax deductible.
2. Distributions: Not taxed as long as you meet certain criteria,
3. No Minimum Distribution Requirement: If you are the original owner of a Roth IRA, you don't have to take distributions regardless of your age.

A qualified distribution is a distribution received 5 years after the first contribution was made and meets the following requirements:

The payment or distribution is:

1. Made on or after the date you reach age 59 1/2.
2. Made because you are disabled.
3. Made to a beneficiary or to your estate after your death.
4. Used to buy and build a first home.

Excess contributions penalty:
A 6% excise tax applies to any excess contribution to a Roth IRA without withdrawal before due date.

1. Single or Head of Household: $105,000 to $120,000
2. Married Filing Jointly or Qualifying Widow(er): $166,000 to $176,000

1. Distributions/Earnings are tax free.
2. Minimum distribution is not required at any age.
3. A taxpayer can make contribution after age 70 1/2.

Disadvantages:

1. Contribution limit is low.
2. Contributions are not tax deductible.
3. A taxpayer who is in a high tax bracket might not be eligible to contribute because of income limit.

Strategy:

1. Young people with many years until retirement.

1. Contributions (elective deferral): Pre-Tax salary.
2. Distributions: Taxable.
3. Requirement Minimum Distribution: Minimum distribution is required at age 70 1/2. 50% penalty is charged if minimum distribution is not made.

* Temporary waiver of required minimum distribution for 2009: same as Traditional IRA
* Elective deferral is included in wages subject to social security and Medicare taxes.

The exceptions to the 10% penalty include the followings:

1. Death of the employee.
2. Employee's disability.
3. A series of substantially equal periodic payments made for the life of the employee.
4. Separation from service after attainment of age 55.

1. Tax on contributions are deferred.
2. Contribution limit is high.
3. Some employers make match contribution.

Disadvantages:

1. Distributions are taxable.
2. You are limited in what can be invested by what your employer offers.
3. The plan can't discriminate in employee coverage.

Strategy:

1. Higher income employee who can reduce his/her AGI.

1. Contributions: After-tax salary.
2. Distributions: Tax free.
3. Minimum Distribution Requirement:
   Minimum distribution is required at age 70 1/2. 50% penalty is charged if minimum distribution is not made.

* Temporary waiver of required minimum distribution for 2009: Same as Traditional IRA.

A qualified distribution is a distribution received 5 years after the first contribution and made on or after the date you reach age 59 1/2.

The exceptions to the 10% penalty is the same as explained above in 401(k) plan.

1. If qualified distribution, entire earnings are not taxable.
2. Compared to Roth IRA, contribution income limitation is high.

Disadvantages:

1. Contributions are not tax deductible.
2. Contributions are irrevocable. Once money is invested into the account, it can't be moved to a regular 401(k).

Strategies:

1. Younger workers, in lower tax bracket now, expected to be taxed in a higher bracket upon retirement.
2. Taxpayer who precludes from Roth IRA.
3. Low-income employee.