There are many choices and increased flexibility when it comes to your Individual Retirement Account. Finding the path that’s right for you can sometimes be difficult. Your financial consultant can help you decide which IRA is best for you considering your retirement dreams within your time horizon. He or she can help you decide the path that will help you enhance return while maintaining a risk level with which you are comfortable.
Intelligent financial planning for your retirement years is more important than ever. It is predicted that the Social Security system will be paying out more than it brings in by 2018, and could be completely out of funds by 20421. Thus, your IRA is more than just a company benefit or a savings account—and it's important to make the right investment decisions based on your own particular financial situation.
American Eagle Financial Services, LPL Financial, and your financial consultant have your best interests in mind and will help you toward building a foundation to support a comfortable retirement, the way you envision it. We're here to help you plan for tomorrow . . . today.
1 Source: www.socialsecurity.gov
Traditional IRAs have been popular for years, and for good reason. You can contribute up to $5,500 per taxpayer per year. For individuals aged 50 and over an additional $1,000 can be added as a catch up contribution. In many cases, the contributions are tax deductible, and the earnings are tax deferred until retirement. And you have quite a broad choice of investment vehicles.
Withdrawals can be made before age 59½ for the first-time purchase of a home or for higher education for your children. The normal tax rate applies, but there is no penalty.
A change of job, termination of employment, or retirement can lead to one of the most important financial decisions of your lifetime: deciding what to do with a lump-sum distribution from your employer-sponsored qualified retirement plan.
Consider the advantages of rolling retirement plan dollars into a Rollover Individual Retirement Account (IRA). A Rollover IRA will:
Retain the benefits of tax deferral that your employer-sponsored retirement savings plan has provided
Preserve the right to roll your savings into a new employer's plan in the future
Offer you broad investment flexibility-with a Rollover IRA, you control your money. You are no longer limited solely to your employer's investment options.
Help you avoid significant taxes and penalties- if you take some or all of your savings now, not only do you lose the benefits of tax deferral, you could also substantially erode your savings with a 20% federal income withholding tax and possible 10% early withdrawal penalty.
How Does It Work?
Rolling your money into a Rollover IRA can be done directly or indirectly. In a direct rollover, the distribution check from your qualified retirement plan is made payable to your new Rollover IRA custodian. The IRS does not consider this action a withdrawal and you do not incur taxes as a result. In an indirect rollover, the distribution check is made payable to you. You must then put the money into a Rollover IRA or another employer-sponsored qualified plan within 60 days. Because the money is sent right to you, and automatic 20% federal tax withholding is deducted.
Many factors affect this difficult decision, and you may have other options. For example, you may be able to leave the money with your current employer's plan or transfer it to a new employer-sponsored retirement plan. Or, you may need a portion or all of your savings now for an emergency situation.
These relatively new IRAs become available to taxpayers in 1998. This IRA offers the kind of tax-free buildup and withdrawal that many investors will find highly appealing. And up to certain income limits, virtually any income-earning U.S. citizen can contribute to a Roth IRA. You can contribute up to $5,500 per tax payer per year of earned income after tax. For clients age 50 and up, an additional catch up contribution is allowable in the amount of $1,000. Earnings accumulate tax free and can be withdrawn without tax or penalty if you are at least 59½ and have had the account for five years or more. Tax-free withdrawals can be made before age 59½ for the first-time purchase of a home or higher education for your children, provided the account has been open at least five years.
What You Should Know
Regardless of what type of IRA you choose, as long as your money stays in your IRA, your earnings and capital gains grow tax-free. Things to consider when choosing what type of IRA fits your financial plan:
Know the tax-deferred and tax-exempt growth potential of different IRA options. Your Financial Advisor can provide you and your Tax Professional with up-to-date information to help you decide which type of IRA is best for you.
Plan how you will use your investments within your IRA to realize your long-term financial goals. Each person has a different time-frame and different expectations. Your financial consultant’s knowledge and expertise can help you maximize your return within the risk level that makes you comfortable.
Consider converting. You could have a tax-free and potentially larger nest egg by converting Traditional IRA assets to a Roth IRA. Your financial consultant can help determine if a conversion is the right move for you.
IRA account owners should consider the tax ramifications, age and income restrictions in regards to executing a Conversion from a Traditional IRA to a Roth IRA, or a Re-Characterization of a Roth IRA to a Traditional IRA. Prior to using such a strategy, please see your Financial Advisor and/or Tax Advisor.
IRA Q & A
Do I Need an IRA if I Already Have a Company Retirement Plan?
Over 30% of retired Americans say they aren’t confident that they have saved enough for retirement, while another 44% report being only somewhat confident they have saved adequately1. An IRA is an excellent way to have savings in addition to Social Security and a company retirement plan. And with an IRA, you have a much higher degree of control over your investment choices.
Who is Eligible for an IRA?
Most taxpayers who have earned income are eligible for an IRA. Your spouse can have his or her own IRA even if he/she doesn’t earn income. The same $5,500 annual contribution limits apply.
What Exactly is an IRA?
An IRA is simply a set of rules governing annual contributions, transfer and rollover activities, distributions, and tax consequences associated with an investment. Think of these rules as an umbrella—underneath the umbrella is the actual investment itself. There are three basic types of IRAs - Traditional, Roth and Rollover.
1 Source: Employee Benefit Research Institute, 2004
A mutual fund pools the assets of multiple investors and purchases securities to achieve a common pre-defined goal. With its pooled assets, mutual funds provide advantages that an individual investor would not be able to receive.
American Eagle Financial Services offers access tp a full array of mutual funds, which cover every investment objective and style, every sector and industry, and every investment class. Whether you are looking for large-cap growth or small-cap value, sector funds or socially conscious management, the LPL Financial family of product partners can meet every need.
With any mutual fund investment, please read the fund’s prospectus carefully before investing or sending money.
Why Mutual Funds?
Mutual funds hold many different investments in their portfolios, generally stocks, bonds, and money market instruments. Depending upon the variety of securities within the portfolio, poor results from one investment will most likely not have a dramatic effect on the mutual fund as a whole. These poor results may be offset by positive results from other investments in the portfolio.
Experienced investment professionals research, select, and invest in securities they believe will achieve the fund’s specific investment objective.
Most mutual funds have a low minimum investment amount and offer automatic investment plans, which allow the investor to add to the fund in small increments. An individual investor would most likely not be able to purchase such a wide variety of securities because the cost would be prohibitive. The fund buys and sells many securities at a time, so the result is often lower brokerage costs to the individual shareholder.
Unlike some investments, such as certificates of deposits or bonds, a shareholder may redeem his or her shares on any business day desired. The shares are easily converted to cash, and can be sent to the shareholder in the form of a check or directly deposited in the shareholder’s bank account.
There is no guarantee that a diversified portfolio will outperform non-diversified portfolio nor can asset allocation eliminate risk of fluctuating prices or enhance overall returns. These strategies will not ensure profit or guarantee against loss. Investing in mutual funds involves risk, including possible loss of principle. Investments in specialized industry sectors carry additional risks, which are outlined in the prospectus.
Investors should consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. The prospectus contains this and other information about the investment company. You can obtain a prospectus from your financial representative. Read carefully before investing.
An annuity is a contract between an insurance company and the individual purchasing the annuity (the owner). The contract is fairly simple: in return for a sum of money (the premium), the insurance company makes guarantees to the purchaser. Examples of the guarantees that the insurance company may offer the tax-deferred annuity purchaser are:
A guaranteed interest rate for a guaranteed period of time,
A guarantee that the investor will receive at least as much as he/she invested under any circumstance (guaranteed return of principal), and
A guarantee that the investor will never receive less than a minimum interest rate while the money is invested with the insurance company (regardless of how low interest rates go).
Many features of annuities are determined by insurance law and will tend to be the same from one contract to the next. Other contract features will be determined at the discretion of the insurance company offering the product and so may differ from one annuity to another.
LPL Financial offers a range of annuities from a variety of carefully selected product providers. Talk with your LPL Financial, financial consultant, to determine if an annuity is the right investment for you.
Types of Annuities
Annuities can be categorized in three ways:
When income is paid (immediate or deferred annuity)
Whether additional investments can be made to the same contract (single premium or flexible premium)
How the money is invested (fixed or variable annuity)
You should note that all annuities combine these features in some manner.
Immediate Annuities vs. Deferred Annuities
One distinguishing characteristic of an annuity is the time that annuity payments start. An immediate annuity begins payments from one up to three months after it is purchased. Most payments are made monthly, but many insurers also allow quarterly, semiannual, or annual payments. Immediate annuities are most appropriate for individuals who are in immediate need of a stream of regular income. A deferred annuity delays payments until some point in the future. The accumulation period is the time during which the annuity grows in value.
Single-Premium Annuities vs. Flexible-Premium Annuities
A second distinction is the type of premium payment. A single-premium annuity is purchased with one lump-sum payment. There are no subsequent premium payments. Immediate annuities must be purchased in this way. A flexible-premium annuity is purchased through an initial minimum payment, after which additional payments of a certain minimum amount may be made at the option of the contract holder. This premium payment plan is attractive to investors who want to gradually accumulate increasing value in an annuity.
Fixed Annuities vs. Variable Annuities
A third distinction involves how the annuity grows in value. A fixed annuity guarantees a minimum fixed rate of return. A fixed annuity also may guarantee a higher rate of return for a certain period. At the expiration of that period, the contract may guarantee a different rate of return for another certain period. Fixed annuities are guaranteed contracts; the insurance company guarantees that it will fulfill its obligations to the annuity owners. This guarantee is backed by the full faith and credit of the insurance company offering the annuity (there is no government guarantee associated with annuities, i.e., FDIC).
In contrast, with a variable annuity, investors can choose to invest their purchase payments from a range of different investment options, called separate accounts. The rate of return and the amount of the periodic payments investors eventually receive varies depending on the performance of the investment options selected. Unlike fixed annuities, variable annuities are securities and are regulated by the SEC.
In addition to investment choices, variable annuities typically provide optional benefits for an additional charge. These can include: guaranteed minimum income even if markets decline, the ability to increase your retirement income by potentially locking in market gains and enhanced death benefits for beneficiary protection.
A tax-deferred annuity is a non-negotiable interest-bearing contract offered by an insurance company. Tax-deferred annuities have two distinct phases: the accumulation phase and the payout phase (also called annuitization).
During the accumulation phase, interest earnings are retained in the account so that the account balance grows. During the payout or annuitization phase, proceeds from the account are paid-out or distributed in one of many ways.
Annuities in Everyday Life
Annuities are all around us, although their existence may not be immediately obvious. When prizes are awarded for state lottery drawings, such as a $1 million prize paid over 20 years, the payment vehicle is an annuity. The state lottery commission makes a single payment to an insurance company in return for the insurance company making ongoing annuity payments.
When people retire and begin receiving their pensions, corporations purchase annuities to fund the pension payments. When large court settlements are awarded, such as to a child who was severely injured in an accident, the awards are usually made as annuities (referred to as structured settlements). As you can see, annuities are already in widespread use and have been for many years.
Variable and fixed annuities are long-term, tax-deferred investment vehicles designed for retirement purposes; but the variable annuity contains both an investment and insurance component. Variable annuities are sold only by prospectus. Guarantees are based on claims paying ability of the issuer. Withdrawals made prior to age 59 1/2 are subject to 10% IRS penalty tax and surrender charges may apply. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. The investment returns and principal value of the available sub-account portfolios will fluctuate so that the value of an investor's unit, when redeemed, may be worth more or less than their original value.
Investors should consider the investment objectives, risks, charges, and expenses of the variable annuity contract and sub-contracts carefully before investing. The prospectus contains this and other information about the variable annuity contract and sub-accounts. You can obtain contract and underlying sub-account prospectuses from your financial representative. Read the prospectues carefully before investing.
UVEST provides a comprehensive range of fixed income securities and related services. Among the products available are government and corporate notes bonds, municipal bonds, Treasury bills, and a full range of packaged products that includes closed-end funds and unit investment trusts.
UVEST can deliver products that will meet virtually every fixed income need. In addition, our Fixed Income professionals work closely with your financial consultant to help make sure you get the right solution.
As a full service investment firm, LPL Financial offers a complete range of equity- and options-trading capabilities.
The primary objectives of REITs are to provide investors with diversification into a different asset class, current income, and the opportunity to own large commercial real estate properties you might not typically be able to afford on your own.
The benefits of REITs include:
Wide Range of High-quality Properties
Varying Lease Terms
Diversification – Just as a personal investment portfolio should be diversified to reduce risk, REIT portfolios achieve diversification through
The number of tenants who lease properties
The number of industries represented by tenants
The length of lease terms signed by tenants
The geographic locations of properties throughout the United States
Are REITs for Me?
REITs could be appealing investments for investors seeking
Attractive Current Income
Tax Efficient Income
Safety From Stock Market
REITs are subject to various risks such as illiquidity and property devaluation based on adverse economic and real estate market conditions and may not be suitable for all investors.
You should consider a REIT's investment objectives, risks, and charges and expenses carefully before investing. Contact your Financial Advisor to request a prospectus, which contains this and other information about a specific REIT. Read it carefully before you invest.
Securities offered through LPL Financial, member FINRA/SIPC. Insurance products offered through LPL Financial or its licensed affiliates. American Eagle Financial Credit Union and American Eagle Financial Services are not registered broker/dealers and are not affiliated with LPL Financial.
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