Figure 16.5 Asset Allocation for the 20s and 30s Age Group 70% Aggressive growth stocks and blue chip mutual funds 30% Bonds, GICs, and money-market funds Figure 16.6 Asset Allocation for the 40s Age Group 50% Stocks 50% Bonds, GICs, and money-market funds CHAPTER 16: Making the Most of Your Employee Benefits Figure 16.7 Asset Allocation for the 50s Age Group 30% Stocks 70% Bonds, GICs, and money-market funds Figure 16.8 Asset Allocation for the Retirement Years 20% Stocks 80% Bonds, GICs, and money-market funds PART THREE: Controlling Your Financial Destiny mbt shoes australia PAYOUT OPTIONS Once you reach retirement age, you have three options as to how to collect your defined contribution benefits. First, you can take your accumulated benefits in a lump sum, in which case you would probably roll over the money into an IRA or Keogh account. If you have $5,000 or less in your mbt shoes online defined contribution account, most companies will require that you take the money in a lump sum (known as a cash-out), because they do not want the administrative hassle of keeping records for such a small amount. If you decide not to roll the money into an IRA, you may be hit hard by taxes. If you qualify for five-year forward averaging, your tax bite will be UK MBT significantly reduced. Your second option at payout time entails keeping your funds in the defined contribution plan (though you cannot make further contributions). Your last option is buying an insurance company annuity with the pension plan funds, which would pay you a certain monthly amount for a specific period of time. Explanations of the basic annuities offered by defined contribution plans can be found on pages 775 to 776 of this chapter. One additional annuity usually offered is a life annuity with a cash refund feature. With this annuity, you receive guaranteed annuity payments for the rest of your life. However, if you die before receiving at least as much as your employer paid for the annuity, your beneficiary—probably y mbt shoes australia our spouse— would be entitled to the difference between the money y mbt shoes ou had already received and the amount the company paid for the annuity. Monthly payments under this type of plan are lower than those under a straight life annuity with no guarantees. Most defined contribution plans assume that you will choose the joint and survivor annuity option if you are married. However, some plans—such as profit- sharing plans—do not offer this option because benefits are payable only in lump-sum, not annuity, form. Nevertheless, your spouse is entitled to that lump sum when you mbt shoes die. The amount of money that the annuity will pay you each month is based on how much you accumulated in your pension plan account. The insurance company issuing the annuity will quote you a payout rate based on your age and the age of your spo mbt shoes review use. Different insurance companies use different assumptions, so the payout terms will vary considerably. This makes it very worthwhile to shop around for the highest payout rate. If you die before reaching retirement age, your spouse or another beneficiary will receive your benefit in the form of a qualified preretirement survivor annuity (QPSA). That amount, which is the entire vested account balance, is usually paid as a lump sum within 90 days of your death for profit-sharing plans. Other defined contribution plans, such as money-purchase pension plans, usually offer annuities t mbt walking shoes hat will pay the widow or widower a monthly amount until he or she dies. As you weigh your payout options, keep in mind your overall financial plan. Whether you come to a conclusion on your own or with help from a financial CHAPTER 16: Making the Most of Your Employee Bene mbt stockists fits advisor, determine which form of pension plan distribution will best complement your Social Security payments and returns on other investments. You will have to live with the consequences of your pension plan payout option for many years to come. Spend a good amount of time and effort making sure that you choose what's best for you. Retirement Plans for Employees of Small Companies and the Self-Employed The fact that you do not work for a major corporation that offers defined benefit and defined contribution plans does not mean that you can’t have a retirement savings plan mbt shop uk of your own. If you run or work for a small business or if you are self-employed, you have three options: the simplified employee pension (SEP) plan, the savings incentive match plan for employees (SIMPLE), or the Keogh plan. All three of these programs offer some of the same tax advantages as defined contribution plans, including tax-deferred accumulation of investment earnings until retirement. They also offer similar investment and payout options. A few special rules apply to each, however. SIMPLIFIED EMPLOYEE PENSION (SEP) PLANS A simplified employee pension plan, as the name implies, is a simpler, small- company version of the defined contribution plan offered by larger employers. The paperwork, recordkeeping, and reporting are also simpler with SEPs than with defined contribution plans. For example, a SEP does not have to be filed with the Department of Labor or the IRS, as the plans of larger companies must. Only firms with 25 or fewer employees can offer SEPs, although at least half of the employees must sign up for the plan to make it effective. Companies that offer SEPs set up an IRA for each eligible employee. This is why these plans are often called SEP-IRAs. As an employee, you become eligible if you have worked at a firm for at least three of the past five years and have earned at least $400 during the year. (This amount moves up with inflation each year.) The account can b mbt sale e funded by you, your employer, or a combination of the two. In many cases, the employer matches employee contributions to some extent. IRS rules limit the amount of total contributions to a SEP to $30,000 in one year. Of that, the employer’s contribution is limited to 13.0435 percent of its eligible earnings. The maximum amount of compensation that can be taken into account for this formula is $160,000. For employees, contributions are limited to 15 percent of their wages, up to a $160,000 maximum. Just as with a defined contribution plan, cheap shoes mbt the money you invest in a SEP can be taken off the top of your salary and therefore escapes federal, state, and local taxes. Thus, this salary reduction feature gives you a current tax benefit in the year you contribute. If you PART THREE: Controlling Your Financial Destiny also participate in a 401(k) or 403(b) plan, the amount you can contribute to the SEP is reduced somewhat. Whatever you or your firm contributes to the SEP is immediately vested, meani mbt shoes ng that you can roll it over into another retirement plan if you leave the company. As with all other qualified retirement plans, you suffer a 10 percent penalty if you withdraw money from the plan before you reach age 591.2, and you must begin taking out money once you’ve turned age 701.2. Unlike you can under many other defined contribution plans, you cannot borrow against your SEP account balance.