retirement

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					 LQ Wealth Advisors
Wealth Advisory Team
             Ray Sims
           6960 Drake
 Cincinnati, OH 45243
        513-985-3400
  lifequestinstitute@cinci.rr.com
                                    Retirement




                                                 May 06, 2008
LQ Wealth Advisors       Page 2 of 139




                     See disclaimer on final page
                                    May 06, 2008
Table of Contents
Planning for Retirement Checklist ....................................................................................................................................................... 11

Introduction to Retirement Planning ................................................................................................................... 19

         What is retirement planning? .................................................................................................................................................................................................................................................... 19

         How can you determine your retirement income needs? ........................................................................... 19

         How do you save for retirement?................................................................................................................ 19

         What should you know about distributions from IRAs and other retirement plans? ................................... 20

         What if you are an executive or business owner? ...................................................................................... 20

         How do Social Security and other government benefits programs impact retirement planning? ............. 20

         Do government employees have special retirement concerns? ............................................................... 21

Determining Your Retirement Income Needs (Overview) ................................................................................... 22

         What is it? ................................................................................................................................................................................................................................................................................................................. 22

         Preretirement .............................................................................................................................................. 22

         The transition into retirement ...................................................................................................................... 22

         Retirement .................................................................................................................................................. 22

Estimating Your Social Security Benefits ............................................................................................................ 23

         What is estimating your Social Security benefits? .................................................................................... 23

         Obtaining a benefits estimate ..................................................................................................................... 23

         Understanding how your benefit amount is calculated ............................................................................. 24

         How to calculate your PIA using the wage-indexing method ..................................................................... 24

         Using your PIA to determine your benefit amount ...................................................................................... 26

         Factors that can increase or decrease your benefit ................................................................................... 27

Saving for Your Retirement (Overview) ............................................................................................................... 29

         Major considerations................................................................................................................................... 29

         Take full advantage of employer-sponsored retirement plans .................................................................. 29

         Individual retirement accounts (IRAs) ....................................................................................................... 30

         Choosing investments within your retirement plan ................................................................................... 30

         Evaluate nonqualified investment programs .............................................................................................. 31
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        Choose the right strategy to save for your retirement ................................................................................. 31

Retirement Plans: The Employee Perspective .................................................................................................... 33

        What is the employee perspective on employer-sponsored retirement plans? ........................................ 33

        How are employer-sponsored retirement plans categorized? .................................................................... 33

        Why should an employee participate in a qualified employer-sponsored retirement plan? ...................... 33

        How can an employee optimize his or her retirement benefits? ............................................................... 34

        Should you borrow money from your retirement plan? ............................................................................... 34

        What are some of the more popular employer-sponsored retirement plans, and how do they work? ..... 34

IRAs (General Discussion) ................................................................................................................................... 38

        What is an individual retirement account (IRA)? ......................................................................................... 38

        Overview of IRA types................................................................................................................................. 38

        Rollovers and transfers ............................................................................................................................... 39

        Converting or rolling over funds from traditional IRAs to Roth IRAs ........................................................... 40

        Premature distribution tax ........................................................................................................................... 40

        Required minimum distributions .................................................................................................................. 40

        The importance of beneficiary choice ........................................................................................................ 40

        Investment choices appropriate for IRAs .................................................................................................... 41

        Choosing the right type of IRA .................................................................................................................... 41

Annuities ............................................................................................................................................................. 42

        What is an annuity? ................................................................................................................................... 42

        What are some of the common uses of annuities? ................................................................................... 43

        How do annuities differ from other retirement plans? ................................................................................. 44

        What are the advantages to annuities? ..................................................................................................... 44

        What are the tradeoffs to an annuity? ......................................................................................................... 45

        Why contribute to qualified retirement plans first? .................................................................................... 46

        Why shop around for annuities? ................................................................................................................ 46

Saving for College and Retirement ...................................................................................................................... 47

        What is it? .................................................................................................................................................................................................................................................................................................................. 47

        First, determine your monetary needs ....................................................................................................... 47




                                                                                                                                                                                                                                                                                     May 06, 2008
       You've come up short: what are your options? ......................................................................................... 47

       How do you decide what strategy is best for you? ..................................................................................... 49

       Can retirement accounts be used to save for college? ............................................................................. 50

Distributions from Traditional IRAs: Prior to Age 591/2 ....................................................................................... 51

       In general .................................................................................................................................................. 51

       Example showing the effect of taxes and penalties .................................................................................. 51

       Exceptions to the premature distribution tax .............................................................................................. 52

       How do you pay the premature distribution tax? ........................................................................................ 52

       Should you take distributions from your traditional IRA before age 591/2? ............................................... 53

       IRA rollovers ............................................................................................................................................... 53

       Converting or rolling over traditional IRAs to Roth IRAs ............................................................................ 54

Beneficiary Designations for Traditional IRAs and Retirement Plans ................................................................. 55

       What is it? ................................................................................................................................................................................................................................................................................................................. 55

       The law may limit your choices ................................................................................................................... 55

       Your choice of beneficiary usually will not affect required minimum distributions during your lifetime ........... 56

       Your choice of beneficiary will affect required distributions after your death ............................................. 56

       Other considerations when choosing beneficiaries .................................................................................. 57

       Designated beneficiaries vs. named beneficiaries .................................................................................... 57

       Primary and secondary beneficiaries ........................................................................................................ 57

       Having multiple beneficiaries .................................................................................................................... 57

       When do you have to choose your beneficiaries? .................................................................................... 58

       Paying death taxes on IRA and plan benefits ........................................................................................... 59

       Your options when choosing your beneficiaries ....................................................................................... 59

Considering an Offer to Retire Early: Should You Take It? ................................................................................. 60

       What is it? ................................................................................................................................................................................................................................................................................................................. 60

       Typical elements of an early retirement offer ............................................................................................. 60

       Evaluating an early retirement offer............................................................................................................ 60

       Consequences of saying no to an offer ...................................................................................................... 61

       Consequences of saying yes to an offer ................................................................................................... 61




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                     See disclaimer on final page
                                    May 06, 2008
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          Project your retirement expenses ............................................................................................................... 94

          Decide when you'll retire ........................................................................................................................... 95

          Estimate your life expectancy .................................................................................................................... 95

          Identify your sources of retirement income ................................................................................................. 95

          Make up any income shortfall ................................................................................................................................................................................................................................................... 95

Taking Advantage of Employer-Sponsored Retirement Plans ............................................................................ 97

          Understand your employer-sponsored plan .............................................................................................. 97

          Contribute as much as possible ................................................................................................................ 97

          Capture the full employer match ................................................................................................................. 98

          Evaluate your investment choices carefully ................................................................................................ 98

          Know your options when you leave your employer .................................................................................... 98

Borrowing or Withdrawing Money from Your 401(k) Plan .......................................................................................................................100

          Plan loans ................................................................................................................................................................................................................................................ 100

          How much can you borrow? ............................................................................................................................................................................100

          What are the requirements for repaying the loan? .........................................................................................................................100

          What are the advantages of borrowing money from your 401(k)? .......................................................................................100

          What are the disadvantages of borrowing money from your 401(k)? ........................................................................................... 100

          Hardship withdrawals ................................................................................................................................................................................................................... 101

          How much can you withdraw? ........................................................................................................................................................................................................... 101

          What are the advantages of withdrawing money from your 401(k) in cases of hardship? ....................................... 101

          What are the disadvantages of withdrawing money from your 401(k) in cases of hardship? ............................... 102

          What else do I need to know?.............................................................................................................................................................. 102

Deciding What to Do with Your 401(k) Plan When You Change Jobs ..................................................................................... 103

          Take the money and run ........................................................................................................................................................................................................... 103

          Leave the funds where they are ......................................................................................................................................................... 103

          Transfer the funds directly to your new employer's retirement plan or to an IRA (a direct rollover) ............... 104

          Have the distribution check made out to you, then deposit the funds in your new employer's retirement plan
          or in an IRA (an indirect rollover) ..................................................................................................................................................... 104

          Which option is appropriate? .............................................................................................................................................................. 104

Understanding IRAs ............................................................................................................................................................................................... 106




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          What types of IRAs are available? ............................................................................................................................................................ 106

          Learn the rules for traditional IRAs ............................................................................................................................................................ 106

          Learn the rules for Roth IRAs .................................................................................................................................................................................... 107

          Choose the right IRA for you ......................................................................................................................................................................... 108

          Know your options for transferring your funds .................................................................................................................................................................... 108

Annuities and Retirement Planning ....................................................................................................................................................................... 109

          Get the lay of the land ........................................................................................................................................................................................ 109

          Understand your payout options ....................................................................................................................................................................................................... 109

          Consider the pros and cons ............................................................................................................................................................................. 109

          Choose the right type of annuity ....................................................................................................................................................................................................... 110

          Shop around .......................................................................................................................................................................................................................................................................................................... 111

Choosing a Beneficiary for Your IRA or 401(k) .............................................................................................................................................. 112

          Paying income tax on most retirement distributions ...................................................................................................................... 112

          Naming or changing beneficiaries ............................................................................................................................................................. 112

          Designating primary and secondary beneficiaries ....................................................................................................................................................... 112

          Having multiple beneficiaries ................................................................................................................................................................................................................ 112

          Avoiding gaps or naming your estate as a beneficiary ................................................................................................................ 113

          Naming your spouse as a beneficiary ........................................................................................................................................................................................ 113

          Naming other individuals as beneficiaries ............................................................................................................................................ 113

          Naming a trust as a beneficiary ................................................................................................................................................................... 114

          Naming a charity as a beneficiary ................................................................................................................................................................................................... 114

Saving for Retirement and a Child's Education at the Same Time .......................................................................................................................... 115

          Know what your financial needs are ............................................................................................................................................................................................ 115

          Figure out what you can afford to put aside each month ........................................................................................................... 115

          Retirement takes priority ............................................................................................................................................................................................................................ 116

          If possible, save for your retirement and your child's college at the same time ........................................................................ 116

          Help! I cani meet both goals .......................................................................................................................................................................... 116

          Can retirement accounts be used to save for college? ...................................................................................................................... 117

Common Investment Goals ......................................................................................................................................................................................... 118




                                                                                                                                                                                                                                                                            See disclaimer on final page
                                                                                                                                                                                                                                                                                           May 06, 2008
 LQ Wealth Advisors                                                                                                                                                                                                            Page 8 of 139
           How do you set investment goals? ................................................................................................................................................................................. 118

           Looking forward to retirement ................................................................................................................................................................................................. 118

           Facing the truth about college savings ......................................................................................................................................... 119

           Investing for something big ..................................................................................................................................................................................................... 119

Understanding Defined Benefit Plans ......................................................................................................................................................................................... 120

           What are defined benefit plans? ........................................................................................................................................................................................ 120

           How do defined benefit plans work? .............................................................................................................................................. 120

           How are retirement benefits calculated? ...................................................................................................................................... 120

           How will retirement benefits be paid? ........................................................................................................................................................................... 120

           What are some advantages offered by defined benefit plans? .................................................................................................... 121

           How do defined benefit plans differ from defined contribution plans? .................................................................................... 121

           What are cash balance plans? ............................................................................................................................................................................... 121

           What you should do now ...................................................................................................................................................................... 122

Understanding Social Security ....................................................................................................................................................................... 123

           How does Social Security work? ...................................................................................................................................................... 123

           Social Security eligibility ........................................................................................................................................................................ 123

           Your retirement benefits ........................................................................................................................................................................ 123

           Disability benefits .............................................................................................................................................................................................................................. 123

           Family benefits ........................................................................................................................................................................................... 124

           Survivor's benefits .................................................................................................................................................................................... 124

           Applying for Social Security benefits .............................................................................................................................................. 124

Social Security Retirement Benefits ........................................................................................................................................................... 126

           How do you qualify for retirement benefits? ............................................................................................................................... 126

           How much will your retirement benefit be? ............................................................................................................................................................. 126

           Retiring at full retirement age ............................................................................................................................................................. 126

           Retiring early will reduce your benefit .......................................................................................................................................................................... 127

           Delaying retirement will increase your benefit .......................................................................................................................... 127

           Working may affect your retirement benefit ............................................................................................................................................................ 127

           Retirement benefits for qualified family members ..................................................................................................................... 128




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              How do you sign up for Social Security? ............................................................................................................................................... 128

Tax-Deferred Annuities: Are They Right for You? .......................................................................................................................................... 129

              Five questions to consider .......................................................................................................................................................................................................................... 129

Annuity Basics ........................................................................................................................................................................................................................................................................ 130

              Four parties to an annuity contract ...................................................................................................................................................................... 130

              Two distinct phases to an annuity ........................................................................................................................................................................ 130

              When is an annuity appropriate? ........................................................................................................................................................................................................................................ 131

Shopping for an Annuity ................................................................................................................................................................................................ 132

              Financial stability ................................................................................................................................................................................................... 132

              Get the best performer......................................................................................................................................................................................... 132

              Compare fees ............................................................................................................................................................................................................ 132

              Watch out for surrender charges .................................................................................................................................................................. 132

              Do your homework ................................................................................................................................................................................................. 132

Life Insurance at Various Life Stages ............................................................................................................................................................................................................ 134

              Footloose and fancy-free .......................................................................................................................................................................................................................... 134

              Going to the chapel ............................................................................................................................................................................................. 134

              Your growing family ............................................................................................................................................................................................. 134

              Moving up the ladder ............................................................................................................................................................................................ 135

              Single again .............................................................................................................................................................................................................................................................. 135

              Your retirement years ........................................................................................................................................................................................... 135

Cash Value Life Insurance ............................................................................................................................................................................................. 136

              Who should consider cash value life insurance? ............................................................................................................................. 136

              Advantages of cash value life insurance ............................................................................................................................................... 136

              Disadvantages of cash value life insurance ........................................................................................................................................ 136

How Does Cash Value in a Life Insurance Policy Really Work?................................................................................................................. 137

              What is cash value? ........................................................................................................................................................................................................ 137

              Cash value, by any other name . . . ...................................................................................................................................................................... 137

              How cash value grows ..................................................................................................................................................................................................... 137

              The amount of your premium that goes toward cash value decreases over time ........................................................ 137




                                                                                                                                                                                                                                            See disclaimer on final page
                                                                                                                                                                                                                                                           May 06, 2008
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   The role of cash value .............................................................................................................................. 138

   An example ................................................................................................................................................ 138




                                                                                                                                                         May 06, 2008
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Planning for Retirement Checklist

                                   Yes   No   N/A
            General
            information
            1. Has relevant
            personal information
            been gathered?
             Age
             Age of spouse or
             partner
             Number of children
             (and other
            dependents) and
            their ages




                                                    See disclaimer on final page


                                                    May 06, 2008
LQ Wealth Advisors                                 Page 13 of 139

         2. Has financial
         situation been
         assessed?
          Annual income
            (pretax and
            after-tax)
          Total annual
            expenses
          Total assets and
            savings to date
          Total retirement
            savings to date
          Total liabilities to
            date
          Total yearly
           contributions to
           401(k)s and other
           employer-sponsore
           d plans
          Total yearly
            contributions to
           IRAs (Roth and
           traditional)
          Total yearly
           contributions to
           other retirement
           savings vehicles
          Health insurance
            coverage for each
            spouse
          Long-term care
            insurance coverage
            for each spouse
          Life insurance
            coverage for each
            spouse
          Disability insurance
            coverage for each
            spouse
          Wills, beneficiary
           designations, and
           other estate
           planning
           information
          Notes:




         Determining              Yes   No   N/A
         retirement
         income needs

          1. Has retirement
         age been
         determined?




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          2. Has life
          expectancy been
          estimated in order to
          project how long
          retirement will last?
          3 . Have clear goals
          and objectives been
          established for
          retirement?

          4 . Have those goals
          been prioritized with
          other major financial
          goals, such as
          paying for children's
          college?
          5 . Have annual
          retirement expenses
          been estimated,
          keeping in mind that
          those expenses may
          change from year to
          year?
            Food, clothing,
             housing
            Insurance
            Health care
            Travel and
             recreation
            Other


          6. Have annual
          retirement income
          needs been
          estimated, based on
          the preceding goals
          and expenses?
          7. Has expected
          annual retirement
          income been
          estimated?
            Social Security
            Pensions
           Savings and
            i n ve s t m e n t s
            (including IRAs and
            retirement plans)
            Job earnings
            Other


          8. If a retirement
          income shortfall is
          anticipated, has an
          estimate been made
          of how much must
          be saved each year
          to bridge the gap?



                                   See disclaimer on final page


                                   May 06, 2008
LQ Wealth Advisors                                          Page 14 of 139
          9 . H a ve i n f l a t i o n ,
          taxes, and
          conservative rates of
          return been factored
          into these
           estimates?
          Notes:




          Saving for                       Yes   No   N/A
          retirement

          1. Is a 401(k) plan or
          o t h e r
          employer-sponsored
          retirement plan
          available?

          2. If so, does the
          employer match
          employee
          contributions up to a
          certain level?

          3. Are contributions
          made up to the
          maximum allowed by
          l a w, o r a t l e a s t
          enough to capture
          t h e f u l l e m p l o ye r
          match?
          4. Does the 401(k)
          plan permit Roth
          contributions? If so,
          w h i c h t yp e o f
          contribution would
          be more appropriate,
          Roth or pre-tax?
          5. Has an IRA
          account been
          established?
           Roth IRAs
           Traditional IRAs


          6. If so, are
          contributions made
          up to the maximum
          allowed by law each
          year?




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          7. If an IRA account
          has not been
          established, would it
          be appropriate to
          establish one, and
          which type?
          8. I f c u r r e n t
          contributions to IRAs
          a       n        d
          employer-sponsored
          plans are not
          sufficient, are there
          budgetary steps that
          can be taken to
          increase those
          contributions?
            Cut expenses
            Decrease savings
             toward other goals
             (e.g., education)
            Add a second job
            Other


          9. Are other tools
          being used to save
          for retirement?
            Annuities
            Mutual funds
            Stocks and bonds
            Other


           10. W ould these
          funds be more
          effective in an
          employer-sponsored
          plan?
           11. If not, would it be
          appropriate to add
          some of these tools
          to the retirement
          portfolio?
           12. Is a substantial
          inheritance
           expected?

          Notes:




          Investment                 Yes   No   N/A
          planning



                                                      See disclaimer on final page


                                                      May 06, 2008
1. Have the
appropriate
investments for IRAs
a      n     d
employer-sponsored
plans been
 selected?
2 . Has someone
been designated to
monitor those
investments for
performance and
make changes when
appropriate?
3 . Is there an
investment portfolio
that is designed to
build wealth and
achieve goals other
than retirement?
4 . Has the impact of
t a xe s b e e n t a k e n
into account in
assembling an
investment portfolio?
5 . Have expectations
been established for
how the retirement
portfolio and other
i n ve s t m e n t s w i l l
perform over the
  long term?

6 . Is some degree of
investment risk
acceptable?

7. Has an anticipated
annual rate of
withdrawal from the
portfolio after
retirement been
established?
Notes:




Insurance                      Yes   No   N/A
planning




                                                May 06, 2008
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LQ Wealth Advisors                                         Page 17 of 139
          1. Will adequate
          health insurance be
          available to meet
          potentially high
          health-care costs
          during retirement?
          2. H a ve l o n g - t e r m
          care insurance and
          other strategies been
          considered in case
          long-term care is
          needed during
          retirement?
          3 . H a ve o t h e r
          insurance needs
          during retirement
          been considered?
            Life
            Auto and
              homeowners
            Liability
            Other


          Notes:




          Estate planning               Yes   No   N/A

           1. Have appropriate
          beneficiaries been
          chosen?
           Employer-sponsore
             d plans
           IRAs
           Annuities
           Life insurance
           Other



          2. Have valid wills
          been executed,
          including durable
          power of attorney
          a n d a d va n c e d
          medical directives?




                                                         See disclaimer on final page
                                                         See disclaimer on final page
                                                                        May 06, 2008
LQ Wealth Advisors                 Page 18 of 139
           3. Have other estate
           planning tools and
           strategies been
           considered?
            Trusts
            Gifting assets
            Other

           Notes:




                                  May 06, 2008
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                     See disclaimer on final page


                     May 06, 2008
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Introduction to Retirement Planning

What is retirement planning?
Retirement planning involves an analysis of the various choices you can make today to help provide for your financial
future. To make appropriate choices, you need to predict--as well as you can--your future economic circumstances.
You'll also need to establish your post-retirement goals. When you've determined how much of an income stream you'll
probably require in the future, you'll be in a position to make wise choices now about income, saving, investments,
and employer-sponsored or other retirement plans.

Of course, you need to tailor your retirement planning to your own unique circumstances--planning methods may be
different for employees and executives than for business owners. And no matter who you are, you'll probably want to
gain some familiarity with the Social Security system, with post-retirement health care insurance coverage,
including Medicare and long-term care (LTC) insurance. For some people, retirement may be an eagerly
anticipated event, an opportunity to enjoy so many things that working may have precluded--travel, hobbies, and
more family time. For other people, even the word "retirement" may conjure up feelings of fear or dread, particularly for
those employees who work without the benefit of pension or other retirement plans. And newspaper stories predicting
the collapse of the Social Security system can certainly compound anxiety. Whether you are financially comfortable or
are of limited means, however, retirement planning is possible and can help you take control of your own future.

How can you determine your retirement income needs?
To determine your retirement income needs, you'll want to evaluate your present circumstances--your income, your
expenses, your assets, and your debts. Next, you'll need to think about your future circumstances. There are four
main sources for your retirement income: Social Security, pensions or other retirement vehicles, your investment
portfolio, and savings. If you predict that your current income will not provide you with your desired retirement lifestyle,
there are certain steps you can take now to help change your circumstances.

You'll want to think about your future sources of income, but also about where you'll live. Will you continue to live in
your current home, for instance, or will you move to a condominium or retirement community? And if your employer
typically provides early retirement packages to its employees, you'll need to know how to evaluate such packages from a
number of perspectives. For information about the above, see Determining Your Retirement Income Needs. See
also Personal Residence Issues in Retirement and Considering an Offer to Retire Early--Should You Take It?

How do you save for retirement?
Learning how to save for retirement is imperative. There are a number of retirement vehicles available, including
traditional and Roth IRAs, employer-sponsored retirement plans, nonqualified deferred compensation plans, stock
plans, and commercial annuities. Proper retirement planning requires an understanding of the workings of these
tools.

In addition, your personal investment planning can help you on the road toward your retirement goals. The sooner
you start, the longer you'll have to accumulate funds for retirement.

You'll want to understand the taxation of your retirement and investment vehicles. This is especially important since
the enactment of the Jobs and Growth Tax Relief Reconciliation Act of 2003 (2003 Tax Act). The 2003 Tax Act
reduced the capital gains tax rates and the tax rates of certain dividends, making the decision to allocate assets
inside or outside a retirement plan more crucial.
Finally, you may want to learn strategies for handling the competing demands of educating your children and
retiring. For information on all of the above, see Saving for Your Retirement.




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What should you know about distributions from IRAs and other retirement
plans?
Effective retirement planning involves not only an awareness of the types of savings vehicles available, but also an
understanding of taking distributions from these vehicles. In particular, you should be familiar with the income tax
ramifications of distributions (including a possible 10 percent premature distribution penalty tax for distributions
made prior to age 59 1/2). You may be interested in knowing whether you can borrow money from your retirement
plan, whether it is better to receive your retirement money in one lump sum or in monthly checks, and whether you
can roll your retirement plan balance into an IRA.

In addition, you may be concerned about naming one or more beneficiaries for your IRA or employer-sponsored
retirement plan. What are the tax implications? What about required minimum distributions from the plan after you reach
age 701/2? For information about these and many other related topics, see IRA and Retirement Plan Distributions.

What if you are an executive or business owner?
A number of additional retirement planning tools are often available for executives, such as nonqualified deferred
compensation plans offered by employers to their key employees. If you're an executive, you should realize that
nonqualified plans and stock plans can be valuable tools for retirement planning. You should understand the
mechanics of the special benefits afforded by your employer, including the tax implications for you.

If you are a business owner, on the other hand, you have some special retirement planning concerns of your own.
In particular, you may want to plan for the succession of your business to family members or to others. You may
also want to know which retirement plans are best suited to your form of business. For information about these and
related topics, see Special Planning Considerations for Executives, or Planning for a Succession of a Business
Interest, or Retirement Planning Options for Business Owners.

How do Social Security and other government benefits programs impact
retirement planning?
If you're planning for retirement, you should also consider the Social Security income (if any) you'll be receiving in the
future. In fact, it is possible for you to estimate your Social Security benefits ahead of time. You may want to check your
Social Security record periodically to ensure that you have met the eligibility requirements and that your information
is accurate and complete.

You'll also want to become familiar with ways to optimize your Social Security benefits and minimize their
taxation. The timing of your receipt of benefits can be important, as can the impact of post -retirement
employment. For more information, see Social Security. Other governmental programs should also be considered
when planning for retirement.
In particular, you should review the topics of Medicare and Medicaid. You should know what Medicare does and does
not cover and what other health care options are available to you. How expensive are these governmental and
supplemental health programs? What are the eligibility requirements? Medicaid planning can be particularly
important for people of modest means. You should know the Medicaid eligibility requirements, the penalties for
transferring assets inappropriately, and the various strategies available for protecting assets. In addition, you should
become familiar with the specific methods of protecting your personal residence and the extent to which your state
can impose liens on your property and pursue recovery remedies after your death. If you are planning for your
post-retirement years, you should also gain some familiarity with long-term care insurance, nursing homes,
retirement communities, assisted living, and other housing options for elders. For information on all of the above, see
Health Care in Retirement.




                                                                                                    See disclaimer on final page
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                     See disclaimer on final page


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Do government employees have special retirement concerns?
If you work for the federal government, a state government, a railroad, or if you are in the military, your retirement
benefits may be subject to special rules. You should know how your retirement plan works, what distribution rules apply,
how your survivors can benefit, how your plan may be integrated with Social Security, and what tax rules apply.
For more information, see Retirement Programs for Federal and State Employees, or Military Benefits, or
Railroad Retirement System.




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Determining Your Retirement Income Needs (Overview)

What is it?
Determining your retirement income needs is a process that helps you identify your retirement planning needs based
on your desired standard of living and the resources you'll have available. Today, you can no longer rely on Social
Security benefits and a company pension check to fulfill all your retirement income needs. Social Security benefits
will probably satisfy only a fraction of your overall retirement income needs, and generous company pensions have
largely been replaced with employer-sponsored retirement plans that are funded to a great extent with employee
dollars. A successful and rewarding retirement requires you to plan ahead in order to ensure that you have sufficient
retirement income to last you for your entire retirement. Determining your retirement income needs necessitates a
discussion of the various stages of retirement planning, including preretirement, the transition into retirement, and
retirement.

Preretirement
Your retirement is sometime in the future--maybe 10 years, maybe 30 years down the road. If so, you've got a little
breathing room. The single biggest mistake that you can make right now is to put off thinking about your retirement.
The more time you have, the more you can accomplish, so the sooner you start, the better off you'll be. You've got
a lot to think about. There are many factors to consider, including your sources of retirement income, your retirement
income needs, and how you can use those sources of retirement income in order to fulfill your retirement income
needs. See Preretirement.

The transition into retirement
If retirement is right around the corner, you've got some important decisions to make. If you haven't done so,
spend some time getting a good picture of your retirement financial position. Estimate your retirement income and
expenses as discussed in preretirement. As retirement approaches, though, you have to consider the impact of
when you retire. Early retirement and delayed retirement, through choice or necessity, can raise certain issues you'll
want to understand. See The Transition into Retirement.

Retirement
When you retire, there are still some retirement issues that you may need to consider. These include the effect of
working during your retirement and the impact of other sources of income on your Social Security benefits. Also, the
required distributions from your IRA or employer-sponsored retirement plan may be an issue. See Retirement.




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                     See disclaimer on final page


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Estimating Your Social Security Benefits

What is estimating your Social Security benefits?
Estimating your Social Security benefits is particularly important when you are planning for retirement, although you
may be interested in estimating survivor's benefits or disability benefits as well. When planning for retirement, you
should neither overlook nor overstate the value of your Social Security benefits. Despite the anxiety some baby
boomers feel over the future of Social Security, funds in the trust that pays benefits will actually rapidly increase in the
short-term (10-15 years). Predicting the future of Social Security is difficult, however, because to keep the system
solvent, some changes must be made to it. The younger and wealthier you are, the more likely that these changes will
affect you. But even if you retire in the next few years, remember that Social Security was never meant to be the sole
source of income for retirees. As President Dwight D. Eisenhower said: "The system is not intended as a substitute
for private savings, pension plans, and insurance protection. It is, rather, intended as the foundation upon which
these other forms of protection can be soundly built." Estimating your Social Security benefits now will not only
help you plan an effective long-term retirement strategy, but it can also help you understand what benefits might
protect your family if you were to die or become disabled.

Obtaining a benefits estimate
Social Security Statement (a.k.a. the Personal Earnings and Benefit Estimate Statement)

The most practical way to estimate your benefits is by having it done by the Social Security Administration (SSA).
You can obtain an estimate by filling out form SSA-7004-SM "Request for Earnings and Benefit Estimate
Statement." You can get this form from your local SSA office, by calling (800) 772 -1213, or online at
www.ssa.gov. You supply your actual earnings (wages and/or net self-employment income) for the previous year and
your estimated earnings for the current year. You also show your expected future annual wages (in today's dollars) and
the age at which you expect to retire. The SSA will send you a benefits estimate statement within a few weeks. Your
Social Security Statement will provide you with the following information:
          Estimates of future benefits to which you may be entitled

          Your lifetime earnings according to your Social Security earnings record

          An estimate of how much Social Security and Medicare tax you have paid, based on your covered
           earnings


When you receive your statement, you should pay close attention to the earnings information section. Reporting or
clerical errors sometimes occur. If you think your earnings have been incorrectly reported, you have a limited time to
correct the information (three years, three months and 15 days after the end of the year of the earnings). If you are age
25 or older and have a Social Security number and earned income, you can expect to receive an annual Social
Security Statementfrom the SSA. This statement contains information that is similar to the information found on the
version you will request from the SSA, except that the requested version allows you to project your own future earnings.
Note, however, that if you are already receiving benefits, you won't receive this annual statement.
Estimating benefits with ANYPIA
If you want to try to estimate your benefits yourself or with the help of a financial professional, you can use the Social
Security Administration's benefit estimate computer program, called ANYPIA. The benefit estimate computer
program may produce results different from the official calculation. However, according to the Social Security
Administration, it usually closely matches the official calculations. Before you use this program, you may need to
request a




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Social Security Statementanyway, because you will need to enter your past earnings into the ANYPIA program. You
can find this calculator and other simplified calculators on the Social Security website under Social Security Retirement
Planner.

Understanding how your benefit amount is calculated
Your Social Security benefits will be based on your average lifetime earnings, expressed as your primary
insurance amount (PIA). Calculating your PIA is complicated because some factors used in the benefit formula
change annually. To simplify the calculation, as well as make it more accurate, it might be helpful to use the SSA's
software program or obtain a benefit estimate directly from the SSA (see preceding section).

However, knowing how your PIA is calculated may be useful in benefit planning. Currently, the two PIA
calculation methods most frequently used are:

         1. The simplified old-start benefit method--This method is used if age 62, disability, or death occurred
            prior to 1979. It averages actual (not indexed) earnings and uses a table to calculate the PIA.

         2. The wage indexing method--This method has been used since 1979. Indexing earnings is a way of
            adjusting them to reflect changes in wage levels throughout years of employment. This ensures that your
            benefits reflect increases in the standard of living. In general, the wage indexing method calculates your
            PIA by indexing your lifetime earnings up to and including the year you turn 59. Then, your highest
            earnings for a specific number of years (usually 35) are averaged and a benefit formula is applied to
            this figure to calculate the PIA.


Two other benefit computation methods are less frequently used:

         1. "Special minimum" benefit tables are used sometimes to compute benefits payable to some
            individuals who have long periods of low earnings and who have at least 11 years of coverage.

         2. Flat-rate benefits are provided to workers (and to their spouses or surviving spouses) who became age
            72 before 1969 and who were not insured under the usual requirements.


How to calculate your PIA using the wage-indexing method
The wage indexing method can be used to calculate retirement, survivor's, and disability benefits. However, the
method used to calculate disability benefits is slightly different. The following discussion applies only to
calculating your PIA for retirement and death benefits.

Follow these steps to calculate your PIA:

          Count the number of years elapsed between 1951 (or the year you turned 22, if later) and the year you
           turned 61. If you were born in 1929 or later, this number will be 40.


       Example(s): Peter retired from his job in 1992. He was 62. He turned 22 in 1952, so count the
      number of years between 1952 and 1991 (the year he turned 61). Forty years have elapsed.

          Use the number of elapsed years to determine the number of benefit computation years. To do this,
           subtract five from the number of computation elapsed years. This figure will be used to calculate your
           average indexed monthly earnings (AIME). If you were born in 1929 or later, this number will be 35.


       Example(s): Peter's computation elapsed year figure is 40. 40-5=35. So, Peter's benefit
      computation year figure is 35.




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          Use your earnings record to calculate your indexed earnings. To do this, use the appropriate table to
           determine what the indexing average wage was or will be in the year you turn 60. Then, look to see what
           the indexing average wage was in the year you are indexing. These figures become part of an indexing
           ratio applied to each year of earnings starting with 1951 and ending with the year you turn 59. Earnings
           before 1951 are generally disregarded. Earnings in the year you turn 60 (your indexing year) and earnings
           in all later years are considered in calculating your PIA, but they are not indexed. The ratio can be
           expressed as:



     Actual earnings in year being indexed            Multiplied by    Indexing average wage in year you turned
                                                                      60 divided by Indexing average wage in
                                                                      year being indexed


     The result will equal your indexed earnings
     for the year being indexed.

       Example(s): Peter started working in 1951 and retired in 1992. For each year starting with 1951 and
       ending with 1989 (the year he turned 59), calculate his indexed earnings. His indexing year is 1990
       (the year he turned 60). For example, Peter's earnings in 1965 were $2,000. In 1965, the indexing
       average wage was $4,658.72. In 1990, the indexing average wage was $21,027.98. Calculate his
       1965 indexed earnings:


 $2,000 multiplied by $21,027.98 divided by $ 4,658.72 = $9,027.36

       Tip:Actual earnings are earnings credited to an individual's Social Security record. However, each
       year's actual earnings are subject to a maximum earnings limit. If your earnings for the year you are
       indexing exceed the maximum limit, then you must substitute the maximum earnings limit amount
       for your actual earnings amount in the ratio.

       Example(s): In 1965, the maximum earnings limit was $4,800. Had Peter's actual earnings exceeded
       that amount, he would have replaced his actual earnings figure in the ratio with $4,800 to calculate his
       indexed earnings for 1965.

Once you have indexed your earnings for each year you have worked before age 60, you will be able to use those
figures to calculate your average indexed monthly earnings (AIME).

          Calculate your AIME by selecting your highest earnings for the benefit computation years (including any
           earnings not subject to indexing). Add these up and divide by the total number of months elapsed during
           these years.


       Example(s): Peter had 39 years of indexed earnings and two years of earnings (1990 and 1991)
       not indexed but included in the calculation. Select his 35 highest earning years. The earnings for
       these years total $950,000. Divide this figure by 420 months (35 x 12). His AIME is $2261.90.

          Calculate the PIA for the year you attain age 62 by applying percentages to certain dollar amounts of the
           AIME. The percentages are fixed, but the dollar amounts (called bend points) are adjusted each year for
           inflation.

       Example(s): Peter attained age 62 in 1992. His PIA would be calculated using 1992 bend
       points--90 percent of the first $387 of his AIME, and adding 32 percent of the AIME in excess of $387
       through $2,333, and adding 15 percent of the AIME in excess of $2,333. So, Peter's PIA is




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       calculated to be the sum of $348.30 (90 percent of $387) plus $599.65 (32 percent of $1,873.90) or
      $947.95, rounded to the next lower multiple of 10 cents, $947.90.

 Bend points make calculating your future PIA difficult because the bend points for each year are only published by
the Department of Health and Human Services on November 1 of the preceding year. For 2008, the bend points
are $711 and $4,288.
              Adjust your PIA to account for changes in the cost-of-living allowance (COLA) yearly.


       Example(s): If Peter's PIA was $947.90 when he retired in October 1992, then his PIA will be
      adjusted for COLA in December 1992, and his January 1993 benefit check will reflect the change.

 Using your PIA to determine your benefit amount
 Once the PIA has been calculated, all your benefits (and those of your family members who are dependent upon
your Social Security record) will be based on this figure. Your PIA is the maximum benefit that you could receive once
you become eligible.

 Your maximum benefit may be payable if:

              You retire at normal retirement age

              You are a widow or widower who is at least normal retirement age

              You are a disabled worker


 In other circumstances, the benefits that you receive will be a certain percentage of your maximum benefit. For
example, if you elect to receive early retirement benefits, your maximum benefit will be reduced by a certain percentage
for each month of early retirement. If you or your family members are eligible for reduced benefits, the reduction will be
expressed as a percentage of your PIA.

        Example(s): Mr. Jones retired at age 65 (his normal retirement age) after working for many years.
      His PIA was determined to be $1,176. He receives the maximum retirement benefit (100 percent of his
      PIA) so his monthly benefit check is $1,176. His wife retired at age 65 as well (her normal retirement
      age). Since her own PIA was less, she decided to base her retirement income on her husband's PIA. She
      is entitled to 50 percent of his PIA, so she receives a monthly benefit check of $588.
 The following chart summarizes the relationship between your PIA and your eventual benefits:

 Benefit                          Requirements                               Amount


 Retirement
                                   Normal retirement age                     100% of PIA
                                   62 or above, but less than normal         PIA reduced by 5/9 of 1% for each
                                    retirement age                             month under normal retirement age,
                                                                               up to 36 months, and by 5/12 of 1%
                                                                               thereafter

                                                                              100% of PIA
 Disability                        Not offset by other public disability
                                    benefits




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 Spouse's benefit
                                    Caring for dependent child                 50% of spouse's PIA further
                                    Normal retirement age                      reduced by 25/36 of 1% for each of
                                    Age 62 or above, but less than             the first 36 months under normal
                                     normal retirement age                      retirement age

 Child's benefit
                                    Child of retired or disabled               50% of worker's PIA
                                    Child of deceased worker                   75% of worker's PIA

 Mother's or father's benefit       Child must be under 16 or disabled         75% of deceased worker's PIA


 Widow(er)'s benefit
                                    Normal retirement age                      100% of deceased worker's PIA
                                    Age 60 or above, but less than             Reduced; 711/2% of deceased
                                     normal retirement age                       worker's PIA, or more

 Disabled widow(er)'s benefit       Starting at age 50-60                      711/2% of deceased worker's PIA


 Parent's benefit
                                                                                821/2% of deceased worker's PIA
                                    One dependent parent                       75% of deceased worker's PIA
                                    Two dependent parents                       (each)


 Factors that can increase or decrease your benefit
 Early retirement

 If you elect to receive retirement benefits early (before normal retirement age), your benefit will be reduced
proportionately. You can elect to receive retirement benefits as early as age 62. For each month of early
retirement, your total benefit will be reduced by 5/9 of 1 percent, up to 36 months, and by 5/12 of 1 percent
thereafter. For more information see Electing Early Social Security Retirement Benefits.

 Delayed retirement

  If you delay receiving retirement benefits past normal retirement age, you will receive a higher benefit when you
retire. Late retirement may increase your average earnings (which may, in turn, increase your benefit). You will also
receive a special delayed retirement credit. This credit is figured as a percentage of your Social Security benefit and
is paid in addition to your regular benefit amount. It does not affect your PIA upon which your benefit is based.

 This credit varies depending on the year in which you were born and how many months or years after normal
retirement age you retire (up to the maximum age of 70). For example, if you were born in 1944 (meaning that your
normal retirement age will be 66), you will earn an extra 8 percent of your benefit for every year you delay retirement
up to age 70. This means that if you delay receiving your retirement benefit until age 70, your benefit payment will
be 32 percent greater than it would have been if you began receiving retirement benefits at age 66.

 Earnings during retirement
 Any income you earn after you retire must be reported to the Social Security Administration and may reduce your
retirement benefit if you have not yet reached normal retirement age. However, some of your annual earnings are




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exempt and won't affect your benefit. For further information on this topic see Planning for Earned Income in
Retirement.

Simultaneous benefits

Occasionally, you may be entitled to receive benefits based not only on your earnings record, but on someone
else's as well. This often happens when a married couple retires.

      Example(s): Mr. Jones is not planning on retiring and receiving Social Security retirement benefits
      until he is 68. His PIA is $1,176. His wife, who is 63, wants to retire now, but she can't begin
      receiving a spouse's retirement benefit until her husband begins receiving his retirement benefits.
      However, since she is already over the age of 62, she can receive retirement benefits based on her own
      PIA. Her benefit, adjusted for early retirement, will be $400. Later, when her husband retires, she can
      receive her own retirement benefit and a spouse's benefit of $188, the difference between her own
      worker's benefit ($400) and the spouse's benefit she would have received based on 50 percent of her
      husband's PIA ($588).
A family maximum benefit applies
Your family may receive benefits based on your earnings record. There is, however, a limit to the amount of
monthly benefit that can be based on an individual's Social Security record. The limit varies but generally ranges
from 150 to 180 percent of your PIA. Benefits to family members may be reduced if they exceed the family
maximum. The formula used to compute the family maximum is similar to that used to compute the PIA.




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                     See disclaimer on final page


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Saving for Your Retirement (Overview)

Major considerations
How much will you need in retirement?

When do you plan to retire? What kind of lifestyle do you desire? How much do you have right now that you can count
on for your retirement? What about Social Security; do you know what kind of benefits you can expect? These are all
factors you will need to consider when you determine how much you need. To understand how they tie together, see
Determining Your Retirement Income Needs.

Know how much you have

Take an honest look at your present net worth. If you're like most people, you've got a long way to go before you can
afford to retire. Knowing how much you currently have earmarked for retirement will assist you in saving for your
retirement. See Net Worth.

Implement a savings plan

Take an honest look at your current spending. Just as in planning for other financial goals, you need to implement a
savings plan. Think about establishing a long-term systematic savings plan to put aside funds for retirement. If you
haven't already done so, consider the benefits of establishing and sticking to a spending plan.

Decide where to put your dollars

You've freed up some cash, and you want to put it where it will do the most good. You need to consider some
options:

          Take advantage of employer-sponsored retirement plans

          Utilize IRAs

          Evaluate other investment alternatives


Take full advantage of employer-sponsored retirement plans
Taking advantage of retirement plans in general

Does your employer offer a retirement plan? If so, be sure that you're taking full advantage of it. If your employer has a
defined benefit plan (a traditional pension plan, with pension benefits typically based on the number of years you
work and your level of compensation), make yourself familiar with the details of the plan. Although most aspects of
such a plan are beyond your control (e.g., you can't make contributions), you should know how your plan works. How
long do you have to work before you have rights under the plan (the plan's vesting schedule)? When are you entitled
to a full pension? This information is vital if you're considering leaving your employment.
If your employer offers a defined contribution plan (such as a 401(k) plan, to which contributions can be made by
employer and/or employee), much depends upon the specific type of plan. The one feature that these plans have in
common is that the contributed funds grow tax deferred. This is significant, because investments in these plans can
grow more rapidly than identical investments that don't grow tax deferred. Depending upon the type of plan that you
have, you may be able to make voluntary contributions. See Employer-Sponsored Retirement Plans: The Employee
Perspective for more information.




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                     See disclaimer on final page
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Maximize employer-matching contributions

Some retirement savings plans such as 401(k) plans, 403(b) plans (tax-sheltered annuity plans for employees of public
schools and certain tax-exempt organizations), and thrift savings plans (plans to which you generally make
after-tax contributions) allow employers to match contributions that you make up to a specified level. Since this is
basically free money (once you're vested in those employer dollars), consider taking advantage of it. Contribute
enough to the plan so that your employer contributes the maximum matching amount. For more information, refer to
the specific plan in which you participate.

Self-employed individuals should consider establishing their own retirement plans

If you're self-employed, seriously consider establishing a retirement plan for yourself. For example, a simplified
employee pension (SEP) plan is relatively easy to implement (it's really not much more than a big IRA), and it allows
you to save significant funds for retirement or you might consider an individual 401(k) plan. If you're a business owner
with employees, you should think about setting up an employer-sponsored retirement plan. There are a variety of
retirement plans that are appropriate for sole proprietors and partnerships, corporations, and tax-exempt
organizations.
If you do contract work for a tax-exempt organization or a state or local government

If you perform services as an independent contractor for a state or local government or a tax-exempt organization that
sponsors a Section 457 plan (a specific type of deferred compensation plan), you may be able to participate in that
plan. If you can participate, you can defer a significant portion of your compensation to the plan.

Individual retirement accounts (IRAs)
Contribute to an IRA each year

IRAs offer significant tax incentives to encourage you to save money for retirement. You can contribute up to $5,000
to your IRA in 2008 ($6,000 if you're age 50 or older), as long as you have at least that amount in compensation for the
year. (For 2007 you can contribute up to $4,000, $5,000 if age 50 or older). The types of IRAs that you can use (and
the corresponding tax advantages) depend upon your income level, filing status, and whether or not you're covered by
an employer-sponsored retirement plan. See IRAs.
If your spouse does not have compensation, contribute to an IRA for your spouse

You may be able to set up and contribute to an IRA for your spouse, even if he or she received little or no
compensation for the year. To contribute to a spousal IRA, you must meet the following four conditions:

         1. You must be married at the end of the tax year

         2. You must file a joint federal tax return for the tax year

         3. You must have taxable compensation for the year
         4. Your spouse's taxable compensation for the year must be less than yours


See Spousal IRAs for more information.


Choosing investments within your retirement plan
It's important to understand that the earnings potential offered by a retirement plan (e.g., 401(k) or IRA) is not
generated by the plan per se, but by the investments held by the plan (e.g., stocks, bonds, mutual funds).
Choosing the right mix of investments within your plan is just as important as choosing the right plan itself. When making
your choices, many factors should be considered including your time horizon, your tolerance for risk, and




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the tax implications. For example, it may not make sense to hold tax-exempt securities within a plan that is tax
deferred.

The Jobs and Growth Tax Relief Reconciliation Act of 2003 (2003 Tax Act) complicates matters further. The 2003
Tax Act reduces capital gains tax rates and the tax rates on qualifying dividends. However, investments held in
retirement plans will not benefit from these lower tax rates. Thus, holding investments that generate income
subject to these lower rates in a tax-deferred plan is now less appealing. This does not mean that such
investments are inappropriate for retirement plans, only that you should consider carefully your overall investment
portfolio in deciding what investments to hold within, and outside of, a retirement plan.

Evaluate nonqualified investment programs
Annuities and retirement

Annuities, which are funded with after-tax dollars, grow tax deferred. When you retire, if you're over age 591/2, you may
make withdrawals or begin taking payments that will continue as long as you live. The tax-deferred earnings portion of
these withdrawals or payments will then be taxed as ordinary income. Keep in mind that, as with IRAs, if you
withdraw any money from an annuity before you're 591/2, you'll generally have to pay an additional 10 percent
penalty tax.) For more information, see Annuities.

Life insurance and retirement

Some life insurance has certain tax advantages, such as the tax-deferred growth of the cash value of permanent life
insurance. This type of life insurance can be a supplementary source of retirement income, in addition to providing
financial protection to your beneficiaries. See Cash Value Life Insurance for Retirement Savings.

Review other investments

You should consider carefully your current investment portfolio. Are you putting your money in appropriate
investments? See Investing for Retirement.

Other considerations

Does your employer offer or are you in a position to take advantage of any of the following?

          Nonqualified deferred compensation plans

          Stock plans

          Other employee benefits



Choose the right strategy to save for your retirement
You know that you should be taking advantage of employer-sponsored retirement plans, making yearly
contributions to IRAs, and considering all of your other options, but how do you decide which to do first? If you have
the cash, you should probably be doing all three. If not, conventional wisdom says you should always consider
taking advantage of any employer-matching contributions within an employer-sponsored retirement plan.
Contribute at least enough to capture the full match offered by your employer.
Beyond that level of savings, you have to think about whether it's better to make additional voluntary contributions to
your employer-sponsored retirement plan or put those dollars into an IRA or elsewhere. Annuities and life insurance,
for example, play an important role in many peoples' retirement planning.

Certainly, if you have not reached the pretax contribution limit at work, funneling more dollars into your 401(k) or
other employer-sponsored plan probably makes the most sense. The ability to make systematic contributions
straight from your paycheck is a huge practical plus for most individuals, and the power of tax-deferred savings




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can be great. Although the traditional IRA also provides tax-deferred growth, the ability to deduct contributions is
phased out for high- and middle-income taxpayers also participating in qualified retirement plans. If you earn too much
to make a deductible IRA contribution, you should probably fully fund your employer-sponsored retirement plan
before making nondeductible contributions to a traditional IRA.
The Roth IRA and Roth 40 1(k) /403(b) offer yet more options. With these arrangements, you invest after-tax dollars,
but you doni pay income tax on the earnings for qualified withdrawals. Tax-free earnings are even better than
tax-deferred earnings because tax-deferred earnings will eventually be taxed when you start taking distributions. In
deciding between a Roth IRA and a traditional IRA or other alternative, or between pre-tax and Roth 401 (k)/403(b)
contributions, you should consult a financial professional who can make some planning assumptions and crunch the
numbers to see what makes the most sense.




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                     See disclaimer on final page


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Retirement Plans: The Employee Perspective

What is the employee perspective on employer-sponsored retirement
plans?
Qualified employer-sponsored retirement plans can provide a number of tax and nontax benefits to employees. The
employee perspective on these plans should certainly consider the obvious tax deferral and retirement savings
benefits. Additionally, however, employees should consider various strategies to optimize their benefits. For example,
employees will approach their retirement plans most effectively when they take full advantage of employer-matched
savings and by remaining with a particular company at least until vesting has occurred. In some cases, moreover,
the advantages and disadvantages of borrowing from employer-sponsored plans should be evaluated.

How are employer-sponsored retirement plans categorized?
Employer-sponsored retirement plans may be categorized in two ways: (1) they're classified as either qualified or
nonqualified, and (2) qualified plans are further subdivided into defined benefit plans and defined contribution plans.

Qualified versus non qualified plans

Qualified plans are those that offer significant tax advantages to employers and employees in return for adherence
to strict Employee Retirement Income Security Act (ERISA) and Internal Revenue Code requirements involving
participation in the plan, vesting, funding, disclosure, and fiduciary matters.

Nonqualified plans, by comparison, are subject to less extensive ERISA and Code regulation; the design and
operation of these plans is more flexible. However, nonqualified plans are usually not as beneficial to either the
employer or the employee from a tax standpoint.

Defined benefit plans versus defined contribution plans

A defined benefit plan is a qualified employer pension plan that guarantees a specified benefit level at retirement;
actuarial services are needed to determine the necessary annual contributions to the plan. These plans are typically
funded by the employer.

A defined contribution plan, by comparison, is one in which each employee participant is assigned an individual
account, and contributions are defined (in the plan document) on an annual basis, often in terms of a percentage of
compensation. Unlike a defined benefit plan, a defined contribution plan doesn't promise to pay a specific dollar
amount to participants at retirement. Rather, the benefit payable to a participant at termination or retirement is the
value of his or her individual account.

Why should an employee participate in a qualified employer-sponsored
retirement plan?
Participation in an employer-sponsored retirement plan is probably the most effective way to save for retirement. If
you have an individual retirement account (IRA) rather than an employer-sponsored plan, you know that your annual
contribution amount is extremely limited. Employer-sponsored plans allow much higher contributions. And, if your
primary method of saving for retirement is to personally invest in securities, there is always a temptation to spend
your savings prior to retirement. The temptation to withdraw your money prematurely from an
employer-sponsored plan is severely curtailed. This is because many qualified plans don't permit in service
withdrawals at all, or permit them only for limited reasons (for example, financial hardship). In addition, a 10% early
distribution penalty applies to the taxable portion of any withdrawal you make before age 591/2 (unless an exception
applies).




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In addition to the retirement savings aspect of employer-sponsored retirement plans, these plans can offer
significant tax advantages. Many defined contribution plans allow employees to defer part of their salaries into the
plan. Deferring part of your compensation can lower your present taxes. Postponing receipt of this taxable
income is also useful, because when you eventually realize the income at some future point, it's possible that you'll
be retired and/or in a lower tax bracket. Keep in mind that the earnings on your plan contributions grow tax deferred until
you take distributions.

How can an employee optimize his or her retirement benefits?
One way to optimize your retirement benefits is to ensure that you contribute to the plan as much as the law allows
in a given year. Also, keep in mind that if your salary increases, so should your contribution level. For example, it's
nice for you to contribute a flat $100 to your 401(k) plan each month, but if your salary increases by $1,000 each
year, the amount of your contribution should increase also in order to maximize your retirement savings. Contributing
to an employer-sponsored retirement plan, such as a 401(k) plan, helps you to save for retirement, defer taxes on
your current income, and defer taxes on the earnings. For information on contribution limits, see Retirement Plans.
You can also optimize your retirement benefits by taking full advantage of employer matching contributions.
Some employers, for example, might contribute 50 cents for every dollar you contribute to the plan. In a very real
sense, this gives you an automatic 50 percent return on your investment.

Another consideration is vesting. If your employer matches your contributions (or funds the pension plan entirely), it
may impose a vesting schedule on you. This means that you will not be able to take ownership in the
employer-funded part of a pension plan until certain conditions have been met. Typically, the employer will
require you to work for the company for a set number of years before you will become vested. If vesting occurs after
five years of service and you're thinking of leaving the company after four and one-half years, it would be advisable for
you to try to stick around for another six months.

Should you borrow money from your retirement plan?
Some retirement plans, such as the 401(k) plan, may allow you to borrow money from the plan under certain
conditions. Typically, the interest charged on such a loan will be less than that of an unsecured bank loan. When you
pay the money back, you're really paying the money to yourself. Therefore, borrowing money from your 401(k)
plan may be the cheapest source of funds you can find for a loan.

The drawback of such a loan is the potential opportunity for growth you give up when you borrow. If the money stayed
in the plan, it would continue to grow tax deferred. Also, while the interest you pay on a loan is usually deposited into
your plan account, the benefits of this perk are somewhat illusory. To pay interest on a plan loan, you first need to
earn money and pay income tax on those earnings. With what is left over after taxes, you pay the interest on your
loan. When you later withdraw those dollars from the plan, they are taxed again because plan distributions are treated
as taxable income. In effect, you are paying income tax twice on the funds you use to pay interest on the loan.
For more information, see Loans from Employer-Sponsored Retirement Plans.

What are some of the more popular employer-sponsored retirement plans,
and how do they work?
There are several plans; each has its own advantages and disadvantages. Along with the traditional pension plan (the
defined benefit plan), there are 12 retirement plans that are most often offered by businesses:

          401(k) plan

          Age-weighted profit-sharing plan

          Employee stock ownership plan (ESOP)


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          Keogh plan

          Money purchase pension plan

          New comparability plan

          Profit-sharing plan

          SIMPLE 401(k)

          SIMPLE IRA

          Simplified employee pension plan (SEP)
          Target benefit plan
          T h r i f t s a v i n g s                     p l a n        In addition, there are two nonqualified retirement


plans that are especially popular with tax-exempt organizations:


          Section 403(b) plan
          Section 457 plan


401(k) plan


A 401(k) plan, sometimes called a cash or deferred arrangement, is a defined contribution retirement plan that
allows employees to elect either to receive their compensation paid currently in cash or to defer receipt of the income
until retirement. If deferred, the amount deferred is pretax dollars that go into the plan's trust fund; these dollars will be
invested and then eventually be distributed (with investment earnings) to the employees. The employee is taxed when
money is withdrawn or distributed to him or her from the plan. Often, employers make contributions matching some or
all of employee deferrals in order to encourage employee participation. The business can deduct these employer
contributions, subject to certain limitations. 401(k) plans can als o permit Roth contributions. Roth 401(k)
contributions are made on an after-tax basis, just like Roth IRA contributions. This means there's no up-front tax
benefit, but if certain conditions are met, your Roth 401(k) contributions and all accumulated earnings are tax-free when
distributed from the plan. For more information, see 401(k) Plan.
Age-weighted profit-sharing plan

An age-weighted profit-sharing plan is a defined contribution plan in which contributions are allocated based on the
age of plan participants as well as on their compensation, allowing older participants with fewer years to retirement to
receive much larger allocations (as a percentage of current compensation) to their accounts than younger
participants. For more information, see Age-Weighted Plan.

Employee stock ownership plan (ESOP)

An employee stock ownership plan (ESOP), sometimes called a stock bonus plan, is a defined contribution plan in
which participants' accounts are invested in stock of the employer corporation. The employer funds the plan. When a
plan participant retires or leaves the company, he or she receives the vested interest in the ESOP in the form of cash or
employer securities. For more information, see Employee Stock Ownership Plans (ESOPs)/Stock Bonus Plans.
Keogh plan

A Keogh plan (sometimes called an HR-10 plan) is another name for any qualified retirement plan adopted by
self-employed individuals. Only a sole proprietor or a partner may establish a Keogh plan; an employee cannot. Keogh
plans may be set up either as defined benefit plans or as defined contribution plans. A Keogh plan allows




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you to contribute pretax dollars to the retirement plan (providing a tax deferral to you). For more information, see
Keogh.

Money purchase pension plan

A money purchase pension plan is a defined contribution plan in which the employer makes an annual
contribution to each employee's account in the plan. The amount of the contribution is determined by a set formula,
regardless of whether the employer is showing a profit. Typically, the employer's contribution will be based on a
certain percentage of each participating employee's compensation. For more information, see Money Purchase
Pension Plan.

New comparability plan

A new comparability plan is a variant of the traditional profit-sharing plan. By dividing up plan participants into two or
more classes, the new comparability plan allows businesses to maximize plan contributions to higher-paid workers
and key employees and minimize allocations to other employees. For more information, see New Comparability
Plan.

Profit-sharing plan

A profit-sharing plan is a defined contribution plan that allows for employer discretion in determining the level of annual
contributions to the retirement plan; in fact, the employer can contribute nothing at all in a given year if it so
chooses. As the name suggests, a profit-sharing plan is usually a sharing of profits that may fluctuate from year to
year. Generally, an employer will contribute to a profit-sharing plan in one of two ways: either according to a set
formula or in a purely discretionary manner. For more information, see Profit-Sharing Plan.
SIMPLE 401(k)

A savings incentive match plan for employees 401(k), or SIMPLE 401(k), is a retirement p lan for small
businesses (those with 100 or fewer employees) and for self-employed persons, sole proprietorships, and
partnerships. The plan is structured as a 401(k) cash or deferred arrangement and was devised in an effort to offer
self-employed persons and small businesses a tax-deferred retirement plan without the complexity and expense of
the traditional 40 1(k) plan. The SIMPLE 401(k) is funded with voluntary employee pre-tax or Roth contributions, and
mandatory employer contributions. The annual allowable contribution amount is lower than the annual contribution
amount for regular 401(k) plans. For more information, see SIMPLE 401(k).
SIMPLE IRA

A savings incentive match plan for employees IRA (SIMPLE IRA) is a retirement plan for small businesses (those with
100 or fewer employees) and self-employed persons that is established in the form of employee-owned individual
retirement accounts. The SIMPLE IRA is funded with voluntary employee pre-tax contributions and mandatory
employer contributions. The annual allowable contribution amount is significantly higher than the annual
contribution amount for regular IRAs. For more information, see SIMPLE IRA.
Simplified employee pension plan (SEP)

Self-employed persons, including sole proprietors and partners, ca n sometimes set up simplified employee
pension plans (SEPs) for themselves and their employees. A SEP is a tax-deferred qualified retirement savings plan
that allows contributions to be made to special IRAs, called SEP-I RAs, according to a specific formula. Except for
the ability to accept SEP contributions (i.e., allowing more money to be contributed and deducted) and certain
related rules, SEP-I RAs are virtually identical to regular IRAs. For more information, see Simplified Employee
Pension (SEP).
Target benefit plan
A target benefit plan is a hybrid of a defined benefit plan and a money purchase pension plan. It resembles a defined
benefit plan in that the annual contribution is determined by the amount needed each year to accumulate a fund
sufficient to pay a specific targeted benefit amount. It is like a money purchase plan in that the actual benefit
received by the participant at retirement is based on his or her individual balance. For more information,
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see Target Benefit Plan.

Thrift savings plan

A thrift savings plan is a defined contribution plan that is similar to a profit-sharing plan but has features that provide
for (and encourage) after-tax employee contributions to the plan. This means that the employee must pay tax on his or
her money before contributing to the plan. Typically, a thrift savings plan would provide after-tax employee
contributions with matching employer contributions. For more information, see Thrift Plan/Savings Plan.

Section 403(b) plan

A 403(b) plan, also known as a tax-sheltered annuity or a tax-deferred annuity, is a special type of nonqualified
retirement plan under which certain government and tax-exempt organizations (including religious organizations) can
purchase annuity contracts or can contribute to custodial accounts for eligible employees. The plan mimics qualified
plans in that it's subject to many of the same rules, including the requirement that money not be withdrawn by an
employee until he or she reaches age 591/2. Employees are not taxed on contributions made to the plan on their
behalf until they receive their benefits. Section 403(b) plans generally fall into one of two types of plans: a salary
reduction plan or an employer-funded plan. 403(b) plans can also permit Roth contributions. Roth 403(b)
contributions are made on an after-tax basis, just like Roth IRA contributions. This means there's no up-front tax
benefit, but if certain conditions are met, your Roth 403(b) contributions and all accumulated earnings are tax-free
when distributed from the plan. For more information, see 403(b) Plan.
Section 457 plan

A Section 457 plan is a nonqualified deferred compensation plan for governmental units, governmental agencies, and
nonchurch-controlled tax-exempt organizations; it somewhat resembles a 401(k) plan. Unlike a 401(k) plan, a Section
457 plan for a tax-exempt organization must be structured so that it's not subject to the strict requirements of
ERISA. For more information about this type of plan, see Section 457 Plan.
For information about nonqualified retirement plans, see Nonqualified Deferred Compensation Plans: The
Employee Perspective.




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IRAs (General Discussion)

What is an individual retirement account (IRA)?
An individual retirement account (IRA) is a personal savings plan that offers specific tax incentives to encourage you
to save for retirement. Currently, there are two types of retirement IRAs. Traditional IRAs allow for
tax-deductible contributions under certain conditions. Roth IRAs (created by the Taxpayer Relief Act of 1997) are funded
with after-tax dollars, but may allow for tax-free withdrawals under certain conditions.

It is important to realize that an IRA is not itself an investment, but a tax-advantaged vehicle in which you can hold
some of your investments. You need to decide how to invest your IRA dollars based on your own tolerance for risk
and investment philosophy. How fast your IRA dollars grow is largely a function of the investments that you choose.

Prior to 2002, you were allowed to contribute up to $2,000 a year to an IRA. The Economic Growth and Tax Relief
Reconciliation Act of 2001 (2001 Tax Act) increased the annual IRA contribution limit (combined, for traditional and
Roth IRAs) to $3,000 per person per year for 2003 and 2004, up to $4,000 per year for 2005 through 2007, and up to
$5,000 per year starting in 2008 (indexed for inflation thereafter). In addition, taxpayers age 50 and older may make
additional "catch-up" contributions ($500 a year for 2003 through 2005 and $1,000 a year for 2006 and thereafter).

       Tip:The term "IRA" can refer either to an individual retirement account or an individual retirement
       annuity. An individual retirement annuity is an annuity or endowment contract that you purchase from
       a life insurance company. The contract must not be transferable, and the premiums must be flexible so
       that if your compensation changes, your premium payments can also change. In general, the same
       rules that apply to individual retirement accounts also apply to individual retirement annuities.

Overview of IRA types
Traditional IRAs In

general

Prior to 1997, there was only one type of IRA. Because it was the only type, it didn't have a special name--it was simply
called an IRA. However, as a result of the Taxpayer Relief Act of 1997, this "original" IRA came to be called the
"traditional" IRA to distinguish it from the newly created Roth IRA.

A traditional IRA is a special type of personal savings plan that provides certain tax advantages to encourage you to
save money for retirement. For 2008, you can contribute up to the lesser of $5,000 ($6,000 if age 50 or older) or 100
percent of your taxable compensation to a traditional IRA. (For 2007, you can contribute up to $4,000, $5,000 if age
50 or older.) You may also be able to contribute up to the same amounts to a traditional IRA for your spouse (see
Spousal IRAs). Funds in a traditional IRA grow tax deferred until they are paid out to you.

Deductible versus nondeductible contributions

There are two types of contributions that you can make to a traditional IRA: deductible contributions and
nondeductible contributions. When you make deductible contributions, you reduce your taxable income for the year,
so the dollars that you contribute are pretax. Those dollars will not be taxed until you withdraw them from the IRA.
When you make nondeductible contributions, you contribute after-tax dollars that will not be taxed again later when you
withdraw them from the IRA. The portion of any withdrawal that represents investment earnings is always taxed.
Your ability to make a deductible contributions to a traditional IRA depends on your annual income, your income




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tax filing status, and whether you (or, in some cases, your spouse) are covered by an employer-sponsored
retirement plan. For a detailed discussion, see Traditional IRAs.

Roth IRAs

As mentioned, the Roth IRA is a product of the Taxpayer Relief Act of 1997. Like traditional IRA funds, funds held in
a Roth IRA enjoy tax-deferred growth. But the Roth IRA is often described as the opposite of a traditional IRA because
other key features differ. Roth IRA contributions are never tax deductible (you can contribute only after-tax
dollars), but withdrawals may be completely tax free if you meet the requirements for qualifying withdrawals. For
2008, you can contribute up to the lesser of $5,000 ($6,000 if age 50 or older) or 100 percent of your taxable
compensation to a Roth IRA. (For 2007, you can contribute up to $4,000, $5,000 if age 50 or older.) You may also be
able to contribute up to the same amounts to a Roth IRA for your spouse.
You may or may not qualify to establish a Roth IRA. Even if you do, you may not qualify to contribute up to the annual
maximum. Whether or not you can contribute to a Roth IRA depends on your annual income and your income tax
filing status. For a detailed discussion, see Roth IRAs. Finally, if you qualify, you can convert funds from a
traditional IRA to a Roth IRA (see below).

Spousal IRAs

If you file your federal income tax return as married filing jointly and meet certain other conditions, you can contribute
to an IRA (traditional or Roth) for your spouse even if he or she has little or no taxable compensation of his or her own
for the year of the contribution. This is usually described as making a contribution to a spousal IRA. A spousal IRA
is not, however, a special type of IRA. It is merely a way of describing the fact that you are making a contribution to
your spouse's traditional or Roth IRA. For a detailed discussion, see Spousal IRAs.

SEP IRAs and SIMPLE IRAs

A Simplified Employee Pension Plan (SEP) is a retirement plan an employer can establish for employees
(self-employed individuals can also adopt a SEP plan). Employer SEP contributions, which can be as high as
$46,000 a year for each employee (in 2008), are made to employee traditional IRAs (usually called SEP IRAs). All
of the rules applicable to traditional IRAs apply to SEP IRAs. In addition, employees can make their own traditional
(but not Roth) IRA contributions to their SEP IRAs, subject to regular traditional IRA rules and contribution limits.
For additional information on SEP IRAs see Simplified Employee Pension (SEP).

A Savings Incentive Match Plan for Employees of Small Employers (SIMPLE IRA plan) is also an
employer-sponsored retirement plan. With a SIMPLE IRA, both the employer and the employees make
contributions to SIMPLE IRAs established for the employees. SIMPLE IRAs are different from traditional IRAs--
employees can't make regular IRA contributions to SIMPLE IRAs. After an employee participates in the SIMPLE
plan for 2 years, however, the employee can roll the SIMPLE IRA assets into a traditional IRA. For additional
information on SIMPLE IRAs see SIMPLE IRA Plan.
Deemed IRAs

Employers who maintain certain retirement plans (like 401(k), 403(b), or 457(b) plans) can allow employees to make
regular IRA contributions--traditional or Roth--to special accounts set up under their retirement plan. These accounts,
called "deemed IRAs," function just like regular IRAs. Advantages include the fact that your retirement assets can be
consolidated in one place, contributions can be made automatically through payroll deduction, the employee can
take advantage of any special investment opportunities offered in the employer's plan, and protection from creditors
may be greater than that available in a standalone IRA. The downside is that investment choices in an employer's
plan may be very limited in comparison to the universe of investment options available through a separate IRA. Also,
the distribution options available to employees and their beneficiaries in a deemed IRA may be more limited than in a
standalone IRA. Because of the administrative complexity involved, most employers have so far been reluctant to
offer these arrangements under their retirement plans.

Rollovers and transfers
You can shift funds from one traditional IRA to another traditional IRA or from one Roth IRA to another Roth IRA.




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You can do this by having the trustee or custodian of one IRA transfer the funds directly to the trustee or
custodian of a second IRA without ever distributing the funds to you. You can also arrange for the trustee or custodian
of your IRA to distribute your funds to you. To avoid taxes and penalty, you then roll the funds over into another IRA (of
the same type) by contributing the funds to that IRA within 60 days after receiving the distribution from the first IRA (the
IRS can waive this 60-day rule under limited circumstances, such as proven hardship). Shifting funds from a
traditional IRA to a Roth IRA is considerably more complicated (see below).
       Tip: You can also roll over funds from an employer's qualified retirement plan to a traditional IRA. For
       a detailed discussion, see Rollovers from Employer-Sponsored Retirement Plans.

Converting or rolling over funds from traditional IRAs to Roth IRAs
You may be able to convert or roll over all or a portion of the funds in your traditional IRA to a Roth IRA. To
qualify, you must have modified adjusted gross income (MAGI) of $100,000 or less for the year in which you plan to
convert funds. Also, you must not be married filing a separate tax return. If you do convert funds from a traditional
IRA to a Roth IRA, those funds will be included in your taxable income for the year (to the extent that the funds
consist of deductible contributions and investment earnings). The decision whether to convert funds is complicated and
should not be made without consulting a professional advisor. For a detailed discussion, see Converting or Rolling
Over Traditional IRAs to Roth IRAs.
       Tip:The Tax Increase Prevention and Reconciliation Act of 2005 eliminates the $100,000 ceiling for
       converting a traditional IRA to a Roth IRA for tax years after 2009. In addition, married individuals filing
       separate tax returns will be able to convert funds from a traditional IRA to a Roth IRA beginning in
       2010.

       Tip:Special rules apply to Roth conversions that take place in 2010. For these conversions,
       resulting taxable income will be averaged over the following two years (2011 and 2012).

Premature distribution tax
You decide when and how much to withdraw from your traditional and Roth IRAs, but taxes and penalties
imposed by the federal government will likely influence your decision-making process. A 10 percent premature
distribution tax is generally assessed on the taxable portion of any distribution you take from a traditional or Roth IRA
prior to age 591/2. This tax is over and above regular federal income tax. There are a number of exceptions to the
tax, however. If you are under age 591/2 and are considering taking funds from an IRA, see Premature Distribution
Rule for a detailed discussion.
       Caution: Special rules apply if you convert funds from a traditional IRA to a Roth IRA and later
       withdraw funds from that Roth IRA. See Converting or Rolling Over Traditional IRAs to Roth IRAs.

Required minimum distributions
Like many people, you may want to keep your funds in your IRAs for as long as possible to maximize
tax-deferred growth and/or preserve the funds for your beneficiaries. Unfortunately, the federal government does not
allow you to do this. The required minimum distribution rule states that when you reach age 701/2, you must begin
taking minimum annual withdrawals from your traditional IRAs (this rule does not apply to Roth IRAs). These
annual withdrawals are based on a life expectancy calculation and are intended to dispose of your traditional
IRA balance over a given period of time. You can always withdraw more than the required minimum in any year, but if
you withdraw less, you will be subject to a 50 percent penalty on the shortfall. For a detailed discussion, see Required
Minimum Distribution Rule.

The importance of beneficiary choice
When you open a traditional or Roth IRA, you have to designate a beneficiary. This is the person or entity that will
receive the funds remaining in your IRA after you die. It can be your spouse, a child or grandchild, a friend or other
relative, a trust, a charity, your estate, or some combination of these (you can have more than one




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designated beneficiary). Obviously, your beneficiary should be someone you wish to provide for financially. What
you may not realize is that choosing a beneficiary involves other important considerations. Your choice will
determine how quickly the IRA funds must be distributed after your death, and could even impact the required
minimum distributions that you must take from a traditional IRA during your life (if you choose a spouse who is more
than 10 years younger than you). For a detailed discussion, see Beneficiary Designations for Traditional IRAs and
Employer-Sponsored Retirement Plans and Beneficiary Designations for Roth IRAs.

Investment choices appropriate for IRAs
Remember that an IRA is not itself an investment, but a tax-advantaged vehicle in which you can hold some of your
investments. Choosing specific investments to fund your IRAs is an important decision. Here are some points to
keep in mind:

          You need to decide how to invest your IRA dollars based on your own retirement goals, tolerance for risk,
           investment philosophy, and other personal factors

          How fast your IRA dollars grow is largely a function of the investments that you choose, as well as tax
           deferral

          There are specific types of investments that you cannot use to fund your IRAs (such as collectibles),
           and there are some choices that usually make more sense as IRA investments than others (e.g., mutual
           funds, CDs)

          If you're unhappy with your IRA investment choices, you can typically move your money to other
           investments offered by the same financial institution, or to a different institution

          You should consider any fees associated with opening and maintaining your IRA


       Caution: The IRS has ruled that the wash sales rules apply if you sell stock or other securities
      outside of your IRA for a loss, and purchase substantially identical stock or securities in your IRA
      (traditional or Roth) within 30 days before or after the sale. The result is that you cannot take a
      deduction for your loss on the sale of the stock or securities. In addition, your basis in your IRA is not
      increased by the amount of the disallowed loss.
You should talk to a financial professional about choosing appropriate investments for your IRAs.

Choosing the right type of IRA
How do you decide which type of IRA is right for you? As a general rule, there is no advantage to making
nondeductible contributions to a traditional IRA if you qualify to make either deductible contributions to a traditional
IRA or after-tax contributions to a Roth IRA. The question is: Assuming that you qualify for both, do you contribute to a
traditional IRA with deductible contributions, or to a Roth IRA? There is no easy answer. You have to analyze your
situation and determine which type of IRA offers the best fit for you. Read the discussions on Traditional Deductible
IRAs and Roth IRAs, and use our Decision Tools. You should also consult a financial planner, tax advisor, or other
professional.




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                     May 06, 2008
Annuities

What is an annuity?
Contract between purchaser and insurance company

An annuity is a contract between you (the purchaser or owner) and the issuer (usually an insurance company). In its
simplest form, you pay money to the annuity issuer, the issuer invests the money for you, and then the issuer pays
out the principal and earnings back to you or to a named beneficiary.

Two distinct phases to annuities

There are two distinct phases to the life of an annuity contract. One phase is called the accumulation (or investment)
phase. This phase is the time period when you invest money in the annuity. You can invest in one lump sum (called
a single payment annuity), or you can invest a series of payments in an annuity. The payments may be of equal size
over a number of years (e.g., $5,000 per year for 10 years), or they may consist of a series of variable payments. The
second phase to the life of an annuity contract is the distribution phase. There are two broad options for receiving
distributions from an annuity contract. One option is to withdraw earnings (or earnings and principal) from an annuity
contract. You can withdraw all of the money in the annuity (both the principal and the earnings) in one lump sum, or
you can withdraw the money over a period of time through regular or irregular payments. With these withdrawal options,
you continue to have control over the money that you have invested in an annuity. You can withdraw just earnings
(interest) from the account, or you can withdraw both the principal and the earnings from the account. If you
withdraw both the principal and the earnings from the annuity, there is obviously no guarantee that the funds in the
annuity will last for your entire lifetime. A second broad withdrawal option is the guaranteed income (or annuitization)
option.
Guaranteed income (annuitization) option

A second broad withdrawal option for an annuity is the guaranteed income option (also called the annuitization option).
If you select this option, you will receive a guaranteed income stream from the annuity. The annuity issuer promises
to pay you an amount of money on a periodic basis (monthly, quarterly, yearly, etc.). You can elect to receive either
a fixed amount for each payment period (called a fixed annuity payout) or a variable amount for each period
(called a variable annuity payout). You can receive the income stream for your entire lifetime (no matter how long
you live), or you can receive the income stream for a specific time period (10 years, for example). You can also elect
to receive the annuity payments over your lifetime and the lifetime of another person (called a "joint and survivor
annuity"). The amount you receive for each payment period will depend on how much money you have in the annuity,
how earnings are credited to your account (whether fixed or variable), and the age at which you begin the annuitization
phase. The length of the distribution period will also affect how much you receive. If you are 65 years old and elect to
receive annuity distributions over your entire lifetime, the amount you will receive with each payment will be less than
if you had elected to receive annuity distributions over 5 years.
       Example(s): Over the course of 10 years, you have accumulated $300,000 in an annuity. When you
       reach 65 and begin your retirement, you annuitize the annuity (i.e., elect to begin receiving distributions
       from the annuity). You elect to receive the annuity payments over your entire lifetime--called a
       single life annuity. You also elect to receive a variable annuity payout whereby the annuity issuer will
       invest the amount of money in your annuity in a variety of investment portfolios. The amount you will
       then receive with each annuity payment will vary, depending in part on the performance of the mutual
       funds. In the alternative, you could have elected to receive payments for a specific term of years. You
       could have also elected to receive a fixed annuity payout whereby you would receive an equal amount
       with each payment.
       Caution: Guarantees are subject to the claims-paying ability of the annuity issuer.




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                     See disclaimer on final page


                                   May 06, 2008
Cannot outlive payments to you if you elect to annuitize for your entire lifetime

One of the unique features to an annuity is that you cannot outlive the payments from the annuity issuer to you
(assuming you elect to receive payments over your entire lifetime). If you elect to receive payments over your entire
lifetime, the annuity issuer must make the payments to you no matter how long you live. Even if you begin receiving
payments when you are 65 years old and then live to 100, the annuity issuer must make the payments to you for
your entire lifetime. The downside to this ability to receive payments for your entire life is that if you die after
receiving just one payment, no more payments will be made to your beneficiaries. You have essentially given up
control and ownership of the principal and earnings in the annuity.
Immediate and deferred annuities

There are both immediate and deferred annuities. An immediate annuity is one in which the distribution period begins
immediately (or within one year) after the annuity has been purchased. For example, you sell your business for $1
million (after tax) and then retire. You purchase an immediate annuity for $1 million and begin to receive payments
from the annuity issuer immediately.

A second type of annuity is a deferred annuity. With a deferred annuity, there is a time delay between when you begin
investing in the annuity and when the distribution period begins. For example, you may purchase an annuity with
a single payment and then not begin receiving payments for 10 years. Alternatively, you may invest a series of
payments in an annuity over a period of 5 years before the distribution period begins.

Earnings tax deferred

One of the attractive aspects to an annuity is that the earnings on an annuity (i.e., the interest and/or capital gains
earned on your money by the issuer) are tax deferred until you begin to receive payments back from the annuity issuer.
In this respect, then, an annuity is similar to a qualified retirement plan. Over a long period of time, your investment in an
annuity may grow substantially larger than if you had invested money in a comparable taxable investment. (However,
like a qualified retirement plan, there may be a 10 percent tax penalty if you begin withdrawals from an annuity before
the age of 591/2.)

Four parties to an annuity

There are four parties to an annuity: the annuity issuer, the owner, the annuitant, and the beneficiary. The annuity
issuer is the company (e.g., an insurance company) that issues the annuity. The owner is the individual who buys the
annuity from the annuity issuer and makes the contributions to the annuity. The annuitant is the individual whose life
will be used as the measuring life for determining the distribution benefits that will be paid out. (The owner and the
annuitant are usually the same person, but they do not have to be.) Finally, the beneficiary is the person who receives
a death benefit from the annuity upon the death of the contract owner.

What are some of the common uses of annuities?
Developed by insurance companies to provide retirement income

Life insurance companies first developed annuities to provide income to individuals during their retirement years. This
function is in contrast to the benefits that a life insurance policy provides to your beneficiaries after your death.
Although annuities were first developed to fund an annuitant's retirement years, there is no requirement that an
annuity be used only for retirement purposes. In fact, annuities may be a nd are used to fund other financial
goals, such as paying for a child's education or starting a business.
        Example(s): Liz is a highly successful entrepreneur. Her business has grown far beyond what she has
       ever imagined, but her long hours have taken a toll on both her and her family. Liz plans to sell the
       company in the near future and pursue her lifelong interest in landscape painting full-time. Even though
       she expects a modest income from the sale of her paintings, Liz will use the sale proceeds from her
       company to purchase an annuity that will provide her with regular, guaranteed income for the rest of
       her lifetime.




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        Example(s): In contrast, Sam is vice president for a small manufacturing company. Unfortunately,
        Sam's company does not offer a retirement plan, and he has already contributed the maximum amount
        to his individual retirement account (IRA). Knowing that he can and needs to save more aggressively for
        retirement, Sam purchases an annuity to which he will contribute regularly until he retires. He will then
        receive a guaranteed income stream from the annuity in addition to receiving Social Security and
        income from his IRA.
        Caution: Guarantees are subject to the claims-paying ability of the annuity issuer.

How do annuities differ from other retirement plans?
Annuities differ from other types of retirement plans in several important ways.

Contributions are not tax deductible

Unlike contributions to a qualified retirement plan, money you invest in an annuity is not tax deductible. Any money
that you use to purchase an annuity will be after-tax income. (However, like a qualified retirement plan, interest
and capital gains earned by an annuity will accrue tax deferred until you begin withdrawing the money from the
annuity.)

Contributions are unlimited

All qualified retirement plans have limitations on how much you can contribute each year. With many plans, the
amount that can be contributed is quite low. However, there is no limitation on how much you can invest in an annuity.
If you win a lump sum of $1 million in the lottery, you can invest the full amount (after paying the applicable income
taxes, of course) in an annuity.

May receive income for life from annuity

One of the unique features to an annuity is that you cannot outlive the income payments (assuming you elect to receive
the payments over your entire lifetime). With some types of qualified retirement plans, you will receive payments from
the plan only until all the money in the retirement account is depleted. There is the real possibility that you will outlive
the money available in the account. Some qualified retirement plans do offer their beneficiaries the option to
convert monies in the account into an annuity upon retirement.

Investment options

The money that you use to purchase an annuity may be placed in the annuity issuer's general funds pool. The money
is then invested and managed by the issuer's own money managers. Some types of annuities (called variable
annuities) allow you to place your annuity funds in specific investment pools, typically called subaccounts. The
funds are managed by an investment advisor. You may then be able to move your annuity investments between
stocks, bonds, money markets, or other types of investments.

What are the advantages to annuities?
Earnings accrue tax deferred

As noted, one of the main advantages to an annuity is that the interest and capital gains generated by an annuity
accrue tax deferred. Over a long period of time, this deferral of taxes on earnings is an advantage for an annuity over
a comparable taxable investment.

Guaranteed payments for life
Another advantage to an annuity is that you can receive payments from the annuity for your entire lifetime. As long
as you elect to receive payments over your entire lifetime when the payout period begins, you will receive the
payments for as long as you are alive. Even if you live to the age of 100, the annuity issuer must make the payments
to you.


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No contribution limits

Unlike qualified retirement plans, there is no limit on how much you can invest in an annuity.

Many different types of annuities available

In recent years, there has been a huge increase in the number and variety of annuities available in the
marketplace. There are numerous fixed annuities, variable annuities, and equity-indexed annuities that an
individual can choose.

Can delay payout until later age

With most qualified retirement plans, you must begin taking money out of the plan by a certain age (usually 701/2). With
an annuity, there is no age limit at which you must begin receiving payments from the annuity. If you do not need the
money from the annuity, you can continue to have the earnings accrue tax deferred.

Proceeds avoid probate

If you die before the distribution period begins, then the money you have invested in the annuity (plus any accrued
interest or earnings) does not have to be included in your probate estate if you have named a beneficiary on the
annuity. The money in your annuity will pass directly to that named beneficiary. Because of the potential delays and
costs in having your assets pass through probate, most estate planners recommend that you try to avoid having
assets pass through probate.

What are the tradeoffs to an annuity?
Costly fees and expenses

Annuities normally entail higher fees and expenses when compared to other types of investments, such as
mutual funds and bank deposits.

May have high surrender charges

Many annuities have high "back-end" surrender charges if you withdraw your money from the annuity within the first
few years. In many instances, the surrender charge may be 8 percent of any money you withdraw in the first year, then
7 percent of any money you withdraw in the second year, and continuing down to zero by the ninth year.

Contributions not tax deductible

Another disadvantage to an annuity (in comparison to certain qualified retirement plans) is that investments in an annuity
are not tax deductible. You must use after-tax dollars to purchase an annuity. This is why it is normally best to place
the maximum amount of funds in vehicles that allow for pretax contributions first.

Tax penalties for early withdrawals

Another concern when purchasing annuities is that the tax code imposes a 10 percent penalty tax (in addition to any
other taxes owed on the payments) on withdrawals of any earnings from an annuity before you reach the age of 591/2.
There are certain exceptions to the imposition of this penalty, but in most cases you will have to pay an additional tax
penalty if you withdraw earnings from the annuity before you reach the cut-off age.

Payout plan is irrevocable once selected
Once you elect a specific distribution plan, annuitize the annuity, and begin receiving payments, then that election is
irrevocable. For example, you are not allowed to change an election to receive annuity payments for a five-year
period to an election to receive payments over your whole life.




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Income from fixed annuity may not keep up with inflation

Another tradeoff with certain types of annuities (specifically fixed annuities) is that the income from the annuity may
not keep pace with inflation over the long term. Variable and equity-indexed annuities have been increasing in
popularity since their investment options may offer inflation protection and growth.

Must rely on financial strength of annuity issuer

With certain types of annuities, specifically fixed but also some variable subaccounts, the money you invest in the annuity
becomes part of the general funds of the annuity issuer. The annuity issuer then manages your money, its mone y,
and other people's money as one unit. If the annuity issuer has financial problems, your payments (or the amount of
your payments) may be in trouble. Unlike bank deposits at federally insured financial institutions, there are no federal
guarantees on the money you invest in an annuity and only limited state provisions in the event of insolvency of the
insurer. You are relying solely on the financial strength of the annuity issuer to repay your investment. For this
reason, you should purchase an annuity only from an insurance company (or other annuity issuer) that has high
financial ratings.

Why contribute to qualified retirement plans first?
Maximize contributions to qualified retirement plans first

If you are eligible to contribute to a qualified retirem ent plan either through your employer or if you are
self-employed, it usually makes sense to contribute the maximum amount to one of these plans before you
purchase an annuity. The primary reason for this fact is that contributions to qualified retirement plans are tax
deductible (up to certain limits), whereas contributions to an annuity must be made with after-tax money. Of course,
with both qualified retirement plans and annuities, the money invested accrues tax deferred until you begin
withdrawals.

Why shop around for annuities?
Costs and returns may vary for annuities
Annuities tend to be more costly (in terms of fees, surrender charges, and other costs) than other types of
investments, primarily because the annuity issuer provides additional benefits to you. Annuity issuers must therefore
charge higher fees to cover the cost of these additional benefits. Furthermore, the returns that issuers pay on
annuities can vary dramatically from one company to the next. Because new variations of annuities are constantly
being introduced in the marketplace and because the financial services industry has become increasingly
competitive, it can pay to shop around when buying annuities.




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                     See disclaimer on final page


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Saving for College and Retirement

What is it?
These days it's not uncommon for parents to postpone starting a family until both spouses are settled in their
marriage and careers, often well into their 30s and 40s. Though this financial security can be an advantage, it can also
present a dilemma--the need to save for college and retirement at the same time.

The prevailing wisdom has parents saving for both goals at the same time. The reason is that older parents can't afford
to put off saving for retirement until the college years are over, because to do so means missing out on years of
tax-deferred growth. Moreover, because generous corporate pensions (and lifetime job security) are now the exception
rather than the rule, employees must take greater responsibility for funding their own retirements.

First, determine your monetary needs
The first step is to determine your projected monetary needs, both for retirement and college. This analysis will reveal
whether you are on a savings course to meet both goals, or whether some modifications will be necessary.



For information on figuring your income needs in retirement, see Determining Your Retirement Income Needs:
Pre-Retirement.

For information on estimating college expenses, see Estimating College Costs.

You've come up short: what are your options?
You've run the numbers on both your anticipated retirement and college expenses, and you've come up short.
The numbers say you won't be able to afford to educate your children and retire with the lifestyle you expected
based on your current earnings. Now what? It's time to sit down and make some tough decisions about your
expectations and, ultimately, how to compromise.

The following options can help you in that effort. Some parents may need to combine more than one strategy to meet
their goals.

Defer retirement

Staying in the workforce longer is one way of meeting your retirement and education goals. The longer you wait to
dip into your retirement funds, the longer the money will last. For more information, see Delayed Retirement
Considerations.

Reduce standard of living now or in retirement

You may be able to adjust your spending habits now in order to have more money later. Consider making a written
budget to track your monthly income and expenses (see Budgeting for more information). If your monetary needs have
fallen far short of the mark, you will need to make a bigger spending adjustment than you would with a lesser
shortfall. The following are some suggested changes:
          Move to a less-expensive home or apartment

          Sell your second car and carpool whenever possible
          Reduce your entertainment budget (e.g., bring your lunch to work, eat out once a month instead of every
           week, rent movies instead of going to the cinema)




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          Get books and magazines from the library instead of the bookstore

          Cancel any club memberships (e.g., golf club, health club)

          Set a limit on birthday and holiday gifts for family members

          Forgo expensive vacations

          Shop for clothes in the off-season, when they're likely to be on sale

          Buy used furniture and used big-ticket items

          Limit your child's extracurricular activities, like music lessons or hockey camp


If you're unable or unwilling to lower your standard of living now, perhaps you can lower it in retirement. This may mean
revising your expectations about a luxurious, vacation-filled retirement. The key is to recognize the difference
between the things you want and the things you need. The following are a few suggestions to help reduce your
standard of living in retirement:
          Reduce your housing expectations

          Cut back on travel plans

          Own a less-expensive automobile

          Lower household expenses


Note: There's a difference between reducing your standard of living in retirement and drastically reducing your
standard of living in retirement. Most professionals discourage the use of retirement funds for your child's education
if paying college bills will leave you high and dry in your retirement years.

Work part-time during retirement

About 25 percent of retirees work part-time. You may find that the extra income enables you to enjoy the kind of
retirement you had anticipated.

Increase earnings (i.e., spouse returns to work)

Increasing earnings may be another way to meet both your education and retirement goals. The usual scenario is that a
stay-at-home spouse returns to the workforce. This has the benefit of increasing the family's earnings so there's more
money available to save for education and/or retirement. However, there are drawbacks. The additional income may
push the family into a higher tax bracket (see Second-Income Analysis), and incidental expenses like day care and
commuting costs may eat into your overall take-home pay. For more information on the pros and cons of a spouse
returning to work, see Spouse Returns to or Increases Hours at Work.
In addition to a spouse returning to work, one spouse may decide to increase his or her hours at work, take another
job with better compensation, or moonlight at a second job. Factors to consider here include the expectation of
increased job pressure, less availability for child rearing and household management, the amount of extra income,
the opportunity for advancement, and job security. Another way to create extra income is for a spouse to turn a hobby
into a business.

Be more aggressive in investments
Your analysis has shown that your current savings (and the accompanying investment vehicles) will leave you short
of your education and retirement goals. One option is to try to earn a greater rate of return on your savings. This may
mean choosing more aggressive investments (e.g., growth stocks) over more conservative investments (e.g., bonds,
certificates of deposit, savings accounts). This strategy works best the more years you have until




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retirement.

       Caution: The more aggressive the investment, the greater the risk of loss of your principal. This
       strategy isn't for people who shudder at the slightest downturn in the stock market. If you'll have trouble
       sleeping at night, you probably shouldn't take on greater risk in your investment portfolio.

Reduce education goal

One of the realities parents may have to face is that they can't afford to fund 100 percent (or 75 percent, or 50 percent,
as the case may be) of their child's college education. This is often an emotional issue. Parents naturally want the best
for their children. For many parents, this translates into sending them to (and paying for) college (especially in cases
where one or both parents didn't have such an opportunity).

You may have dreamed that your child would go to a prestigious Ivy League school. Well, with a year's cost at such
a school hovering at the $40,000 mark, maybe you need to lower your expectations. That small liberal arts college or the
big state school may challenge your child just as much and at a far lower cost. Remember, there are loans available
for college, but none for retirement.

Children pay more and/or assume more responsibility for loans

With college costs continuing to increase at a rate faster than most family incomes (s ee Estimating College
Costs), and with perhaps more than one child in the family picture, chances are that more responsibility will fall on your
child to help fund college costs. This money can come from part-time jobs or gifts, though the majority of your
child's contribution is likely to come from student loans. For more information on student loans, see Financial Aid:
Loans.

Though student loans can be a financial burden in the early years, when graduates are just starting out in their careers,
many loan providers offer flexible repayment options in anticipation of this common situation (see Repaying Student
Loans). In addition, if your child meets certain income limits, he or she can deduct the interest paid on qualified student
loans (see Student Loan Interest Deduction for more information).
When children take out student loans, parents can always decide to help financially rather than mortgaging their
house before college. Students who take out student loans to pay for college may have a more vested interest in
their education than students who receive help from their parents.

Other ways to lower cost of college

In addition to reducing your education goal and having your child pay a portion of college costs, there are other ways to
lower the cost of college. For example, your child can choose a college with an accelerated program that allows
students to graduate in three years instead of four. Likewise, your child may choose to attend a community college for two
years and then transfer to a four-year private institution. The diploma will reflect the four-year college, but your
pocketbook won't. For more ideas on ways to lower the cost of college, see Implementing Other Creative Solutions to
Cover Higher Education Costs.

How do you decide what strategy is best for you?
This decision must be made on a case-by-case basis. What works for one family may not work for another family. In
some cases, more than one strategy will be necessary to deal with the demands of educating children and retiring
successfully. Factors influencing your decision may include the following:

          The amount of your financial need

          Your current income and assets and any expectation of significant future income (e.g., a bonus at work,
           exercise of stock options, an inheritance)
          The number of years you have until retirement

          Your willingness to reduce your standard of living (now or in the future) for the sake of your children




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          The number of children in your family who plan on attending college

          The academic, athletic, or other notable skills of your child that may raise the possibility of a college
           scholarship



Can retirement accounts be used to save for college?
Yes. But should you? Probably not. Many financial advisors recommend against dipping into your retirement
account to pay college expenses as a preferred strategy. But if you must, there are some tax breaks available.

It's now possible to withdraw money from either a traditional IRA or Roth IRA before age 591/2 to pay college
expenses without incurring the 10 percent early withdrawal penalty that normally applies to such withdrawals.
However, any distributions of earnings and deductible contributions from a traditional IRA and any nonqualified
distributions of earnings from a Roth IRA may be included in your income for the year, which may push you into a higher
tax bracket. For more information, see Traditional IRAs and Roth IRAs.

       Tip: This college exception to the 10 percent early withdrawal penalty is a good reason to funnel
      your child's income from a part-time job into an IRA.

Unfortunately, there's no similar college exception for employer-sponsored retirement plans, such as a 401(k)
plan. So, if you're under age 591/2, you'll pay a 10 percent early withdrawal penalty on any withdrawals. As with an IRA,
any withdrawals are added into your income for the year, which may push you into a higher tax bracket. Nevertheless,
saving in a 401(k) plan can be an attractive option for some parents because the company may match employee
contributions and because most employer plans allow you to borrow against your contributions (and possibly
earnings) before age 591/2 without penalty. For more information, see Employer-Sponsored Retirement Plans for
Education Savings.
       Tip:Some parents who have built a college fund within their 401(k) accounts, but who are not yet 591/2
      when the kids are in college, take out what's called a bridge loan (such as a home equity loan) to pay
      their child's college bills. A bridge loan is a source of funds that tides you over until it's more economical to
      tap your retirement account. Although you pay interest on a bridge loan, it may still cost less than what
      your 401(k) funds can earn. Then, when you turn 591/2, you can start tapping your 401(k) plan to pay
      off the bridge loan with no early withdrawal penalty.
A benefit of using retirement accounts to save for college is that the federal government doesn't consider the value
of your retirement accounts in awarding financial aid (the federal formula also excludes annuities, cash value life
insurance, and home equity from consideration). However, most private colleges do consider the value of your
retirement accounts in deciding which students are the most deserving of campus -based aid. See Applying for
Financial Aid for more information.




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                     See disclaimer on final page


                                   May 06, 2008
Distributions from Traditional IRAs: Prior to Age 591/2

In general
A withdrawal from an IRA is generally referred to as a distribution. If you receive a distribution from your traditional
IRA before you reach the age of 591/2, the federal government considers this a premature distribution. Like all
distributions from traditional IRAs, premature distributions are generally taxable. You will pay federal (and possibly
state) income tax on the portion of the distribution that represents tax -deductible contributions, any pre-tax funds
that were rolled over into the IRA from an employer-sponsored retirement plan, and investment earnings. In addition to
regular income tax, distributions taken prior to age 591/2 may be subject to a 10 percent federal penalty tax (and
possibly a state penalty) on the taxable portion of the distribution. You can avoid this federal penalty (known as the
premature distribution tax) only if you are age 591/2 or older at the time of the distribution, or if you meet one of the
exceptions allowed by the IRS (see below).
You're probably wondering why your age at the time of distribution should matter and possibly result in a penalty on
the distribution. The purpose of IRAs and retirement plans is to provide income to help fund your retirement years, and
the federal government wants to make sure you use the money for that purpose. To accomplish this goal, the
government imposes a penalty tax on taxable distributions taken before age 591/2. The penalty tax encourages you
(and other IRA owners and plan participants) to leave your money in the IRA or plan until that age or later. This, in
turn, reduces the risk that you will deplete your funds prematurely and run out of money at some point in retirement.
The assumption is that by the time you reach age 591/2, you are either already retired or near retirement and can
safely begin using your retirement money.
       Tip:Roth IRAs are subject to special rules with regard to the premature distribution tax. For more
       information, see Roth IRAs.

       Caution: Special rules apply to qualified individuals impacted by Hurricanes Katrina, Rita, and Wilma
       (see Special Hurricane Katrina, Rita, and Wilma Distribution Provisions) and to qualified reservist
       distributions.

Example showing the effect of taxes and penalties
Income taxes on IRA and retirement plan distributions can really add up. When a distribution is also subject to the 10
percent federal penalty, the portion of the distribution that goes into your pocket obviously dwindles even further.
To illustrate the possible effect of taking a distribution before age 591/2, consider the following scenario.

       Example(s): Joe retired on his 59th birthday. On that day, he withdrew the entire balance in his
       traditional IRA valued at $100,000. The entire distribution was taxable. Because Joe also had
       considerable income from working that year, the IRA distribution was taxed in the maximum 35 percent
       federal income tax bracket. That came to $35,000 in federal income tax (assuming no other variables).
       Joe was in the 9.3 percent state income tax bracket, so that meant another $9,300 in state income tax.
       Since Joe was under age 591/2 and no exception to the premature distribution tax applied to him, he had to
       pay $10,000 in federal penalties (the 10 percent federal penalty tax), plus another $2,500 in state
       penalties (due to a 2.5 percent state penalty). He ended up paying $56,800 in taxes and penalties,
       leaving only $43,200 for his own use.
       Example(s): If Joe had waited until he was 591/2 or older to take his distribution, he would have
       avoided the federal and state penalties and saved $12,500. Also, if he had waited two months until the
       next year (when he had no taxable income from working), the distribution might have been taxed in a
       lower income tax bracket. It would definitely have paid for Joe to get tax advice before taking that
       distribution from his traditional IRA.
       Example(s): Of course, if Joe had ever made any nondeductible contributions to his traditional




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       IRA, the portion of his distribution that represented nondeductible contributions would not have been
      taxable because those contributions had already been subject to tax. That portion of his distribution
      would not have been subject to the 10 percent federal penalty either, since the penalty applies only to
      the taxable portion of a premature distribution.

If you are close to age 591/2 and wish to take a distribution from your traditional IRA, check the calendar carefully to
avoid a potentially costly mistake.

Exceptions to the premature distribution tax
Remember, only the taxable portion of a premature distribution is subject to the 10 percent federal penalty. This means
that if you ever made any nondeductible (after-tax) contributions to your traditional IRA, a portion of your distribution
may not be subject to tax or penalty. In addition, the IRS grants certain exceptions to the 10 percent federal penalty
on distributions taken before age 591/2. Premature distributions taken from a traditional IRA under the following
circumstances will not be subject to the penalty:
          Your beneficiary (or estate) is receiving the funds after your death, regardless of your beneficiary's age or
           your age at the time of your death

          You are receiving the funds due to your qualifying disability (IRS definition of disability must be met)

          You are taking the distributions under one of the three annuity formulas approved by the IRS (often
           referred to as substantially equal periodic payments)

          You are paying unreimbursed medical expenses in excess of 7.5 percent of your adjusted gross
           income (AGI) for the year

          You are paying health insurance premiums for you, your spouse, or your dependents during a year in
           which you collected unemployment benefits for more than 12 consecutive weeks

          You make a qualifying, nontaxable rollover (or direct transfer)

          You are using the funds for the qualified higher education expenses of yourself, your spouse, your
           children, your spouse's children, your grandchildren, or your spouse's grandchildren

          You are using the funds to pay the first-time homebuyer expenses of yourself, your spouse, your
           children, your grandchildren, or an ancestor of your spouse or you ($10,000 lifetime limit)
          The IRS is levying on your IRA to cover your unpaid federal income tax liability

          Your distribution is a qualified reservist distribution


Some of the above exceptions may need further explanation. If so, see Premature Distribution Rule. You should also
consult a tax advisor regarding your situation to make sure which exceptions (if any) you qualify for. Finally, if you
participate in an employer-sponsored retirement plan, be aware that different exceptions to the premature distribution
tax may apply.

How do you pay the premature distribution tax?
The 10 percent federal penalty on premature distributions is reported and paid on your federal income tax return for
the year in which you received the distribution. You must complete and attach Form 5329, titled Additional Taxes on
Qualified Plans (including IRAs) and Other Tax-Favored Accounts. If you receive a premature distribution but
qualify for one of the exceptions described above, see Form 5329 for instructions.




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See disclaimer on final page
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Should you take distributions from your traditional IRA before age 591/2?
You are allowed to take distributions from your traditional IRA whenever you like and in any amount you choose.
That does not mean, however, that you should take distributions. As a general rule, it is not advisable to take
distributions from a traditional IRA before age 591/2 (or for that matter, at any age prior to your retirement). First, as
illustrated above, the portion of the distribution that goes to the federal government for taxes can b e
substantial--not to mention state taxes and penalties. This is especially true if the entire distribution will be taxable,
and if none of the exceptions to the premature distribution tax apply to you.
In addition, even if all or some of the distribution will not be taxed or penalized, taking IRA distributions before age
591/2 is still generally not wise. By dipping into your IRA funds at a relatively young age, you run the risk of depleting
those funds sooner than you had anticipated. This could jeopardize your retirement goals and financial security later
in life. Funds removed from an IRA may also be missing out on several years or more of potential tax-deferred
growth, depending on investment performance.

However, the decision of whether to tap into your IRA nest egg ultimately depends on your individual
circumstances. Perhaps you have urgent expenses, and withdrawing from your IRA is the only way you can pay them.
It is also possible that you have accumulated large balances in your IRAs and other retirement accounts, so that
withdrawing from your IRAs now will not pose a risk to your future financial security. In these cases, taking distributions
before age 591/2 is not necessarily ill-advised. Whatever your situation, though, you should consult a tax
professional before taking a distribution.

IRA rollovers
In general, a rollover is the movement of funds from one retirement savings vehicle to another--in this case, from one
traditional IRA to another. Rollovers are treated separately from contributions; you are still allowed to make your
regular IRA contribution in a year when you have a rollover transaction. There are no age restrictions regarding
rollovers, but there are other specific rules that must be followed. For example, a rollover generally must be
completed within 60 days of the date the funds are released from the distributing account. If properly completed,
rollovers are not subject to income tax or the premature distribution tax. There are two possible ways that IRA funds
can be rolled over.
       Tip: You can roll over funds from a traditional IRA to another traditional IRA or you can rollover funds
       from a Roth IRA to another Roth IRA. Special rules apply to converting or rolling over funds from a
       traditional IRA to a Roth IRA. See "Converting or rolling over traditional IRAs to Roth IRAs," below.
       You may also be able to roll over taxable funds from an IRA to an employer-sponsored retirement plan.

You receive the funds and reinvest them

With this method, you actually receive a distribution from your traditional IRA. To complete the rollover
transaction, you make a deposit into the IRA that you want to receive the funds. You are allowed to do this only once
in a 12-month period. If you receive a second distribution from the same IRA within a 12-month period, you cannot roll
it over (you also cani make a rollover from the IRA you roll the funds into for 12 months). Also, you must deposit the
full amount distributed to you within the allowable 60-day period. If you fail to complete the rollover or miss the 60-day
deadline, all or part of your distribution will be subject to income tax and possibly the premature distribution tax.

       Example(s): On January 2, you withdraw your IRA funds from a maturing bank CD. The bank cuts a
       check payable to you for the full balance of the account (assuming you opt for no income tax
       withholding). You plan to move the funds into an IRA account at a competing bank. Fifteen days later,
       you go to the new bank and deposit the full amount of your IRA distribution into your new rollover IRA.
       Your rollover is complete.
       Example(s): Now assume the same scenario as above, except that when you receive your check from
       the first bank, you cash the check and lend the money to your brother, who promises to repay




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       you in 30 days. As it turns out, he doesn't repay the loan until March 5 (the 62nd day after your
       distribution). You deposit the full sum into the IRA account at the new bank. However, because you
       didn't complete your rollover within 60 days, the January 2 distribution will be taxable (excluding any
       nondeductible contributions, as described above) and possibly subject to the premature distribution tax.

When you take a distribution from your traditional IRA, your IRA trustee or custodian will generally withhold 10 percent
for federal income tax (and possibly additional amounts for state tax and penalties) unless you instruct them not to.
If tax is withheld and you then wish to roll over the distribution, you have to make up the amount withheld out of your
own pocket. Otherwise, the rollover is not considered complete, and the shortfall is treated as a taxable distribution.
The best way to avoid this outcome is to instruct your IRA trustee or custodian not to withhold any tax. Unlike
distributions from qualified plans, IRA distributions are not subject to a mandatory withholding requirement.
       Example(s): You take a $1,000 distribution (all of which would be taxable) from your traditional IRA that
       you want to roll over into a new IRA. You fail to tell your IRA trustee not to withhold any tax, so $100
       is withheld for federal income tax and you actually receive only $900. If you roll over only the $900, you
       are treated as having received a $100 taxable distribution. To roll over the entire $1,000, you will have
       to deposit in the new IRA the $900 that you actually received, plus an additional $100. (The $100
       withheld will be claimed as part of your credit for federal income tax withheld on your federal income tax
       return.)
       Tip:The 2001 Tax Relief Act allows the IRS to extend the 60-day period, in limited circumstances,
       when the failure to timely complete the rollover is not the taxpayer's fault.

Trustee-to-trustee transfer

The second type of rollover transaction occurs directly between the trustee or custodian of your old traditional
IRA, and the trustee or custodian of your new traditional IRA. You never actually receive the funds or have control of
them, so a trustee-to-trustee transfer is not treated as a distribution (and therefore, the issue of tax withholding does
not apply). Trustee-to-trustee transfers avoid the danger of missing the 60-day deadline, and are not subject to the
"once per 12 month" limitation.

       Example(s): You have a traditional IRA invested in a bank CD with a maturity date of January 2. In
       December, you provide your bank with instructions to close your CD on the maturity date and transfer
       the funds to another bank that is paying a higher CD rate. On January 2, your bank issues a check
       payable to the new bank (as trustee for your IRA) and sends it to the new bank. The new bank deposits
       the IRA check into your new CD account, and your trustee-to-trustee transfer is complete.

This is generally the safest, most efficient way to move IRA funds. Taking a distribution yourself and rolling it over only
makes sense if you need to use the funds temporarily, and are certain you can roll over the full amount within 60
days.

Converting or rolling over traditional IRAs to Roth IRAs
Have you done a comparison and decided that a Roth IRA is a better savings tool for you than a traditional IRA? If
so, you may be able to convert or roll over an existing traditional IRA to a Roth IRA. However, be aware that you will
have to pay income tax on all or part of the traditional IRA funds that you move to a Roth IRA. It is important to weigh
these tax consequences against the perceived advantages of the Roth IRA. This is a complicated decision, so be
sure to seek professional assistance. For more information, see Roth IRA and Converting or Rolling Over Traditional
IRAs to Roth IRAs.
       Tip: When you convert or roll over a traditional IRA to a Roth IRA prior to age 591/2, the taxable
       portion of the funds is not subject to the premature distribution tax. However, special rules may apply
       if you withdraw from the Roth IRA within five years of the conversion or rollover. For more information,
       see Converting or Rolling Over Traditional IRAs to Roth IRAs and consult a tax advisor.




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                     See disclaimer on final page


                                   May 06, 2008
Beneficiary Designations for Traditional IRAs and
Retirement Plans

What is it?
If you have a traditional IRA or participate in an employer-sponsored retirement plan such as a 401(k) plan, you are
generally required to complete a beneficiary designation form with the IRA custodian or plan administrator. As you may
know, the beneficiary or beneficiaries you name (you can generally name more than one) will receive the remaining
funds in your IRA or plan account after you die. What you may not realize is that your choice of beneficiary may have
implications in other important areas, including:
          The size of the annual required minimum distributions (RMDs) that you must take from the IRA or plan
           during your lifetime

          The rate at which the funds must be distributed from the IRA or plan after your death

          The combined federal estate tax liability of you and your spouse (assuming you are married and
           expect estate tax to be an issue for one or both of you)


Because of these and other issues, choosing beneficiaries for your IRA or plan is often a significant financial decision.
This is particularly true if your financial situation is complicated, and if your retirement accounts make up a substantial
portion of your total assets. It is in your best interest to select proper beneficiaries with the help of a tax advisor and/or
other qualified professionals. Your financial and personal circumstances will likely evolve over time, and you are often
free to add or remove beneficiaries whenever you want (though certain restrictions may apply, as discussed below).
You should periodically review your beneficiary choices to make sure they are still the right choices.
        Tip:Employer-sponsored retirement plans include qualified stock bonus, pension, or profit-sharing
        plans. A 401(k) plan is a type of employer-sponsored retirement plan. If you are unsure if you
        participate in an employer-sponsored retirement plan, ask your employer. This discussion also applies
        to you if you are a schoolteacher or an employee of a tax-exempt organization or state or municipal
        government and participate in an eligible Section 457 plan or a Section 403(b) plan.
        Caution: This discussion does not apply to Roth IRAs. Roth IRAs have their own special beneficiary
        designation considerations. For information on choosing beneficiaries for a Roth IRA, see
        Beneficiary Designations for Roth IRAs.

The law may limit your choices
You are often free to name any beneficiaries you choose for your IRA or plan, but there are exceptions. If you are
married and want to name a primary beneficiary other than your spouse, there may be restrictions on your ability to
do so. No matter which state you live in, federal law may require that your surviving spouse be the primary beneficiary
of your interest in some employer-sponsored retirement plans (such as 401(k) plans), unless your spouse signs a
timely, effective written waiver allowing you to name a different primary beneficiary. You should consult your plan
administrator for further details.
Note that IRAs are not subject to this federal law, although your state may impose its own requirements. For example,
if you live in one of the community property states, your spouse may have legal rights in your IRA regardless of
whether he or she is named as the primary beneficiary. In addition, if your roles are reversed (your spouse is the IRA
owner or plan participant, and you the primary beneficiary) and you die first, state law may prevent your surviving
spouse from changing the beneficiary designation after your death (unless you grant your spouse the power to make
these changes in a will or other document). You should consult an estate planning attorney for details regarding these
and other state issues.




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Your choice of beneficiary usually will not affect required minimum
distributions during your lifetime
Under federal law, you must begin taking annual RMDs from your traditional IRA or retirement plan by April 1 of the
calendar year following the calendar year in which you reach age 701/2 (your "required beginning date"). With
employer-sponsored retirement plans, you can delay your first distribution from your current employer's plan until
April 1 of the calendar year following the calendar year in which you retire if (1) you retire after age 701/2, (2) you are
still participating in the employer's plan, and (3) you own 5 percent or less of the employer.

Under the 2002 final IRS regulations on RMDs, your choice of beneficiary will not have an impact on the calculation
of RMDs during your lifetime in most cases. An exception exists if your spouse is your sole designated beneficiary for the
entire distribution year, and he or she is more than 10 years younger than you. Also, your choice of beneficiary can
impact the tax deferral and other consequences for your beneficiaries.

       Caution: The calculation of RMDs is complex, as are the related tax and estate planning issues. For
       more information, see the discussion on Required Minimum Distributions and consult a tax
       professional.

Your choice of beneficiary will affect required distributions after your death
After your death, your IRA or plan beneficiary (or beneficiaries) will generally have to receive the inherited retirement
funds at some point. Distributions from an inherited IRA or retirement plan are referred to as required post-death
distributions. With some exceptions, these distributions must begin by the end of the year following the year of
your death.

For federal income tax purposes, post-death distributions are treated the same as distributions you take during your
lifetime. (State income tax may also apply.) The portion of a distribution that represents pretax or tax deductible
contributions and investment earnings will be subject to tax, while the portion that represents after-tax contributions will
not be. Your beneficiary's income tax bracket will determine how heavily the funds are taxed after your death. This
may be something to consider when choosing your beneficiaries.

In addition, different types of beneficiaries will have different post-death options and be subject to different payout
periods. The payout period is important because the longer the funds can remain in the IRA or plan, the more time
they have to benefit from tax-deferred growth. Also, a longer payout period spreads out the income tax liability on
the funds over more years. In most cases, an individual designated as a beneficiary can take post-death
distributions over his or her remaining life expectancy. The younger the individual, the longer the payout period. A
surviving spouse can generally use this method, but often has other options as well (such as the ability to roll over the
inherited funds to the spouse's own IRA or plan). Special post-death rules apply if you name a trust, a charity, or your
estate as beneficiary.
       Caution: Nonspouse beneficiaries cannot roll over inherited funds to their own IRA or plan. However,
       the Pension Protection Act of 2006 lets a nonspouse beneficiary make a direct rollover of certain death
       benefits from an employer-sponsored retirement plan to an inherited IRA, effective for distributions
       received after 2006. Employer plans aren't required to offer this rollover option to nonspouse
       beneficiaries. For additional information, see Inheriting an IRA or Employer Sponsored Retirement Plan.
Be aware that your beneficiaries will be subject to a federal penalty tax if required post-death distributions are not
taken, or not taken in a timely manner. The penalty tax is equal to 50 percent of the undistributed required amount
for a given year. This is the same penalty tax that applies when lifetime RMDs (see above) are not taken by the
applicable deadline.
Finally, the important point is that who or what you name as your beneficiary is crucial because it will ultimately
determine how the funds are paid out after you die, and what portion is lost to taxes. Estate taxes may also be a
factor to consider if you expect the value of your estate and/or your spouse's estate to exceed the federal applicable
exclusion amount ($2 million for 2007 and 2008).




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For more information on required post-death distributions, see the discussion on Inheriting an IRA or
Employer-Sponsored Retirement Plan.

        Caution: In the case of a retirement plan account, the plan may be able to specify the post-death
        distribution options available to your beneficiaries. Those options may or may not be identical to the
        allowable options set forth in the IRS distribution rules. You should consult your plan administrator for
        details, as this could have an impact on your choice of beneficiaries.

Other considerations when choosing beneficiaries
Income and estate taxes are very important considerations when choosing IRA and plan beneficiaries, but they
are not the only factors that should enter into your decision. Never forget that, ultimately, you are deciding who will
receive your IRA or retirement plan benefits after you die. Think carefully about who you want to provide for, and
about how this decision fits into your overall estate plan. Consider the value of your IRA or retirement plan in relation to
the value of all of your other assets. Designating the beneficiary of a $20,000 IRA that makes up 5 percent of your
total assets is very different from designating the beneficiary of an $800,000 retirement plan that makes up 80 percent
of your total assets. In the first situation, your decision impacts only a small portion of your total estate. In the second
situation, your retirement plan is the bulk of your estate.

Designated beneficiaries vs. named beneficiaries
Designated beneficiaries get preferential income tax treatment after your death. Being a "designated" beneficiary is
not necessarily the same as being named as a beneficiary on a beneficiary designation form. IRAs and retirement
plan accounts may have beneficiaries, but no designated beneficiaries. Designated beneficiaries are individuals
(human beings) who are named as beneficiaries, do not share the IRA or plan account with nonindividuals, and are
named in a timely manner. Charities and/or your estate can be named as beneficiaries, but they are not
designated beneficiaries. A trust named as a beneficiary is not a designated beneficiary either, although the
underlying beneficiaries of the trust can be designated beneficiaries under certain conditions.
The distinction between a designated beneficiary and a named beneficiary is important because designated
beneficiaries generally have more flexible post-death distribution options, often resulting in more favorable
income tax treatment. For example, only a designated beneficiary can use the life expectancy payout method for
post-death distributions. See Withdraw from an Inherited IRA or Retirement Plan Using the Life Expectancy
Method.

Primary and secondary beneficiaries
When it comes to beneficiary designation forms, your goal should be to avoid gaps. If you do not have a named
beneficiary who survives you, your estate may end up as the "default" beneficiary of your IRA or plan. That typically
produces the worst possible result in terms of estate and income taxes and other issues. For more information, see
the discussion on Estate as Beneficiary of Traditional IRA or Retirement Plan.
Your primary beneficiary is your first choice to receive your retirement assets after you die. You can name more than
one person or entity as your primary beneficiary (see below--Having multiple beneficiaries). If your primary beneficiary
does not survive you or decides to decline the inherited funds (the tax term for this is a "disclaimer"), then your
secondary beneficiaries (also called "contingent" beneficiaries) receive the assets. Typically, the
beneficiary designation form that you complete will have separate sections for the different levels of beneficiaries.

Having multiple beneficiaries
You may generally name more than one primary beneficiary to share in the IRA or retirement plan proceeds. You just
need to specify (on the beneficiary designation form) the portion of the funds that you want each beneficiary to
receive. This can be expressed as fractional amounts (i.e., percentages) or as fixed dollar amounts. Fractional or
percentage amounts usually make more sense, since the dollar value of the account usually fluctuates with the
underlying investments and the separate account rules (disc ussed below) generally woni apply to pecuniary
(specific dollar amount) bequests. The account does not have to be divided equally among multiple beneficiaries.




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For example, you can leave 60 percent to one of your primary beneficiaries, and 20 percent each to your other two
primary beneficiaries.

In addition, you can designate multiple beneficiaries by name or by a grouping. For example, you might want to name
your spouse as your primary beneficiary and your children as the secondary beneficiaries. You can do this by
providing the full name of each person, or by listing them simply as "my spouse who survives me" and "my children
who survive me."

In some cases, you may want to designate a different beneficiary for each of your retirement accounts (assuming you
have more than one), or divide an account into separate subaccounts (with a separate beneficiary for each
subaccount). This could potentially allow each beneficiary to use his or her own life expectancy to calculate
required post-death distributions, providing greater income tax deferral for your beneficiaries in many cases. If you
do this, however, you should try to plan withdrawals from the different accounts accordingly. Taking most of your
distributions from one IRA or plan account could leave the beneficiary of that account with less money than you had
intended.
If you have more than one beneficiary you want to provide for, the advantage of having one retirement account (or
as few as possible) with multiple primary beneficiaries is reduced paperwork and record keeping. Account
consolidation may also save you money in annual fees and other expenses. The drawback is that this may limit
post-death options. For example, say your children are all named as primary beneficiaries of your one IRA, and they
want to use the life expectancy method for post-death distributions. The calculation would generally have to be
based on the age of the oldest child, subjecting the other children to a shorter payout period than they could otherwise
have.
This outcome can be avoided, however, if separate accounts are established for the children at some point. An IRA
or plan account with multiple designated beneficiaries can generally be split into separate accounts at any time up
until December 31 of the year following the year of your death (but note that designated beneficiaries are determined by
September 30). Each account and its beneficiary might then be treated separately for purposes of determining required
post-death distributions.

       Caution: The rules regarding "separate accounts" are complicated. Consult a tax professional.

When do you have to choose your beneficiaries?
In the past, you typically had to choose a beneficiary for your IRA or retirement plan by your required beginning date
for lifetime RMDs. Your choice was then "locked in" (at least for certain purposes) on the earlier of that date or the
date of your death. The final IRS regulations issued in 2002 extend the deadline for finalizing your beneficiary
choices for purposes of post-death distributions until September 30 of the year following your death. This gives you
greater flexibility because you are now free to change beneficiaries any time during your life. Changes made after
your required beginning date usually will not affect the distributions you are taking (since your choice of
beneficiary, unless it is a more than 10 years younger spouse, now has no beari ng on the calculation of your
RMDs during your lifetime).
The final regulation distribution rules also create significant opportunities for post-death planning. Since your IRA or
plan beneficiaries are not finalized until September 30 of the year following your death, a beneficiary could either
disclaim (refuse to accept) or cash out (withdraw) his or her share of the inherited funds by this deadline. That
beneficiary would then be removed from the list of designated beneficiaries. Only those beneficiaries remaining as
of the September 30 deadline would be considered when determining required post-death distributions from the
account.
       Caution: Although the date for finalizing beneficiaries for distribution purposes is September 30 of the
       year following your death, an IRA or plan account can be split into separate accounts up until December
       31 of that same year. Again, consult a tax professional regarding the rules for separate accounts.




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                     See disclaimer on final page


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Paying death taxes on IRA and plan benefits
Consult your estate planner as to the source to pay any death taxes due on your IRA and retirement plan benefits.
Depending on the death tax payment clause in your will and/or trust and state law, it could be that other assets are used
to pay death taxes, or it might be that the benefits will be diminished by the payment of death taxes. An important part
of completing your beneficiary designations is making sure that the source of payment of death taxes does not conflict
with your overall estate plan.

Your options when choosing your beneficiaries
The terms of your IRA or retirement plan may govern your beneficiary designations. As discussed, many qualified
retirement plans require you to designate your spouse as beneficiary or, alternatively, that you have your spouse sign
a consent and waiver. Some states (particularly community property states) may require similar spousal consent for
IRAs.

Assuming you have a choice, you should carefully consider your options and seek qualified professional advice. For
more information, see the following discussions:

          Spouse as Beneficiary of Traditional IRA or Retirement Plan

          Child, Grandchild, or Other Individual as Beneficiary of Traditional IRA or Retirement Plan

          Trust as Beneficiary of Traditional IRA or Retirement Plan

          Charity as Beneficiary of Traditional IRA or Retirement Plan

          Estate as Beneficiary of Traditional IRA or Retirement Plan


Each discussion explores the potential advantages and disadvantages of that particular beneficiary choice.
Income taxes, estate taxes, and other important issues are discussed in this context.




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See disclaimer on final page


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Considering an Offer to Retire Early: Should You Take It?

What is it?
In today's corporate environment, where cost cutting, restructuring, and downsizing are the norm, many
employers are offering their employees early retirement packages. As you near retirement age, you may find yourself
confronted with an offer from your employer for early retirement. Your employer may refer to the offer as a golden
handshake or a golden parachute. While many early retirement offers seem attractive at first, it is important for you to
review an offer carefully before accepting it to ensure that it is indeed a "golden" opportunity. For more information,
see Early Retirement Considerations.

Typical elements of an early retirement offer
In general

An early retirement offer usually consists of severance payments and post-retirement medical coverage coupled
with already existing retirement benefits.

Severance payments

Severance payments are usually based on your salary and the number of years you have worked for the
company. Severance payments can be distributed in either a lump sum or over a number of years.

       Example(s): John has 30 years of service with the local utility company and grosses $675 per week,
      before taxes. When John reaches age 57, his employer offers him an early retirement package. The
      package includes a severance payment based on two weeks' salary for each year that John worked
      for the company ($1,350 x 30 = $40,500).

Post-retirement medical coverage

Because of the high cost of medical care, you might find it hard to turn down an early retirement package that includes
post-retirement medical coverage. These packages usually guarantee medical coverage until you reach age 65 and
you become eligible to receive Medicare. However, some packages continue to provide ful l or reduced medical
coverage well past the age of 65.

Bridging

Another type of early retirement offer is bridging, sometimes referred to as the golden bridge. Your employer
provides you with temporary benefits to bridge the period between early retirement and the time when your Social
Security benefits are scheduled to begin. The temporary benefits are usually equivalent to the amount you will receive
from Social Security at age 62.

       Example(s): John, age 57, works for a local utility company. The company offers John a golden bridge
      retirement package that provides him with five years of temporary benefits. The benefits are equivalent
      to the amount that John will receive from Social Security at age 62. The benefits serve as a bridge
      between the period of John's early retirement, age 57, and the period when he becomes eligible for
      early Social Security benefits at age 62.

Evaluating an early retirement offer
In general

The decision of whether to accept an early retirement offer is not an easy one to make. Your company's personnel
department should provide either individual or group counseling to guide you during this important




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decision-making process. If individual or group counseling is not available, feel free to speak to the person in charge
of employee benefits at your company. You should find out what amount you can expect to receive each year after
you retire. You should then figure out the difference between what you would collect if you retire early and the amount
you would earn if you continue working. Make sure that your company has your correct date of birth and starting date
of employment, since they are often the numbers used by your employer to calculate how much money you are going
to receive.
        Tip:If you choose to accept an offer for early retirement, some companies will pay (in the form of a
        bonus) all or part of the difference between what you would collect if you retire early and the amount you
        would earn if you continue working.

        Caution: Keep in mind that some company-paid consultants may make the early retirement package
        seem more attractive than it really is. Instead, you should consult legal counsel or another professional
        advisor.

Tax/retirement plan implications

If you accept an early retirement offer, you should be aware of any possible tax implications. Defin ed benefit
plans often contain provisions that reduce your monthly benefit when you begin distributions before a certain age. As
a result, early retirement can result in lower monthly retirement benefits. Employer-sponsored retirement plans
(such as 401(k)s) and traditional IRAs are generally subject to the 10 percent premature distribution tax for distributions
made before age 591/2. However, there are a number of exceptions to this rule, such as distributions made from 401
(k)s and other qualified plans after separating from service at age 55 or older.

Provided that you're over age 591/2 or meet one of the exceptions, you can make penalty-free withdrawals from
your account/plan. However, you may still have to pay income tax on all or part of the withdrawal. Distributions from
employer-sponsored plans are usually taxable, since contributions to most of these plans are made on a pretax basis
(although qualified distributions from Roth 401 (k)s and Roth 403(b)s are free from federal income taxes). IRA
distributions may or may not be taxable, depending on whether or not the contributions you made to the account
were tax-deductible. Roth IRAs are subject to special rules of their own.
In effect, while withdrawals from an IRA or retirement plan can be a valuable source of retirement income, the need
for the current income should be weighed against such issues as: (1) the desire to defer income tax for as long as
possible, (2) the desire to preserve the assets for your beneficiaries, and (3) the possibility that, with life expectancies on
the rise, you may live into your 80s or 90s and may therefore need to draw on those retirement assets for longer than
you might think. Another issue that comes into play with IRAs and retirement plans if you retire early is how to best
invest the assets. Many financial planners these days advise that you continue to invest for long-term growth after
you've retired, especially if you retire early. However, certain modifications to your investment choices and
percentages may be appropriate, based on your risk tolerance, your retirement income needs, and other factors.

Consequences of saying no to an offer
If you are considering turning down your employer's offer to retire early, be aware of the consequences of saying no
to the offer. If you are holding out for a better offer, keep in mind that the first offer is oftentimes the most generous. If
you do not accept the offer, you may find yourself without a job later on down the road. You may want to accept a
sure thing right away rather than face further uncertainty on fitting in with your company's future plans.

Consequences of saying yes to an offer
In general

After careful consideration, you may find that early retirement is the way to go. However, before you jump right
into retirement, you'll want to be aware of the consequences of saying yes.




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                     See disclaimer on final page
                                    May 06, 2008
Less time to save for retirement

If you accept an offer to retire early, say at around age 55, you are giving up roughly 10 years of saving for
retirement. Less time to save means you will have fewer savings available during retirement.

       Example(s): John saves $700 a month in a tax-deferred retirement plan at a 9 percent annual return
       for 20 years. When John withdraws all of his funds from his retirement plan at age 55, his savings will
       have grown to approximately $471,000. If John leaves that money in his account for another 10 years
       at the same 9 percent annual return, without any additional contributions his savings will grow to
       approximately $1,291,000, more than twice as much than if he had withdrawn from his retirement plan 10
       years earlier! If John keeps contributing for the additional 10 years, his retirement savings will be even
       bigger!
Retirement savings will have to last for a longer period of time

According to the Employee Benefit Research Institute, the increase in early retirement packages has caused the
average retirement age to decrease from 65 to 63 years of age. A lower retirement age, coupled with an
increased life expectancy, can result in your retirement years making up one-third of your total life span. In other words,
you could spend as many years in retirement as you did in the workforce! This lengthier retirement means that your
retirement savings will have to last for a longer period of time than if you had retired at the normal retirement age. In
addition, you should factor in the rate of inflation (approximately 4 to 6 percent annually), which will eat away at the
purchasing power of your retirement savings.
Your pension may be smaller

If your participate in a defined benefit plan, also known as a pension plan, early retirement may result in your receiving
a lesser pension amount. You should determine whether it is more valuable to have a smaller benefit over a longer
period of time rather than a larger benefit over a shorter period of time. Generally, defined benefit plans are based on
two factors: (1) length of service, and (2) salary during your highest earning period. If you retire early, your years of
service are reduced. In addition, most employees' highest earning period occurs just before retirement, so early
retirement can force you to give up your highest earning period. Furthermore, many companies impose early withdrawal
penalties that can equal 5 to 7 percent of your pension for each year that you retire early.
Psychological impact

In addition to determining whether or not you have the financial resources to retire, you should also consider the
psychological impact of retiring early. One of the first questions that you need to ask yourself is: Am I really ready to
retire? Early retirement thrusts you into a lifestyle change that you may not have expected to encounter for another 10
to 15 years. You may find it difficult to adjust from a competitive, goal-oriented corporate environment to a relaxed,
laid-back lifestyle. While many people will find it easy to adjust to a lifestyle that includes vacations and golfing, others
may have a hard time dealing with all the free time.
Fortunately, there are ways for people who have a difficult time coping with this sudden change in lifestyle to ease
themselves into retirement. Not only can a part-time job provide you with extra cash, but it can also help keep you
busy. Maybe you always wanted to learn how to paint with watercolors, or you once had a knack for gardening.
Perhaps you want to renew your interest in an old hobby or take up a new one. Whatever you choose to do during
this time period, be sure to revel in the ability to do all of the things you have always wanted to do but never could
because of time constraints. Soon enough, you will find that you can really enjoy life during retirement and, more
importantly, that retirement isn't an end but a beginning.

Career counseling
What if you can't afford to retire? Finding a new job

You may find yourself having to accept an early retirement offer, even though you can't afford to retire. One way to
make up for the difference between what you receive from your early retirement package and your old




                                                                                                                    May 06, 2008
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 LQ Wealth Advisors                                                                               Page 63 of 139
  paycheck is to find a new job, but that doesn't mean that you have to abandon your former line of work for a new
career. You can start by finding out if your former employer would hire you as a consultant. Or, you may find that you
would like to turn what was once just a hobby into a second career. Then there is always the possibility of finding
part-time employment with a new company. However, for the employee who has 20 years of service with the same
company, the prospect of job hunting may be terrifying. If you have been out of the job market for a long time, you
might not feel comfortable or have experience marketing yourself for a new job. Some companies provide career
counseling to assist employees in re-entering the workforce. If your company does not provide you with this service,
you may want to look into corporate outplacement firms and nonprofit organizations in your area that deal with career
transition.
       Caution: Many early retirement offers contain noncompetition agreements or offer monetary
      inducements on the condition that you agree not to work for a competitor.

 Retirement planning issues
 Medicare--age 65

 Even though you can receive early Social Security retirement benefits, you are not eligible for Medicare benefits
until age 65. If your early retirement package does not include post-retirement medical coverage, you may have to
look into alternative methods of obtaining health benefits, such as through COBRA (Consolidated Omnibus
Reconciliation Act of 1985) or private health insurance, until you are eligible to begin receiving Medicare benefits.

 Social Security--age 62

 If you accept an early retirement offer, you'll want to consider applying for early Social Security retirement
benefits. The Social Security Administration allows any individual who is eligible to receive Social Security benefits
at the normal retirement age the option of receiving benefits beginning at age 62. However, if you decide to receive
Social Security benefits before the normal retirement age, the benefits you receive will be reduced.


       Tip:If you accept an early retirement offer from your employer, you are not required to receive early
      Social Security retirement benefits.

 Can you afford to retire early?

 Whether or not you have the financial resources to retire early depends on how much you have in retirement
income and how much you plan to spend when you retire. Your early retirement income includes your early retirement
package (severance payments and retirement benefits), Social Security (if you receive benefits before the normal
retirement age), personal savings and investments, and wages (if you work after early retirement). To determine how
much you will spend, you must estimate your annual living expenses for early retirement.
 It is important to note that your annual living expenses during early retirement are likely to differ from your
expenses later in retirement. During early retirement, you may find yourself still paying off a mortgage, funding
your children's education, and paying for medical coverage. The worksheets that follow can help you to estimate your
early retirement income and living expenses and determine whether or not you can afford to retire early.



  Annual Early Retirement Living Expenses

  Housing (mortgage, rent, homeowners/rental insurance, maintenance, furnishings, property taxes)                  $


  Utilities (electricity, heat, water, phone, cable)                                                               $




                                                                                                See disclaimer on final page
                                                                                                See disclaimer on final page
                                                                                                               May 06, 2008
LQ Wealth Advisors                                                                                  Page 85 of 139

Transportation (car payments, insurance, gas, repairs, etc.)                                                  $


Food                                                                                                          $


Insurance (medical, dental, disability, life)                                                                 $


Taxes (Federal/State income taxes, Social Security if you plan on working after early retirement)             $


Education                                                                                                     $


Clothing                                                                                                      $


Travel and recreation                                                                                         $


Debts (loans, credit card payments)                                                                           $


Gifts (charitable, personal)                                                                                  $


Savings and Investments                                                                                       $


Miscellaneous                                                                                                 $


TOTAL                                                                                                         $



        Caution: If your early retirement package does not include medical coverage, remember to
       calculate the cost of health care into your early retirement living expenses.

Early Retirement Income


Early retirement package (severance payments, retirement benefits)                                            $


Social Security (if you receive your benefits before normal retirement age)                                   $


Personal savings and investments                                                                              $




                                                                                               May 06, 2008
 LQ Wealth Advisors                                                                                      Page 86 of 139

 Wages (if you work after early retirement)                                                                            $


 TOTAL                                                                                                                 $



         Tip:When you estimate your early retirement living expenses and income, it is important to
        consider the rate of inflation, which has historically averaged 4 to 6 percent annually.

         Tip:If you find it difficult to estimate your annual early retirement living expenses, the Bureau of
        Labor and Statistics publishes a table of annual expenditures according to age.

 Financial concerns
 Loss of health insurance

 If your early retirement package does not include company-paid health benefits, you still may be eligible for
health insurance through COBRA. If you work for a company that provides employees with a group health plan
and that has 20 or more covered employees, you are entitled to COBRA coverage. COBRA allows you to pay for your
health insurance at the same rate your company pays, plus a small administrative fee. COBRA coverage lasts up to
18 months from date of retirement, and does not require you to qualify for coverage or worry about pre-existing
conditions. Once your COBRA coverage runs out, you will have to purchase private insurance if you want to continue
health insurance coverage until you are old enough to qualify for Medicare coverage.
 Reduction in Social Security benefits

 Your Social Security benefits are based on what is known as the primary insurance amount (PIA). The PIA is
based on your average indexed monthly earnings (AIME). If you retire at the normal retirement age (see the
following Social Security Administration table), your monthly benefit will be equal to your PIA. However, if you
receive your Social Security retirement benefits early, your monthly benefit will be less than your PIA.


Age for Receiving Full Social Security
Benefits
 Year of Birth       Normal Retirement Age


 1937 or earlier     65


 1938                65 and 2 months


 1939                65 and 4 months


 1940                65 and 6 months


 1941                65 and 8 months




                                                                                                    See disclaimer on final page
                                                                                                    See disclaimer on final page
                                                                                                                   May 06, 2008
  LQ Wealth Advisors                                                                                   Page 87 of 139

  1942                65 and 10 months


  1943 - 1954         66


  1955                66 and 2 months


  1956                66 and 4 months


  1957                66 and 6 months


  1958                66 and 8 months


  1959                66 and 10 months


  1960 and later      67



 If you receive your Social Security retirement benefits early, you can receive more benefit checks than if you
retire at normal retirement age. While this might seem profitable, you will suffer a permanent reduction in your monthly
benefits. The reduced benefit is based on a deduction of approximately 5/9 of 1 percent (.0056) for each month you
receive benefits before the normal retirement age up to 36 months, and a deduction of 5/12 of 1 percent thereafter.
Your total lifetime benefits would remain the same based on standard life expectancy assumptions. However, your
benefits are spread out over a longer period of time (anywhere from one to three years), which results in lower monthly
benefits.
          Example(s): Mary retires from the local utility company at age 62 and elects to receive her Social
         Security benefits early. If Mary had waited to receive her Social Security benefits until her normal
         retirement age of 65, she would have received 100 percent of her primary insurance amount (PIA)
         benefit, or $800. Because Mary elected to receive her benefits at age 62, there is a reduction of 5/9 of
         1 percent (.0056) for each of the 36 months that she receives benefits prior to the normal retirement
         age. Thus, Mary will receive approximately $640, or 20 percent less (.0056 x 36), than she would have
         received at normal retirement age.
          Tip:The application process for early Social Security retirement benefits can take as long as three
         months. The Social Security Administration recommends that you contact its office prior to your
         62nd birthday.

          Tip:If you would like a benefit estimate, contact the Social Security Administration and request form
         SSA-7004SM, Request for Earnings and Benefit Estimate Statement.

 For a more in-depth discussion on receiving Social Security benefits early, see Electing Early Social Security
Retirement Benefits.




                                                                                                                  May 06, 2008
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 LQ Wealth Advisors                                                                                            Page 67 of 139
Traditional IRA: How Much Can You Contribute and Deduct in 2007?

 If you are married, use this worksheet twice, once for you and once for your spouse.


 See Quick Summary


 Step One: How Much Can You Contribute to a Traditional IRA?

 You need to know how much you can contribute to a traditional IRA before you calculate how much you can deduct. The
amount that you can contribute to a traditional IRA depends on the amount of taxable compensation that you (and, in some
cases, your spouse) had for the year. All, part, or none of your traditional IRA contribution may be tax deductible on your
federal income tax return.




 Step Two : How Much Can You Deduct?

 The amount of your federal income tax deduction depends on a number of factors, including whether you or your spouse is
covered by an employer-sponsored retirement plan (e.g., a 401(k) plan), your income tax filing status for the year of the
contribution, and your modified adjusted gross income for that same year. The amount that you can deduct represents the first dollars
that you contribute to your traditional IRA. If you choose to contribute more (up to your maximum allowed contribution from Step
One), these additional dollars would be treated as a nondeductible contribution.


 For example, you determine that you can contribute up to $4,000 to a traditional IRA, but can deduct only up to $500. You
may contribute $500 to a traditional IRA and deduct the full amount. If you contribute $4,000 to the traditional IRA, you can deduct
$500, and the remaining $3,500 will be considered a nondeductible contribution.




 Quick Summary

  If you are covered by an employer-sponsored retirement plan, the amount of tax-deductible contribution you can make to a
traditional IRA (if any) depends on your modified adjusted gross income (MAGI) and federal income tax filing status for the year
in which you contribute (see table below):

           If your filing status is             Your traditional IRA                  Your traditional IRA
          (see notes 1-3 below):                deduction is reduced if               deduction is eliminated if
                                                your MAGI is between:                 your MAGI is:
          Single or head of                      $52,000 - $62,000                     $62,000 or more

          household
                                                 $83,000 - $103,000                    $103,000 or more
          Married filing jointly, or
          qualifying widow(er)
                                                 $0                                    $10,000 or more
          Married filing separately                   - $10,000

 1. Generally, if you haven't reached age 701/2 by the end of the tax year, you can contribute up to $4,000 a year to a traditional IRA


                                                                                                             See disclaimer on final page


                                                                                                              May 06, 2008
if you have at least that much in taxable compensation for the year. In addition, if you are 50 or older, you




                                                                                                                May 06, 2008
  LQ Wealth Advisors                                                                                                  Page 90 of 139
 can contribute an additional $1,000 as a "catch-up" contribution.

2. Generally, if neither you nor your spouse is covered by an employer-sponsored retirement plan, the full amount of your
   traditional IRA contribution is tax deductible on your federal income tax return.

3. Certain low- and middle-income taxpayers may also be eligible for a partial income tax credit for contributing to an IRA
   (traditional or Roth). If you qualify for such a credit, it is in addition to any income tax deduction you might receive for making
   the contribution. See for more information.

4. If any of the following apply, this summary is inadequate and you'll need to work through Step One and Step Two of this
  worksheet (see above) to determine the amounts that you can contribute and/or deduct:

      You do not have at least $4,000 ($5,000 if age 50 or older) in taxable compensation for the year.

  You are covered by an employer-sponsored retirement plan during the year of the contribution, and your MAGI falls within the
   applicable range listed in the middle column of the above table.

  You are not covered by an employer-sponsored retirement plan during the year of the contribution, but your spouse is covered
   by such a plan.




                                                                                                                  See disclaimer on final page
                                                                                                                                 May 06, 2008
 LQ Wealth Advisors                                                                                            Page 69 of 139
Traditional IRA: How Much Can You Contribute and Deduct in 2008?

 If you are married, use this worksheet twice, once for you and once for your spouse.


 See Quick Summary


 Step One: How Much Can You Contribute to a Traditional IRA?

 You need to know how much you can contribute to a traditional IRA before you calculate how much you can deduct. The
amount that you can contribute to a traditional IRA depends on the amount of taxable compensation that you (and, in some
cases, your spouse) had for the year. All, part, or none of your traditional IRA contribution may be tax deductible on your
federal income tax return.




 Step Two : How Much Can You Deduct?

 The amount of your federal income tax deduction depends on a number of factors, including whether you or your spouse is
covered by an employer-sponsored retirement plan (e.g., a 401(k) plan), your income tax filing status for the year of the
contribution, and your modified adjusted gross income for that same year. The amount that you can deduct represents the first dollars
that you contribute to your traditional IRA. If you choose to contribute more (up to your maximum allowed contribution from Step
One), these additional dollars would be treated as a nondeductible contribution.


 For example, you determine that you can contribute up to $5,000 to a traditional IRA, but can deduct only up to $500. You
may contribute $500 to a traditional IRA and deduct the full amount. If you contribute $5,000 to the traditional IRA, you can deduct
$500, and the remaining $4,500 will be considered a nondeductible contribution.




 Quick Summary

  If you are covered by an employer-sponsored retirement plan, the amount of tax-deductible contribution you can make to a
traditional IRA (if any) depends on your modified adjusted gross income (MAGI) and federal income tax filing status for the year
in which you contribute (see table below):

           If your filing status is             Your traditional IRA                  Your traditional IRA
          (see notes 1-3 below):                deduction is reduced if               deduction is eliminated if
                                                your MAGI is between:                 your MAGI is:
          Single or head of                      $53,000 - $63,000                     $63,000 or more

          household
                                                 $85,000 - $105,000                    $105,000 or more
          Married filing jointly, or
          qualifying widow(er)
                                                 $0                                    $10,000 or more
          Married filing separately                   - $10,000

 1. Generally, if you haven't reached age 70Â1/2 by the end of the tax year, you can contribute up to $5,000 a year to a


                                                                                                             See disclaimer on final page


                                                                                                                             May 06, 2008
LQ Wealth Advisors                                                                                            Page 92 of 139
traditional IRA if you have at least that much in taxable compensation for the year. In addition, if you are 50 or older, you




                                                                                                         See disclaimer on final page
                                                                                                                        May 06, 2008
 can contribute an additional $1,000 as a "catch-up" contribution.

2. Generally, if neither you nor your spouse is covered by an employer-sponsored retirement plan, the full amount of your
   traditional IRA contribution is tax deductible on your federal income tax return.

3. Certain low- and middle-income taxpayers may also be eligible for a partial income tax credit for contributing to an IRA
   (traditional or Roth). If you qualify for such a credit, it is in addition to any income tax deduction you might receive for making
   the contribution. See for more information.

4. If any of the following apply, this summary is inadequate and you'll need to work through Step One and Step Two of this
  worksheet (see above) to determine the amounts that you can contribute and/or deduct:

      You do not have at least $5,000 ($6,000 if age 50 or older) in taxable compensation for the year.

  You are covered by an employer-sponsored retirement plan during the year of the contribution, and your MAGI falls within the
   applicable range listed in the middle column of the above table.

  You are not covered by an employer-sponsored retirement plan during the year of the contribution, but your spouse is covered
   by such a plan.




                                                                                                                                 May 06, 2008
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 LQ Wealth Advisors                                                                                          Page 71 of 139
Roth IRA: How Much Can You Contribute in 2007?

 If you are married, and both you and your spouse plan to contribute to Roth IRAs, determine your allowable contribution
amounts separately. If you are using this worksheet, complete it once for you and once for your spouse.


 The way that you calculate your allowable contribution depends on your income tax filing status for the year of the
contribution:

 

 

 


  Caution: If you are married, did not live with your spouse at any time during the year, and file separate returns, you are
 considered single for purposes of determining your allowable contribution to a Roth IRA.


 Quick Summary

 Your ability to contribute to a Roth IRA depends in part on the amount of taxable compensation that you (and, in some cases, your
spouse) received for the year. In addition, your ability to contribute to a Roth IRA may be limited (or phased out entirely) if your
modified adjusted gross income (MAGI) for the year is too high.


                                                Your ability to                    You cannot contribute
                                                contribute to a Roth               to a Roth IRA if your
               If your federal income           IRA is limited if your             MAGI is:
              tax filing status is:             MAGI is between:
               Single or head of                $99,000 - $114,000                 $114,000 or more

               household
                                                $156,000 - $166,000                $166,000 or more
               Married filing jointly or
              qualifying widow(er)
               Married filing                   $0 - $10,000                       $10,000 or more

              separately


  Note: Contributions to a Roth IRA are never tax deductible on your federal income tax return. However, the Economic
 Growth and Tax Relief Reconciliation Act of 2001 allows certain low- and middle-income taxpayers to claim a partial income
 tax credit for amounts contributed to an IRA (Roth or traditional).

  Note: The 2001 Tax Act also allows taxpayers age 50 and older to make an additional "catch-up" contribution to an IRA
 (Roth or traditional), over and above the general IRA contribution limit. The annual catch-up contribution amount is $1,000 for
 2007.




                                                                                                           See disclaimer on final page
                                                                                                            See disclaimer on final page
                                                                                                                           May 06, 2008
 LQ Wealth Advisors                                                                                          Page 72 of 139
Roth IRA: How Much Can You Contribute in 2008?

 If you are married, and both you and your spouse plan to contribute to Roth IRAs, determine your allowable contribution
amounts separately. If you are using this worksheet, complete it once for you and once for your spouse.


 The way that you calculate your allowable contribution depends on your income tax filing status for the year of the
contribution:

 

 

 


  Caution: If you are married, did not live with your spouse at any time during the year, and file separate returns, you are
 considered single for purposes of determining your allowable contribution to a Roth IRA.


 Quick Summary

 Your ability to contribute to a Roth IRA depends in part on the amount of taxable compensation that you (and, in some cases, your
spouse) received for the year. In addition, your ability to contribute to a Roth IRA may be limited (or phased out entirely) if your
modified adjusted gross income (MAGI) for the year is too high.


                                                Your ability to                    You cannot contribute
                                                contribute to a Roth               to a Roth IRA if your
               If your federal income           IRA is limited if your             MAGI is:
              tax filing status is:             MAGI is between:
               Single or head of                $101,000 - $116,000                $116,000 or more

               household
                                                $159,000 - $169,000                $169,000 or more
               Married filing jointly or
              qualifying widow(er)
               Married filing                   $0 - $10,000                       $10,000 or more

              separately


   Note: Contributions to a Roth IRA are never tax deductible on your federal income tax return. However, certain low-
 and middle-income taxpayers can claim a partial income tax credit for amounts contributed to an IRA (Roth or
 traditional).

  Note: Taxpayers age 50 and older can make an additional "catch-up" contribution to an IRA (Roth or traditional), over
 and above the general IRA contribution limit. The annual catch-up contribution amount is $1,000 for 2008.

  Note: Special contribution rules apply to certain military reservists who have received "qualified reservist distributions"
 and to certain former Enron employees.




                                                                                                            May 06, 2008
LQ Wealth Advisors                                                                                            Page 96 of 139

Investing for Retirement

Keep in mind...                                            Why save for retirement?
     A well-diversified portfolio can help balance risk    Because people are living longer. According
     The earlier you start investing, the more you can    to the U.S. Administration on Aging, persons
  contribute over the course of your working lifetime      reaching age 65 have an average life
     By starting early, your investments will             expectancy of an additional 18.4 years.* And
  have a longer period of time to compound                 since Social Security accounts for only 37
     With a longer time frame, you will have a            percent of total aggregate income for aged
  larger choice of investment possibilities                persons,** Social Security alone may not be
                                                           enough to see you through your retirement
                                                           years.


What to do...
    Assess your risk tolerance
    Determine your investing time frame
    Determine the amount of money you can invest
    Choose investments that are appropriate for your risk tolerance and time horizon
    Seek professional management, if necessary

*Source: A Profile of Older Americans: 2006, U.S. Administration on Aging

**Source: Fast Facts & Figures About Social Security, 2007, Social Security Administration




                                                                                                          See disclaimer on final page


                                                                                                          May 06, 2008
 LQ Wealth Advisors                                                                                         Page 97 of 139

LQ Wealth Advisors                                                                                       Page 74 of 139
Comparison of Traditional IRAs and Roth IRAs

                                    Traditional IRA                            Roth IRA
                                   Lesser of $5,000 or 100% of                 Lesser of $5,000 or 100% of
      What is the maximum          earned income ($6,000 if age 50             earned income ($6,000 if age 50
      annual contribution          or older)                                   or older)
      (2008)?*
      What is the maximum          Lesser of $5,000 or 100% of    Lesser of $5,000 or 100% of
                                   combined earned income ($6,000 combined earned income ($6,000
      annual contribution to a     if age 50 or older)            if age 50 or older)
      spousal IRA (for a
      spouse with little or no
      earned income)
      (2008)?*
                                    No                                         Yes
       Is your ability to
      contribute phased out
      for higher incomes?
                                   Yes. Fully deductible if neither you No. Contributions to a Roth IRA
       Is your contribution tax    nor your spouse is covered by a            are never tax deductible.
                                   retirement plan. Otherwise, your
      deductible on your           d e d u c t i o n d e p e n d s o n yo u r
      federal income tax           income and filing status.
      return?
                                    Tax deferred                               Tax deferred; tax free if you meet
       How are earnings                                                        the requirements for a qualified
                                                                               distribution
      taxed?
      Are distributions            Ye s , t o t h e e xt e n t t h a t t h e   Qualified distributions are
                                   distribution consists of                    completely tax free; otherwise, the
      included in your taxable     tax-deductible contributions and            portion that represents investment
      income?                      investment earnings                         earnings is included in your
                                                                               taxable income

      Are you required to take Yes, the required minimum                       No, distributions are not required
      distributions during your distribution (RMD) rule applies                until after your death
                                after you reach age 701/2
      life?
                                    No                                         Yes, if you have earned income
      Can contributions be
      made after age 701/2?***
       Does a 10% early            Yes, on the taxable portion of the          Yes, on the taxable portion of the
                                   distribution**                              distribution**
      withdrawal penalty
      apply to distributions
      made before age 591/2?
       Includable in your           Yes                                        Yes

      taxable estate at death?
       Do your beneficiaries       Ye s , t o t h e e xt e n t t h a t a       Generally no, as long as the
                                   distribution represents deductible          account has been in existence for
      pay income tax on            contributions and investment                at least five years
      distributions after your     earnings
      death?
                                                                                                       See disclaimer on final page


                                                                                                                     May 06, 2008
See disclaimer on final page
               May 06, 2008
  LQ Wealth Advisors                                                                                             Page 99 of 139

*Note: Certain low- and middle-income taxpayers may be able to claim a partial income tax credit for amounts contributed to a
traditional IRA or Roth IRA. The credit is phased out based on income.


**There are a number of exceptions to the early withdrawal penalty (e.g., distributions made due to qualifying disability). See for
details. Special rules apply to amounts converted from a traditional IRA to a Roth IRA.


***Rollover contributions can be made regardless of age or earned income.




                                                                                                                           May 06, 2008
LQ Wealth Advisors                         Page 100 of 139

Can You Contribute to an IRA in 2008?




                                        May 06, 2008
    LQ Wealth Advisors                                                                                               Page 101 of 139

    Can You Contribute to an IRA in 2008?
Whether or not you can contribute to an IRA in any given year (and how much you can contribute) depends on some
combination of the following variables: the type of IRA (traditional or Roth), your age, your annual income, and the filing status on
your federal income tax return.

        Click here if you file as

        Click here if you file as

        Click here if you file as


    Note: Married couples should evaluate their options independently. In other words, consider qualifications separately for
    each spouse. One spouse may qualify to contribute to an IRA even if the other spouse does not.

    Caution: If you are married but did not live with your spouse at any time during the year, and you file separate income tax
    returns, you are considered a single taxpayer for purposes of determining your allowable contribution (if any) to a traditional or
    Roth IRA.

    Note: You can make a rollover contribution to an IRA in any amount regardless of your age or income. Special contribution
    rules apply to certain military reservists who have received "qualified reservist distributions" and to certain former Enron
    employees.




                                                                                                                                May 06, 2008
LQ Wealth Advisors                          Page 102 of 139

Can You Contribute to an IRA in 2008?




                                        See disclaimer on final page
                                        See disclaimer on final page
                                                       May 06, 2008
    LQ Wealth Advisors                                                                                               Page 103 of 139

    Can You Contribute to an IRA in 2008?
Whether or not you can contribute to an IRA in any given year (and how much you can contribute) depends on some
combination of the following variables: the type of IRA (traditional or Roth), your age, your annual income, and the filing status on
your federal income tax return.

        Click here if you file as

        Click here if you file as

        Click here if you file as


    Note: Married couples should evaluate their options independently. In other words, consider qualifications separately for
    each spouse. One spouse may qualify to contribute to an IRA even if the other spouse does not.

    Caution: If you are married but did not live with your spouse at any time during the year, and you file separate income tax
    returns, you are considered a single taxpayer for purposes of determining your allowable contribution (if any) to a traditional or
    Roth IRA.

    Note: You can make a rollover contribution to an IRA in any amount regardless of your age or income. Special contribution
    rules apply to certain military reservists who have received "qualified reservist distributions" and to certain former Enron
    employees.




                                                                                                                                May 06, 2008
 LQ Wealth Advisors                                                                                        Page 78 of 139
Deductible Contribution Phaseout Limits for Traditional IRAs

  If you are covered by a 401(k) plan or other employer-sponsored retirement plan, your ability to make tax-deductible
contributions to a traditional IRA depends on your annual income (modified adjusted gross income, or MAGI) and your federal
income tax filing status. The income ranges that apply each year are as follows:

     Click here if you file as single or head of household

     Click here if you file as married filing jointly or qualifying widow(er)

     Click here if you file as married filing separately

  Caution: If you are married but did not live with your spouse at any time during the year, and you file separate income tax
 returns, you are considered a single taxpayer for purposes of determining your ability to make tax-deductible contributions to
 a traditional IRA.

  Caution: If you are not covered by an employer-sponsored retirement plan, but your spouse is covered by such a
 plan, special rules may apply. See for more information.


 Single or head of household

      Tax year
                                              Your traditional IRA                 Your traditional IRA
                                              deduction is reduced if              deduction is eliminated if
                                              your MAGI is:                        your MAGI is:
      2005 and 2006                            $50,000 to $60,000                  $60,000 or more


      2007*                                    $52,000 to $62,000                  $62,000 or more


      2008                                     $53,000 to $63,000                  $63,000 or more




 Married filing jointly or qualifying widow(er)

                                              Your traditional IRA                 Your traditional IRA
       Tax year                               deduction is reduced if              deduction is eliminated if
                                              your MAGI is:                        your MAGI is:
       2005                                    $70,000 to $80,000                  $80,000 or more


       2006                                    $75,000 to $85,000                  $85,000 or more


       2007*                                   $83,000 to $103,000                 $103,000 or more


       2008                                    $85,000 to $105,000                 $105,000 or more




 Married filing separately




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LQ Wealth Advisors                                                                                            Page 79 of 139
 If you file as married filing separately, your traditional IRA deduction is reduced if your MAGI is between $0 and $10,000, and
 eliminated if $10,000 or more.

 Tip: To determine the exact amount of your traditional IRA deduction for 2007 (if any), see For 2008, see You should
 also consult a tax advisor or other professional to make certain that your calculations are correct.


* Beginning in 2007, these income limits are adjusted for inflation in increments of $1,000.




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Converting Funds from a Traditional IRA to a Roth IRA: Factors to Consider




     Questions                Factors to consider
     Do you qualify to         Guessing incorrectly may have serious consequences; the conversion of
     convert funds from a      funds from a traditional IRA to a Roth IRA is considered a taxable
                               distribution, subject to federal income tax and a possible penalty.
     traditional IRA to a      The fact that you qualify to convert funds from a traditional IRA to a Roth
     Roth IRA?*                IRA doesn't necessarily mean you should; consider the following factors
                               before making a decision.


     Will you pay the tax      Converting traditional IRA funds to a Roth IRA will result in federal income
     that results from          tax due on those funds (to the extent that those funds consist of investment
                                earnings and tax-deductible contributions).
     converting funds with     Paying the tax due with IRA funds reduces the amount that grows tax free in
     outside (non-IRA)          the Roth IRA.
     funds?                    IRA funds used to pay the tax may be subject to additional income tax and
                                possibly a penalty.
                               Paying the tax due with non-IRA funds allows more dollars to be funneled
                                into the tax-free Roth IRA.



     Do you expect to be in    If your tax bracket remains the same and you pay the tax that results from
     the same or in a lower     converting funds with IRA dollars, the conversion may have no tax
                                consequence.
     or higher income tax      If you'll be in a lower tax bracket when you take IRA distributions, paying
     bracket when you           tax now on converted funds at your present (higher) rate may not be very
     eventually take IRA        appealing.
     distributions?            If you'll be in a higher tax bracket when you take distributions, you can
                                convert funds to a Roth IRA now and pay tax at your present (lower) tax
                                rate, and distributions will be tax free later (assuming you qualify for
                                tax-free withdrawals--see below).



     Can you leave your        If you withdraw funds after 5 years from the time you establish any Roth IRA
     funds in your Roth IRA    you may qualify for tax-free and penalty-free withdrawals if you meet one of
                               serveral other conditions (a qualified withdrawal).
     for at least 5 years?     If you convert a traditional IRA to a Roth IRA, and then make a
                               nonqualified withdrawal within 5 years of the conversion, the earnings you
                               withdraw will be subject to income tax, and your entire withdrawal may be
                               subject to a 10% penalty unless an exception applies (age 591/2, etc.).


     Can you leave your        This time frame becomes more important when you're paying the tax that
     funds in your Roth IRA     results from converting funds with IRA funds.
                               Generally, converting funds to a Roth IRA makes sense if you plan to leave
     for at least 10 years?     the funds in the Roth IRA for 10 years or more.
                               If you plan to take distributions from the Roth IRA within the next 10 years,
                                make sure converting funds is in your best interest.




                                                                                             See disclaimer on final page
                                                                                                            May 06, 2008
LQ Wealth Advisors                                                                                             Page 81 of 139

                      Can you live                       You can keep contributing to the Roth IRA after age 701/2, as long as you
                                                         have sufficient earned income.
                      comfortably in                            Unlike a traditional IRA, you aren't required to take annual minimum
                      retirement without                 distributions from a Roth IRA after age 701/2 or at any time during your life.
                      taking IRA                         Assuming 5 years have elapsed from the time you established anyRoth
                      distributions?                     IRA, your beneficiary receives Roth IRA funds free from federal income tax
                                                         (but not necessarily from federal estate tax) when you die.


                      Does your traditional              You've already paid federal income tax on any nondeductible contributions
                                                         to your traditional IRA, so these dollars are not subject to federal income
                      IRA consist of any                 tax when you convert funds to a Roth IRA.
                      nondeductible                      After you convert funds, future investment earnings on your Roth IRA will
                      (after-tax)                        accrue tax free.
                      contributions?

                      When you die, will                 When you die, the value of your IRA (traditional or Roth) will be included in
                      federal estate tax be              your taxable estate to determine if federal estate tax is due.
                                                         When you convert funds from a traditional IRA to a Roth IRA, you pay
                      due?                               federal income tax on your IRA funds now rather than later.
                                                                The money you use to pay the tax now effectively removes those
                                                         dollars from your taxable estate, potentially reducing your federal estate
                                                         tax liability after your death.


                      W ill you apply for                When you convert funds from a traditional IRA to a Roth IRA, you pay
                                                         federal income tax on your IRA funds now rather than later.
                      financial aid in the next         The money you use to pay the tax now effectively removes those dollars
                      few years?                         from the assets to be considered in determining your child's eligibility for
                                                         financialaid.


                      Are you currently                  The portion of your Social Security benefits that is taxable in any year
                                                          depends on your income and tax filing status for that year.
                      receiving Social                   Excluding any nondeductible contributions, funds that you convert to a
                      Security benefits?                  Roth IRA are treated as taxable income to you for that year.
                                                         If more of your Social Security benefits will be taxed as a result of
                                                          converting funds to a Roth IRA, factor in the additional tax cost to you.
                                                         Balance this cost against the fact that distributions from Roth IRAs, in
                                                          addition to being tax free, are not currently counted in determining the
                                                          taxable portion of your Social Security benefits.


                      Does your state follow             If your state does not follow the federal income tax treatment of Roth IRAs,
                      the federal income tax              you must factor in the way that your state tax treatment will affect your
                                                          situation.
                      treatment of Roth
                      IRAs?

                      Does your state                    Up to $1,095,000 (and in some cases more) of your total IRA assets, Roth
                                                         and traditional, are protected under federal law in the event you declare
                      provide Roth IRAs with             bankruptcy. State law may provide additional creditor protection, but the
                      protection from                    protection given to funds in Roth IRAs may be less than that given to
                      creditors equal to that            funds in traditional IRAs.
                      provided to traditional                    If you have a significant percentage of your assets in IRAs and you
                      IRAs?                              are at risk of being sued by creditors, you should consider your state's degree of
                                                         creditor protection for each type of IRA.



*To qualify to convert funds from a traditional IRA to a Roth IRA, your modified adjusted gross income (MAGI) for the year


                                                                                                           See disclaimer on final page


                                                                                                                             May 06, 2008
LQ Wealth Advisors                                                                                               Page 82 of 139
must be less than or equal to $100,000 if you are a single taxpayer. If you are married and file a joint return, the $100,000 refers
to the combined MAGI of you and your spouse. (Note: The $100,000 limitation is repealed after 2009.) For more information,
see .

       Starting in 2006, employers may allow employees to make after-tax "Roth" contributions to a 401(k) or
       403(b) plan. Qualified distributions of these contributions and related earnings may be income tax free (and
       penalty free) at the federal level. This may be a factor in your decision of whether to convert funds from a
       traditional IRA to a Roth IRA. However, be sure to discuss your situation with a professional advisor before
       making any decisions.




                                                                                                               See disclaimer on final page
                                                                                                                              May 06, 2008
LQ Wealth Advisors                                                                                                        Page 83 of 139
401(k) Plans


Key strengths
 You receive "free" money if your contributions are matched
by your employer                                                       A 401(k) plan is a type of
       You decide how much to save (within federal limits) and        employer - sponsored retirement plan
how to invest your 401(k) money                                        in which you can elect to defer receipt
       Your regular 401(k) contributions are made with                of some of your wages until
pretax dollars                                                         retirement. If you make pre-tax
       Earnings accrue tax deferred until you start making            contributions, your taxable income is
withdrawals, usually after retirement                                  r e d u c e d b y t h e a m o u n t t h a t yo u
       Your Roth 401(k) contributions (if your plan allows them)      contribute to the plan each year, up to
are made with after-tax dollars; there's no upfront tax benefit, but   certain limits. The contributed amount
distributions of your contributions are always tax free and, if you    and any investment earnings are
satisfy a five-year waiting period, distributions of earnings after    t a xe d t o yo u wh e n wi t h d r a wn o r
age 591/2, or upon your disability or death, are also tax free         distributed. If your plan allows after-tax
       You may qualify for a partial income tax credit                Roth contributions, there's no
       Plan loans may be available to you                             immediate tax benefit, but qualified
       Hardship withdrawals may be available to you, though           distributions are entirely tax free.
income tax and perhaps an early withdrawal penalty will apply,         Most 401(k) plans offer an assortment
and you may be suspended from participating for up to six              of investment options, ranging from
months                                                                 conservative to aggressive.
       Your employer may provide full-service investment
management
       Savings in a 401(k) are exempt from creditor claims in
bankruptcy (but not from IRS claims)




Bear in mind...
        401 (k)s do not promise future benefits; if your plan investments perform badly, you could suffer
a financial loss
        If you withdraw the funds prior to age 591/2 (age 55 in certain circumstances) you may have to pay a 10
percent early withdrawal penalty (in addition to ordinary income tax)
        The IRS limits the amount of money you can contribute to your 401(k)
        Unless the plan is a Simple 401(k) plan, you may have to work for your employer up to five years
to fully own employer matching contributions




                                                                                                                   See disclaimer on final page


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LQ Wealth Advisors                                                                                       Page 84 of 139
Retirement Options for Executives

       Excess Benefit Plan

       Definition
       A nonqualified deferred compensation plan maintained by an employer solely for the purpose of
       providing benefits for certain employees in excess of the limitations imposed by Section 415. The plan
       may be funded or unfunded.

       Advantages                                              Disadvantages
              Allows highly compensated                        If the plan is funded, the employee is taxed
        employees who participate in a qualified                 immediately on all employer contributions
        retirement plan to supplement their retirement           unless the benefits are subject to a substantial
        savings                                                  risk of forfeiture
        Taxation may be deferred if the plan is                Can be risky; benefits might not be paid in the
        "unfunded"; amounts contributed are generally            future if the plan is unfunded
        includable in income when received by the               ERISA's safeguards do not apply to unfunded
        employee (or made available to the employee)             plans, and only partially apply to funded plans


       Supplemental Executive Retirement Plan (SERP)
       Definition
       A nonqualified deferred compensation plan that provides retirement benefits to a select group of
       executives without regard to limits imposed on qualified plans. Properly structured, the plan is unfunded for
       ERISA purposes.

       Advantages                                              Disadvantages
        Allows executives to supplement their retirement  As an "unfunded" plan, most of ERISA's
         savings                                             safeguards do not apply
        Taxation is deferred; account is generally         Can be risky; benefits might not be paid in the
         includable in income as received by the executive   future
         (or when made available to the executive)




                                                                                                       See disclaimer on final page
                                                                                                                      May 06, 2008
LQ Wealth Advisors                                                                                                Page 111 of 139

Annuities


 Key Strengths                                                         An annuity is a contract between
      Interest and capital gains generated by an annuity accrue tax    you and an issuer (usually an
deferred until withdrawn                                               insurance company).
      You can receive payments from the annuity for your              In its simplest form, you pay a
entire lifetime, regardless of how long you may live*                   premium in exchange for future
      There are normally no contribution limits                        periodic payments to begin
      There are many different types of annuities to choose from       immediately (an immediate annuity) or
      You pay taxes only on the earnings portion of                    at some future date (a deferred
annuity payments                                                        annuity) and to continue for a period
      At death, proceeds from an annuity pass free from probate        that can be as long as your lifetime.*
to your named beneficiary



 Key Tradeoffs
      Annuities carry fees and expenses
      May have surrender charges
      Contributions are not tax deductible
      There may be tax penalties for early withdrawals prior to age 591/2
      Once you elect a specific distribution plan, annuitize the annuity, and begin receiving payments, that
election is usually irrevocable (with some exceptions)

 *Guarantees are subject to the claims-paying ability of the issuing insurance company.
  Important:Annuities are long-term tax-deferred investment vehicles intended to be used for retirement
purposes. Any gains in tax-deferred investment vehicles, including annuities, are taxable as ordinary
income upon withdrawal. For variable annuities, investment returns and the principal value of the available
sub-account portfolios will fluctuate so that the value of the investor's units, when redeemed, may be
worth more or less than their original value.




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LQ Wealth Advisors                                                                                            Page 86 of 139
Sources of Retirement Income: Filling the Social Security Gap

According to the Social Security Administration, more than nine out of ten individuals age 65 and older receive Social Security
benefits. But most retirees also rely on other sources of retirement income, as shown on this chart:




Source: Fast Facts & Figures About Social Security, 2007,Social Security Administration




                                                                                                           See disclaimer on final page
                                                                                                                          May 06, 2008
LQ Wealth Advisors                                                                  Page 113 of 139

Saving For Your Retirement




* Employers can allow employees to make after-tax "Roth" contributions to the employer's
401(k) or 403(b) plan. Qualified distributions of these contributions and related earnings are tax
free.

** Individuals age 50 and over may make additional $1,000 IRA catch-up contributions.




                                                                                  See disclaimer on final page


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How a Fixed Deferred Annuity Works




1. In the accumulation phase, you (the annuity owner) send your premium payment(s) (all at once or over time) to the annuity
issuer. These payments are made with after-tax funds, and you may invest an unlimited amount.


2. The annuity issuer places your funds in its general account.* Your annuity contract specifies how your principal will be
returned as well as what rate(s) of interest you'll earn during the accumulation phase. Your contract will also state what
minimum interest rate applies.**


3. The compounding interest on your annuity accumulates tax deferred. You won't be taxed on these earnings until funds are
withdrawn or distributed.


4. The issuer may collect fees to manage your annuity account. You may also have to pay the issuer a surrender fee if you




                                                                                                          See disclaimer on final page
                                                                                                                         May 06, 2008
LQ Wealth Advisors     Page 115 of 139




                     See disclaimer on final page


                                   May 06, 2008
withdraw money in the early years of your annuity.


5. Your annuity contract may contain a guaranteed** death benefit or other provisions for a payout upon the death of the
annuitant. (As the annuity owner, you're most often also the annuitant, although you don't have to be.)


6. If you make a withdrawal from your deferred fixed annuity before you reach age 591/2, you'll not only have to pay tax (at your
ordinary income tax rate) on the earnings portion of the withdrawal, but you may also have to pay a 10 percent premature distribution
tax.


7. After age 591/2, you may make withdrawals from your annuity without incurring any premature distribution tax. Since annuities
have no minimum distribution requirements, you don't have to make any withdrawals. However, your annuity contract may
specify an age at which you must begin taking income payments.


8. To obtain a guaranteed** fixed income stream for life or for a certain number of years, you could annuitize, which means
exchanging the annuity's cash value for a series of periodic income payments. The amount of these payments will depend on a
number of factors, including the cash value of your account at the time of annuitization, the age(s) and gender(s) of the annuitant(s),
and the payout option chosen. Usually, you can't change the payments once you've begun receiving them.


9. You'll have to pay taxes (at your ordinary income tax rates) on the earnings portion of any withdrawals or annuitization
payments you receive.




*These funds are invested as part of the general assets of the issuer and are therefore subject to the claims of its creditors.

**All guarantees are subject to the claims-paying ability of the issuing company.




                                                                                                               See disclaimer on final page
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LQ Wealth Advisors                                                                                            Page 90 of 139
How a Variable Annuity Works




1. In the accumulation phase, you (the annuity owner) send your premium payment(s) (all at once or over time) to the annuity
issuer. These payments are made with after-tax funds, and you may invest an unlimited amount.


2.      You may choose how to allocate your premium payment(s) among the various investments offered by the issuer. These
investment choices, often called subaccounts, typically invest directly in mutual funds. Generally, you can also transfer funds
among investments without paying tax on investment income and gains.


3. The issuer may collect fees to manage your annuity account. These may include an annual administration fee, underlying fund
fees and expenses which include an investment advisory fee, and a mortality and expense risk charge. If you withdraw money in
the early years of your annuity, you may also have to pay the issuer a surrender fee.


4. The earnings in your subaccounts grow tax deferred; you won't be taxed on any earnings or capital gains until you begin
withdrawing funds or begin taking annuitization payments.




                                                                                                                             May 06, 2008
See disclaimer on final page
See disclaimer on final page
               May 06, 2008
 LQ Wealth Advisors                                                                                               Page 119 of 139

5. With the exception of a fixed account option where a guaranteed* minimum rate of interest applies, the issuer of a variable
annuity generally doesn't guarantee any return on the subaccounts you choose. While you might experience substantial growth
in your investments, your choices could also perform poorly, and you could lose money.


6. Your annuity contract may contain provisions for a guaranteed* death benefit or other payout upon the death of the
annuitant. (As the annuity owner, you're most often also the annuitant, although you don't have to be.)


7. Just as you may choose how to allocate your premiums among the subaccount options available, you may also select the
subaccounts from which you'll take the funds if you decide to withdraw money from your annuity.


8. If you make a withdrawal from your annuity before you reach age 591/2, you'll not only have to pay tax (at your ordinary income
tax rate) on the earnings portion of the withdrawal, but you may also have to pay a 10 percent premature distribution tax.


9. After age 591/2, you may make withdrawals from your annuity proceeds without incurring any premature distribution tax. Since
annuities have no minimum distribution requirements, you don't have to make any withdrawals. However, your annuity contract
may specify an age at which you must begin taking income payments.


10. To obtain a guaranteed income stream* for life or for a certain number of years, you can annuitize which means exchanging
the annuity's cash value for a series of periodic income payments. The amount of these payments will depend on a number of
factors including the cash value of your account at the time of annuitization, the age(s) and gender(s) of the annuitant(s), and the
payout option chosen. Usually, you can't change the payments once you've begun receiving them.


11. You'll have to pay taxes (at your ordinary income tax rate) on the earnings portion of any withdrawals or annuitization
payments you receive.


*All guarantees are subject to the claims-paying ability of the issuing company.




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                     May 06, 2008
 LQ Wealth Advisors                                                                                     Page 121 of 139


Retirement Planning: The Basics

You may have a very idealistic vision of retirement--doing all of the things that you never seem to have time to do now.
But how do you pursue that vision? Social Security may be around when you retire, but the benefit that you get from
Uncle Sam may not provide enough income for your retirement years. To make matters worse, few employers today
offer a traditional company pension plan that guarantees you a specific income at retirement. On top of that, people
are living longer and must find ways to fund those additional years of retirement. Such eye-opening facts mean
that today, sound retirement planning is critical.
But there's good news: Retirement planning is easier than it used to be, thanks to the many tools and resources
available. Here are some basic steps to get you started.

Determine your retirement income needs
Many experts suggest that you need at least 60 to 70 percent of your preretirement income to enable you to
maintain your current standard of living in retirement. But this is only a general guideline. To determine your specific
needs, you may want to estimate your annual retirement expenses.

Use your current expenses as a starting point, but note that your expenses may change dramatically by the time you
retire. If you're nearing retirement, the gap between your current expenses and your retirement expenses may be
small. If retirement is many years away, the gap may be significant, and projecting your future expenses may be more
difficult.

Remember to take inflation into account. The average annual rate of inflation over the past 20 years has been
approximately 3 percent. (Source: Consumer price index (CPI-U) data published annually by the U.S. Department of
Labor.) And keep in mind that your annual expenses may fluctuate throughout retirement. For instance, if you own a
home and are paying a mortgage, your expenses will drop if the mortgage is paid off by the time you retire. Other
expenses, such as health-related expenses, may increase in your later retirement years. A realistic estimate of
your expenses will tell you about how much yearly income you'll need to live comfortably.

Calculate the gap
Once you have estimated your retirement income needs, take stock of your estimated future assets and income.
These may come from Social Security, a retirement plan at work, a part-time job, and other sources. If estimates show
that your future assets and income will fall short of what you need, the rest will have to come from additional
personal retirement savings.

Figure out how much you'll need to save
By the time you retire, you'll need a nest egg that will provide you with enough income to fill the gap left by your
other income sources. But exactly how much is enough? The following questions may help you find the answer:

          At what age do you plan to retire? The younger you retire, the longer your retirement will be, and the
           more money you'll need to carry you through it.

          What is your life expectancy? The longer you live, the more years of retirement you'll have to fund.

          What rate of growth can you expect from your savings now and during retirement? Be conservative when
           projecting rates of return.
          Do you expect to dip into your principal? If so, you may deplete your savings faster than if you just live off
           investment earnings. Build in a cushion to guard against these risks.




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                     See disclaimer on final page
                     See disclaimer on final page
                                    May 06, 2008
 LQ Wealth Advisors                                                                                   Page 123 of 139


Build your retirement fund: Save, save, save
When you know roughly how much money you'll need, your next goal is to save that amount. First, you'll have to
map out a savings plan that works for you. Assume a conservative rate of return (e.g., 5 to 6 percent), and then
determine approximately how much you'll need to save every year between now and your retirement to reach your
goal.

The next step is to put your savings plan into action. It's never too early to get started (ideally, begin saving in your
20s). To the extent possible, you may want to arrange to have certain amounts taken directly from your paycheck
and automatically invested in accounts of your choice (e.g., 401(k) plans, payroll deduction savings). This
arrangement reduces the risk of impulsive or unwise spending that will threaten your savings plan--out of sight, out
of mind. If possible, save more than you think you'll need to provide a cushion.

Understand your investment options
You need to understand the types of investments that are available, and decide which ones are right for you. If you
don't have the time, energy, or inclination to do this yourself, hire a financial professional. He or she will explain the
options that are available to you, and will assist you in selecting investments that are appropriate for your goals, risk
tolerance, and time horizon.

Use the right savings tools
The following are among the most common retirement savings tools, but others are also available.

Employer-sponsored retirement plans that allow employee deferrals (like 401(k), 403(b), SIMPLE, and 457(b) plans)
are powerful savings tools. Your contributions come out of your salary as pretax contributions (reducing your current
taxable income) and any investment earnings are tax deferred until withdrawn. These plans often include
employer-matching contributions and should be your first choice when it comes to saving for retirement. Both 401(k)
and 403(b) plans can also allow after-tax Roth contributions. While Roth contributions don’t offer an immediate tax
benefit, qualified distributions from your Roth account are federal income tax free.

IRAs, like employer-sponsored retirement plans, feature tax deferral of earnings. If you are eligible, traditional
IRAs may enable you to lower your current taxable income through deductible contributions. Withdrawals,
however, are taxable as ordinary income (unless you've made nondeductible contributions, in which case a portion
of the withdrawals will not be taxable).

Roth IRAs don't permit tax-deductible contributions but allow you to make completely tax-free withdrawals under
certain conditions. With both types, you can typically choose from a wide range of investments to fund your IRA.

Annuities are generally funded with after-tax dollars, but their earnings are tax deferred (you pay tax on the portion
of distributions that represents earnings). There is generally no annual limit on contributions to an annuity. A typical
annuity provides income payments beginning at some future time, usually retirement. The payments may last for
your life, for the joint life of you and a beneficiary, or for a specified number of years (guarantees are subject to the
claims-paying ability of the issuing insurance company).
Note: In addition to any income taxes owed, a 10 percent premature distribution penalty tax may apply to distributions
made from employer-sponsored retirement plans, IRAs, and annuities prior to age 591/2 (prior to age 55 for
employer-sponsored retirement plans in some circumstances).




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                     May 06, 2008
Estimating Your Retirement Income Needs

You know how important it is to plan for your retirement, but where do you begin? One of your first steps should be to
estimate how much income you'll need to fund your retirement. That's not as easy as it sounds, because retirement
planning is not an exact science. Your specific needs depend on your goals and many other factors. However, by
doing a little homework, you'll be well on your way to a comfortable retirement.

Use your current income as a starting point
Many financial professionals suggest that you'll need about 70 percent of your current annual income to fund your
retirement. This can be a good starting point, but will that figure work for you? It depends on how close you are to retiring.
If you're young and retirement is still many years away, that figure probably won't be a reliable estimate of your
income needs. That's because a lot may change between now and the time you retire. As you near retirement, the
gap between your present needs and your future needs may narrow. But remember, use your current income only as
a general guideline, even if retirement is right around the corner. To accurately estimate your retirement income
needs, you'll have to take some additional steps.

Project your retirement expenses
Your annual income during retirement should be enough (or more than enough) to meet your retirement expenses.
That's why estimating those expenses is a big piece of the retirement planning puzzle. But you may have a hard time
identifying all of your expenses and projecting how much you'll be spending in each area, especially if retirement is
still far off. To help you get started, here are some common retirement expenses:

          Food and clothing

          Housing: Rent or mortgage payments, property taxes, homeowners insurance, property upkeep and
           repairs

          Utilities: Gas, electric, water, telephone, cable TV

          Transportation: Car payments, auto insurance, gas, maintenance and repairs, public transportation

          Insurance: Medical, dental, life, disability, long-term care

          Health-care costs not covered by insurance: Deductibles, co-payments, prescription drugs

          Taxes: Federal and state income tax, capital gains tax

          Debts: Personal loans, business loans, credit card payments

          Education: Children's or grandchildren's college expenses

          Gifts: Charitable and personal

          Savings and investments: Contributions to IRAs, annuities, and other investment accounts

          Recreation: Travel, dining out, hobbies, leisure activities

          Care for yourself, your parents, or others: Costs for a nursing home, home health aide, or other type of
           assisted living
          Miscellaneous: Personal grooming, pets, club memberships




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Don't forget that the cost of living will go up over time. The average annual rate of inflation over the past 20 years
has been approximately 3 percent. (Source: Consumer price index (CPI-U) data published annually by the U.S.
Department of Labor.) And keep in mind that your retirement expenses may change from year to year. For example,
you may pay off your home mortgage or your children's education early in retirement. Other expenses, such as health
care and insurance, may increase as you age. To protect against these variables, build a comfortable cushion into
your estimates (it's always best to be conservative). Finally, have a financial professional help you with your
estimates to make sure they're as accurate and realistic as possible.

Decide when you'll retire
To determine your total retirement needs, you can't just estimate how much annual income you need. You also have
to estimate how long you'll be retired. Why? The longer your retirement, the more years of income you'll need to
fund it. The length of your retirement will depend partly on when you plan to retire. This important decision
typically revolves around your personal goals and financial situation. For example, you may see yourself retiring at 50
to get the most out of your retirement. Maybe a booming stock market or a generous early retirement package
will make that possible. Although it's great to have the flexibility to choose when you'll retire, it's important to
remember that retiring at 50 will end up costing you a lot more than retiring at 65.

Estimate your life expectancy
The age at which you retire isn't the only factor that determines how long you'll be retired. The other important factor
is your lifespan. We all hope to live to an old age, but a longer life means that you'll have even more years of
retirement to fund. You may even run the risk of outliving your savings and other income sources. To guard against
that risk, you'll need to estimate your life expectancy. You can use government statistics, life insurance tables, or a life
expectancy calculator to get a reasonable estimate of how long you'll live. Experts base these estimates on your age,
gender, race, health, lifestyle, occupation, and family history. But remember, these are just estimates. There's no
way to predict how long you'll actually live, but with life expectancies on the rise, it's probably best to assume you'll
live longer than you expect.

Identify your sources of retirement income
Once you have an idea of your retirement income needs, your next step is to assess how prepared you are to meet
those needs. In other words, what sources of retirement income will be available to you? Your employer may offer
a traditional pension that will pay you monthly benefits. In addition, you can likely count on Social Security to provide
a portion of your retirement income. To get an estimate of your Social Security benefits, visit the Social Security
Administration website (www.ssa.gov) and order a copy of your statement. Additional sources of retirement income
may include a 401(k) or other retirement plan, IRAs, annuities, and other investments. The amount of income you
receive from those sources will depend on the amount you invest, the rate of investment return, and other factors.
Finally, if you plan to work during retirement, your job earnings will be another source of income.

Make up any income shortfall
If you're lucky, your expected income sources will be more than enough to fund even a lengthy retirement. But
what if it looks like you'll come up short? Don't panic--there are probably steps that you can take to bridge the gap.
A financial professional can help you figure out the best ways to do that, but here are a few suggestions:
          Try to cut current expenses so you'll have more money to save for retirement

          Shift your assets to investments that have the potential to substantially outpace inflation (but keep in
           mind that investments that offer higher potential returns may involve greater risk of loss)

          Lower your expectations for retirement so you won't need as much money (no beach house on the
           Riviera, for example)
          Work part-time during retirement for extra income




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      • Consider delaying your retirement for a few years (or longer)




                                                                        May 06, 2008
See disclaimer on final page
See disclaimer on final page
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Taking Advantage of Employer-Sponsored Retirement
Plans
Employer-sponsored qualified retirement plans such as 401 (k)s are some of the most powerful retirement savings
tools available. If your employer offers such a plan and you're not participating in it, you should be. Once you're
participating in a plan, try to take full advantage of it.

Understand your employer-sponsored plan
Before you can take advantage of your employer's plan, you need to understand how these plans work. Read
everything you can about the plan and talk to your employer's benefits officer. You can also talk to a financial planner,
a tax advisor, and other professionals. Recognize the key features that many employer-sponsored plans share:

          Your employer automatically deducts your contributions from your paycheck. You may never even miss
           the money--out of sight, out of mind.
          You decide what portion of your salary to contribute, up to the legal limit. And you can usually change
           your contribution amount on certain dates during the year.

          With 401(k), 403(b), 457(b), SARSEPs, and SIMPLE plans, you contribute to the plan on a pretax basis.
           Your contributions come off the top of your salary before your employer withholds income taxes.

         
          Your 401(k) or 403(b) plan may let you make after-tax Roth contributions--there's no up-front tax benefit
           but qualified distributions are entirely tax free.

          Your employer may match all or part of your contribution up to a certain level. You typically become vested
           in these employer dollars through years of service with the company.

          Your funds grow tax deferred in the plan. You don't pay taxes on investment earnings until you
           withdraw your money from the plan.

          You'll pay income taxes and possibly an early withdrawal penalty if you withdraw your money from the
           plan.

          You may be able to borrow a portion of your vested balance (up to $50,000) at a reasonable interest
           rate.

          Your creditors cannot reach your plan funds to satisfy your debts.



Contribute as much as possible
The more you can save for retirement, the better your chances of retiring comfortably. If you can, max out your
contribution up to the legal limit. If you need to free up money to do that, try to cut certain expenses.
Why put your retirement dollars in your employer's plan instead of somewhere else? One reason is that your
pretax contributions to your employer's plan lower your taxable income for the year. This means you save money in
taxes when you contribute to the plan--a big advantage if you're in a high tax bracket. For example, if you earn $100,000
a year and contribute $10,000 to a 401(k) plan, you'll pay income taxes on $90,000 instead of $100,000. (Roth
contributions don't lower your current taxable income but qualified distributions of your contributions and
earnings--that is, distributions made after you satisfy a five-year holding period and reach age




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591/2, become disabled, or die--are tax free.)

Another reason is the power of tax-deferred growth. Your investment earnings compound year after year and
aren't taxable as long as they remain in the plan. Over the long term, this gives you the opportunity to build an
impressive sum in your employer's plan. You should end up with a much larger balance than somebody who
invests the same amount in taxable investments at the same rate of return.

For example, you participate in your employer's tax-deferred plan (Account A). You also have a taxable
investment account (Account B). Each account earns 8 percent per year. You're in the 28 percent tax bracket and
contribute $10,000 to each account at the end of every year. You pay the yearly income taxes on Account B's earnings
using funds from that same account. At the end of 30 years, Account A is worth $1,132,832, while Account B is worth
only $757,970. That's a difference of over $370,000! (Note: This example is for illustrative purposes only and does not
represent a specific investment.)

Capture the full employer match
If you can't max out your 401(k) or other plan, you should at least try to contribute up to the limit your employer will
match. Employer contributions are basically free money once you're vested in them (check with your
employer to find out when vesting happens). By capturing the full benefit of your employer's match, you'll be
surprised how much faster your balance grows. If you don't take advantage of your employer's generosity, you
could be passing up a significant return on your money.

For example, you earn $30,000 a year and work for an employer that has a matching 401(k) plan. The match is 50
cents on the dollar up to 6 percent of your salary. Each year, you contribute 6 percent of your salary ($1,800) to the
plan and receive a matching contribution of $900 from your employer.

Evaluate your investment choices carefully
Most employer-sponsored plans give you a selection of mutual funds or other investments to choose from. Make
your choices carefully. The right investment mix for your employer's plan could be one of your keys to a comfortable
retirement. That's because over the long term, varying rates of return can make a big difference in the size of your
balance.

Research the investments available to you. How have they performed over the long term? Have they held their own
during down markets? How much risk will they expose you to? Which ones are best suited for long-term goals like
retirement? You may also want to get advice from a financial professional (either your own, or one provided through
your plan). He or she can help you pick the right investments based on your personal goals, your attitude toward
risk, how long you have until retirement, and other factors. Your financial professional can also help you coordinate
your plan investments with your overall investment portfolio.
Finally, you may be able to change your investment allocations or move money between the plan's investments on
specific dates during the year (e.g., at the start of every month or every quarter).

Know your options when you leave your employer
When you leave your job, your vested balance in your former employer's retirement plan is yours to keep. You have
several options at that point, including:
          Taking a lump-sum distribution. This is often a bad idea, because you'll pay income taxes and possibly a
           penalty on the amount you withdraw. Plus, you're giving up continued tax-deferred growth.

          Leaving your funds in the old plan, growing tax deferred (your old plan may not permit this if your
           balance is less than $5,000). This may be a good idea if you're happy with the plan's investments or
           you need time to decide what to do with your money.

          Rolling your funds over to an IRA or a new employer's plan if the plan accepts rollovers. This is often a
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       smart move because there will be no income taxes or penalties if you do the rollover properly (your old plan
       will withhold 20 percent for income taxes if you receive the funds before rolling them over). Plus, your
       funds will keep growing tax deferred in the IRA or new plan.




                                                                                             See disclaimer on final page


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                     See disclaimer on final page
                     See disclaimer on final page
                                    May 06, 2008
Borrowing or Withdrawing Money from Your 401(k) Plan

If you have a 401(k) plan at work and need some cash, you might be tempted to borrow or withdraw money from it.
But keep in mind that the purpose of a 401(k) is to save for retirement. Take money out of it now, and you'll risk running out
of money during retirement. You may also face stiff tax consequences and penalties for withdrawing money before age
591/2. Still, if you're facing a financial emergency--for instance, your child's college tuition is almost due and your
401(k) is your only source of available funds--borrowing or withdrawing money from your 401(k) may be your only
option.

Plan loans
To find out if you're allowed to borrow from your 401(k) plan and under what circumstances, check with your
plan's administrator or read your summary plan description. Many employers allow 401(k) loans only in cases of
financial hardship, but you may be able to borrow money to buy a car, to improve your home, or to use for other
purposes.

Generally, obtaining a 401(k) loan is easy--there's little paperwork, and there's no credit check. The fees are
limited too--you may be charged a small processing fee, but that's generally it.

How much can you borrow?
No matter how much you have in your 401(k) plan, you probably won't be able to borrow the entire sum. Generally,
you can't borrow more than $50,000 or one-half of your vested plan benefits, whichever is less. (An exception applies
if your account value is less than $20,000; in this case, you may be able to borrow up to $10,000, even if this is
your entire balance.)

What are the requirements for repaying the loan?
Typically, you have to repay money you've borrowed from your 401(k) within five years by making regular
payments of principal and interest at least quarterly, often through payroll deduction. However, if you use the
funds to purchase a primary residence, you may have a much longer period of time to repay the loan.

Make sure you follow to the letter the repayment requirements for your loan. If you don't repay the loan as required,
the money you borrowed will be considered a taxable distribution. If you're under age 591/2, you'll owe a 10 percent
federal penalty tax, as well as regular income tax on the outstanding loan balance (other than the portion that
represents any after-tax or Roth contributions you've made to the plan).

What are the advantages of borrowing money from your 401(k)?
          You won't pay taxes and penalties on the amount you borrow, as long as the loan is repaid on time

          Interest rates on 401(k) plan loans must be consistent with the rates charged by banks and other
           commercial institutions for similar loans

          The interest you pay on borrowed funds is generally credited to your own plan account; you pay
           interest to yourself, not to a bank or other lender


What are the disadvantages of borrowing money from your 401(k)?
          If you don't repay your plan loan when required, it will generally be treated as a taxable distribution.




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LQ Wealth Advisors                                                                                     Page 101 of 139
          If you leave your employer's service (whether voluntarily or not) and still have an outstanding balance on
           a plan loan, you'll usually be required to repay the loan in full within 60 days. Otherwise, the outstanding
           balance will be treated as a taxable distribution, and you'll owe a 10 percent penalty tax in addition to regular
           income taxes if you're under age 591/2.

          Loan interest is generally not tax deductible (unless the loan is secured by your principal residence).

          You'll lose out on any tax-deferred interest that may have accrued on the borrowed funds had they
           remained in your 401(k).

          Loan payments are made with after-tax dollars.



Hardship withdrawals
Your 401(k) plan may have a provision that allows you to withdraw money from the plan while you're still employed
if you can demonstrate "heavy and immediate" financial need and you have no other resources you can use to
meet that need (e.g., you can't borrow from a commercial lender or from a retirement account and you have no other
available savings). It's up to your employer to determine which financial needs qualify. Many employers allow
hardship withdrawals only for the following reasons:
          To pay the medical expenses of you, your spouse, your children, your other dependents, or your plan
           beneficiary

          To pay the burial or funeral expenses of your parent, your spouse, your children, your other
           dependents, or your plan beneficiary

          To pay a maximum of 12 months worth of tuition and related educational expenses for post-secondary
           education for you, your spouse, your children, your other dependents, or your plan beneficiary

          To pay costs related to the purchase of your principal residence

          To make payments to prevent eviction from or foreclosure on your principal residence

          To pay expenses for the repair of damage to your principal residence after certain casualty losses


Note: You may also be allowed to withdraw funds to pay income tax and/or penalties on the hardship withdrawal itself,
if these are due.

Your employer will generally require that you submit your request for a hardship withdrawal in writing.

How much can you withdraw?
Generally, you can't withdraw more than the total amount you've contributed to the plan, minus the amount of any
previous hardship withdrawals you've made. In some cases, though, you may be able to withdraw the earnings on
contributions you've made. Check with your plan administrator for more information on the rules that apply to withdrawals
from your 401(k) plan.

What are the advantages of withdrawing money from your 401(k) in cases
of hardship?
The option to take a hardship withdrawal can come in very handy if you really need money and you have no other
assets to draw on, and your plan does not allow loans (or if you can't afford to make loan payments).



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                     May 06, 2008
 LQ Wealth Advisors                                                                               Page 136 of 139


What are the disadvantages of withdrawing money from your 401(k) in
cases of hardship?
       Taking a hardship withdrawal will reduce the size of your retirement nest egg, and the funds you
        withdraw will no longer grow tax deferred.
       Hardship withdrawals are generally subject to federal (and possibly state) income tax. A 10 percent federal
        penalty tax may also apply if you're under age 591/2. (If you make a hardship withdrawal of your
       Roth 401(k) contributions, only the portion of the withdrawal representing earnings will be subject to tax
       and penalties.)

       You may not be able to contribute to your 401(k) plan for six months following a hardship distribution.



What else do I need to know?
       If your employer makes contributions to your 401(k) plan (for example, matching contributions) you may
        be able to withdraw those dollars once you become vested (that is, once you own your employer's
        contributions). Check with your plan administrator for your plan's withdrawal rules.
       If you were impacted by Hurricanes Katrina, Rita, or Wilma, or if you are a reservist called to active
        duty after September 11, 2001 and before December 31, 2007, special rules may apply to you.




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                     See disclaimer on final page


                                   May 06, 2008
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Deciding What to Do with Your 401(k) Plan When You
Change Jobs
When you change jobs, you need to decide what to do with the money in your 401(k) plan. Should you leave it where
it is, or take it with you? Should you roll the money over into an IRA or into your new employer's retirement plan?

As you consider your options, keep in mind that one of the greatest advantages of a 401(k) plan is that it allows you
to save for retirement on a tax-deferred basis. When changing jobs, it's essential to consider the continued
tax-deferral of these retirement funds, and, if possible, to avoid current taxes and penalties that can eat into the amount
of money you've saved.

Take the money and run
When you leave your current employer, you can withdraw your 401(k) funds in a lump sum. To do this, simply instruct
your 401(k) plan administrator to cut you a check. Then you're free to do whatever you please with those funds. You can
use them to meet expenses (e.g., medical bills, college tuition), put them toward a large purchase (e.g., a home or car),
or invest them elsewhere.

While cashing out is certainly tempting, it's almost never a good idea. Taking a lump sum distribution from your 401(k)
can significantly reduce your retirement savings, and is generally not advisable unless you urgently need money and
have no other alternatives. Not only will you miss out on the continued tax-deferral of your 401(k) funds, but you'll
also face an immediate tax bite.

First, you'll have to pay federal (and possibly state) income tax on the money you withdraw (except for the amount
of any after-tax contributions you've made). If the amount is large enough, you could even be pushed into a higher tax
bracket for the year. If you're under age 591/2, you'll generally have to pay a 10 percent premature distribution
penalty tax in addition to regular income tax, unless you qualify for an exception. (For instance, you're generally
exempt from this penalty if you're 55 or older when you leave your job.) And, because your employer is also required to
withhold 20 percent of your distribution for federal taxes, the amount of cash you get may be significantly less than you
expect.
Note: Because lump-sum distributions from 401(k) plans involve complex tax issues, especially for individuals born
before 1936, consult a tax professional for more information.

Note: If your 401(k) plan allows Roth contributions, qualified distributions of your Roth contributions and earnings will
be free from federal income tax. However, no distributions will be qualified until 2011 at the earliest. If you receive a
nonqualified distribution from a Roth 401(k) account only the earnings (not your original Roth contributions) will be
subject to income tax and potential early distribution penalties.

Leave the funds where they are
One option when you change jobs is simply to leave the funds in your old employer's 401(k) plan where they will
continue to grow tax deferred.

However, you may not always have this opportunity. If your vested 401(k) balance is $5,000 or less, your employer
can require you to take your money out of the plan when you leave the company. (Your vested 401(k) balance
consists of anything you've contributed to the plan, as well as any employer contributions you have the right to
receive.)
Leaving your money in your old employer's 401(k) plan may be a good idea if you're happy with the investment
alternatives offered or you need time to explore other options. You may also want to leave the funds where they are
temporarily if your new employer offers a 401(k) plan but requires new employees to work for the company for a
certain length of time before allowing them to participate. When the waiting period is up, you can have the




                                                                                                      See disclaimer on final page
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plan administrator of your old employer's 401(k) transfer your funds to your new employer's 401(k) (assuming the
new plan accepts rollover contributions).

Transfer the funds directly to your new employer's retirement plan or to an
IRA (a direct rollover)
Just as you can always withdraw the funds from your 401(k) when you leave your job, you can always roll over your
401(k) funds to your new employer's retirement plan if the plan allows it. You can also roll over your funds to a
traditional IRA. You can either transfer the funds to a traditional IRA that you already have, or open a new IRA to
receive the funds. There's no dollar limit on how much 401(k) money you can transfer to an IRA. You can also make a
direct rollover of your 401(k) money to a Roth IRA if you qualify (the taxable portion of your distribution from the
401(k) plan will be included in your income at the time of the rollover).
If you've made Roth contributions to your 401(k) plan you can only roll those funds over into another Roth 401(k)
plan or Roth 403(b) plan (if your new employer's plan accepts rollovers) or to a Roth IRA.

Generally, the best way to roll over funds is to have your 401(k) plan directly transfer your funds to your new
employer's retirement plan or to an IRA you've established. A direct rollover is simply a transfer of assets from the
trustee or custodian of one retirement savings plan to the trustee or custodian of another (a "trustee-to-trustee
transfer"). It's a seamless process that allows your retirement savings to remain tax deferred without interruption.
Once you fill out the necessary paperwork, your 401(k) funds move directly to your new employe r's retirement
plan or to your IRA; the money never passes through your hands. And, if you directly roll over your 401(k) funds
following federal rollover rules, no federal income tax will be withheld.
Note: In some cases, your old plan may mail you a check made payable to the trustee or custodian of your
employer-sponsored retirement plan or IRA. If that happens, don't be concerned. This is still considered to be a
direct rollover. Bring or mail the check to the institution acting as trustee or custodian of your retirement plan or IRA.

Have the distribution check made out to you, then deposit the funds in
your new employer's retirement plan or in an IRA (an indirect rollover)
You can also roll over funds to an IRA or another employer-sponsored retirement plan (if that plan accepts
rollover contributions) by having your 401(k) distribution check made out to you and depositing the funds to your new
retirement savings vehicle yourself within 60 days. This is sometimes referred to as an indirect rollover.

However, think twice before choosing this option. Because you effectively have use of this money until you redeposit
it, your 401(k) plan is required to withhold 20 percent for federal income taxes on the taxable portion of your
distribution (you get credit for this withholding when you file your federal income tax return for the year). Unless you
make up this 20 percent with out-of-pocket funds when you make your rollover deposit, the 20 percent withheld will
be considered a taxable distribution, subject to regular income tax and generally a 10 percent premature
distribution penalty (if you're under age 591/2).

If you do choose to receive the funds through an indirect rollover, don't put off redepositing the funds. If you don't
make your rollover deposit within 60 days, the entire amount will be considered a taxable distribution.

Which option is appropriate?
Assuming that your new employer offers a retirement plan that will accept rollover contributions, is it better to roll
over your traditional 401(k) funds to the new plan or to a traditional IRA?

Each retirement savings vehicle has advantages and disadvantages. Here are some points to consider:

         • A traditional IRA can offer almost unlimited investment options; a 401(k) plan limits you to the
           investment options offered by the plan




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                     See disclaimer on final page


                     May 06, 2008
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          A traditional IRA can be converted to a Roth IRA if you qualify

          A 401(k) may offer a higher level of protection from creditors

          A 401(k) may allow you to borrow against the value of your account, depending on plan rules

          A 401(k) offers more flexibility if you want to contribute to the plan in the future


Finally, no matter which option you choose, you may want to discuss your particular situation with a tax
professional (as well as your plan administrator) before deciding what to do with the funds in your 401(k).




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                     See disclaimer on final page
                                    May 06, 2008
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Understanding IRAs

An individual retirement arrangement (IRA) is a personal savings plan that offers specific tax benefits. IRAs are one
of the most powerful retirement savings tools available to you. Even if you're contributing to a 401(k) or other plan at
work, you should also consider investing in an IRA.

What types of IRAs are available?
The two major types of IRAs are traditional IRAs and Roth IRAs. Both allow you to contribute as much as $5,000 in
2008 ($4,000 in 2007). You must have at least as much taxable compensation as the amount of your IRA contribution.
But if you are married filing jointly, your spouse can also contribute to an IRA, even if he or she does not have taxable
compensation. The law also allows taxpayers age 50 and older to make additional "catch-up" contributions. These
folks can contribute up to $6,000 in 2008 ($5,000 in 2007).
Both traditional and Roth IRAs feature tax-sheltered growth of earnings. And both give you a wide range of
investment choices. However, there are important differences between these two types of IRAs. You must
understand these differences before you can choose the type of IRA that's best for you.

Note: If you were affected by Hurricanes Katrina, Rita, or Wilma, or if you are a reservist called to active duty after
September 11, 2001 and before December 21, 2007, special rules may apply to you.

Learn the rules for traditional IRAs
Practically anyone can open and contribute to a traditional IRA. The only requirements are that you must have taxable
compensation and be under age 701/2. You can contribute the maximum allowed each year as long as your taxable
compensation for the year is at least that amount. If your taxable compensation for the year is below the maximum
contribution allowed, you can contribute only up to the amount that you earned.

Your contributions to a traditional IRA may be tax deductible on your federal income tax return. This is important
because tax-deductible (pretax) contributions lower your taxable income for the year, saving you money in taxes. If
neither you nor your spouse is covered by a 401(k) or other employer -sponsored plan, you can generally deduct
the full amount of your annual contribution. If one of you is covered by such a plan, your ability to deduct your
contributions depends on your annual income (modified adjusted gross income, or MAGI) and your income tax filing
status:

For 2008, if you are covered by a retirement plan at work, and:

          Your filing status is single or head of household, and your MAGI is $53,000 or less, your traditional IRA
           contribution is fully deductible. Your deduction is reduced if your MAGI is more than $53,000 and less
           than $63,000, and you can't deduct your contribution at all if your MAGI is $63,000 or more.

          Your filing status is married filing jointly or qualifying widow(er), and your MAGI is $85,000 or less, your
           traditional IRA contribution is fully deductible. Your deduction is reduced if your MAGI is more than
           $85,000 and less than $105,000, and you can't deduct your contribution at all if your MAGI is $105,000 or
           more.
          Your filing status is married filing separately, your traditional IRA deduction is reduced if your MAGI is
           less than $10,000, and you can't deduct your contribution at all if your MAGI is $10,000 or more.

For 2008, if you are not covered by a retirement plan at work, but your spouse is, and you file a joint tax return, your
traditional IRA contribution is fully deductible if your MAGI is $159,000 or less. Your deduction is reduced if your MAGI
is more than $159,000 and less than $169,000, and you can't deduct your contribution at all if your MAGI is $169,000
or more.




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What happens when you start taking money from your traditional IRA? Any portion of a distribution that
represents deductible contributions is subject to income tax because those contributions were not taxed when
you made them. Any portion that represents investment earnings is also subject to income tax because those
earnings were not previously taxed either. Only the portion that represents nondeductible, after-tax contributions (if
any) is not subject to income tax. In addition to income tax, you may have to pay a 10 percent early withdrawal
penalty if you're under age 591/2, unless you meet one of the exceptions.
If you wish to defer taxes, you can leave your funds in the traditional IRA, but only until April 1 of the year following
the year you reach age 701/2. That's when you have to take your first required minimum distribution from the IRA. After
that, you must take a distribution by the end of every calendar year until you die or your funds are exhausted. The
annual distribution amounts are based on a standard life expectancy table. You can always withdraw more than
you're required to in any year. However, if you withdraw less, you'll be hit with a 50 percent penalty on the difference
between the required minimum and the amount you actually withdrew.

Learn the rules for Roth IRAs
Not everyone can set up a Roth IRA. Even if you can, you may not qualify to take full advantage of it. The first
requirement is that you must have taxable compensation. If your taxable compensation for 2008 is at least $5,000
($4,000 in 2007), you may be able to contribute the full amount. But it gets more complicated. Your ability to
contribute to a Roth IRA in any year depends on your MAGI and your income tax filing status:

          If your filing status is single or head of household, and your MAGI for 2008 is $101,000 or less, you can
           make a full contribution to your Roth IRA. Your Roth IRA contribution is reduced if your MAGI is more than
           $101,000 and less than $116,000, and you can't contribute to a Roth IRA at all if your MAGI is $116,000
           or more.
          If your filing status is married filing jointly or qualifying widow(er), and your MAGI for 2008 is $159,000 or
           less, you can make a full contribution to your Roth IRA. Your Roth IRA contribution is reduced if your
           MAGI is more than $159,000 and less than $169,000, and you can't contribute to a Roth IRA at all if your
           MAGI is $169,000 or more.
          If your filing status is married filing separately, your Roth IRA contribution is reduced if your MAGI is
           less than $10,000, and you can't contribute to a Roth IRA at all if your MAGI is $10,000 or more.


Your contributions to a Roth IRA are not tax deductible. You can invest only after-tax dollars in a Roth IRA. The good
news is that if you meet certain conditions, your withdrawals from a Roth IRA will be completely income tax free,
including both contributions and investment earnings. To be eligible for these qualifying distributions, you must
meet a five-year holding period requirement. In addition, one of the following must apply:

          You have reached age 591/2 by the time of the withdrawal

          The withdrawal is made because of disability

          The withdrawal (of up to $10,000) is made to pay first-time home-buyer expenses

          The withdrawal is made by your beneficiary or estate after your death


Qualified distributions will also avoid the 10 percent early withdrawal penalty. This ability to withdraw your funds
with no taxes or penalties is a key strength of the Roth IRA. And remember, even nonqualified distributions will be
taxed (and possibly penalized) only on the investment earnings portion of the distribution, and then only to the extent
that your distribution exceeds the total amount of all contributions that you have made.
Another advantage of the Roth IRA is that there are no required distributions after age 701/2 or at any time during
your life. You can put off taking distributions until you really need the income. Or, you can leave the entire
balance to your beneficiary without ever taking a single distribution. Also, as long as you have taxable
compensation and qualify, you can keep contributing to a Roth IRA after age 701/2.




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Choose the right IRA for you
Assuming you qualify to use both, which type of IRA is best for you? Sometimes the choice is easy. The Roth IRA will
probably be a more effective tool if you don't qualify for tax-deductible contributions to a traditional IRA. However, if
you can deduct your traditional IRA contributions, the choice is more difficult. The Roth IRA may very well make more
sense if you want to minimize taxes during retirement and preserve assets for your beneficiaries. But a traditional
deductible IRA may be a better tool if you want to lower your yearly tax bill while you're still working (and probably in
a higher tax bracket than you'll be in after you retire). A financial professional or tax advisor can help you pick the right
type of IRA for you.
Note: You can have both a traditional IRA and a Roth IRA, but your total annual contribution to all of the IRAs that you
own cannot be more than $5,000 for 2008 ($6,000 if you're age 50 or older).

Know your options for transferring your funds
You can move funds from an IRA to the same type of IRA with a different institution (e.g., traditional to traditional,
Roth to Roth). No taxes or penalty will be imposed if you arrange for the old IRA trustee to transfer your funds directly
to the new IRA trustee. The other option is to have your funds distributed to you first and then roll them over to the
new IRA trustee yourself. You'll still avoid taxes and penalty as long as you complete the rollover within 60 days
from the date you receive the funds.

You may also be able to convert funds from a traditional IRA to a Roth IRA if your MAGI for the year is $100,000 or
less (the $100,000 income limit will be eliminated for tax years after 2009). This decision is complicated, however, so
be sure to consult a tax advisor. He or she can help you weigh the benefits of shifting funds against the tax
consequences and other drawbacks.
Note: The IRS has the authority to waive the 60-day rule for rollovers under certain limited circumstances, such as
proven hardship.




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                     See disclaimer on final page


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Annuities and Retirement Planning

You may have heard that IRAs and employer-sponsored plans (e.g., 401(k)s) are the best ways to invest for
retirement. That's true for many people, but what if you've maxed out your contributions to those accounts and
want to save more? An annuity may be a good investment to look into.

Get the lay of the land
An annuity is a tax-deferred investment contract. The details on how it works vary, but here's the general idea. You
invest your money (either a lump sum or a series of contributions) with a life insurance company that sells annuities (the
annuity issuer). The period when you are funding the annuity is known as the accumulation phase. In exchange for
your investment, the annuity issuer promises to make payments to you or a named beneficiary at some point in the
future. The period when you are receiving payments from the annuity is known as the distribution phase. Chances
are, you'll start receiving payments after you retire.

Understand your payout options
Understanding your annuity payout options is very important. Keep in mind that payments are based on the
claims-paying ability of the issuer. You want to be sure that the payments you receive will meet your income
needs during retirement. Here are some of the most common payout options:
          You surrender the annuity and receive a lump-sum payment of all of the money you have
           accumulated.

          You receive payments from the annuity over a specific number of years, typically between 5 and 20. If you
           die before this "period certain" is up, your beneficiary will receive the remaining payments.

          You receive payments from the annuity for your entire lifetime. You can't outlive the payments (no
           matter how long you live), but there will typically be no survivor payments after you die.

          You combine a lifetime annuity with a period certain annuity. This means that you receive payments for
           the longer of your lifetime or the time period chosen. Again, if you die before the period certain is up, your
           beneficiary will receive the remaining payments.

          You elect a joint and survivor annuity so that payments last for the combined life of you and another
           person, usually your spouse. When one of you dies, the survivor receives payments for the rest of his or
           her life.


When you surrender the annuity for a lump sum, your tax bill on the investment earnings will be due all in one year.
The other options on this list provide you with a guaranteed stream of income. They're known as annuitization
options because you've elected to spread payments over a period of years. Part of each payment is a return of your
principal investment. The other part is taxable investment earnings. You typically receive payments at regular
intervals throughout the year (usually monthly, but sometimes quarterly or yearly). The amount of each payment
depends on the amount of your principal investment, the particular type of annuity, the length of the payout period, and
other factors.

Consider the pros and cons
An annuity can often be a great addition to your retirement portfolio. Here are some reasons to consider investing in
an annuity:
          Your investment earnings are tax deferred as long as they remain in the annuity. You don't pay income tax
           on those earnings until they are paid out to you.




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          An annuity is free from the claims of your creditors in most states.

          If you die with an annuity, the accumulated value will pass to your beneficiary without having to go
           through probate.

          Your annuity can be a reliable source of retirement income, and you have some freedom to decide
           how you'll receive that income.

          You don't have to meet income tests or other criteria to invest in an annuity.

          You're not subject to an annual contribution limit, unlike IRAs and employer-sponsored plans. You can
           contribute as much or as little as you like in any given year.

          You're not required to start taking distributions from an annuity at age 701/2 (the required minimum
           distribution age for IRAs and employer-sponsored plans). You can typically postpone payments until
           you need the income.


But annuities aren't for everyone. Here are some potential drawbacks:

          Contributions to nonqualified annuities are made with after-tax dollars and are not tax deductible.

          Once you've elected to annuitize payments, you usually can't change them, but there are some
           exceptions.
          You can take your money from an annuity before you start receiving payments, but your annuity issuer may
           impose a surrender charge if you withdraw your money within a certain number of years (e.g., seven) after
           your original investment.

          You may have to pay other costs when you invest in an annuity (e.g., annual fees, investment
           management fees, insurance expenses).

          You may be subject to a 10 percent federal penalty tax (in addition to any regular income tax) if you
           withdraw your money from an annuity before age 591/2, unless you meet one of the exceptions to this
           rule.

          Investment gains are taxed at ordinary income tax rates, not at the lower capital gains rate.


Choose the right type of annuity
If you think that an annuity is right for you, your next step is to decide which type of annuity. Overwhelmed by all of
the annuity products on the market today? Don't be. In fact, most annuities fit into a small handful of
categories. Your choices basically revolve around two key questions.

First, how soon would you like annuity payments to begin? That probably depends on how close you are to
retiring. If you're near retirement or already retired, an immediate annuity may be your best bet. This type of
annuity starts making payments to you shortly after you buy the annuity, typically within a year or less. But what if
you're younger, and retirement is still a long-term goal? Then you're probably better off with a deferred annuity. As
the name suggests, this type of annuity lets you postpone payments until a later time, even if that's many years
down the road.
Second, how would you like your money invested? With a fixed annuity, the annuity issuer determines an interest rate
to credit to your investment account. An immediate fixed annuity guarantees a particular rate, and your payment
amount never varies. A deferred fixed annuity guarantees your rate for a certain number of years; your rate then
fluctuates from year to year as market interest rates change. A variable annuity, whether immediate or deferred, gives
you more control and the chance to earn a better rate of return (although with a greater potential for gain comes a
greater potential for loss). You select your own investments from the




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subaccounts (which invest directly in mutual funds) that the annuity issuer offers. Your payment amount will vary
based on how your investments perform.

Shop around
It pays to shop around for the right annuity. In fact, doing a little homework could save you hundreds of dollars a
year or more. Why? Rates of return and costs can vary widely between different annuities. You'll also want to shop
around for a reputable, financially sound annuity issuer. There are firms that make a business of rating insurance
companies based on their financial strength, investment performance, and other factors. Consider checking out
these ratings.




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Choosing a Beneficiary for Your IRA or 40 1(k)

Selecting beneficiaries for retirement benefits is different from choosing beneficiaries for other assets such as life
insurance. With retirement benefits, you need to know the impact of income tax and estate tax laws in order to select
the right beneficiaries. Although taxes shouldn't be the sole determining factor in naming your beneficiaries,
ignoring the impact of taxes could lead you to make an incorrect choice.
In addition, if you're married, beneficiary designations may affect the size of minimum required distributions to you
from your IRAs and retirement plans while you're alive.

Paying income tax on most retirement distributions
Most inherited assets such as bank accounts, stocks, and real estate pass to your beneficiaries without income tax
being due. However, that's not usually the case with 401(k) plans and IRAs.

Beneficiaries pay ordinary income tax on distributions from 401(k) plans and traditional IRAs. With Roth IRAs and Roth
401 (k)s, however, your beneficiaries can receive the benefits free from income tax if all of the tax requirements are
met. That means you need to consider the impact of income taxes when designating beneficiaries for your 401(k)
and IRA assets.

For example, if one of your children inherits $100,000 cash from you and another child receives your 401(k) account
worth $100,000, they aren't receiving the same amount. The reason is that all distributions from the 401(k) plan will
be subject to income tax at ordinary income tax rates, while the cash isn't subject to income tax when it passes to
your child upon your death.

Similarly, if one of your children inherits your taxable traditional IRA and another child receives your
income-tax-free Roth IRA, the bottom line is different for each of them.

Naming or changing beneficiaries
When you open up an IRA or begin participating in a 401(k), you are given a form to complete in order to name your
beneficiaries. Changes are made in the same way--you complete a new beneficiary designation form. A will or trust
does not override your beneficiary designation form. However, spouses may have special rights under federal or state
law.

It's a good idea to review your beneficiary designation form at least every two to three years. Also, be sure to update
your form to reflect changes in financial circumstances. Beneficiary designations are important estate planning
documents. Seek legal advice as needed.

Designating primary and secondary beneficiaries
When it comes to beneficiary designation forms, you want to avoid gaps. If you don't have a named beneficiary who
survives you, your estate may end up as the beneficiary, which is not always the best result.

Your primary beneficiary is your first choice to receive retirement benefits. You can name more than one person or
entity as your primary beneficiary. If your primary beneficiary doesn't survive you or decides to decline the benefits
(the tax term for this is a disclaimer), then your secondary (or "contingent") beneficiaries receive the benefits.

Having multiple beneficiaries
You can name more than one beneficiary to share in the proceeds. You just need to specify the percentage each
beneficiary will receive (the shares do not have to be equal). You should also state who will receive the proceeds




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should a beneficiary not survive you.

In some cases, you'll want to designate a different beneficiary for each account or have one account divided into
subaccounts (with a beneficiary for each subaccount). You'd do this to allow each beneficiary to use his or her own
life expectancy in calculating required distributions after your death. This, in turn, can permit greater tax deferral
(delay) and flexibility for your beneficiaries in paying income tax on distributions.

Avoiding gaps or naming your estate as a beneficiary
There are two ways your retirement benefits could end up in your probate estate. Probate is the court process by which
assets are transferred from someone who has died to the heirs or beneficiaries entitled to those assets.

First, you might name your estate as the beneficiary. Second, if no named beneficiary survives you, your probate estate
may end up as the beneficiary by default. If your probate estate is your beneficiary, several problems can arise.

If your estate receives your retirement benefits, the opportunity to maximize tax deferral by spreading out
distributions may be lost. In addition, probate can mean paying attorney's and executor's fees and delaying the
distribution of benefits.

Naming your spouse as a beneficiary
When it comes to taxes, your spouse is usually the best choice for a primary beneficiary.

A spousal beneficiary has the greatest flexibility for delaying distribution s that are subject to income tax. In
addition to rolling over your 401(k) or IRA to his or her IRA, a surviving spouse can decide to treat your IRA as his or
her own IRA. This can provide more tax and planning options.

If your spouse is more than 10 years younger than you, then naming your spouse can also reduce the size of any
required taxable distributions to you from retirement assets while you're alive. This can allow more assets to stay in
the retirement account longer and delay the payment of income tax on distributions.

Although naming a surviving spouse can produce the best income tax result, that isn't necessarily the case with death
taxes. One possible downside to naming your spouse as the primary beneficiary is that it will increase the size of
your spouse's estate for death tax purposes. That's because at your death, your spouse can inherit an unlimited
amount of assets and defer federal death tax until both of you are deceased (note: special tax rules and requirements
apply for a surviving spouse who is not a U.S. citizen). However, this may result in death tax or increased death tax
when your spouse dies.
If your spouse's taxable estate for federal tax purposes at his or her death exceeds the applicable exclusion
amount (formerly known as the unified credit), then federal death tax may be due at his or her death. The
applicable exclusion amount is $2 million in 2007 and 2008.

Naming other individuals as beneficiaries
You may have some limits on choosing beneficiaries other than your spouse. No matter where you live, federal
law dictates that your surviving spouse be the primary beneficiary of your 401(k) plan benefit unless your spouse
signs a timely, effective written waiver. And if you live in one of the community property states, your spouse may
have rights related to your IRA regardless of whether he or she is named as the primary beneficiary.
Keep in mind that a nonspouse beneficiary cannot roll over your 40 1(k) or IRA to his or her own IRA. However,
beginning in 2007, a nonspouse beneficiary may be able to roll over all or part of your 401(k) benefits to an
inherited IRA.




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Naming a trust as a beneficiary
You must follow special tax rules when naming a trust as a beneficiary, and there may be income tax
complications. Seek legal advice before designating a trust as a beneficiary.

Naming a charity as a beneficiary
In general, naming a charity as the primary beneficiary will not affect required distributions to you during your lifetime.
However, after your death, having a charity named with other beneficiaries on the same asset could affect the
tax-deferral possibilities of the noncharitable beneficiaries, depending on how soon after your death the charity receives
its share of the benefits.




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                     See disclaimer on final page
                     See disclaimer on final page
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Saving for Retirement and a Child's Education at the Same
Time
You want to retire comfortably when the time comes. You also want to help your child go to college. So how do you
juggle the two? The truth is, saving for your retirement and your child's education at the same time can be a challenge.
But take heart--you may be able to reach both goals if you make some smart choices now.

Know what your financial needs are
The first step is to determine what your financial needs are for each goal. Answering the following questions can help
you get started:

For retirement:

          How many years until you retire?

          Does your company offer an employer-sponsored retirement plan or a pension plan? Do you participate?
           If so, what's your balance? Can you estimate what your balance will be when you retire?

          How much do you expect to receive in Social Security benefits? (You can estimate this amount by
           using your Personal Earnings and Benefit Statement, now mailed every year by the Social Security
           Administration.)

          What standard of living do you hope to have in retirement? Do you want to travel extensively and live the
           good life, or will you be happy to stay in one place and live more simply?

          Do you or your spouse expect to work part-time in retirement?


For college:

          How many years until your child starts college?

          Will your child attend a public or private college? What's the expected cost?

          Do you have more than one child whom you'll be saving for?

          Does your child have any special academic, athletic, or artistic skills that could lead to a scholarship?

          Do you expect your child to qualify for financial aid?


Many on-line calculators are available to help you predict your retirement income needs and your child's college
funding needs.

Figure out what you can afford to put aside each month
Once you know what your financial needs are, the next step is to determine what you can afford to put aside each
month. To do so, you'll need to prepare a detailed family budget that lists all of your income and expenses. Keep in
mind, though, that the amount you can afford may change from time to time as your circumstances change. Once
you've come up with a dollar amount, you'll need to decide how to divvy up your funds.




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                     See disclaimer on final page
                     See disclaimer on final page
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Retirement takes priority
Though college is certainly an important goal, you should probably focus on your retirement if you have limited funds.
With generous corporate pensions mostly a thing of the past, the burden is primarily on you to fund your retirement. But
if you wait until your child is in college to start saving, you'll miss out on years of tax-deferred growth and compounding
of your money. Remember, your child can always attend college by taking out loans (or maybe even with scholarships),
but there's no such thing as a retirement loan!

If possible, save for your retirement and your child's college at the same
time
Ideally, you'll want to try to pursue both goals at the same time. The more money you can squirrel away for
college bills now, the less money you or your child will need to borrow later. Even if you can allocate only a small
amount to your child's college fund, say $50 or $100 a month, you might be surprised at how much you can
accumulate over many years. For example, if you saved $100 every month and earned 8 percent, you'd have
$18,415 in your child's college fund after 10 years. (This example is for illustrative purposes only and does not
represent a specific investment.)
If you're unsure how to allocate your funds between retirement and college, a professional financial planner may be
able to help you. This person can also help you select the best investments for each goal. Remember, just because
you're pursuing both goals at the same time doesn't necessarily mean that the same investments will be appropriate.
Each goal should be treated independently.

Help! I can't meet both goals
If the numbers say that you can't afford to educate your child or retire with the lifestyle you expected, you'll have to
make some sacrifices. Here are some things you can do:

          Defer retirement: The longer you work, the more money you'll earn and the later you'll need to dip into
           your retirement savings.

          Work part-time during retirement.

          Reduce your standard of living now or in retirement: You might be able to adjust your spending habits
           now in order to have money later. Or, you may want to consider cutting back in retirement.

          Increase your earnings now: You might consider increasing your hours at your current job, finding another
           job with better pay, taking a second job, or having a previously stay-at-home spouse return to the
           workforce.

          Invest more aggressively: If you have several years until retirement or college, you might be able to earn
           more money by investing more aggressively (but remember that aggressive investments mean a greater
           risk of loss).

          Expect your child to contribute more money to college: Despite your best efforts, your child may need to
           take out student loans or work part-time to earn money for college.

          Send your child to a less expensive school: You may have dreamed your child would follow in your
           footsteps and attend an Ivy League school. However, unless your child is awarded a scholarship, you may
           need to lower your expectations. Don't feel guilty--a lesser-known liberal arts college or a state university
           may provide your child with a similar quality education at a far lower cost.
          Think of other creative ways to reduce education costs: Your child could attend a local college and live at
           home to save on room and board, enroll in an accelerated program to graduate in three years instead for
           four, take advantage of a cooperative education where paid internships alternate with




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          course work, or defer college for a year or two and work to earn money for college.


Can retirement accounts be used to save for college?
Yes. Should they be? Probably not. Most financial planners discourage paying for college with funds from a retirement
account; they also discourage using retirement funds for a child's college education if doing so will leave you with no
funds in your retirement years. However, you can certainly tap your retirement accounts to help pay the college bills if
you need to. With IRAs, you can withdraw money penalty free for college expenses, even if you're under age 591/2
(though there may be income tax consequences for the money you withdraw). But with an employer-sponsored
retirement plan like a 401(k) or 403(b), you'll pay a 10 percent penalty on any withdrawals made before you reach age
591/2, even if the money is used for college expenses. There will be income tax consequences, as well.




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Common Investment Goals
Go out into your yard and dig a big hole. Every month, throw $50 into it, but don't take any money out until you're
ready to buy a house, send your child to college, or retire.

It sounds a little crazy, doesn't it? But that's what investing without setting clear-cut goals is like. If you're lucky, you
may end up with enough money to meet your needs, but you have no way to know for sure.

How do you set investment goals?
Setting investment goals means sitting down and defining your dreams for the future. If you are married or in a
long-term relationship, spend some time together discussing your joint and individual goals. You can do this on your
own or with the help of a financial advisor. It's best to be as specific as possible. For instance, you know you want to
retire, but when? You know you want to send your child to college, but to an Ivy League school or to the community
college down the street?

You'll end up with a list of goals. Some of these goals will be long term (you have more than 15 years to plan), some
will be short term (5 years or less to plan), and some will be intermediate (between 5 and 15 years to plan). You can
then decide how much money you'll need to accumulate and which investments can best help you meet your goals.

Looking forward to retirement
After a hard day at the office, do you ask, "Is it time to retire yet?" Retirement may seem a long way off, but it's never
too early to start planning--especially if you want retirement to be the good life you imagine.

Let's say that your goal is to retire at age 65 with $500,000 in your retirement fund. At age 25 you decide, with the help
of an investment advisor, to begin contributing $250 per month to your tax-deferred 401(k) account. If your investment
earns 6 percent per year, compounded monthly, you'll have more than $500,000 in your investment account when you
retire.

But what would happen if you left things to chance instead? Let's say that you're not really worried about retirement,
so you wait until you're 35 to begin investing. Assuming you contributed the same amount to your 401(k) and the rate
of return on your investment dollars was the same, you would end up with only about half the amount you need.

Some other points to keep in mind as you're setting specific retirement investment goals:

          Determine how much money you'll need in retirement: Many experts say that you'll need about 75 to 85
           percent of your current income to maintain your standard of living

          Plan for a long life: According to life expectancy charts, you can expect to live for 15 to 20 years past
           retirement, assuming you retire at age 65

          Think about how much time you have until retirement, then invest accordingly: For instance, if
           retirement is a long way off and you can handle some risk, you might choose to invest in stock or equity
           mutual funds that, though more volatile, offer a higher potential for long-term return than do more
           conservative investments
          Consider how inflation will affect your retirement savings: When determining how much you'll need to
           save for retirement, don't forget that the higher the cost of living, the lower your real rate of return on your
           investment dollars




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                     See disclaimer on final page


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Facing the truth about college savings
Perhaps you faced the ugly truth the day your child was born. Or maybe it hit you when your child started first grade:
You only have so much time to save for college. In fact, for many people, saving for college is an intermediate-term
goal--if you start saving when your child is in elementary school, you'll have 10 to 15 years to build your college fund.
Of course, the earlier you start the better. The more time you have before you need the money, the greater chance
you have to build a substantial college fund due to compounding. With a longer investment time frame and a tolerance
for some risk, you might also be willing to put some of your money into investments that offer the potential for growth.
Consider these tips as well:

          Estimate how much it will cost to send your child to college and plan accordingly: Estimates of the average
           future cost of tuition at two-year and four-year public and private colleges and universities are widely
           available (or ask your financial advisor for information)

          Research financial aid packages that can help offset part of the cost of college: Although there's no
           guarantee your child will receive financial aid, at least you'll know what kind of help is available should you
           need it
          Look into state-sponsored tuition plans that put your money into investments tailored to your financial
           needs and time frame: For instance, most of your dollars may be allocated to growth investments
           initially, then later as your child approaches college, into more conservative investments to conserve
           principal

          Think about how you might resolve conflicts between goals: For instance, if you need to save for your
           child's education and your own retirement at the same time, how will you do it?


Investing for something big
At some point, you'll probably want to buy a home, a car, or the yacht that you've always wanted. Although
they're hardly impulse items, large purchases are usually not something for which you plan far in advance--one to five
years is a common time frame.
Because you don't have much time to invest, you'll have to budget your investment dollars wisely. Rather than
choosing growth investments, you may want to put your money into less volatile, highly liquid investments that
have some potential for growth, but that offer you quick and easy access to your money should you need it.




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Understanding Defined Benefit Plans

You may be counting on funds from a defined benefit plan to help you achieve a comfortable retirement. Often referred
to as traditional pension plans, defined benefit plans promise to pay you a specified amount at retirement.

To help you understand the role a defined benefit plan might play in your retirement savings strategy, here's a look
at some basic plan attributes. But since every employer's plan is a little different, you'll need to read the summary
plan description, or SPD, provided by your company to find out the details of your own plan.

What are defined benefit plans?
Defined benefit plans are qualified employer-sponsored retirement plans. Like other qualified plans, they offer tax
incentives both to employers and to participating employees. For example, your employer can generally deduct
contributions made to the plan. And you generally won't owe tax on those contributions until you begin receiving
distributions from the plan (usually during retirement). However, these tax incentives come wi th strings
attached--all qualified plans, including defined benefit plans, must comply with a complex set of rules under the
Employee Retirement Income Security Act of 1974 (ERISA) and the Internal Revenue Code.

How do defined benefit plans work?
A defined benefit plan guarantees you a certain benefit when you retire. How much you receive generally
depends on factors such as your salary, age, and years of service with the company.

Each year, pension actuaries calculate the future benefits that are projected to be paid from the plan, and
ultimately determine what amount, if any, needs to be contributed to the plan to fund that projected benefit
payout. Employers are normally the only contributors to the plan. But defined benefit plans can require that
employees contribute to the plan, although it's uncommon.

You may have to work for a specific number of years before you have a permanent right to any retirement benefit
under a plan. This is generally referred to as "vesting." If you leave your job before you fully vest in an employer's
defined benefit plan, you won't get full retirement benefits from the plan.

How are retirement benefits calculated?
Retirement benefits under a defined benefit plan are based on a formula. This formula can provide for a set dollar amount
for each year you work for the employer, or it can provide for a specified percentage of earnings. Many plans calculate
an employee's retirement benefit by averaging the employee's earnings during the last few years of employment (or,
alternatively, averaging an employee's earnings for his or her entire career), taking a specified percentage of the
average, and then multiplying it by the employee's number of years of service.

Note: Many defined benefit pension plan formulas also reduce pension benefits by a percentage of the amount of Social
Security benefits you can expect to receive.

How will retirement benefits be paid?
Many defined benefit plans allow you to choose how you want your benefits to be paid. Payment options
commonly offered include:
          A single life annuity: You receive a fixed monthly benefit until you die; after you die, no further
           payments are made to your survivors.

          A qualified joint and survivor annuity: You receive a fixed monthly benefit until you die; after you die,




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           your surviving spouse will continue to receive benefits (in an amount equal to at least 50 percent of your
           benefit) until his or her death.

          A lump-sum payment: You receive the entire value of your plan in a lump sum; no further payments will be
           made to you or your survivors.


Choosing the right payment option is important, because the option you choose can affect the amount of benefit
you ultimately receive. You'll want to consider all of your options carefully, and compare the benefit payment
amounts under each option. Because so much may hinge on this decision, you may want to discuss your options with
a financial advisor.

What are some advantages offered by defined benefit plans?
          Defined benefit plans can be a major source of retirement income. They're generally designed to
           replace a certain percentage (e.g., 70 percent) of your preretirement income when combined with
           Social Security.
          Benefits do not hinge on the performance of underlying investments, so you know ahead of time how much
           you can expect to receive at retirement.

          Most benefits are insured up to a certain annual maximum by the federal government through the
           Pension Benefit Guaranty Corporation (PBGC).



How do defined benefit plans differ from defined contribution plans?
Though it's easy to do, don't confuse a defined benefit plan with another type of qualified retirement plan, the defined
contribution plan (e.g., 401(k) plan, profit-sharing plan). As the name implies, a defined benefit plan focuses on the
ultimate benefits paid out. Your employer promises to pay you a certain amount at retirement and is responsible for
making sure that there are enough funds in the plan to eventually pay out this amount, even if plan investments don't
perform well.

In contrast, defined contribution plans focus primarily on current contributions made to the plan. Your plan specifies
the contribution amount you're entitled to each year (contributions made by either you or your employer), but your
employer is not obligated to pay you a specified amount at retirement. Instead, the amount you receive at retirement
will depend on the investments you choose and how those investments perform.

Some employers offer hybrid plans. Hybrid plans include defined benefit plans that have many of the
characteristics of defined contribution plans. One of the most popular forms of a hybrid plan is the cash balance plan.

What are cash balance plans?
Cash balance plans are defined benefit plans that in many ways resemble defined contribution plans. Like
defined benefit plans, they are obligated to pay you a specified amount at retirement, and are insured by the federal
government. But they also offer one of the most familiar features of a defined contribution plan: Retirement funds
accumulate in an individual account (in this case, a hypothetical account).
This allows you to easily track how much retirement benefit you have accrued. And your benefit is portable. If you leave
your employer, you can generally opt to receive a lump-sum distribution of your vested account balance. These funds
can be rolled over to an individual retirement account (IRA) or to your new employer's retirement plan.




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What you should do now
It's never too early to start planning for retirement. Your pension income, along with Social Security, personal
savings, and investment income, can help you realize your dream of living well in retirement.

Start by finding out how much you can expect to receive from your defined benefit plan when you retire. Your
employer will send you this information every year. But read the fine print. Estimates often assume that you'll retire
at age 65 with a single life annuity. Your monthly benefit could end up to be far less if you retire early or receive a
joint and survivor annuity. Finally, remember that most defined benefit plans don't offer cost-of-living adjustments, so
benefits that seem generous now may be worth a lot less in the future when inflation takes its toll.

Here are some other things you can do to make the most of your defined benefit plan:

          Read the summary plan description. It provides details about your company's pension plan and includes
           important information, such as vesting requirements and payment options. Address questions to your plan
           administrator if there's anything you don't understand.
          Review your account information, making sure you know what benefits you are entitled to. Do this
           periodically, checking your Social Security number, date of birth, and the compensation used to
           calculate your benefits, since these are common sources of error.

          Notify your plan administrator of any life changes that may affect your benefits (e.g., marriage, divorce, death
           of spouse).

          Keep track of the pension information for each company you've worked for. Make sure you have copies
           of pension plan statements that accurately reflect the amount of benefits you're entitled to receive.

          Watch out for changes. Employers are allowed to change and even terminate pension plans, but you will
           receive ample notice. The key is, read all notices you receive.
          Assess the impact of changing jobs on your pension. Consider staying with one employer at least until
           you're vested. Keep in mind that the longer you stay with one employer, the more you're likely to
           receive at retirement.




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                     See disclaimer on final page
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Understanding Social Security

Nearly 45 million people today receive some form of Social Security benefits, including 90 percent of retired workers
over age 65. But Social Security is more than just a retirement program. Its scope has expanded to include other
benefits as well, such as disability, family, and survivor's benefits.

How does Social Security work?
The Social Security system is based on a simple premise: Throughout your career, you pay a portion of your earnings
into a trust fund by paying Social Security or self-employment taxes. Your employer, if any, contributes an equal
amount. In return, you receive certain benefits that can provide income to you when you need it most--at retirement or
when you become disabled, for instance. Your family members can receive benefits based on your earnings record,
too. The amount of benefits that you and your family members receive depends on several factors, including your
average lifetime earnings, your date of birth, and the type of benefit that you're applying for.

Your earnings and the taxes you pay are reported to the Social Security Administration (SSA) by your employer, or if
you are self-employed, by the Internal Revenue Service. The SSA uses your Social Security number to track your
earnings and your benefits.

Finding out what earnings have been reported to the SSA and what benefits you can expect to receive is easy. Just
check out your Social Security Statement, mailed by the SSA annually to anyone age 25 or older who is not already
receiving Social Security benefits. You'll receive this statement each year about three months before your birthday. It
summarizes your earnings record and estimates the retirement, disability, and survivor's benefits that you and your
family members may be eligible to receive. You can also order a statement at the SSA website, at your local SSA
office, or by calling (800) 772-1213.

Social Security eligibility
When you work and pay Social Security taxes, you earn credits that enable you to qualify for Social Security benefits.
You can earn up to 4 credits per year, depending on the amount of income that you have. Most people must build up 40
credits (10 years of work) to be eligible for Social Security retirement benefits, but need fewer credits to be eligible for
disability benefits or for their family members to be eligible for survivor's benefits.

Your retirement benefits
If you were born before 1938, you will be eligible for full retirement benefits at age 65. If you were born in 1938 or later,
the age at which you are eligible for full retirement benefits will be different. That's because full retirement age is
gradually increasing to age 67.

But you don't have to wait until full retirement age to begin receiving benefits. No matter what your full retirement age,
you can begin receiving early retirement benefits at age 62. Doing so is often advantageous: Although you'll receive a
reduced benefit if you retire early, you'll receive benefits for a longer period than someone who retires at full
retirement age.

You can also choose to delay receiving retirement benefits past full retirement age. If you delay retirement, the Social
Security benefit that you eventually receive will be as much as 6 to 8 percent higher. That's because you'll receive a
delayed retirement credit for each month that you delay receiving retirement benefits, up to age 70. The amount of this
credit varies, depending on your year of birth.

Disability benefits
If you become disabled, you may be eligible for Social Security disability benefits. The SSA defines disability as




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a physical or mental condition severe enough to prevent a person from performing substantial work of any kind for
at least a year. This is a strict definition of disability, so if you're only temporarily disabled, don't expect to receive
Social Security disability benefits--benefits won't begin until the sixth full month after the onset of your disability. And
because processing your claim may take some time, apply for disability benefits as soon as you realize that your
disability will be long term.

Family benefits
If you begin receiving retirement or disability benefits, your family members might also be eligible to receive
benefits based on your earnings record. Eligible family members may include:

          Your spouse age 62 or older, if married at least 1 year

          Your former spouse age 62 or older, if you were married at least 10 years

          Your spouse or former spouse at any age, if caring for your child who is under age 16 or disabled

          Your children under age 18, if unmarried

          Your children under age 19, if full-time students (through grade 12) or disabled

          Your children older than 18, if severely disabled


Each family member may receive a benefit that is as much as 50 percent of your benefit. However, the amount
that can be paid each month to a family is limited. The total benefit that your family can receive based on your
earnings record is about 150 to 180 percent of your full retirement benefit amount. If the total family benefit exceeds
this limit, each family member's benefit will be reduced proportionately. Your benefit won't be affected.

Survivor's benefits
When you die, your family members may qualify for survivor's benefits based on your earnings record. These
family members include:

          Your widow(er) or ex-spouse age 60 or older (or age 50 or older if disabled)

          Your widow(er) or ex-spouse at any age, if caring for your child who is under under 16 or disabled

          Your children under 18, if unmarried

          Your children under age 19, if full-time students (through grade 12) or disabled

          Your children older than 18, if severely disabled

          Your parents, if they depended on you for at least half of their support


Your widow(er) or children may also receive a one-time $255 death benefit immediately after you die.

Applying for Social Security benefits
You can apply for Social Security benefits in person at your local Social Security office. You can also begin the
process by calling (800) 772-1213 or by filling out an on-line application on the Social Security website. The SSA
suggests that you contact its representative the year before the year you plan to retire, to determine when you should
apply and begin receiving benefits. If you're applying for disability or survivor's benefits, apply as soon as you are
eligible.




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Depending on the type of Social Security benefits that you are applying for, you will be asked to furnish certain records,
such as a birth certificate, W-2 forms, and verification of your Social Security number and citizenship. The
documents must be original or certified copies. If any of your family members are applying for benefits, they will be
expected to submit similar documentation. The SSA representative will let you know which documents you need and
help you get any documents you doni already have.




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 Social Security Retirement Benefits

 Social Security was originally intended to provide older Americans with continuing income after retirement.
Today, though the scope of Social Security has been widened to include survivor's, disability, and other benefits,
retirement benefits are still the cornerstone of the program.

 How do you qualify for retirement benefits?
 When you work and pay Social Security taxes (FICA on some pay stubs), you earn Social Security credits. You can
earn up to 4 credits each year. If you were born after 1928, you need 40 credits (10 years of work) to be eligible for
retirement benefits.

 How much will your retirement benefit be?
 Your retirement benefit is based on your average earnings over your working career. Higher lifetime earnings
result in higher benefits, so if you have some years of no earnings or low earnings, your benefit amount may be
lower than if you had worked steadily. Your age at the time you start receiving benefits also affects your benefit
amount. Although you can retire early at age 62, the longer you wait to retire (up to age 70), the higher your
retirement benefit.
 You can check your earnings record and get an estimate of your future Social Security benefits by filling out a
request at your local Social Security office or by visiting the Social Security Administration (SSA) website. You
can also find this information on your Social Security Statement, which the SSA mails annually to every worker over
age 25. You will receive this statement about three months before your birthday. Review it carefully to make sure your
paid earnings were accurately reported--mistakes are common. Call the SSA at (800) 772-1213 for more
information.

 Retiring at full retirement age
 If you retire at full retirement age, you'll receive an unreduced retirement benefit. Your full retirement age
depends on the year in which you were born.

 If you were born in:     Your full retirement age is:


 1937 or earlier          65


 1938                     65 and 2 months


 1939                     65 and 4 months


 1940                     65 and 6 months


 1941                     65 and 8 months




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 1942                     65 and 10 months


 1943-1954                66


 1955                     66 and 2 months


 1956                     66 and 4 months


 1957                     66 and 6 months


 1958                     66 and 8 months


 1959                     66 and 10 months


 1960 and later           67



 Retiring early will reduce your benefit
 You can begin receiving Social Security benefits before your full retirement age, as early as age 62. However, if
you retire early, your Social Security benefit will be less than if you wait until your full retirement age to begin receiving
benefits. Your retirement benefit will be reduced by 5/9ths of 1 percent for every month between your retirement date
and your full retirement age, up to 36 months, then by 5/12ths of 1 percent thereafter. For example, if your full
retirement age is 67, you'll receive about 30 percent less if you retire at age 62 than if you wait until age 67 to retire.
This reduction is permanent--you won't be eligible for a benefit increase once you reach full retirement age.
 Still, receiving early Social Security retirement benefits makes sense for many people. Even though you'll receive less
per month than if you wait until full retirement age to begin receiving benefits, you'll receive benefits several years
earlier.

 Delaying retirement will increase your benefit
  For each month that you delay receiving Social Security retirement benefits past your full retirement age, your
benefit will increase by a certain percentage. This percentage varies depending on your year of birth. For
example, if you were born in 1936, your benefit will increase 6 percent for each year that you delay receiving benefits.
If you were born in 1943 or later, your benefit will increase 8 percent for each year that you delay receiving benefits.
In addition, working past your full retirement age has another benefit: It allows you to add years of earnings to your
Social Security record. As a result, you may receive a higher benefit when you do retire, especially if your earnings are
higher than in previous years.

 Working may affect your retirement benefit
 You can work and still receive Social Security retirement benefits, but the income that you earn before you reach
full retirement age may affect the amount of benefit that you receive. Here's how:




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          If you're under full retirement age: $1 in benefits will be deducted for every $2 in earnings you have
           above the annual limit

          In the year you reach full retirement age: $1 in benefits will be deducted for every $3 you earn over the
           annual limit (a different limit applies here) until the month you reach full retirement age


Once you reach full retirement age, you can work and earn as much income as you want without reducing your
Social Security retirement benefit.

Retirement benefits for qualified family members
Even if your spouse has never worked outside your home or in a job covered by Social Security, he or she may be
eligible for spousal benefits based on your Social Security earnings record. Other members of your family may also
be eligible. Retirement benefits are generally paid to family members who relied on your income for financial support. If
you're receiving retirement benefits, the members of your family who may be eligible for family benefits include:

          Your spouse age 62 or older, if married at least one year

          Your former spouse age 62 or older, if you were married at least 10 years

          Your spouse or former spouse at any age, if caring for your child who is under age 16 or disabled

          Your children under age 18, if unmarried

          Your children under age 19, if full-time students (through grade 12) or disabled

          Your children older than 18, if severely disabled


Your eligible family members will receive a monthly benefit that is as much as 50 percent of your benefit. However,
the amount that can be paid each month to a family is limited. The total benefit that your family can receive based on
your earnings record is about 150 to 180 percent of your full retirement benefit amount. If the total family benefit
exceeds this limit, each family member's benefit will be reduced proportionately. Your benefit won't be affected.

How do you sign up for Social Security?
You should apply for benefits at your local Social Security office or on-line two or three months before your
retirement date. However, the SSA suggests that you contact your local office a year before you plan on applying for
benefits to discuss how retiring at a certain age can affect your finances. Fill out an application on the SSA website, or
call the SSA at (800) 772-1213 for more information on the application process.




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                     See disclaimer on final page


                                   May 06, 2008
Tax-Deferred Annuities: Are They Right for You?

Tax-deferred annuities can be a valuable tool, particularly for retirement savings. However, they are not
appropriate for everyone.

Five questions to consider
Think about each of the following questions. If you can answer yes to all of them, an annuity may be a good
choice for you.

         1. Are you making the maximum allowable pretax contribution to employer-sponsored retirement plans (a
            401(k) or 403(b) plan through your employer, or a Keogh plan or SEP -IRA if you are
            self-employed), or to a deductible traditional IRA? These are tax-advantaged vehicles that should be fully
            utilized before you contribute to an annuity.

         2. Are you making the maximum allowable contribution to a Roth IRA, Roth 401(k), or Roth 403(b), which
            provide additional tax benefits not available in a nonqualified annuity?

         3. Will you need more retirement income than your current retirement plan(s) will provide? If you begin
            making the maximum allowable contributions to both a qualified plan and an IRA in your 30s or early
            40s, you may have enough retirement income without an annuity.

         4. Are you sure you woni need the money until at least age 591/2? Withdrawals from an annuity made before
            this age are usually subject to a 10 percent early withdrawal penalty tax on earnings levied by the IRS.
         5. Will you take distributions from your annuity on an ongoing basis throughout your retirement? You
            typically have the option of making a lump-sum withdrawal from an annuity, but this is almost always a
            bad idea. If you do, you'll have to pay taxes on all of the earnings that have built up over the years. If you
            take gradual distributions, you pay taxes a little at a time, allowing the rest of the money to continue
            growing tax deferred. In addition, if the annuity is nonqualified and you elect to receive an annuity payout,
            you will enjoy an exclusion allowance on each payment, in which a portion of each payment is considered
            a return of principal and is not taxable.




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                     May 06, 2008
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Annuity Basics

An annuity is a contract between you, the purchaser or owner, and an insurance company, the annuity issuer. In its
simplest form, you pay money to an annuity issuer, and the issuer pays out the principal and earnings back to you or
to a named beneficiary. Life insurance companies first developed annuities to provide income to individuals
during their retirement years.

One of the attractive aspects of an annuity is that its earnings are tax deferred until you begin to receive
payments back from the annuity issuer. In this respect, an annuity is similar to a qualified retirement plan. Over a long
period of time, your investment in an annuity can grow substantially larger than if you had invested money in a
comparable taxable investment. Like a qualified retirement plan, a 10 percent tax penalty may be imposed if you
begin withdrawals from an annuity before age 591/2. Unlike a qualified retirement plan, contributions to an annuity
are not tax deductible, and taxes are paid only on the earnings when distributed.

Four parties to an annuity contract
There are four parties to an annuity contract: the annuity issuer, the owner, the annuitant, and the beneficiary. The
annuity issuer is the company (e.g., an insurance company) that issues the annuity. The owner is the individual
or other entity who buys the annuity from the annuity issuer and makes the contributions to the annuity. The annuitant is
the individual whose life will be used as the measuring life for determining the timing and amount of distribution
benefits that will be paid out. The owner and the annuitant are usually the same person but do not have to be. Finally,
the beneficiary is the person who receives a death benefit from the annuity at the death of the annuitant.

Two distinct phases to an annuity
There are two distinct phases to an annuity: (1) the accumulation (or investment) phase and (2) the distribution
phase.

The accumulation (or investment) phase is the time period when you add money to the annuity. When using this
option, you'll have purchased a deferred annuity. You can purchase the annuity in one lump sum (known as a single
premium annuity), or you make investments periodically, over time.

The distribution phase is when you begin receiving distributions from the annuity. You have two general options for
receiving distributions from your annuity. Under the first option, you can withdraw some or all of the money in the
annuity in lump sums.

The second option (commonly referred to as the guaranteed income or annuitization option) provides you with a
guaranteed income stream from the annuity for your entire lifetime (no matter how long you live) or for a specific period
of time (e.g., 10 years). (Guarantees are based on the claims-paying ability of the issuing insurance company.) This
option can be elected at any time on your deferred annuity. Or, if you want to invest in an annuity and start receiving
payments within the first year, you'll purchase what is known as an immediate annuity.
You can also elect to receive the annuity payments over both your lifetime and the lifetime of another person. This
option is known as a joint and survivor annuity. Under a joint a nd survivor annuity, the annuity issuer promises
to pay you an amount of money on a periodic basis (e.g., monthly, quarterly, or yearly). The amount you receive for
each payment period will depend on how much money you have in the annuity, how earnings are credited to your
account (whether fixed or variable), and the age at which you begin the annuitization phase. The length of the
distribution period will also affect how much you receive. If you are age 65 and elect to receive annuity distributions
over your entire lifetime, the amount you will receive with each payment will be less than if you had elected to
receive annuity distributions over five years.




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                     See disclaimer on final page


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When is an annuity appropriate?
It is important to understand that annuities can be an excellent tool if you use them properly. Annuities are not right
for everyone.

Annuity contributions are not tax deductible. That's why most experts advise funding other retirement plans first.
However, if you have already contributed the maximum allowable amount to other available retirement plans, an annuity
can be an excellent choice. There is no limit to how much you can invest in an annuity, and like other retirement plans,
the funds are allowed to grow tax deferred until you begin taking distributions.
Annuities are designed to be very-long-term investment vehicles. In most cases, you'll pay a penalty for early
withdrawals. And if you take a lump-sum distribution of your annuity funds within the first few years after
purchasing your annuity, you may be subject to surrender charges imposed by the issuer. As long as you're sure you
woni need the money until at least age 591/2, an annuity is worth considering. If your needs are more short term, you
should explore other options.




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                     May 06, 2008
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Shopping for an Annuity

Although many insurance companies offer annuities with the same (or at least similar) features, that doesn't mean
that all products and all companies are the same. As with all financial products, you should shop around and
compare. Here are some things to consider when shopping for annuities.

Financial stability
Moody's, Standard & Poor's, and A. M. Best all rate insurance companies for financial stability and customer
satisfaction. When purchasing an annuity, it is best to consider buying only from companies that have received high
ratings from each of these services.

If you're buying a variable annuity (as opposed to a fixed annuity), you can be less concerned about the financial stability
of the issuing company, because assets held in the subaccounts of a variable annuity are not subject to the claims of
the creditors of the issuing annuity company.

Get the best performer
When shopping around for a fixed annuity, the one offering the highest initial interest rate is not necessarily the
best value.

Often, companies will offer a very high initial rate, guaranteed for one or more years, as a way to induce a sale. After
the guarantee period ends, the rate drops steeply. Ask the issuers to provide the historical returns for their annuities
that they have paid over the last 10 to 20 years. Those returns are a better indicator of what to expect in the future
from that company.

Also, check the guaranteed minimum interest rate. Although 3 to 4 percent is common in today's market, you may be
able to find a company that offers an annuity with a higher minimum rate guarantee.

Compare fees
Annuity products in general, and variable annuities in particular, have a number of fees structured into the
product. These fees can vary greatly from sponsor to sponsor and from product to product.

Higher fees can offset a higher rate of return if the fees are significant enough. Therefore, the smart consumer
factors the amount of fees that will be deducted from the investment return before making a final decision.

Watch out for surrender charges
It's common for annuities to have contingent deferred sales charges, commonly known as surrender charges, that
are assessed when you surrender some or all of the annuity within a certain number of years after purchasing the
annuity. Typically, the surrender charge will begin at about 7 percent and decrease by 1 percent annually. Ideally, your
surrender charge is not longer than the interest rate guarantee on a fixed annuity. If it's not, and the insurance
company drastically reduced the interest rate it is paying, you may find yourself with the choice of keeping the annuity
and earning a low rate, or surrendering it and paying a surrender charge.

Many variable annuities can be purchased without a surrender charge. However, you can expect to pay slightly
higher annual fees when buying these annuities.

Do your homework
Many resources are available that allow customers to compare products and features. Several websites, for




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example, list competing products and features. Also, several publications that you might find in your local library
offer this information, usually updated on a monthly basis. Since you will have to purchase your annuity through a
licensed broker in any event, you may want to consult your investment advisor, stockbroker, or insurance
professional to see what they can offer.




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                     See disclaimer on final page
                     See disclaimer on final page
                                    May 06, 2008
Life Insurance at Various Life Stages

Your need for life insurance changes as your life changes. When you're young, you typically have less need for life
insurance, but that changes as you take on more responsibility and your family grows. Then, as your responsibilities
once again begin to diminish, your need for life insurance may decrease. Let's look at how your life insurance needs
change throughout your lifetime.

Footloose and fancy-free
As a young adult, you become more independent and self-sufficient. You no longer depend on others for your
financial well-being. But in most cases, your death would still not create a financial hardship for others. For most
young singles, life insurance is not a priority.

Some would argue that you should buy life insurance now, while you're healthy and the rates are low. This may be
a valid argument if you are at a high risk for developing a medical condition (such as diabetes) later in life. But you
should also consider the earnings you could realize by investing the money now instead of spending it on insurance
premiums.

If you have a mortgage or other loans that are jointly held with a cosigner, your death would leave the cosigner
responsible for the entire debt. You might consider purchasing enough life insurance to cover these debts in the event
of your death. Funeral expenses are also a concern for young singles, but it is typically not advisable to purchase a life
insurance policy just for this purpose, unless paying for your funeral would burden your parents or whomever would be
responsible for funeral expenses. Instead, consider investing the money you would have spent on life insurance
premiums.

Your life insurance needs increase significantly if you are supporting a parent or grandparent, or if you have a child
before marriage. In these situations, life insurance could provide continued support for your dependent(s) if you were
to die.

Going to the chapel
Married couples without children typically still have little need for life insurance. If both spouses contribute equally to
household finances and do not yet own a home, the death of one spouse will usually not be financially
catastrophic for the other.

Once you buy a house, the situation begins to change. Even if both spouses have well-paying jobs, the burden of a
mortgage may be more than the surviving spouse can afford on a single income. Credit card debt and other debts
can contribute to the financial strain.

To make sure either spouse could carry on financially after the death of the other, both of you should probably
purchase a modest amount of life insurance. At a minimum, it will provide peace of mind knowing that both you and
your spouse are protected.

Again, your life insurance needs increase significantly if you are caring for an aging parent, or if you have children before
marriage. Life insurance becomes extremely important in these situations, because these dependents must be
provided for in the event of your death.

Your growing family
When you have young children, your life insurance needs reach a climax. In most situations, life insurance for
both parents is appropriate.
Single-income families are completely dependent on the income of the breadwinner. If he or she dies without life
insurance, the consequences could be disastrous. The death of the stay-at-home spouse would necessitate




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LQ Wealth Advisors                                                                                   Page 135 of 139
costly day-care and housekeeping expenses. Both spouses should carry enough life insurance to cover the lost
income or the economic value of lost services that would result from their deaths.

Dual-income families need life insurance, too. If one spouse dies, it is unlikely that the surviving spouse will be able
to keep up with the household expenses and pay for child care with the remaining income.

Moving up the ladder
For many people, career advancement means starting a new job with a new company. At some point, you might
even decide to be your own boss and start your own business. It's important to review your life insurance coverage
any time you leave an employer.

Keep in mind that when you leave your job, your employer-sponsored group life insurance coverage will usually end,
so find out if you will be eligible for group coverage through your new employer, or look into purchasing life
insurance coverage on your own. You may also have the option of converting your group coverage to an
individual policy. This may cost significantly more, but may be wise if you have a pre-existing medical condition that
may prevent you from buying life insurance coverage elsewhere.

Make sure that the amount of your coverage is up-to-date, as well. The policy you purchased right after you got
married might not be adequate anymore, especially if you have kids, a mortgage, and college expenses to
consider. Business owners may also have business debt to consider. If your business is not incorporated, your family
could be responsible for those bills if you die.

Single again
If you and your spouse divorce, you'll have to decide what to do about your life insurance. Divorce raises both
beneficiary issues and coverage issues. And if you have children, these issues become even more complex.

If you and your spouse have no children, it may be as simple as changing the beneficiary on your policy and adjusting
your coverage to reflect your newly single status. However, if you have kids, you'll want to make sure that they, and
not your former spouse, are provided for in the event of your death. This may involve purchasing a new policy if your
spouse owns the existing policy, or simply changing the beneficiary from your spouse to your children. The custodial
and noncustodial parent will need to work out the details of this complicated situation. If you can't come to terms,
the court will make the decisions for you.

Your retirement years
Once you retire, and your priorities shift, your life insurance needs may change. If fewer people are depending on you
financially, your mortgage and other debts have been repaid, and you have substantial financial assets, you may
need less life insurance protection than before. But it's also possible that your need for life insurance will remain
strong even after you retire. For example, the proceeds of a life insurance policy can be used to pay your final
expenses or to replace any income lost to your spouse as a resu lt of your death (e.g., from a pension or Social
Security). Life insurance can be used to pay estate taxes or leave money to charity.




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                     May 06, 2008
  LQ Wealth Advisors                                                                                  Page 192 of 139


Cash Value Life Insurance
Cash value, or permanent, life insurance is life insurance that is designed to be kept until your death--whenever that
may be. Part of your premium pays for the "pure" insurance coverage and expenses, and the balance is held by the
insurance company in a cash value account. The type of permanent life insurance you buy (e.g., whole, universal,
variable) will influence the pace at which the cash value portion of your policy grows. The interest and earnings grow
tax deferred until you withdraw the funds, and are part of the income-tax-free death benefit if you die. However, these
policies may require a higher cash outlay than term life policies.

Who should consider cash value life insurance?
Cash value life insurance is well suited to cover long-term needs, because coverage continues for the rest of your life.
You won't need to renew your policy periodically, nor will you need to provide proof of insurability (e.g., a medical
exam) once the policy is in place. Cash value insurance allows you to lock in a premium schedule, so you won't
have to worry about rising premiums as you get older or your health deteriorates.

Advantages of cash value life insurance
As with any life insurance policy, the purpose of cash value insurance is to provide adequate financial resources for
your surviving loved ones in the event of your premature death. Knowing that this protection is in place may allow you
to sleep a little easier at night.

A cash value policy is similar to an annuity in this respect. All of the interest and earnings on the policy's investments
are allowed to grow free from income taxes until you surrender the policy or begin to withdraw your funds. Depending
on the amount credited to the cash value account, you can accumulate a substantial amount of equity in your cash
value policy over a period of years. The cash value is paid free from income tax as part of a death benefit.

Generally, you'll have the right to take a loan from the insurance company, secured by the cash value in your policy.
A fixed or variable interest rate will be charged. Keep in mind, however, that if you take a loan against your cash value,
the death benefit available to your survivors will be reduced by the amount of the loan.

With a universal life insurance policy, you can take withdrawals from your cash value account. Policy withdrawals may
be tax free up to your basis in the policy (the amount you've paid into the policy in premiums). As long as the policy fits
the IRS definition of insurance, only the earnings will be taxed upon withdrawal. As with loans, the amount of the
withdrawal from your cash value account will reduce the death benefit available to your survivors, in some cases by
an amount greater than the withdrawal amount. A withdrawal will also reduce the death benefit permanently, whereas a
loan can be repaid and the death benefit restored.

Disadvantages of cash value life insurance
The premiums for cash value insurance usually cost more than for a comparable amount of term insurance in the early
years of the policy. The reason is that with a cash value policy, you're initially paying more than is currently needed to
pay for the insurance, so that you can build a fund (the cash value account) to help offset the higher insurance costs
you'll need to pay when you're older.
If you buy a variable life insurance policy, the underlying investments in the cash value account expose you to the
possibility of financial loss as well as financial gain. It all depends on how those investments fare. Any losses will cut
directly into your cash value account and may affect the amount of the death benefit, although a minimum death
benefit is usually guaranteed. (Guarantees are subject to the claims-paying ability of the insurer.)




                                                                                                    See disclaimer on final page
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                     See disclaimer on final page


                                   May 06, 2008
  LQ Wealth Advisors                                                                                    Page 194 of 139

How Does Cash Value in a Life Insurance Policy Really
Work?
When you own cash value life insurance, your premium payments are allocated three ways. First, a portion of
each premium pays for the actual insurance costs. Like term insurance, a specific cost is associated with the policy's
death benefit, based on your age, health, and other underwriting criteria. Second, a portion pays for the insurance
company's operating costs and profits. The remainder goes toward the policy's cash value.

What is cash value?
Term insurance charges an increasing premium (annually or in bands) to reflect the fact that the insured is aging and,
each year, more likely to die. Cash value life insurance has a level premium that is larger than necessary in the early
years of the policy to offset the increased costs of insuring the individual in the later years. This excess premium is
invested and kept in an account known as the cash value account. In the event that you surrender the policy before
death, this excess premium and its earnings are returned to you.

Cash value, by any other name . . .
Since cash value life insurance, also known as permanent life insurance, comes in many product varieties,
people often get confused. Whole life, variable life, universal life, and variable universal life are among the most
common cash value life insurance products found in today's marketplace. All of these policies operate in much the
same fashion. For the purposes of this discussion, where they differ is in how the cash value is invested.

How cash value grows
We've already said that a portion of every premium payment goes toward your policy's cash value. So, it's easy to
understand that the cash value of a policy will grow as additional premiums are made. The cash value of a policy
may also grow because of earnings.

Whole life policies offer "guaranteed" cash value accounts that increase based on a formula determined by the
insurance company. (Guarantees are subject to the claims-paying ability of the insurer.) Universal life policies offer
cash value accounts that track current interest rates. Variable life policies allow their owners to invest in accounts that
operate like mutual funds, meaning that their cash value accounts can be invested in bond, stock, and other funds,
known as subaccounts. The cash value will grow or decline based on the performance of the underlying subaccounts.

The amount of your premium that goes toward cash value decreases over
time
Over time, the amount that you contribute from each premium toward cash value decreases, because the cost of
insuring you increases every year. The pattern is similar to what happens with a mortgage. In the early years of a home
loan, you pay mostly interest; in the later years, you pay mostly principal.

Let's take a very simplified example and assume you're paying a $25-per-month premium for cash value
insurance. In the early years of the policy, it costs relatively little to insure you--say $5 a month--because your odds
of dying prematurely are low. In the later years of the policy, the cost to insure you is much greater--say $20 a
month--because the insurance company knows that the odds are much greater that you will die as you grow older.
The cash value part of your premium behaves just the opposite of the insurance component. In the early years of the
policy, your cash value can grow quickly since more of your premium is available for cash value. In the later years, the
cost of insurance consumes more of your premium, so less is left over for cash value.




                                                                                                     See disclaimer on final page
                                                                                                                    May 06, 2008
LQ Wealth Advisors    Page 195 of 139




                     May 06, 2008
  LQ Wealth Advisors                                                                                   Page 196 of 139


The role of cash value
You probably understand that, as you grow older, the cost of insuring your life gets more expensive. That's why a
term insurance policy will generally cost you a great deal more at age 50 than at age 30. With cash value
insurance, the insurance company looks ahead and factors in the increasing costs of insuring you as you grow older.
The insurance company calculates a premium amount that will cover the anticipated increase in insuring your life.
Cash value plays a central role in this calculation.

As the cash value of your policy grows, the amount that the insurance company needs to pay out as a pure death benefit
decreases. That's because part of the policy payout upon your death comes from the cash value of the policy. The
larger the cash value, the greater the percentage of the policy that can come from the cash value. In effect, to avoid
increasing premiums as you get older, you're setting aside funds now to make up the difference.

An example
Although grossly oversimplified, cash value works something like this:

Assume that a policy will pay $1 million upon your death. You make monthly premium payments, and each month a
portion of your premium is applied to the cash value of the policy. After 30 years, the cash value of the policy is equal to
$500,000. Since the policy will pay $1 million upon your death, and the policy already has a cash value of $500,000,
the insurance cost needs to cover only the remaining $500,000.
Ten years later, the cash value is equal to $750,000. Because you're 40 years older than you were when you bought
the policy, the pure insurance cost of insuring your life is significantly higher now. However, because of the cash
value, your policy is really insuring only $250,000. The rest of your policy's payout will come from cash value.




                                                                                                     See disclaimer on final page
                                                                                                                    May 06, 2008
                                                                                                             Page 139 of 139




 LQ Wealth Advisors                 Neither Forefield Inc. nor Forefield Advisor provides legal, taxation, or
Wealth Advisory Team                investment advice. All content provided by Forefield is protected by
             Ray Sims               copyright. Forefield claims no liability for any modifications to its content
           6960 Drake               and/or information provided by other sources.
 Cincinnati, OH 45243
        513-985-3400
  lifequestinstitute@cinci.rr.com




                                                                                     Copyright 2008 Forefield Inc. All rights reserved.

				
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