Premiere Select ®
RETIREMENT SOLUTIONS
Tr adi tional IR A/R o th IRA
INVEST IN YOUR
RETIREMENT TODAY
Why do need an IRA?
Why do I Ineed an IRA? 22
A Valuable Retirement Tool
A Valuable Retirement Tool 55
How do Roth IRAs Work?
How do Roth IRAs Work? 66
Which Kind of IRA Should Open?
Which Kind of IRA Should I IOpen? 77
Should Convert to Roth IRA?
Should I IConvert to aaRoth IRA? 10
10
Key Questions to Consider When
Key Questions to Consider When
Converting to Roth IRA
Converting to aaRoth IRA 11
11
Changing Your Mind After Converting
Changing Your Mind After Converting
to Roth IRA
to aaRoth IRA 12
12
Converting to Roth IRA
Converting to aaRoth IRA 13
13
How Will Withdraw My IRA Savings?
How Will I IWithdraw My IRA Savings? 14
14
There’s never been a better time to save for your retirement.
If you’re planning for your future, an IRA can offer you more choices than ever before. You may be eligible
to make tax-deductible contributions to your IRA—and changes in tax laws may allow you to contribute more
than ever. You can take advantage of greater flexibility to tap your IRA savings to finance other goals, such
as a first-time home purchase. If you qualify, retirement assets may be distributed tax free with a Roth IRA.
This brochure introduces two important tools for building a retirement investment program—the Premiere
Select® Traditional IRA and the Premiere Select Roth IRA. With two flexible IRA plans to choose from, you
may find it difficult to decide which IRA strategy is right for you. Fortunately, you can call on the experience
and training of your investment representative to help you sort out your options.
1
FOR RETIREMENT INVESTORS, TRADITIONAL IRA
AN IRA IS HARD TO BEAT Annual contributions that you
An IRA offers a compelling make to your IRA may be tax
combination of benefits: deductible, depending, in part,
it’s flexible, almost anyone on your Adjusted Gross Income
who earns compensation can (AGI) and your participation
contribute, and best of all, it in an employer-sponsored
shelters your savings from most retirement plan. Your earnings
current taxes so that they have grow tax deferred, but you
a chance to grow over time. pay income taxes on your
Why Do I Need an IRA?
With taxable investments, you
pay taxes on your earnings every distributions, based on your
year. Those tax payments can income tax bracket and
reduce the amount of money tax rules in effect at the
you may have to reinvest time of distribution.
and hamper the compounding
ROTH IRA
process. As a result, your savings
You may not owe federal
grow more slowly. With an IRA,
(and, in many cases, state)
you pay no annual federal (and,
income taxes on your earnings,
in many cases, state) income
provided you meet certain
taxes on your earnings. Whether
conditions. However, your
your earnings grow tax deferred
contributions are not tax
with a Traditional IRA or tax free
deductible and your AGI must
with a Roth IRA, your retirement
be below certain limits in order
savings can enjoy the full benefit
to contribute.
of tax-advantaged compounding.
2
TWO TAX BREAKS IN ONE contribution amount permitted
RETIREMENT ACCOUNT for an individual or 100%
A Traditional IRA offers you of your combined income,
two different ways to retain whichever is less.
more of what you earn. First,
your annual contributions may WHO CAN DEDUCT
be tax deductible if you meet CONTRIBUTIONS?
certain requirements. Second, For some people, the greatest
you pay no taxes on your appeal of a Traditional IRA is
investment earnings until a tax deduction for the current
you withdraw them from year on contributions, although
your account. not every taxpayer can take
advantage of this feature.
WHO CAN CONTRIBUTE Refer to the chart on page 5.
TO A TRADITIONAL IRA?
You can contribute to a HOW MUCH CAN YOU
Traditional IRA as long as you CONTRIBUTE TO AN IRA?
fulfill two requirements. You The annual amount that you
must earn compensation and may contribute to an IRA is:
be younger than age 701⁄2. Even
> 2007: $4,000
if your income is too high to
qualify for a tax deduction, you > 2008: $5,000 (indexed
can still make nondeductible thereafter for inflation
contributions to a Traditional in $500 increments)
IRA and take advantage of tax- If you’re like most people,
deferred compounding. spending time with your
You (or your spouse) may loved ones is important. By
also contribute to a Traditional contributing as much as you
IRA even if you don’t earn can to your IRA, you can
compensation, as long as your help to ensure your future
spouse does. A Spousal IRA financial security as well
lets you contribute to your own as theirs.
separate IRA each tax year up
to the limits described.
As a married couple filing
jointly, your total annual
IRA contribution for one tax
year cannot exceed twice the
3
FOR TAXPAYERS WHO > If you are married, file a
ARE NOT COVERED BY joint tax return, and are
EMPLOYER-SPONSORED an active participant in
RETIREMENT PLANS:
an employer-sponsored
> If you are an individual filer, retirement plan with a
you may fully deduct the spouse who is not an active
maximum contributions participant, deductible IRA
allowed each year. contributions for the non-
> If neither you nor your spouse active spouse are phased out
participates in an employer- if your joint AGI is between
sponsored retirement plan, $156,000 and $166,000
you may both fully deduct for 2007 and $159,000 and
your annual contributions. $169,000 for 2008. The
CATCH-UP CONTRIBUTIONS
spouse who is an active
FOR IRA OWNERS
FOR TAXPAYERS participant must determine
IRA owners age 50 or older
WHO PARTICIPATE IN the deductibility of annual
(as of December 31 of the tax
EMPLOYER-SPONSORED contributions to a Traditional
year to which the contribution RETIREMENT PLANS: IRA, based on your joint AGI.
relates) are eligible to
> If you file your taxes as an
contribute an annual “catch- The chart on the next page
individual and are an active
up contribution” each year illustrates tax years 2007 and
participant in an employer-
in addition to their annual 2008 income limits for single
sponsored retirement plan,
contributions. The annual and married taxpayers who
you may be eligible for a full
catch-up contribution file a joint income tax return
or partial deduction, based
amount is $1,000 for 2007 and participate in employer-
on your AGI.
and thereafter. sponsored plans. Please
> If both you and your spouse consult a tax advisor or your
are active participants in investment professional for
an employer-sponsored more information.
retirement plan, you may
be eligible for a full or partial
deduction, based on your
joint AGI.
Why Do I Need an IRA?
ARE YOU A PLAN PARTICIPANT?
If you are uncertain whether or not you’re a retirement plan
participant, look at the pension plan box on your W-2 Form
to see if it is checked.
4
INCOME LIMITS FOR TRADITIONAL IRA CONTRIBUTIONS
Tax years 2007 and 2008 income limits for taxpayers who participate
in employer-sponsored plans
FILING STATUS ADJUSTED GROSS INCOME (AGI)
Single 2008 $53,000 or less: $53,001-$62,999: $63,000 and over:
Fully deductible Partially deductible Nondeductible
2007 $52,000 or less: $52,001–$61,999: $62,000 and over:
Fully deductible Partially deductible Nondeductible
Joint 2008 $85,000 or less: $85,001-$104,999: $105,000 and over:
Fully deductible Partially deductible Nondeductible
2007 $83,000 or less: $83,001–$102,999: $103,000 and over:
Fully deductible Partially deductible Nondeductible
A Valuable Retirement Planning Tool
DISTRIBUTIONS A Traditional IRA requires your circumstances before you
The primary purpose of an you to begin taking distributions begin taking distributions or
IRA is to accumulate funds at age 70½. The rules for for advice on how to structure
for retirement. For that reason, computing annual required your beneficiary designations to
there are generally serious minimum distributions can be take advantage of the prolonged
consequences to withdrawing quite complex, and mistakes can payout features that are available
assets before you reach age prove costly. If you don’t have to IRA owners.
59½. In addition to taxes, you an immediate need for your
may have to pay a 10% penalty IRA money, you may even leave
on the taxable portion of your it to your loved ones after you
distribution. There are some die; they generally may receive
exceptions to this rule, which distributions over the period
allow distributions under of time that is considered their
certain circumstances for higher life expectancy. Your choice of
education expenses, a first- a beneficiary must be made
time home purchase, or other carefully if you wish to take
specified purposes, without advantage of this option. It’s
paying a penalty. For more
details, refer to page 14.
generally a good idea to speak
with a tax professional about 5
The type of IRA you qualify
for depends on your age
and your income level.
But, you must also consider
your personal circumstances
before deciding which
IRA strategy may work best
for you. Your investment
representative can help
guide you in selecting the
type of IRA that may help
you to reach your long-term
financial goals.
ANNUAL CONTRIBUTIONS TO A ROTH IRA
FILING YOUR ADJUSTED GROSS YOUR MAXIMUM ANNUAL
STATUS INCOME CONTRIBUTION FOR 2007 AND 2008
Single 2008 $101,000 or less $5,000
$101,001–$115,999 $200–$4,999
$116,000 and over You cannot contribute to a Roth IRA
2007 $99,000 or less $4,000
$99,001–$113,999 $200–$3,999
$114,000 and over You cannot contribute to a Roth IRA
Married, fiing 2008 $159,000 or less $5,000
joint return $159,001–$168,999 $200–$4,999
$169,000 and over You cannot contribute to a Roth IRA
2007 $156,000 or less $4,000
$156,001–$165,999 $200–$3,999
$166,000 and over You cannot contribute to a Roth IRA
Married, filing separately and 2008 Zero (-0-) $5,000
you lived with your spouse at $1–$9,999 $200–$4,999
any time during the year $10,000 or more You cannot contribute to a Roth IRA
2007 Zero (-0-) $4,000
$1–$9,999 $200–$3,999
$10,000 or more You cannot contribute to a Roth IRA
How Do Roth IRAs Work?
TAX-FREE EARNINGS FOR LIFE WHO CAN CONTRIBUTE
A Roth IRA is different than TO A ROTH IRA?
a Traditional IRA. Unlike a You must earn compensation
Traditional IRA, contributions to contribute to a Roth IRA.
to a Roth IRA are not tax But unlike a Traditional IRA,
deductible. However, as long you may contribute to a Roth
as you comply with certain IRA even after you reach age
conditions, earnings from a 70½. You must, however, meet
Roth IRA are not simply tax the income limits listed above
deferred—they may be tax free. in order to make annual
You can keep everything you contributions to a Roth IRA.
earn for your retirement.
6
DISTRIBUTIONS CHOOSING AN IRA FOR YOUR I Which IRA is best if I
3
Unlike a Traditional IRA, a CONTRIBUTION THIS YEAR expect to pay a lower
Roth IRA does not call for Let’s assume you have decided tax rate in retirement?
required minimum distributions to open an IRA this year. Now A Traditional IRA may make
at age 70½. You can leave your the question is, which kind— more sense. However, if you
assets in your account Roth or Traditional? Before expect your tax rate will be the
Which Kind of IRA Should I Open?
and continue enjoying choosing, here are some factors same or higher in retirement,
the advantages of tax-free to consider: you may gain no benefit from
compounding throughout deferring taxes. Consider a
your lifetime. Qualified I How much will I earn this year?
1 Roth IRA.
distributions from a Roth IRA If you earn more than $114,000
are free from federal (and, in in 2007or $116,000 in 2008 I Does my retirement date
4
many cases, state) income taxes, in AGI as a single tax filer, or make a difference?
although early withdrawals more than $166,000 in 2007 A Roth IRA may be a compelling
may be subject to both taxes or $169,000 in 2008 as a choice for a young investor. If
and a 10% penalty. You’ll find married couple filing jointly, retirement is still a long way
more information about IRA you cannot contribute to a off, you have many years to earn
distribution rules on page 14 Roth IRA. Instead, consider a a return on your investment.
of this brochure. Traditional IRA. You can still Tax-free compounding could
enjoy the significant advantage make a dramatic difference in
of tax-deferred earnings. your retirement savings.
I Can I deduct contributions
2 I Must I comply with
5
to a Traditional IRA? minimum distribution rules?
If you can reduce your current Traditional IRAs have minimum
tax liability, a Traditional IRA distribution requirements, which
may be more attractive. Your kick in at age 70½. However,
investment representative with a Roth IRA, you can leave
or tax advisor can help you some or all of your Roth IRA
calculate the relative advantages savings to grow and compound
of each strategy. tax free for as long as you live.
7
An IRA can give you the
financial freedom to enjoy
the kind of life you want to
live. Contact your investment
representative to learn more
about which type of IRA may
work best for you.
I What if I am concerned
6 I Can I contribute to a
7
about building an estate Roth IRA?
for my heirs? You can contribute to both
If so, consider a Roth IRA. a Traditional IRA and a
Roth IRAs have emerged as Roth IRA in the same tax year.
powerful estate planning tools, However, the combined yearly
both because they require no contribution to all of your IRAs
minimum distributions during (Traditional and Roth) cannot ADJUSTED GROSS INCOME:
your lifetime and because all exceed the total that you are
Your annual income, as
qualified distributions are free allowed to contribute to either
reported on line 37 of your
from federal (and, in many a Traditional or Roth IRA,
2007 IRS Form 1040 (subject
cases, state) income taxes. With or your total compensation,
to change in future years),
proper planning, a Roth IRA whichever is less.
is your total income minus
can help you significantly save
a specific list of deductions,
on taxes. Because distributions I Changing your mind
8
such as student loan interest
from a Roth IRA are generally What if I change my mind
payments, moving expenses,
free from federal (and, in some after I contribute to an IRA?
and so on.
cases, state) income taxes, upon You can recharacterize an
the death of the account owner, annual Roth IRA contribution to
Which Kind of IRA Should I Open?
Roth IRA assets may only be a Traditional IRA—or the other
subject to estate taxes. Very way around—as long as the
often, Traditional IRAs can be recharacterization is made on
hit with both federal (and, in or before your federal tax-filing
some cases, state) income and deadline (including extensions)
estate taxes upon the death for the year for which the
of the account owner. In fact, contribution was made to the
under certain circumstances, “initial” IRA, typically April 15.
your Roth IRA savings can grow
tax free over both your lifetime
and your heirs.’ Imagine the
effect of compounding over
such a long period of time.
If this option appeals to you,
remember that estate planning
can be a complex task. You
should consult with your
tax advisor or investment
representative for help.
8
The type of IRA you select
can have long-term financial
implications for you and your
loved ones. Your tax advisor
or investment representative
can help you decide which IRA
may best suit your needs—
and provide you with greater
long-term financial security.
Which Kind of IRA Should I Open?
CHOOSING AN IRA FOR YOUR CONTRIBUTION
Are you eligible to establish a tax-free Roth IRA?
Yes No
Are you eligible to deduct Contribute to a Traditional IRA
contributions to a Traditional IRA? where you’ll enjoy tax-deferred earnings
Yes No
Tax Deduction (refer to chart on page 5 Contribute to a Roth IRA that generally
Tax-Free Growth for deductibility) provides the highest after-tax growth for
retirement
Tax Free Tax Deduction
9
Contribute to a Roth IRA and Tax-deductible Traditional IRA
enjoy tax-free earnings for immediate tax savings
Should I Convert to a Roth IRA?
PAY NOW OR PAY LATER Converting to a Roth IRA offers
We’ve discussed your options you all the familiar advantages.
for making annual IRA As long as you meet certain
contributions. What about the conditions, you pay no taxes
IRAs that you already own? on your earnings when you
Can you gain the advantages withdraw your savings. Those
of a Roth IRA for assets you tax advantages can substantially
have already accumulated in boost your retirement nest
another type of IRA? egg over the long run.
The answer is yes. As long as However, there is one serious
your Adjusted Gross Income requirement to consider before
(individual or joint) is less than converting. When converting
$100,000 for the applicable IRA assets, you must pay taxes SIMPLE IRA
tax year, you can convert a on your investment earnings SIMPLE IRA assets that are
Traditional IRA, Rollover IRA, to date. You must also pay taxes converted to a Roth IRA
SEP-IRA, or SIMPLE IRA to a on any deductible contributions prior to the expiration of the
Roth IRA during that year. You you have made. The conversion two-year period (beginning
may convert all of your IRA decision may come down to on the date you first receive
assets or only a portion. this—do you want to pay your contributions under the
tax liability now, when you SIMPLE IRA Plan maintained
convert, or pay later, by your employer) may be
when you withdraw? subject to a 25% penalty.
CONVERSION
Converting an existing IRA
to a Roth IRA: You may
gain future tax advantages
but incur current tax liability.
You must meet certain
conditions to qualify.
Consult your investment
representative for details.
10
Before converting an IRA, you I Will I have to tap my IRA
4 I Am I concerned about
6
may want to discuss your own savings to pay the taxes on building an estate for
specific situation with your the conversion amount? my heirs?
tax advisor or your investment You should avoid using IRA Roth IRAs have become
representative. Here are some assets to pay your taxes. If increasingly popular as estate
questions to consider first: you do, and you are younger planning tools. Qualified
than age 59½, you could distributions from a Roth IRA
I Will I earn more than
1 find yourself paying a 10% are free from federal (and, in
$100,000 in Adjusted Gross early withdrawal penalty on some cases, state) income taxes,
Income this year? those assets, in addition to even after the death of the
If you answer yes, you cannot any taxes you may owe. The account holder.
convert to a Roth IRA this year. penalty alone might outweigh
the benefit of conversion. If I Once I convert to a Roth
7
I Will my spouse and I file
2 you can’t afford to convert all IRA, must I leave the assets
separate returns this year? of your IRA assets at once, alone for at least five years?
If you are married and filing consider converting only a Yes, your distributions from a
separate tax returns, you cannot portion of your IRA holdings Roth IRA are tax free only if
convert an IRA, unless you have each year (although you must you meet certain five-year aging
lived apart from your spouse meet the conversion qualifica- and other qualified distribution
for the entire tax year. tions each year). requirements. See page 14
for more information on
Key Questions to Consider distributions from Roth IRAs.
Don’t convert an IRA if you
think you may need to use the
assets within the next five years.
I Did I deduct my past IRA
3 I Will I be in a lower tax
5
contributions? bracket when I retire?
If you deducted IRA contribu- Will your tax rate decrease
tions from your income in the when you stop working? Or do
past, you will need to include you think you’ll be in the same
them in your income in the or a higher tax bracket because,
year you convert them to a for example, the government
Roth IRA. If your contributions increased tax rates or you have
were nondeductible, you substantial investment earnings
will pay taxes only on your or lucrative post-retirement
earnings when you convert income? Generally, if you think
to a Roth IRA. you will be at either the same
tax rate or a higher tax rate in
retirement, it might make sense
to convert your IRA and pay
11
your taxes now.
Changing Your Mind
What if you change your mind There is even a provision
RECHARACTERIZATION:
after you convert assets to a to allow you to change your
Roth IRA? This could happen mind yet again. After you have Reversing a Roth IRA
if you discover that your recharacterized a converted conversion or redirecting
income exceeds the $100,000 amount, you may be able to an annual contribution
limit. Or perhaps the conversion reconvert it back to a Roth (Traditional or Roth) back
taxes took a bigger bite than IRA. You should consult to the original IRA—
you expected. a tax advisor to more fully Traditional, Roth, Rollover,
understand the regulations SEP-IRA, or SIMPLE IRA.
Fortunately, the tax code offers
and deadlines surrounding
you some flexibility. You can
reconversions.
recharacterize a conversion
back to the original type of IRA, RECONVERSION:
provided the recharacterization
Converting an IRA that has
is made on or before your
already been converted and
tax-filing deadline, typically
recharacterized once before.
April 15 (including extensions)
for the year in which the
conversion is made.
The government gives you a lot of flexibility
to recharacterize your IRA contributions.
But the rules are complex. That’s why it’s
best to consult your tax advisor or investment
representative whenever considering
recharacterizing or reconverting an IRA.
12
Converting to a Roth IRA
CONVERTING TO A ROTH IRA
Here are some issues to consider in deciding whether to convert a Traditional IRA to a Roth IRA.
Is your Adjusted Gross Income — joint or individual — $100,000 or greater?
Yes No
You cannot convert this year. Are you married, but filing separate returns?
Yes No
You cannot convert unless you lived Were your prior contributions tax deductible,
apart the entire tax year. or has your IRA already accumulated earnings?
Yes No
Can you afford to pay taxes now to eliminate You may owe no taxes. Consider converting.
future taxes on IRA earnings?
Yes No
Do you expect your tax rate to be the same You may not want to convert. Avoid
or higher in retirement? tapping IRA savings to pay conversion taxes.
Yes No
Are you interested in preserving an estate You may not want to convert.
for your heirs?
Yes No
Consider converting. Consult your Will you need to use the savings within
tax or investment representative. the next five years?
Yes No
13
You may not want to convert. Consider converting.
AVOID PAYING UNEXPECTED intended, you can avoid need- PENALTY-FREE DISTRIBUTIONS be distributed. Annual
PENALTIES less headaches and expenses. FROM A ROTH IRA contributions may be
IRAs were designed primarily But if you take a distribution Distributions from Roth IRAs withdrawn from a Roth IRA,
with your retirement in mind. without considering the rules, are taken from the non-taxable at any time, tax free and
They can also help you finance you may find yourself owing portion of the Roth IRA assets penalty free.
certain other goals, such as unexpected taxes, a 10% first. Only when all original
The table below offers a
higher education expenses or early withdrawal penalty, contributions have been
quick overview of some
a first-time home purchase. or both. distributed will any earnings
of the relevant restrictions.
If you use IRAs as they were (may be subject to taxation)
How Will I Withdraw My IRA Savings?
DISTRIBUTIONS FROM ROTH AND TRADITIONAL IRAS
Penalty-free distributions Roth IRA and Traditional IRA
The 10% early withdrawal penalty will not apply to a distribution,
as long as the distribution is for one of the following purposes:
> Age 59½
> Qualified higher education expenses
> Qualified first-time home purchase (up to $10,000 lifetime limit)
> Certain substantially equal periodic payments
> Certain medical expenses in excess of 7.5% of Adjusted Gross Income
> Certain unemployment expenses
> Disability
> Death
> IRS levies
> Qualified Reservist1
Penalty-free and tax-free Roth IRA only
distributions With a Roth IRA, you pay no penalty and no federal taxes on
your distribution as long as you have satisfied the five-year aging
requirement (see page 15 of this brochure for details) and your
distribution is for one of the following purposes:
> Age 59½
> Qualified first-time home purchase (up to $10,000 lifetime limit)
> Disability
> Death
Roth IRA and Traditional IRA
> Qualified HSA Rollover2
1
A qualified reservist distribution is made to an individual ordered or called to active duty for a period of more than 179 days
of the active duty or for an indefinite period after 9/11/01 and before 12/31/07.
2
A one-time irrevocable direct rollover to an HSA is limited to the HSA regular contribution limit for the year and cannot be
deducted from income as an HSA contribution.
14
Taxes on IRA distributions FIVE-YEAR AGING THREE STEPS TO
All distributions, except after- REQUIREMENT GET YOU STARTED
tax contributions, from a To avoid taxes and penalties
Step 1
Traditional IRA are taxed at your on a distribution from a Roth
For each new Premiere Select
ordinary federal income tax rate. IRA, you must have owned the
IRA—Traditional IRA or Roth
Qualified distributions from account for at least five years.
IRA—complete and sign the
a Roth IRA are free of federal The five-year period begins
Account Application.
income taxes. Consult a January 1 of the year for which
tax professional about your you made your first Roth IRA
Step 2
specific situation. annual contribution, or, if earlier,
For a transfer, complete the
January 1 of the year in which
Transfer Form.
you made your first conversion
contribution. All subsequent For the conversion of an
annual contributions receive existing IRA (but not a Roth
this initial five-year aging date; IRA) to a Roth IRA, complete
however, each subsequent the Premiere Select® Roth IRA
conversion receives its own five- Conversion Form.
year aging date for purposes of
determining if distributions are Step 3
qualified distributions. Once your application or
transaction request form has
WHAT ARE MY NEXT STEPS? been received, National Financial,
Whether you’ve decided to working together with your
contribute to a Traditional investment representative, will
IRA or Roth IRA, convert an process your request.
existing IRA, or transfer an
IRA, the process is easy.
Simply follow three steps.
15
Contact your investment representative today to open a Traditional
or Roth IRA—or to convert an existing IRA. It’s a step you can take to
help ensure your financial security down the road—and of those you
care most about.
16
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