For Employees. Principal Funds SIMPLE IRA

Transcription

1 For Employees Principal Funds SIMPLE IRA

2 Principal Funds SIMPLE IRA The following information is provided to help explain SIMPLE IRA plans that feature the Principal Funds as investment options. Principal Funds, Inc., is distributed by Principal Funds Distributor, Inc., a member of the Principal Financial Group. The Principal is a leader in offering businesses, individual clients, and institutional clients a wide range of financial products and services, including retirement and investment services, life and health insurance, and banking through its diverse family of financial services companies and national network of investment representatives. Table of Contents Principal Funds SIMPLE IRA... 1 Your SIMPLE IRA Account... 3 Services... 5 Additional Forms/Documents Available Account Application (FV406) Salary Deferral Agreement (FV415) Transfer Request (FV409) Form 5305-SA Custodial Agreement (FV432) not FDIC insured may lose value no bank guarantee

3 What is a SIMPLE IRA? SIMPLE stands for Savings Incentive Match Plan for Employees. A SIMPLE IRA allows you to save for retirement by deferring salary on a pre-tax basis and receiving predetermined company contributions. Participating in your company s SIMPLE IRA provides a valuable opportunity to start or build on your retirement savings. How does a SIMPLE IRA work? Your employer establishes the plan. Each year, you determine the amount of your salary you want to contribute to the plan. Then, an Individual Retirement Account (IRA) is opened in your name and your contributions are automatically invested through convenient payroll deductions. Your contributions are referred to as salary deferrals because the federal, and in most cases the state, income taxes you normally pay on your earnings are deferred until you withdraw the funds from the account. Who is eligible for a SIMPLE IRA? The plan may require you to have received at least $5,000 of compensation in any two prior calendar years, and to be expected to earn at least $5,000 in the current year. Your employer will notify you of your eligibility and you will have 60 days to decide to enroll. How much will my employer contribute? Your employer must generally match either 100% of your salary deferrals up to 3% of your compensation, or make a 2% contribution to all eligible employees regardless of whether or not those employees defer into the plan. Your employer may reduce the matching contribution to as low as 1% in no more than two years of any five-year period. Your employer may change the contribution made to the SIMPLE IRA or other plan rules from time to time. In general, employees must be notified 60 days before a change becomes effective, and the change will be effective only at the start of a new calendar year. 1

4 How will a SIMPLE IRA benefit me? A Principal Funds SIMPLE IRA allows you to: Reduce current federal income tax liabilities. You pay no current federal (and in many instances, no state) income tax on amounts you defer or that your employer contributes to the plan. Receive employer contributions to help build your retirement nest egg. Be vested in 100% of the contributions made to your account. Be vested in all assets in the account at all times. Change your deferral amount to meet your current needs, subject to plan limitations. Take advantage of higher contribution limits than allowed in traditional or Roth IRAs. Invest for retirement on a systematic basis through payroll deduction. What are the fees for establishing a Principal Funds SIMPLE IRA? There is a $15 annual custodial fee deducted from the account each year in December. If we receive your application between January 1 and June 30, we ll deduct the custodial fee from the account in December of the current year. If we receive your application between July 1 and December 31, we ll deduct the custodial fee from the account in December of the following year. Operating expenses, management fees, and other charges may apply to the investment options within the Principal Funds SIMPLE IRA. Please see the Principal Funds prospectus, or ask your financial professional, for details. 2

5 Your SIMPLE IRA Account Employee deferrals Your contributions are deducted automatically from your salary. Not only is this a convenient way to stay on track with saving for retirement, your investments also benefit from regular, periodic contributions. You decide how much to defer, and in which funds to invest. The maximum employee deferral is the lesser of: $12,000 (for 2014 tax year) 100% of your salary If you are over age 50, you may contribute an additional $2,500 per year to your SIMPLE IRA. You pay no current federal taxes, and in most cases, no state income taxes on your deferrals. However, your deferral amount is included in wages subject to Social Security tax. All contributions and earnings to your SIMPLE IRA accumulate tax-deferred until you start taking withdrawals. Deferral election changes You may make changes to your elections annually effective January 1. You may discontinue your deferrals at any time during the year. Your employer may allow more frequent changes to your elections. Eligibility Unless your employer offers immediate eligibility, the only effective enrollment date for a SIMPLE IRA is January 1. Employee withdrawals Because SIMPLE IRA contributions are 100% vested, you can withdraw funds from your SIMPLE IRA at any time. All withdrawals, however, are taxed as ordinary income, and most withdrawals made prior to two years of plan participation incur a 25% IRS penalty tax. Withdrawals made after two years of participation but before age 59½ are subject to a 10% IRS penalty tax. There are limited exceptions to penalties. Loans are not allowed under a SIMPLE IRA. 3

6 Terminating employment SIMPLE IRAs are individual accounts. You may keep your Principal Funds SIMPLE IRA, if you wish. Directly rolling the assets into a Principal Funds rollover IRA is an alternative. Taking a lump-sum distribution is another option; however, lump-sum distributions will be subject to taxes and possibly a 10% IRS early withdrawal penalty. Only money being rolled out of a SIMPLE IRA can be rolled into another SIMPLE IRA. You can, however, roll money out of a SIMPLE IRA to another retirement plan, subject to the plan document, if it has been in the plan for more than two years. 4

7 Services We offer you a variety of ways to obtain information, monitor investments, and buy and sell shares. One toll-free phone number Call our toll-free number, , when you need to: Make investment changes As your financial objectives change, you may make exchanges to other Principal Funds within the same share class, or you can change your investment instructions for new contributions. Access account information Automated account information is available 24/7. Speak with a Client Relations Specialist Client Relations Specialists are available from 7:00 a.m. to 7:00 p.m. Central Time on any day the New York Stock Exchange is open for trading. Internet access You can access account information by visiting principalfunds.com. Simply select My Account to reach all of your Principal Funds information. Quarterly participant statements An informative statement of your account activity will be sent to your home four times each year. You can also sign up to receive your quarterly statements online. How to enroll Enrolling in the SIMPLE IRA is easy. Complete the forms indicated in this booklet. Return the Salary Reduction Agreement to your employer. Return all other forms to: Principal Funds P.O. Box 8024 Boston, MA Check with your financial professional, as additional forms may be needed. 5

8 WE LL GIVE YOU AN EDGE principalfunds.com Carefully consider a fund s objectives, risks, charges, and expenses. Contact your financial professional or visit principalfunds.com for a prospectus, or summary prospectus if available, containing this and other information. Please read it carefully before investing. Investing involves risk, including possible loss of principal. While this communication may be used to promote or market a transaction or an idea that is discussed in the publication, it is intended to provide general information about the subject matter covered and is provided with the understanding that The Principal is not rendering legal, accounting, or tax advice. It is not a marketed opinion and may not be used to avoid penalties under the Internal Revenue Code. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, or accounting obligations and requirements. Principal Funds are distributed by Principal Funds Distributor, Inc. MM /2014 t m 2014 Principal Financial Services, Inc.