SunAmerica Mutual Funds Simple IRA. A Retirement Plan

Transcription

1 SunAmerica Mutual Funds Simple IRA A Retirement Plan For Your Small Business Strategy

2 Retirement plans are powerful incentives in today s work force. SunAmerica Mutual Funds recognized your need as a business owner to attract and retain talented employees while saving for your retirement at the same time. We proudly offer you the SunAmerica Mutual Funds Simple IRA... a retirement plan for your small business. peter A. Harbeck President SunAmerica Mutual Funds

3 SunAmerica Mutual Funds SIMPLE IRA The Small Business Alternative The Simple IRA was created specifically to meet the retirement needs of today s small business owner. It offers small companies, self-employed individuals and those with professional practices many of the same benefits and features associated with company sponsored 401(k) plans with minimal expense and administration. Plan Advantages Establishing a SunAmerica Mutual Funds SIMPLE IRA can benefit both you and your employees. Let s take a closer look at many of the advantages a SunAmerica Mutual Funds SIMPLE IRA can provide. Reduces Current Taxes employer all contributions made on behalf of your employees are deductible as a business expense. employee Each participant is allowed to defer up to $11,500 ($14,000 if 50 or older) from their salary on a pre-tax basis, thus reducing their current taxable income. Savings Incentive Saving for retirement isn t easy. The SunAmerica Mutual Funds SIMPLE IRA gives you and your employees powerful tools to build retirement savings. Salary Deferral Salary deferral is the cornerstone of the Simple IRA Plan. It simply means you and your employees decide how much you want to save for retirement and that amount is automatically deducted from their salary on a pre-tax basis each pay period. 1

4 Matching Contributions The Simple IRA allows all contributions to be matched on a dollarfor-dollar basis (up to 3% of compensation), giving both employer & employee a compelling reason to save. 100% Vesting Both employer and employee contributions are fully vested from day one so participants are entitled to all of their SIMPLE IRA contributions at any time and don t have to wait years to take charge of their retirement assets. Early Withdrawal Penalty While the SIMPLE IRA does allow participants to withdraw their money at any time, subject to ordinary income tax, withdrawals taken within the first two years of participation by individuals under age are subject to a higher early withdrawal penalty than regular IRA distributions. These penalties encourage the participant to focus on long-term saving the primary reason you establish a SIMPLE IRA Plan. Easy Administration There are no annual employer tax filings required by the IRS. There is also no costly testing that you have to perform each year. Self-Direction Unlike some small business retirement plans funded solely by employer contributions, the SIMPLE IRA shifts much of the funding responsibility to the employee. Once the plan and accounts are set-up, employees are able to choose any SunAmerica Mutual Fund to build their own retirement savings portfolio. 2 SIMPLE IRA

5 Tax-Deferred Growth Your savings has the potential to grow faster since contributions and earnings will compound tax deferred. As you can see from the chart below your SIMPLE IRA Plan investment can grow more than a comparable taxable investment because its earnings are sheltered from current taxes. The Advantage of a Tax-Deferred Retirement Plan Assumes a $10,000 annual investment and an 8% annual growth rate. Tax-deferred investing account: taxes on earnings deferred. Taxable investing account: taxes on earnings not deferred and taxed annually at an income tax rate of 25%. Upon withdrawal, taxes and possible penalties may be applied to the tax-deferred amount shown. The illustration is hypothetical and is for illustrative purposes only. It does not represent any particular investment or guarantee a rate of return. Tax-deferred investments do not protect against loss in declining markets. Competitive Edge Attract & Retain Employees The SIMPLE IRA offers you a cost effective way to attract quality employees in a competitive job market and retain those employees after you ve invested time and money in their training. A retirement plan for your small business strategy 3

6 Questions & Answers The Small Business Alternative Q: What is the SIMPLE in the SIMPLE IRA? A: SIMPLE is short for Savings Incentive Match Plan for Employees. The plan was adopted by Congress as part of the Small Business Job Protection Act of 1996 and went into effect on January 1, Q: Who can establish a SIMPLE IRA? A: Any employer including S or C corporations, sole proprietorships, independent contractors and self-employed individuals can establish a SIMPLE IRA, as well as tax-exempt organizations, state or local governments and political subdivisions. As an employer, you are eligible to establish a SIMPLE IRA if you have no more than 100 employees. In addition, an employer establishing a SIMPLE IRA may not be currently making contributions to any other employer-sponsored retirement plan during the calendar year in which the SIMPLE IRA is maintained. Q: How does an employee become eligible to participate in the plan? A: Generally, any employee who earned at least $5,000 during any two preceding calendar years and is expected to receive at least $5,000 in the current year is eligible to participate. As an employer you may reduce these requirements but you may not make them more restrictive. Most union and non-resident alien employees may be excluded from a SIMPLE IRA. 4 SIMPLE IRA

7 Q: What is considered compensation for a SIMPLE IRA? A: Compensation includes all taxable wages, salaries, fees, bonuses and employees elective deferral contributions made to the SIMPLE IRA. For a self-employed individual, compensation is your earned income before subtracting any contributions to the SIMPLE IRA. Q: What forms must be completed to establish a SIMPLE IRA? A: each plan participant must complete and submit a SunAmerica SIMPLE IRA Application. The plan sponsor/employer must complete IRS form SIMPLE. SunAmerica must receive a copy of the completed form. All plan participants must complete IRS form 5305-SA. Contributions Q: Are employer contributions required? A: Yes, annual employer contributions are required. However, you can choose between the two contribution methods described below: + 3% Matching Contribution Each employer must match the employee s contribution dollar-for-dollar up to 3% of the employee s pay. The employer may reduce the matching contribution to as low as 1% in no more than two out of five continuous calendar year periods. + 2% Non-Elective Contribution All eligible employees will receive contributions totaling 2% of their pay (up to $4,900) even if the employee chooses not to make any contributions from his or her pay. employers may switch between these methods each year as long as each employee is notified within a reasonable period of time before the employee s 60-day election period for the calendar year. A retirement plan for your small business strategy 5

8 Q: Are employee contributions required? A: No, there is no rule requiring employees to participate. However, if the non-elective contribution option is selected, each eligible employee must establish a SIMPLE IRA account. Q: What are the limits on employee contributions? A: each year an employee may elect to defer a percentage of his or her annual pay up to $11,500 ($14,000 if 50 or older). Q: When must SIMPLE IRA contributions be deposited? A: employee salary reduction contributions must be deposited with SunAmerica no later than the 30th day of the month following the month in which the funds were withheld from the employee s pay. Employer contributions may be made up until the deadline for filing the employer s federal tax return, including extensions. Q: Can an employee discontinue his or her salary deferrals? A: Yes, the employee may discontinue his or her contributions into the plan at any time. However, in setting up the plan, the employer may impose restrictions for resuming contributions until the following calendar year. Q: Can employer and employee contributions be made to a SIMPLE IRA for an employee who is over ? A: Yes. Even though employees must begin receiving distributions from their SIMPLE IRA after they reach , contributions can still be made provided that person remains employed. 6 SIMPLE IRA

9 Q: Can I still make regular IRA contributions while contributing to a SIMPLE IRA? A: Yes, though regular IRA contributions must be made into a separate IRA account and they may or may not be tax deductible. Q: Can money be rolled into a SIMPLE IRA? A: Yes. However, a SIMPLE IRA can only accept transfers or rollovers from other SIMPLE IRAs. Withdrawals/Distributions Q: When may participants take money out of their SIMPLE IRA? A: Participants may take distributions from their SIMPLE IRAs at any time. However, because a SIMPLE IRA is intended for retirement, the law imposes a 25% penalty tax on individuals under age if money is removed from the plan during the first two years of participation. After two years, SIMPLE IRA rules for distributions are the same as the rules for IRAs. Distributions taken before the participant reaches age may be subject to a 10% penalty. Q: Can a SIMPLE IRA be rolled over? A: Tax-free rollovers or transfers can be made from one SIMPLE IRA account to another. Also, a SIMPLE IRA can be rolled over or transferred to a regular IRA after the initial two-year period when the employee began participating. Q: May employees take loans from a SIMPLE IRA? A: No, there are no loan provisions for SIMPLE IRAs. A retirement plan for your small business strategy 7

10 Employer Notification Q: What notification must the employer provide employees? A: The notification that must be given is as follows: new Plan Provide at least a 60-day enrollment period preceding the effective date of the plan. existing Plan Provide at least a 60-day enrollment period prior to January 1 in which all eligible employees are given the right to enter or modify their salary reduction agreement. both Immediately preceding the election periods described above, provide employees with notice of their opportunity to participate or modify their participation in the plan. This notice must include: 1) The Model Notification to Eligible Employees which includes the matching option and percentage of employees contribution for the year. 2) Model Salary Reduction Agreement (Both of the above forms can be found in IRS form 5304-SIMPLE) 3) A copy of the Disclosure Statement along with IRS Form 5305-SA 8 SIMPLE IRA

11 Reporting Q: What are the employer s tax reporting requirements? A: The employer must report contributions annually to the IRS on Form W-2 for eligible employees who are active participants in the SIMPLE IRA and the amount of their salary deferrals. There is no discrimination testing or 5500 reporting required. Q: Must employees report employer contributions as taxable income on their personal tax return? A: No. The amount of employer contributions made to a participant s SIMPLE IRA is not included in gross income on the participant s IRS Form W-2. Q: How does the IRS treat salary deferrals made into a SIMPLE IRA? A: The amount deferred into a SIMPLE IRA is not included as taxable income on Form W-2. However, salary deferrals are subject to Social Security, Medicare, Railroad Retirement and Federal Unemployment Tax. A retirement plan for your small business strategy 9

12 Mutual fund shares offered by: SunAmerica Capital Services, Inc. Harborside Financial Center 3200 Plaza 5 Jersey City, NJ (800) x None of the information in this brochure should be considered legal and tax advice. You should consult your legal or tax advisers for information concerning your own specific tax situation. Investors should carefully consider the investment objectives, risks, charges, and expenses of any SunAmerica mutual fund before investing. This and other important information is contained in the prospectus, which can be obtained from your financial advisor or from the SunAmerica Sales Desk at , ext Read the prospectus carefully before investing. SIMBR-6/10