Franklin Templeton 403(b) Plan EMPLOYEE S GUIDE

Transcription

1 Franklin Templeton 403(b) Plan EMPLOYEE S GUIDE

2 Franklin Templeton 403(b) Plan Roadmap to Retirement As an employee of a public school, church, hospital or other non-profit organization, 1 you have a unique opportunity to invest for retirement through a 403(b) tax-deferred retirement plan. Participating in a Franklin Templeton 403(b) plan may be the wisest route to help you save for a secure financial future. That s because a 403(b) plan brings together many powerful features to help you save for retirement, including: Tax advantages that can help grow your investments and may reduce your tax liability A wide range of investment choices to help meet your personal financial goals Conveniences that help you manage your money, like automatic payroll deduction, the flexibility to change your investment choices and contribution amounts, and regular statements to keep track of your account I m just getting started in my career, and retirement seems a long way off. But, I know I ll get there someday, and investing through automatic payroll deduction is easy. It gives me the discipline I need to plan for my future security. 1. Non-profit is defined as qualifying under Section 501(c)(3) of the Internal Revenue Code. Not FDIC Insured May Lose Value No Bank Guarantee

3 Start Saving Now And Put Time on Your Side Saving for retirement is a long-term goal that takes years to accomplish. Start small if you have to, but start immediately. A small amount invested today can outpace a large amount invested just a few years from now. In fact, the earlier you begin investing, the less you may need to invest to reach your goals. Take a Look at This Example: Mary began investing $1,000 each year beginning at age 25 and stopped after contributing $10,000 over 10 years. John began investing $1,000 for retirement at age 35 and continued to invest $1,000 every year for the next 30 years for a total investment of $30,000. Although John contributed three times more than Mary, and both earned a 7% fixed annual rate of return, at age 65 his account was worth 11% less than hers. Starting Early Can Make a Big Difference 2 Value of Account at Age 65 $108,148 $120,414 The Facts about Retirement You re planning for a long retirement. You could spend up to one-third of your life in retirement. In 1950, life expectancy was about 75 years; today it s approaching 85 years. 3 Proper financial planning can help ensure that assets last a lifetime. You ll need to replace more of your income. A general rule of thumb assumes that retirees will need 70% to 80% of their current income during retirement. Social Security provides today s retirees with an estimated 38% of their total income and is expected to provide proportionately less of the total in the future. 4 To help meet future income needs, a workplace retirement plan can provide an added source of income. JOHN Starting Age: 35 Total Contributions: $30,000 MARY Starting Age: 25 Total Contributions: $10,000 Inflation shrinks your buying power. By the time you retire, you ll likely be living in a more expensive world. Consider that over the past 20 years, the average annual rate of inflation has been 2.37%. 5 At that rate, in 20 years, a $50,000 income earned today will need to grow to $79,921 just to maintain the same level of buying power. To keep up, consider increasing the amount you invest for retirement each year. 2. This example is for illustrative purposes only and does not represent the performance of any Franklin Templeton fund. The table assumes a fixed 7% average annual rate of return compounded monthly and no fluctuation of principal. An investment in a Franklin Templeton fund does not guarantee that you will have sufficient funds to meet future retirement needs. Distributions of pre-tax contributions and all earnings from the plan are taxed as ordinary income for the year in which money is withdrawn. Withdrawals received prior to age may be subject to a 10% federal tax penalty. Additional state income taxes may apply. 3. Source: Social Security Administration, Cohort Life Expectancies, Low, Intermediate and High Cost Projections, Source: U.S. Census Bureau, Current Population Survey, 2013 Annual Social and Economic Supplement. 5. Source: 2014 Morningstar, 20-year period ended December 31, All rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results. franklintempleton.com Franklin Templeton 403(b) Plan 3

4 Take a Closer Look To begin participating in your 403(b) plan, you ll need to specify the percentage of salary you d like to contribute to the plan and how you d like to invest the contributions. Contributions will be automatically deducted from each paycheck and invested in your account according to your instructions. Take a look at the benefits a Franklin Templeton 403(b) plan has to offer: I ve contributed to a 403(b) plan for many years. Now I want to make sure my vision of retirement is on track. I m checking in with my financial advisor to see how I can use my 403(b) plan to make the most of the time horizon I have left. Benefit from Tax-Deferred Compounding One of the most compelling features of a 403(b) plan is that you don t pay taxes on investment earnings until you withdraw them from your account. 6 Any earnings compound tax deferred year after year. By comparison, if you d invested in a taxable account, you d have to pay income tax on your earnings every year. The chart below shows how investing in a tax-deferred account can provide the momentum to help you reach your investment goals. Tax-Deferred Investment vs. Taxable Investment 7 This example assumes you make a monthly contribution of $600, earning a 7% fixed annual rate of return. Savings accumulated in your tax-deferred investments are taxable as ordinary income at the time of withdrawal. The following example does not reflect taxes that may be due at the time of withdrawal. $513,468 $705,639 $306,244 $251,343 $94,203 $103,211 franklintempleton.com How much do you need to save for retirement? Use the Retirement Savings Calculator on franklintempleton.com to find out. 10 Years 20 Years 30 Years Taxable Investment Tax-Deferred Investment 6. Distributions of pre-tax contributions and all earnings from the plan are taxed as ordinary income for the year in which the money is withdrawn. Withdrawals received prior to age may be subject to a 10% federal tax penalty. Additional state income taxes may apply. 7. Example assumes contributions were made at the beginning of each year, principal and income do not vary, the investor is subject to a 25% federal income tax rate on ordinary income, and the investor s investment earnings are taxable as ordinary income at the end of each year. Because a maximum 15% federal capital gains tax rate may apply to income on certain investments, the actual federal tax applicable to a portion of the investments in an investor s taxable portfolio may be different than the federal tax rate that would be applicable to that investor s ordinary income. The taxable investment does not reflect certain tax management strategies, such as tax loss carry forwards, which could increase the ending value of the taxable investment and potentially make the ending value of the taxable investment greater than the tax-deferred investment. This chart is for illustrative purposes only and does not represent past or future performance of a Franklin Templeton fund. The assumed rate of return used in this example is not guaranteed. An investment with a higher assumed rate of return has a higher risk of loss. Investment return and principal value of an investment in a Franklin Templeton fund will fluctuate with market conditions. An investment in a Franklin Templeton fund does not guarantee that you will have sufficient funds to meet future retirement needs. Investors should consider their current and anticipated investment horizon and income tax bracket when making an investment decision, as the example does not reflect these factors. 4 Franklin Templeton 403(b) Plan franklintempleton.com

5 Save on Taxes Right Away Contributions to your 403(b) plan account are deducted from your salary before the money is taxed. This reduces your current taxable income, so you may pay lower taxes while investing for retirement. Of course, depending on your individual financial circumstances, you may save more or less in taxes. See the Difference in the Taxes You Pay 8 Pre-Tax Contribution No Contribution Annual salary $30,000 $30,000 Your 5% tax-deferred contribution $1,500 Your gross income after tax-deferred contribution $28,500 $30,000 Taxable income $18,200 $19,700 Your estimated taxes $2,269 $2,494 Your tax savings: $225 Did you know? You can consolidate your retirement savings from other employersponsored plans, including other 403(b), 401(k) or 457 plans as well as IRAs into your Franklin Templeton 403(b) Plan account. Combining retirement money into a single account can make it easier for you to keep track of your assets. 11 To learn more, talk with your financial advisor or call Franklin Templeton at (800) Contribute as Much as You Can The chart below shows the maximum annual contribution you can make to your 403(b) plan account. You can see that plan participants age 50 and older can contribute more than participants under age 50. And, if certain conditions are met, you may also be eligible to make additional catch-up contributions. 9,10 Your plan lets you change the amount of your contribution at any time. Take Advantage of Every Opportunity to Save for Retirement Year Under Age 50 Age 50 and Over 2014 $17,500 $23, $18,000 $24,000 franklintempleton.com To figure out how much you can contribute to your 403(b) plan account, use the 403(b) Plan Contribution Worksheet in the Franklin Templeton 403(b) Plan Employee s Workbook and Forms booklet. 8. Calculations based on a single person with an annual salary of $30,000 and no dependents. Taxes are based on the 2015 federal income tax rates ($ % marginal tax rate on amount over $9,225) and include the standard deduction and personal exemption ($10,300). Estimates do not include effects of state or local taxes. 9. Under the catch- up provision, you are eligible to make catch- up contributions (up to $5,500 for 2014 and $6,000 for 2015) if you will have reached age 50 by the end of the year and the maximum amount of elective deferrals that can be made to your 403(b) account have been made for the plan year. Under the 15- year rule catch- up provision, you may be able to make additional contributions (up to $3,000) if you have been employed by a qualified organization for at least 15 years. If you qualify for the 15- year rule, your elective deferrals could be as high as $20,500 for 2014 and $21,000 for Additionally, if you qualify for both the 15-year rule and catch-up provision, you have the potential to contribute up to $26,000 to your 403(b) plan for 2014 and $27,000 for Your employer may also make matching or discretionary contributions to participant accounts. 11. Nontaxable distributions from an IRA are not eligible to be rolled over to a 403(b). Rollovers may not be suitable for all investors. You should consider any potential tax consequences, fees, expenses, and sales charges before initiating a rollover. franklintempleton.com Franklin Templeton 403(b) Plan 5

6 Franklin Templeton Funds Your 403(b) plan offers a wide selection of Franklin Templeton funds that may consist of one or more of these broad types of investments: Stocks Bonds Cash or cash equivalents Each fund offers its own risk and potential for returns, creating a variety of possibilities for every type of investor. Diversifying your investments among the different types of investments may help you create a balance between the returns you need to meet your retirement objectives and the amount of risk you re willing to assume. 12 Create Your Personal Investment Portfolio Work with your financial advisor to determine the mix of investments that will work best for you. Keep in mind that you have the flexibility to change your investment direction at any time. Enclosed is a list of Franklin Templeton funds available to you. Before you invest, you should carefully consider a fund s investment goals, risks, charges and expenses. This and other information is contained in the fund s prospectus. To obtain a prospectus, talk to your financial advisor, call Franklin Templeton at (800) or visit franklintempleton.com. Please read the prospectus carefully before investing. How to Get Started Opening your 403(b) account is easy: Determine how much of your salary you d like to contribute each paycheck. Work with your financial advisor to choose the Franklin Templeton funds in which you d like to invest. Complete the Franklin Templeton 403(b) Plan Application and return it to Franklin Templeton Bank & Trust. The application and return envelope are included in the Franklin Templeton 403(b) Plan Employee s Workbook and Forms booklet. 12. Diversification does not guarantee a profit or protect against a loss. 6 Franklin Templeton 403(b) Plan franklintempleton.com

7 Franklin Templeton Investments Gain From Our Perspective At Franklin Templeton Investments, we re dedicated to one goal: delivering exceptional asset management for our clients. By bringing together multiple, world-class investment teams in a single firm, we re able to offer specialized expertise across styles and asset classes, all supported by the strength and resources of one of the world s largest asset managers. Focus on Investment Excellence At the core of our firm, you ll find multiple independent investment teams each with a focused area of expertise from traditional to alternative strategies and multi-asset solutions. Across the firm, our portfolio teams share a commitment to excellence grounded in rigorous, fundamental research and robust, disciplined risk management. Global Perspective Shaped by Local Expertise Today, smart investing demands a global perspective. Having pioneered global investing more than 60 years ago, our perspective is built on decades of experience and shaped by the local expertise of our investment professionals who are on the ground across the globe, working to spot smart investment ideas and potential risks firsthand. Strength and Experience Since our founding in 1947, we ve stayed focused on putting clients first and delivering relevant investment solutions, strong long-term results and reliable, personal service that have helped us to become a trusted partner to investors around the globe. Invest with a Retirement Leader Franklin Templeton Investments is a leader in retirement investing, managing over $200 billion on behalf of individuals, businesses and institutions. * *As of 3/31/14.

8 Franklin Templeton Bank & Trust, F.S.B. c/o Retirement Services West Coast P.O. Box Sacramento, CA East Coast P.O. Box St. Petersburg, FL (800) franklintempleton.com All investments involve risks, including possible loss of principal. Investors should carefully consider a fund s investment goals, risks, charges and expenses before investing. To obtain a summary prospectus and/or prospectus, which contains this and other information, talk to your financial advisor, call us at (800) or visit franklintempleton.com. Please carefully read a prospectus before you invest or send money. This material is being provided for general educational purposes only and should not be construed as investment, tax, or legal advice. We strongly advise you to consult with the appropriate financial, legal or tax advisors about your specific circumstances and individual goals. For additional information, you may also obtain IRS Publications 571 and 590 from the IRS at IRS.gov. Franklin Templeton Distributors, Inc Franklin Templeton Investments. All rights reserved. R403B B 01/15