individual 401(k)

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7/08© 2006–2008 Ameriprise Financial, Inc. All rights reserved.

Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA and SIPC.Ameriprise financial advisors do not offer tax or legal advice. Always consult with your tax and legal advisors concerning your own situation.

[Greg Younger, CRPC636.534.2092

If You Work for Yourself…an Individual(k) Plan Can Work for You

Individual(k)

• An introduction to Individual(k) plans

• Is an Individual(k) plan right for me?

• Establishing and maintaining an Individual(k) plan

An Introduction to an Individual(k) Plan

What is an Individual(k) plan?

• A 401(k)-based plan

• Designed exclusively for owner-only businesses

• Created by pension reform legislation that went into effect in 2002

Introduction

What makes Individual(k) plans so appealing?

>Greater funding opportunity

>Funding flexibility

>Access to loans

>Multiple distribution options

>Low cost/low maintenance

>Opportunity to designate some contributions as Roth 401(k) contributions

Introduction

How do Individual(k) plans work?

• Two funding components:

>Discretionary employer contribution (from 0% up to 25% of eligible compensation1)

>“Salary deferral” contribution (from $0 up to $15,500 for 2008)

• Aggregate limit: 100% of compensation up to $46,000 for 2008

• Additional “catch-up” contributions up to $5,000 for individuals age 50 or older

Introduction

1What is considered compensation varies for self-employed individuals, partnerships, and corporations. Consult your tax advisor.

Example

• Tom is a 45-year-old, incorporated small-business owner who anticipates paying himself $100,000 in wages during 2008

• An Individual(k) plan would afford Tom the following funding flexibility

Introduction

Minimum Maximum

Salary deferral contribution $0 $15,500

Discretionary employer contribution $0 $25,000

Total contribution $0 $40,500

This example is provided for illustrative purposes only.

Comparison for unincorporated businessesIntroduction

This example is provided for illustrative purposes only.*Assumes employer matching contribution of 3% of eligible compensation.

Business owner

net profit(2008)

SIMPLE IRA

maximum*

SIMPLE IRA w/

catch-up maximum*

SEP, profit sharing or

money purchase pension

Individual(k) maximum

Individual(k) w/ catch-up maximum

$10,000 $9,235 $9,235 $1,859 $9,294 $9,294

$50,000 $11,885 $14,385 $9,294 $24,794 $29,794

$100,000 $13,271 $15,771 $18,587 $34,087 $39,087

$150,000 $14,656 $17,156 $28,333 $43,833 $48,833

$200,000 $16,041 $18,541 $38,200 $46,000 $51,000

Comparison for incorporated businessesIntroduction

Business owner’s

W-2 wages(2008)

SIMPLE IRA

maximum*

SIMPLE IRA w/ catch-up maximum*

SEP, profit sharing or

money purchase maximum

Individuall(k) maximum

Individual(k) w/ catch-up maximum

$10,000 $9,535 $9,535 $2,500 $10,000 $10,000

$50,000 $12,000 $14,500 $12,500 $28,000 $33,000

$100,000 $13,500 $16,000 $25,000 $40,500 $45,500

$150,000 $15,000 $17,500 $37,500 $46,000 $51,000

$200,000 $16,500 $19,000 $ 46,000 $46,000 $51,000

This example is provided for illustrative purposes only.*Assumes employer matching contribution of 3% of eligible compensation.

Roth 401(k) designated deferrals

• Designated Roth 401(k) deferrals are made with after-tax dollars (no tax deduction today)

• Future distributions of earnings are tax-free if:

>Distribution is made after age 59½ or due to death or disability, and

>Participant has held Roth 401(k) account for at least five years

Introduction

Roth 401(k) designated deferrals requirements

• Plan must allow for designated Roth 401(k) deferrals

• Maximum deferral amount does not change

>All or some of the $15,500 (for 2008) maximum deferral may be designated as Roth 401(k) deferrals

• No income limits restrict the designation of contributions as Roth 401(k) deferrals

• Catch-up contributions are also eligible for Roth 401(k) deferrals

Introduction

Is an Individual(k) plan right for me?

An Individual(k) is available for all types of businesses

• Sole proprietorships

• Partnerships

• Corporations

Is an Individual(k) plan right for me?

Types of businesses

Types of businesses

• These plans may be right if you fit into one of the following categories:

>Category #1: Your business employs only business owners (including spouses)

>Category #2: Your business employs only common-law employees that can be excluded from plan participation under the federal laws governing plan coverage requirements

Is an Individual(k) plan right for me?

Examples

• Family farmers & ranchers

• Board members

• Freelancers

• Consultants

• Independent contractors

• Store owners

• Sales representatives with 1099-MISC

• Doctors/attorneys

• Caterers

• Resort owners

• Home businesses

• Brokers

• Tax advisors/financial planners

• Insurance agents

• Real estate agent

Is an Individual(k) plan right for me?

Exclusions from plan coverage

• The following are some types of common-law employees that may generally be excluded from plan coverage:

>Employees under age 21

>Those who work < 1000 hrs/yr

>Nonresident aliens

>Union employees covered under a collective bargaining agreement

Is an Individual(k) plan right for me?

Example #1

• Business type: Sole proprietorship, under age 50

• 2008 projected compensation: $80,000

• Current arrangement: SEP-IRA

Scenario 2008 maximum contribution

Current arrangement $14,870

Adopt Individual(k) $30,370

Result 104% increase

This example is provided for illustrative purposes only.

Is an Individual(k) plan right for me?

Example #2

• Business type: Partnership, under age 50

• Partner’s projected 2008 compensation: $100,000/partner

• Current arrangement: Profit sharing

This example is provided for illustrative purposes only.

Scenario 2008 maximum contribution

Current arrangement $18,587/partner

Adopt Individual(k) $34,087/partner

Result 83% increase

Is an Individual(k) plan right for me?

Example #3

• Business type: Sole proprietorship, over age 50

• Projected 2008 compensation: $20,000

• Current arrangement: None

This example is provided for illustrative purposes only.

Scenario 2008 maximum contribution

Adopt SEP-IRA $3,717

Adopt Profit Sharing $3,717

Adopt SIMPLE IRA $13,554

Adopt Individual(k) $18,587

Is an Individual(k) plan right for me?

What is asset consolidation?

• Consolidating some or all of your existing retirement savings under one umbrella, such as an Individual(k) plan

• Law changes have greatly enhanced the opportunities for asset consolidation

Is an Individual(k) plan right for me?

Advantages of consolidation

• Reduce administrative fees

• Gain access to assets via Individual(k) plan loans

• Manage one unified retirement savings portfolio

• Eliminate statement clutter

Is an Individual(k) plan right for me?

Types of retirement savings that can be consolidated…

…under an Individual(k) plan:

• Profit sharing and money purchase

• Defined benefit

• 401(k)

• 403(b) (i.e., tax-sheltered account or annuity)

• Traditional IRA

• Rollover IRA

• SEP IRA

• SIMPLE IRA

Is an Individual(k) plan right for me?

Three questions

• Would I like to have the option of contributing more than 25% of my compensation for a given year if circumstances permit?

Is an Individual(k) plan right for me?

Three questions

• Would I like knowing that I could access my retirement savings – if circumstances required – in the form of a participant loan?

Is an Individual(k) plan right for me?

Three questions

• Would I like to have the option of designating some or all of my deferral contributions as Roth 401(k) deferrals?

Is an Individual(k) plan right for me?

Summary

• Higher funding limits – up to $46,000 (2008)

>Employer discretionary contribution of up to 25% of eligible compensation

>Plus up to $15,500 in employee contributions (2008)

• Funding flexibility

• Access to loans

• Multiple distribution options

• Cost-effective administration

• Asset consolidation opportunities

• Opportunity to make Roth 401(k) contributions

• Catch-up contributions

Is an Individual(k) plan right for me?

Let’s Get Started.

© 2006–2008 Ameriprise Financial, Inc. All rights reserved.

Financial planning services and investments offered through Ameriprise Financial Services, Inc., Member FINRA and SIPC.Ameriprise financial advisors do not offer tax or legal advice. Always consult with your tax and legal advisors concerning your own situation.