Retirement Annuity

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Retirement Annuity

An annuity one purchases to provide for oneself in retirement. In general, one purchases a retirement annuity well before retirement and makes contributions to it throughout one's working life. The contributions are invested on behalf of the annuitant, who begins to receive payments from the annuity after retirement. Many retirement annuities (especially those sponsored by an employer) are tax-deferred, meaning that the annuitant does not pay taxes on the funds in the pension until he/she begins making withdrawals. Annuities may have defined contributions, defined benefits, or both. See also: 401(k), IRA.
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Administrators of employee benefit plans, as well as qualified retirement plans should determine if they meet the definition of fiduciary.
Caveat: Although individuals may be eligible to withdraw money from their retirement plans as a result of Hurricane Katrina, their plans may not permit early withdrawals.
Employers may contribute to each plan, but they should understand that discrimination rules may impact the operation of the programs, resulting in unintended consequences if the HSA cannibalizes the qualified retirement plan.
To that end, the anti-alienation provisions of the Employee Retirement Income Security Act (ERISA) section 206(d) and IRC section 401 (a)(13) have protected tax-qualified retirement plans from the claims of creditors of plan participants and their beneficiaries, with three major exceptions.
Simplification, however, will encourage employers to keep retirement plans, according to the AICPA.
If you advise companies that sponsor qualified retirement plans, be prepared to deal with this rising trend of top-heavy based claims.
Even though qualified retirement plans are subject to numerous pension law protections (namely, the Employee Retirement Income Security Act of 1974, more commonly known as ERISA), individuals often prefer not to leave their retirement funds under the control of an organization where they no longer work.
Company's who offer their employees a 401(k) plan face increased pressure and fiduciary responsibilities to disclose more information to their participants in the retirement plan.
Although most practitioners have personal retirement accounts, believe it or not, a surprisingly large number don't have formal retirement plans for their businesses.
The Wall Street Journal article, "Value of Unused Vacation Days Can Now Be Added to 401 (k)s" (12/10/96), based on Letter Ruling (TAM) 9635002, has generated a great deal of interest on the concept of converting vacation days into qualified retirement plan contributions.
Retirement plan participants are encouraged to contribute more to qualified retirement plans now that higher contribution limits have been made permanent through the Act.
However, the 15% excise tax on excess retirement accumulations will not be avoided and if the participant is married, the spouse must consent in writing to waive her rights to benefits under the retirement plans.

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