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What Are My Retirement Planning Options?

A defined benefit pension normally provides a specific monthly benefit from the time you retire until you die. This monthly benefit is usually a percentage of your final salary multiplied by the number of years you’ve been with the company. Defined benefit pensions are usually funded completely by your employer.

A money purchase pension provides either a lump sum payment or a series of monthly payments. The size of this benefit depends on the size of the contributions to the plan. Your employer normally funds money purchase pension plans, although some will allow employee contributions.

Your employer funds a profit-sharing plan; employee contributions are usually optional. Upon your retirement, you will normally receive your benefit as a lump sum. The company’s contributions — and thus your retirement benefit — may depend on the company’s profits. If a profit-sharing plan is set up as a 401(k) plan, employee contributions may be tax deductible.

A savings plan provides a lump sum payment upon your retirement. The employee funds savings plans, although employers may also contribute. Employees may be permitted to borrow a portion of vested benefits. If a savings plan is set up as a 401(k) plan, employee contributions may be tax deductible.

Under an employee stock ownership plan (ESOP), an employer periodically contributes company stock toward an employee’s retirement plan. Upon retirement, employee stock ownership plans may provide a single payment of stock shares. Upon reaching age 55, with 10 or more years of plan participation, you must be given the option of diversifying your ESOP account up to 25 percent of the value. This option continues until age 60, at which time you have a one-time option to diversify up to 50 percent of the account.

Tax-sheltered annuities or 403(b) plans are offered by some tax-exempt and educational organizations for the benefit of their employees. Upon retirement they provide the employee’s choice of a lump sum or a series of monthly payments. These plans are funded by employee contributions, and those contributions are tax deductible.

Individual retirement accounts are available to virtually any salary or wage earner. They are funded completely by employee contributions. IRAs are usually held in an account with a bank, brokerage, insurance company, mutual fund company, credit union, or savings and loan. They provide either a lump sum payment or periodic withdrawals upon retirement. There are two basic types of IRAs: traditional and Roth. Contributions to traditional IRAs may be tax deductible, while qualified withdrawals from a Roth IRA are tax-free.

Keogh plans were specifically designed for self-employed people. They are funded completely by wage-earner contributions and provide either a lump sum payment or periodic withdrawals upon retirement. Keogh plans have the same investment opportunities as IRAs. Contributions to Keogh plans are tax deductible within certain generous limitations.

Simplified employee pensions, or SEPs, were designed for small businesses. Like IRAs, they can provide either a lump sum payment or periodic withdrawals upon retirement. Unlike an IRA, the employer primarily funds them, although some simplified employee pensions do allow employee contributions. SEPs are usually held in the same types of accounts that hold IRAs. Employee contributions — in those SEPs that allow them — may be tax deductible.

Savings Incentive Match Plans for Employees, or SIMPLE plans, were designed for small businesses. They can be set up either as IRAs or as deferred arrangements — 401(k)s. The employee funds them on a pre-tax basis, and employers are required to make matching contributions or a specified contribution to all eligible employees. Principal and interest grow tax deferred.

Strictly speaking, annuity contracts are not qualified retirement plans. But they do provide tax-deferred growth like qualified retirement plans. They are also subject to withdrawal conditions very similar to qualified retirement plans, but there are no contribution limits, and contributions are not tax-deductible. They can be used very effectively to supplement your employer-provided retirement plan.

GE 37905 (03/07)

Annuities are long-term financial products designed for retirement purposes. Variable investment options within variable annuities are subject to fluctuation in value and market risk, including the possibility of loss of principal. In addition, annuity policies have limitations and a charge for withdrawals in the policy's early years. For costs and complete details, contact your AXA Advisors financial professional.

This material was written and prepared by Emerald Publications.

There is a wide variety of retirement planning options that can meet your needs. Your employer funds some; you fund some. Bear in mind that in most cases, withdrawals made before age 59¹/2 are subject to ordinary income tax and an additional 10 percent IRS penalty, and withdrawals usually must begin by April 1 of the year after you turn age 70¹/2, unless you retire later and are not an owner. This list describes 10 of the most common options.