Individuals & Families


There are a variety of retirement planning options that can meet your needs. Your employer funds some; you fund some. Bear in mind that, in most cases, early withdrawals before age 59½ may be subject to a 10% federal income tax penalty. The latest date to begin required minimum distributions is usually April 1 of the year after you turn age 70½. In most cases, withdrawals are taxed as ordinary income. This list describes 10 of the most common planning options.

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.

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 may fund 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.

savings plan provides a lump-sum payment upon your retirement. Employees fund their own 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% of the value. This option continues until age 60, at which time you have a one-time option to diversify up to 50% of the account.

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

Individual retirement accounts are available to virtually any wage earner at any salary, up to certain income limits. They are funded completely by individual contributions. IRAs are usually held in an account with a bank, brokerage firm, insurance company, mutual fund company, credit union, or savings association. 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 and are taxed upon withdrawal, whereas contributions to Roth IRAs are not tax deductible but qualified withdrawals are tax-free.

Self-employed 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. Self-employed plans have the same investment opportunities as IRAs. Contributions to self-employed plans are tax deductible within certain generous limitations. No distinction is generally made between pension, profit-sharing, and other retirement plans established by corporations and those established by individual proprietors and partnerships. In the past, the term “Keogh plan” or “H.R. 10 plan” was used to distinguish a retirement plan established by a self-employed individual from a plan established by a corporation or other entity. However, self-employed retirement plans are now generally referred to by the same name that is used for the particular type of plan, such as a SEP IRA, SIMPLE 401(k), or self-employed 401(k).

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 a SEP, 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. Principal and interest accumulate 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. They can be used very effectively to supplement your employer-provided retirement plan.

Generally, annuities have contract limitations, fees, and charges, which can include mortality and expense charges, account fees, underlying investment management fees, administrative fees, and charges for optional benefits. Most annuities have surrender charges that are assessed during the early years of the contract if the contract owner surrenders the annuity. Withdrawals of annuity earnings are taxed as ordinary income and may be subject to a 10% federal income tax penalty if made prior to age 59½. Withdrawals reduce annuity contract benefits and values. Any guarantees are contingent on the claims-paying ability of the issuing company. Annuities are not guaranteed by the FDIC or any other government agency; they are not deposits of, nor are they guaranteed or endorsed by, any bank or savings association. With variable annuities, the investment return and principal value of an investment option are not guaranteed. Variable annuity subaccounts fluctuate with changes in market conditions; thus, the principal may be worth more or less than the original amount invested when the annuity is surrendered.

Variable annuities are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity contract and the underlying investment options, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding whether to invest.


The goal of life insurance is to provide a measure of financial security for your family after you die. So, before purchasing a life insurance policy, you should consider your financial situation and the standard of living you want to maintain for your dependents or survivors. For example, who will be responsible for your funeral costs and final medical bills? Would your family have to relocate? Will there be adequate funds for future or ongoing expenses such as daycare, mortgage payments and college? It is prudent to re-evaluate your life insurance policies annually or when you experience a major life event like marriage, divorce, the birth or adoption of a child, or purchase of a major item such as a house or business.


Saving for Education


As tax laws change, college investment planning becomes increasingly complex. The most beneficial strategies for creating a college fund are quite similar to other investment tactics. Investment products that are tax deferred, tax exempt, or transferable without tax consequences can be especially advantageous.

This could be even more effective if you do your planning early.

One important aspect of an investment is its balance of yield and risk. Determine the amount of risk you can tolerate, given the amount of time you have to recover from any potential losses.

Take the time to familiarize yourself with the financial aid formulas. This could help you determine whether assets and income should be in your name or your child’s name. Structuring your investments ahead of time can have a significant effect on the net amount of funds available for your child’s education.


You could receive an immediate income tax deduction. With a properly structured gift, you could realign your investment portfolio without paying capital gains tax on appreciated property. Another strategy may allow you to pass your estate on to your children while avoiding both probate and estate taxes.

You’re free to give your property to whomever you choose. To retain the tax advantages associated with planned giving, however, your gift must be made to a qualified organization.

The vast majority of donations are made to charitable organizations. To qualify, a charitable organization must have been organized in the United States, be operated on a strictly non-profit basis, and not be politically active.

In addition to common charitable organizations, you may give to veterans’ posts, certain fraternal orders, volunteer fire departments, and civil defense organizations.

You can contribute almost anything to a qualified organization. The deduction limits are more restrictive for gifts other than cash, but you are free to give almost any property of value.

What Are Some Gifting Strategies?

In addition to making an outright donation, there are a number of different gifting techniques you can use.

You can give life insurance. This enables you to give a large future gift at a relatively modest cost.

Making a planned gift can provide some significant benefits.

A charitable contribution may qualify you to receive a significant current income tax deduction.

Your deduction for an outright gift will equal the value of your gift up to certain limits. You can carry forward any gift amount that exceeds these limits for up to five years.

With a charitable lead trust, the trustor places assets in the trust, which pays an income to the charity. At the end of the trust period, the remaining assets are paid to the trustor or the trustor’s heirs. This can help reduce, or in some cases even eliminate, estate taxes on appreciated assets that eventually go to the grantor’s heirs.

By using a charitable remainder trust, the trustee can sell highly appreciated gifted investments and reinvest the proceeds to generate income without incurring a capital gains tax liability. Thus, a properly planned gift could enable you to realign your investment portfolio, allow you to diversify your holdings, and even increase your cash flow. You may also qualify for a current income tax deduction on the estimated present value of the remainder interest that will eventually go to charity.

One thing you can’t do is take back your gift. You can’t start selling assets and then pocket the money. But you can change the charity that will eventually receive your gift.

Whatever gifting strategy you choose, planned giving can be very rewarding. It’s wonderful to see your gift at work and to receive tax benefits as well.

The use of trusts involves a complex web of tax rules and regulations. You might consider enlisting the counsel of an experienced estate planning professional and your legal and tax advisors before implementing such strategies.


Tax Planning


American tax law is a constantly changing landscape. The latest major piece of tax legislation is the American Taxpayer Relief Act of 2012, which was signed into law on January 2, 2013, by President Barack Obama. It extended many of the provisions in the Taxpayer Relief Act of 2010 and the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001.

The 2012 tax law extended indefinitely the federal income tax rates that have been in effect since 2003 (10% to 35%) and added the 39.6% rate that was in effect prior to enactment of the 2001 tax law. The law also extended the 0% and 15% tax rates on long-term capital gains and qualified dividends, and added a 20% rate for taxpayers in the 39.6% bracket. The law also extended the federal estate tax provisions of the Taxpayer Relief Act of 2010, with the exception that the top federal estate tax rate increased from 35% to 40%.

EGTRRA was signed into law by President George W. Bush on June 7, 2001. This bill provided the largest tax cut in two decades. Previous administrations have enacted other major tax packages. In the 1980s, the Reagan administration passed the Tax Reform Act of 1986. It not only reduced maximum tax rates and the number of federal income tax brackets but also eliminated many loopholes that existed in the tax code.

The Clinton administration also passed major tax legislation. The Revenue Reconciliation Act of 1993 eliminated some of the changes in the 1986 tax act and added two new federal income tax brackets to the existing three, with the top rate hitting 39.6%. The Taxpayer Relief Act of 1997 incorporated many reforms, including the reduction of long-term capital gains taxes and creation of the child and education tax credits, the Roth IRA, and the Education IRA, among other provisions.

Whenever major changes affect the tax law, there are potential ways that taxpayers can benefit their personal financial situations.