Retirement Plans and tax deferred investing

An archive of reference topics and posts (no new posts can be added)
User avatar
Topic Author
Wiki Admin
Posts: 557
Joined: Tue Feb 20, 2007 12:41 pm

Retirement Plans and tax deferred investing

Post by gbs »

This section explains retirement accounts and tax deferred investing. Other Topic Chapters which augment this topic include:

1. Withdrawal Strategies
2. Deferred Annuities
3. Immediate Annuities

[contributions needed]

Employer Provided Retirement Plans Defined:
Individual Retirement Plans Defined
IRS Terms IRS Links

1. Pension Plan Contribution Limits 2001-2007
2. IRS minimum distributions table
contributed by: Norm
3. IRS Publication 560: Retirement Plans For Small Business (SEP,SIMPLE, and Qualified Plans) (currently 2005 publication)
4. IRS Publication 571:Tax-Sheltered Annuity Plans (403-b Plans)
5. IRS Publication 590: Individual Retirement Arrangements (currently 2005 publication)
6. IRS Publication 939: General Rule For Pensions And Annuities (contains acuarial tables for SEPP calculations)

Return to the Table of Contents

contributed by: Barry and Simba
Last edited by gbs on Sat Mar 03, 2007 11:41 am, edited 1 time in total.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3318
Joined: Mon Feb 19, 2007 10:42 pm

Retirement Research Centers and Institutes

Post by Barry Barnitz »

1. The Vanguard Center for Retirement Research
provides research series on:

1. How America Saves
2. Plan Design and Policy
3. Participant Behavior

Links to papers are available at the site
2. Center For Retirement Research at Boston College
3. University of Michigan Retirement Research Center
4. Employee Benefit Research Institute (EBRI)
5. TIAA CREF Institute
Last edited by Barry Barnitz on Sat Apr 21, 2007 6:53 pm, edited 4 times in total.
Additional administrative tasks: Financial Page blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3318
Joined: Mon Feb 19, 2007 10:42 pm

Retirement Accounts

Post by Barry Barnitz »


1.Towards a Sensible System for Saving by Perun, Pamela J. (2006)
The American system for saving is propelled by one incentive highly favored by Congress: the special “plans” for saving now found throughout the tax code. The history of savings plans is short but Congress has created more plans in the last ten years than in any prior period. There are now eight plans for retirement saving: 401(k)s, SIMPLE 401(k)s, 403(b)s, 457(b)s, the Thrift Savings Plan, SIMPLE IRAs, traditional IRAs, and Roth IRAs. Congress recently added savings plans for education, 529 plans and Coverdell IRAs, and its latest initiative is a savings plan for healthcare, health savings accounts or HSAs.

This brief describes the history of current plans and the savers who use them. By some measures, savings plans are a success. They now dominate the private pension system, are highly valued by employees, and have introduced millions to equity investing. Yet, savings plans also exhibit notable flaws and weaknesses:
•Work-based intermediary plans induce saving but many Americans have no savings plan at work.
•Low-income workers are often excluded from work-based plans.
•Most saving occurs in work-based intermediary plans. Few workers use open access plans as a substitute.
•The best predictor of participation in a savings plan is income.
•Savings rates vary widely but average savings rates are low among both lower and higher income savers.
•Increasing contribution limits does not induce more saving.
•Account accumulations are low. Whether current plan designs can induce adequate saving is debatable.
•Matching contributions are a puzzle. Thought to induce more saving, they often don't.
•Complex investment menus deter participation and result in investment paralysis.
•The economics of plan investment and administration are poorly understood by both savers and employers.

To make these plans a universal success requires building a more sensible system for saving. The brief discusses proposals to improve the current system and concludes that a new agenda will be required for the next generation of savings plans. Step one in that process means striving for simplification. Step two means building better plans. Step three means recognizing that what really matters the most for saving in the long run are outcomes. Traditionally, savings plan design has focused almost entirely on the first stage of saving - contributions and their tax incentives. But contributions alone do not make savings plans effective. A more sensible system for saving would set specific savings objectives and design plans capable of achieving them.
2. The Expanding "Roth" Retirement Account by Alicia Waltenberger, Douglas Rothermich, and William Reichenstein (March 2006)
This paper discusses the most relevant factors to help participants make the decision between funding a traditional 401(k)/403(b) account or a Roth 401(k)/403(b) account.
3. Tax diversification and the Roth 401(k) by Vanguard Center For Retirement Research (October 2005)
The new Roth 401(k) feature becomes available for retirement savings plans on January 1, 2006. This report analyzes the technical features of the new Roth provision and suggests which participants should—and those who should not—consider using the new feature. The study also points out that the Roth 401(k) affords many plan participants the ability to pursue a valuable new strategy in their plan accounts—the strategy of tax diversification.
4. Do Traders Win? Trading Behavior and 401(k) Portfolio Performance by Vanguard Retirement Research (February 2007)
This study on trading and portfolio performance finds that traders and nontraders earn the same risk-adjusted returns. However, certain types of trading, such as participant rebalancing or rebalancing via a balanced or lifecycle fund, are beneficial. Meanwhile, high-turnover trading is costly.

The study is derived from a multiyear effort of the Wharton Pension Research Council at the University of Pennsylvania, and the Vanguard Center for Retirement Research. The findings are based on the administrative records of more than one million active 401(k) plan participants in nearly 1,500 retirement plans.

5. Tax-Efficient Sequencing of Accounts to Tap in Retirement by William Reichenstein, Ph.D., Baylor University and TIAA-CREF Institute Fellow (October 1, 2006)
This study discusses strategies for selecting the sequence of withdrawing funds from savings vehicles during retirement. For example, should a retiree withdraw funds from the taxable account then the traditional IRA and then the Roth IRA or would another sequence be preferable? (In this study, traditional IRA includes 401(k), 403(b), and other tax-deferred accounts.)
Last edited by Barry Barnitz on Mon Apr 23, 2007 5:36 am, edited 1 time in total.
Additional administrative tasks: Financial Page blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
User avatar
Barry Barnitz
Wiki Admin
Posts: 3318
Joined: Mon Feb 19, 2007 10:42 pm

Fiduciary Standards

Post by Barry Barnitz »


1. Uncovering and Understanding Hidden Fees in Qualified Retirement Plans 2nd Edition – Published February 1, 2007 by Matthew D. Hutcheson, MS, CPC, AIFA®, CRC® Independent Pension Fiduciary
In the United States, the level of concern over 401(k) fees is steadily increasing. However, very few employers understand the nature and scope of the retirement plan industry’s business model. Not even the Federal Government fully grasps the issue. Understanding how hidden fees came about, and recognizing the specific types and amounts of such fees, will help employers make better decisions regarding 401(k) services. That understanding will help create a more secure retirement for American workers.

* Notwithstanding the obscure nature of retirement plan economics there is a rigorous way to determine the costs of any such plan.
* Directors, officers, and executives of plan sponsors have a fiduciary duty to know, manage, and control all of the fees assessed to plan assets.
* Modern fee structures are the result of mingling fiduciary and non-fiduciary philosophies. Hidden and excessive fees can be corrected by embracing an “independent fiduciary only” approach toward plan management.
* There is more at stake than is generally contemplated. Correcting errant business practices in the 401(k) industry is important for participants, plan sponsors, and society as a whole.
2. The Economics of Providing 401(k) Plans: Services, Fees, and Expenses, 2006 by Investment Company Institute (2007)
Key Findings:

401(k) plans are a complex employee benefit to maintain and administer, and are subject to an array of rules and regulations. Employers offering 401(k) plans typically hire service providers to operate these plans, and these providers charge fees for their services.
• Employers and employees generally share the costs of operating 401(k) plans. As with any employee benefit, the employer generally determines how the costs will be shared.
• About half of the $2.7 trillion in 401(k) assets at year-end 2006 was invested in mutual funds, primarily in stock funds. Mutual funds are required by law to disclose a large amount of information, including information about fees and expenses and portfolio turnover.
• 401(k) investors in mutual funds tend to hold low-cost funds with below-average portfolio turnover. Both characteristics help to keep down the costs of investing in mutual funds through 401(k) plans.
[contributed by grok87]

3. W. Scott Simon, who writes a monthly Fiduciary Focus column for Morningstar has a seven part series on the 403-b Plan universe. These plans have been affected by recent regulation changes. This series is especially valuable for 403-b plan providers.

Fiduciary Focus: Fleecing 403(b) Plan Participants (Part 1)
Fiduciary Focus: Fleecing 403(b) Plan Participants (Part 2)
Fiduciary Focus: Fleecing 403(b) Plan Participants (Part 3)
Fiduciary Focus: Fleecing 403(b) Plan Participants (Part 4)
Fiduciary Focus: Fleecing 403(b) Plan Participants (Part 5)
Fiduciary Focus: Fleecing 403(b) Plan Participants (Part 6)
Fiduciary Focus: Fleecing 403(b) Plan Participants (Part 7)
Fiduciary Focus: Fleecing 403(b) Plan Participants (Part 8 )
Last edited by Barry Barnitz on Fri Jun 20, 2008 11:15 am, edited 7 times in total.
Additional administrative tasks: Financial Page blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
gerry lef
Posts: 49
Joined: Fri Apr 13, 2007 11:53 am
Location: CA

nice overview of retirement plans

Post by gerry lef »

IRS publication 4484 gives a nice little overview of: payroll deduction ira, sep, simple ira plan, 401k, 403b, 457b govt, 457b tax-exempt and defined benefit plans.

Gerry L.
User avatar
Posts: 94
Joined: Sun Jun 24, 2007 11:48 am
Location: Minneapolis, MN

401K FAQ

Post by dlpmpls »

Here's a nice list of 401K FAQ's

401K FAQ
Caution Monkey Throwing Darts
User avatar
Barry Barnitz
Wiki Admin
Posts: 3318
Joined: Mon Feb 19, 2007 10:42 pm

SIMPLE IRA Transfers

Post by Barry Barnitz »

Although SIMPLE IRA's comprise a small part of the employer-provided qualified plan universe, they are unique in being the sole plan that permits the individual employee to execute in-service trustee-to-trustee exchanges to a fiduciary of the employee's choosing. This transfer right, granted by the IRS, allows employees to escape high cost (load fund or variable annuity) funded plans for low cost fiduciaries.

The first consideration in the selection of a SIMPLE-IRA fiduciary is to determine the type of SIMPLE IRA an employer has established, either an IRS Form 5304-SIMPLE or an IRS Form 5305-SIMPLE.

* IRS Form 5304-SIMPLE: this form of SIMPLE IRA permits each employee to choose the financial institution for receiving contributions. The employer is required to send contributions on behalf of the employee directly to the financial institution of the employee's choice. Most participants are unaware of this option, so the employee should check with the employer to see what form was used to create the plan. Obviously, if the employee has this type of SIMPLE-IRA he can choose Vanguard as the SIMPLE IRA fiduciary and have all salary deferral and employer matches invested in Vanguard Funds. Vanguard imposes a $25 account fee per fund (waived if Vanguard assets exceed $100,000) on SIMPLE IRAs. If subject to account fees, employees would be best advised to restrict fund selection in order to reduce costs. Vanguard's SIMPLE IRA imposes a five fund maximum limit.

* IRS Form 5305-SIMPLE: this form of SIMPLE IRA requires all contributions to be deposited initially at a designated financial institution of the employer's choosing. An employee must execute trustee-to-trustee transfers in order to invest with a fiduciary of choice. During the first two years of SIMPLE IRA participation, a transfer can only be made to another SIMPLE IRA. After two years (dated from the first contribution into the plan) transfers can be made into a Traditional IRA. Using a Traditional IRA avoids the $25 Vanguard SIMPLE IRA account fees. Trustee-to-trustee transfers to Vanguard are executed by: (1) filling out an IRA Transfer Request; (2) including a recent SIMPLE IRA account statement; and (3) having Vanguard execute the transfer. Trustee-to-Trustee transfers do not affect annual contribution limits to personal IRA accounts.

With Form 5305-SIMPLE IRAs an employee should always seek to reduce transfer costs by selecting the lowest cost fund in the employer's plan for accumulating assets for transfer. In the case of load fund SIMPLE IRA's this usually is restricted to a no-load share class of a money market fund. Since on-going salary deferrals and employer matches will continue to be deposited with the employer's fiduciary, avoiding front end loads and back end surrender charges is essential in reducing transfer costs.

There are no limits as to the number and frequency of trustee-to-trustee transfers an employee can execute (if an employee receives plan assets directly, the assets must be "rolled-over" to a new SIMPLE IRA within 60 days. One is limited to only one such rollover per year. One should always make sure that the institution receiving the transfer handles the transaction directly.)

It is always a good idea to check about transfer requirements with both the new fiduciary and the employer fiduciary prior to executing an exchange since forms and transfer procedures can change over time.
Last edited by Barry Barnitz on Sun May 25, 2008 4:40 pm, edited 1 time in total.
Additional administrative tasks: Financial Page blog; finiki the Canadian wiki; The Bogle Center for Financial Literacy site; La Guía Bogleheads® España site.
Posts: 947
Joined: Mon Feb 19, 2007 5:27 pm


Post by TimDex »

There is a collection of links, etc., plus a sample letter on improving a tax-deferred plan, at this post:


Return to the Table of Contents