Ready For Retirement?
401(k) Plans
A section 401(k) plan is a type of tax-qualified deferred compensation plan in which an employee can elect to have
the employer contribute a portion of his or her cash wages to the plan on a pre–tax basis. These deferred wages
(commonly referred to as elective deferrals) are not subject to income tax withholding at the time of deferral, and
they are not reflected on your Form 1040 (PDF) since they were not included in the taxable wages on your Form W2 (PDF). However, they are included as wages subject to social security, Medicare, and federal unemployment
taxes.
The amount that an employee may elect to defer to a 401(k) plan is limited. Therefore, your elective contributions
may be limited based on the terms of your 401(k) plan. Refer to Publication 525, Taxable and Nontaxable Income,
for more information about elective deferrals. Employers should refer to Publication 560, Retirement Plans for
Small Business, for information about setting up and maintaining retirement plans for employees, including 401(k)
plans.
Distributions from a 401(k) plan may qualify for optional lump–sum distribution treatment or rollover treatment as
long as they meet the respective requirements. For more information, refer to Topic 412, Lump–Sum Distributions,
Topic 413, Rollovers from Retirement Plans, and Topic 555, 10–Year Tax Option for Lump–Sum Distributions.
Many 401(k) plans allow employees to make a hardship withdrawal because of immediate and heavy financial
needs. Generally, hardship distributions from a 401(k) plan are limited to the amount of the employee's elective
deferrals only, and do not include any income earned on the deferred amounts. Hardship distributions are not treated
as eligible rollover distributions.
Distributions received before age 59 1/2 are subject to an early distribution penalty of 10% additional tax unless an
exception applies. For more information about the treatment of retirement plan distributions, refer to Publication
575, Pension and Annuity Income.
For more information:
http://www.irs.gov/taxtopics/tc424.html
Individual Retirement Arrangements (IRAs)
An individual retirement arrangement, or IRA, is a personal savings plan which allows you to set aside money for
retirement, while offering you tax advantages. You may be able to deduct some or all of your contributions to your
IRA. Amounts in your IRA, including earnings, generally are not taxed until distributed to you. IRA's cannot be
owned jointly. However, any amounts remaining in your IRA upon your death can be paid to your beneficiary or
beneficiaries.
To contribute to a traditional IRA, you must be under age 70 1/2 at the end of the tax year and you, or your spouse if
you file a joint return, must have taxable compensation, such as wages, salaries, commissions, tips, bonuses, or net
income from self–employment. In addition, taxable alimony and separate maintenance payments received by an
individual are treated as compensation for IRA purposes.
Compensation does not include earnings and profits from property, such as rental income, interest and dividend
income or any amount received as pension or annuity income, or as deferred compensation.
Please refer to Publication 590 for information on the amounts you will be eligible to contribute to your IRA
account.
If you, your spouse, or both of you are covered by a qualified retirement plan, your IRA deduction may be reduced
or eliminated, depending on the amount of your Modified Adjusted Gross Income and your filing status.
Figure your deduction using the worksheets in the Form 1040 Instructions or Form 1040A Instructions or in
Publication 590. You cannot claim an IRA deduction on Form 1040EZ; you must use either Form 1040A (PDF) or
Form 1040 (PDF). Form 8606 (PDF) should be attached to your return if any of your IRA contributions are not
deductible. If both you and your spouse qualify, each of you may contribute to separate IRAs.
The deadline for making a contribution to a traditional IRA for the year is the due date of your return, not including
any extensions of time to file.
You may choose to take the deduction on a return filed before the contribution is actually made, provided you make
the contribution by the due date of that return, not including extensions.
Amounts you withdraw from your IRA are fully or partially taxable in the year you withdraw them. If you made
only deductible contributions, withdrawals are fully taxable. If you made any non–deductible contributions,
withdrawals are partially taxable. Use Form 8606 to figure the taxable portion of withdrawals.
Amounts you withdraw before you reach age 59 1/2 may be subject to a 10% additional tax. You also may owe an
excise tax if you do not begin to withdraw minimum distribution amounts by April 1st of the year after you reach
age 70 1/2. These additional taxes are figured and reported on Form 5329 (PDF). Refer to Form 5329 Instructions
for exceptions to the additional taxes. For information on Roth IRA contributions or distributions, refer to Topic 309
and Topic 428. For information on conversions from a traditional IRA to a Roth IRA, refer to Publication 590.
For more information:
http://www.irs.gov/taxtopics/tc451.html
What is a 403(b) Plan?
A 403(b) plan, also known as a tax-sheltered annuity (TSA) plan, is a retirement plan for certain employees of
public schools, employees of certain tax-exempt organizations, and certain ministers.
Individual accounts in a 403(b) plan can be any of the following types.



An annuity contract, which is a contract provided through an insurance company,
A custodial account, which is an account invested in mutual funds, or
A retirement income account set up for church employees. Generally, retirement income accounts can
invest in either annuities or mutual funds.
Throughout this publication, wherever the term “403(b) account” is used, it refers to any one of these funding
arrangements, unless otherwise specified.
What are the Benefits of Contributing to a 403(b) Plan?
There are three benefits to contributing to a 403(b) plan.



The first benefit is that you do not pay tax on allowable contributions in the year they are made. You do
not pay tax on allowable contributions until you begin making withdrawals from the plan, usually after you retire.
Allowable contributions to a 403(b) plan are either excluded or deducted from your income. However, if your
contributions are made to a Roth contribution program, this benefit does not apply. Instead, you pay tax on the
contributions to the plan but distributions from the plan (if certain requirements are met) are tax free.
The second benefit is that earnings and gains on amounts in your 403(b) account are not taxed until you
withdraw them. Earnings and gains on amounts in a Roth contribution program are not taxed if your withdrawals
are qualified distributions. Otherwise, they are taxed when you withdraw them.
The third benefit is that you may be eligible to take a credit for elective deferrals contributed to your
403(b) account. See chapter 10.
For more information:
http://www.irs.gov/publications/p571/ch01.html
Know your Taxes
Employee’s Withholding Allowance Certificate
W-4 Form
http://www.irs.gov/pub/irs-pdf/fw4.pdf?portlet=3
Wage & Tax Statement
W-2 Form
http://www.irs.gov/pub/irs-pdf/fw2.pdf
2007 Federal Tax Rate Schedules
Note: These tax rate schedules are provided so that you can compute your federal estimated
income tax for 2007. To compute your actual income tax, please see the instructions for 2007
Form 1040, 1040A, or 1040EZ as appropriate when they are available.
Schedule X — Single
If taxable income
is over--
But not over-
The tax is:
$0
$7,825
10% of the amount over $0
$7,825
$31,850
$782.50 plus 15% of the amount over 7,825
$31,850
$77,100
$4,386.25 plus 25% of the amount over 31,850
$77,100
$160,850
$15,698.75 plus 28% of the amount over
77,100
$160,850
$349,700
$39,148.75 plus 33% of the amount over
160,850
$349,700
no limit
$101,469.25 plus 35% of the amount over
349,700
Schedule Y-1 — Married Filing Jointly or Qualifying Widow(er)
If taxable income is over- But not over-
The tax is:
$0
$15,650
10% of the amount over $0
$15,650
$63,700
$1,565.00 plus 15% of the amount over 15,650
$63,700
$128,500
$8,772.50 plus 25% of the amount over 63,700
$128,500
$195,850
$24,972.50 plus 28% of the amount over
128,500
$195,850
$349,700
$43,830.50 plus 33% of the amount over
195,850
$349,700
no limit
$94,601.00 plus 35% of the amount over
349,700
Schedule Y-2 — Married Filing Separately
If taxable income is over- But not over-
The tax is:
$0
$7,825
10% of the amount over $0
$7,825
$31,850
$782.50 plus 15% of the amount over 7,825
$31,850
$64,250
$4,386.25 plus 25% of the amount over 31,850
$64,250
$97,925
$12,486.25 plus 28% of the amount over
64,250
$97,925
$174,850
$21,915.25 plus 33% of the amount over
97,925
$174,850
no limit
$47,300.50 plus 35% of the amount over
174,850
Schedule Z — Head of Household
If taxable income is over- But not over-
The tax is:
$0
$11,200
10% of the amount over $0
$11,200
$42,650
$1,120.00 plus 15% of the amount over 11,200
$42,650
$110,100
$5,837.50 plus 25% of the amount over 42,650
$110,100
$178,350
$22,700.00 plus 28% of the amount over
110,100
$178,350
$349,700
$41,810.00 plus 33% of the amount over
178,350
$349,700
no limit
$98,355.50 plus 35% of the amount over
349,700