An Information Guide to Individual Retirement Accounts and Rollover IRAs

Overview

Saving money for a comfortable retirement can seem like an impossible dream, but an IRA can help you take control and make your dream a reality.

Whether an IRA is the only qualified retirement plan you have or it serves as a supplement to an employer's plan such as a 401(k), it is simple to open and is an easy way to save for your retirement.

Each type of IRA offers tax advantages. Each can help you reach other financial goals. Regardless of the IRA you choose, the time to start is now. Starting early pays off because the power of compounding begins with your first investment, allowing your investment returns to build on each other over time. Over as little as ten years, it can make a significant difference.

Start Early

Let's say Sam begins investing at age 22. He invests $3,000 a year until he is 30 for a total investment of $27,000. His sister Emily doesn't get started investing until she is 33 but she continues investing her $3,000 a year right up until age 65 for a grand total of $99,000. It would be easy to believe that Emily would come out ahead, but you'd be mistaken. At a hypothetical annual growth rate of 10%, when both reach age 65 Emily's investment will lag far behind Sam's. As a result of the power of compounding, Sam will reach age 65 with $1,259,334 while Emily will have only $733,430.

Haven't opened an IRA yet? It's never too late to get started. Regardless of which IRA you choose, investors age 50 and over can make catch-up contributions in addition to the maximum annual contribution. And a Rollover IRA account can help you maintain the tax-deferred status of assets you receive from a 401(k) or other qualified plan when you retire or change jobs.

Contribute the maximum allowed to your IRA-get the most from the tax advantages offered by an IRA. An IRA lets you build your retirement savings without paying taxes on the account-your money grows faster when taxes aren't taken out each year.

To help you through the maze of different rules, circumstances and exceptions affecting the various IRAs and their tax treatments, we've put together the chart you'll find below. Use it to help you choose the IRA best suited to your needs.

FAQs

• Who can contribute to an IRA?
  A Traditional IRA can be opened by anyone with earned income who is under 70 years old. The Roth IRA can be opened by anyone with an earned income, regardless of age, if their adjusted gross income (AGI) is below $110,000 (single) or $160,000 (joint).
• What is the deadline for IRA contributions?
  The final deadline for making prior-year contributions is April 15. For example, a contribution for the current tax year may still be made until April 15 of the following year.
• Can I contribute to both a Traditional IRA and a Roth IRA in the same year?
  You can. Just remember that your total IRA contributions for the year cannot exceed the allowed maximum (see "IRA Choices at a Glance" for contribution limits).
• Can I contribute to an IRA even if I participate in my employer's retirement plan?
  Absolutely. Although participation in an employer-sponsored plan may limit the deductibility of your Traditional IRA contribution, you can still contribute to an IRA. Depending on your income, hi your contribution may be fully or partially deductible, or you may be able to make a nondeductible contribution to a Traditional or Roth IRA. (See "IRA Choices at a Glance" for income limits.)

  Additional Resources
  * Your tax adviser or financial planner
  * Social Security-800.772.1213 or www.ssa.gov for your Personal Earnings and Benefit Estimate Statement
  * IRS-www.irs.gov for IRA contributions and distribution rules

• Can a minor open an IRA?
  Yes. Minors who have an earned income may contribute to an IRA as long as there is an adult named as a custodian of the account.
• Is my nonworking spouse eligible to open an IRA?
  Yes. A nonworking spouse is eligible to open either a Traditional or Roth IRA.
• How does a penalty-free withdrawal work for purchasing a first home?
  You may withdraw funds to cover eligible first-time home buyer expenses including costs of purchasing, building or rebuilding a home (including settlement, financing or closing costs). The purchaser may be you, your spouse or a child, grandchild, parent or grandparent of you or your spouse. A "first-time" home buyer is defined as an individual who has not owned a home in the previous two years. The withdrawal must be used for eligible expenses within 120 days. If there is an unexpected delay or cancellation of the purchase, the withdrawal may be redeposited as a rollover.
• If I take a distribution from my IRA, can I replace it without being penalized?
  Yes. However, it is important to understand that once a distribution is taken from an IRA, you have 60 days from the date you receive the check to replace those funds and avoid any penalties or taxes. This type of Indirect Rollover can be done only once every 365 days.

Retiring or changing jobs? See Rollover IRAs below

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IRA Choices at a Glance

Please Note: This is general information only. Read the IRA Disclosure Statement and Custodial Agreement and consult your accountant or tax adviser. Because of changing tax laws, we cannot guarantee the table's accuracy.

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Choose Jensen

For more than a decade Jensen has maintained a singular dedication to our time-proven, highly disciplined investment philosophy.

One Fund, One Focus
Unlike many mutual fund companies, we manage only one fund. And through the years we have demonstrated consistency and stability in our investment approach, regardless of market conditions.

The Jensen Standard
Our unique quality growth strategy is driven by an experienced investment team that uses original in-depth business analysis to uncover top-tier companies available at what we believe to be a significant discount to their intrinsic value. It is a philosophy firmly rooted in the belief that enduring wealth comes from long-term ownership of great companies.

Low Turnover
Companies in The Jensen Portfolio are held for long periods. That means low turnover and transaction costs.

Trust
Over the years we have worked hard to win the trust and confidence of our investors. We have achieved this by applying a sound, repeatable investment process that is ours alone and by building an enduring firm that attracts and retains talented professionals.

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Rollover IRAs

Overview

Life is full of milestones. For most of us, two of the most significant are retirement or a change in jobs. Both offer unique opportunities and challenges, but one very important question is common to both. What will you do with your retirement plan assets?

Many people find the most attractive and flexible option is to roll their retirement assets into an IRA. A Direct Rollover IRA allows a tax-free transfer of funds from an employer-sponsored plan, such as a 401(k) to a Traditional IRA. You control your investment choice, and your money moves directly from your former employer to your new Rollover IRA account. You incur no short-term tax liabilities or early withdrawal penalties, and your money continues to grow tax-deferred until you retire.

Earnings and withdrawals from a Rollover IRA are governed by the same rules as those for a Traditional IRA (you cannot roll your retirement account directly into a Roth IRA, although it may be possible to convert to a Roth). Those rules include:

• Your tax-deferred earnings will be taxed at your ordinary income rate when you begin withdrawals.
• You must begin taking minimum distributions at age 70½.
• Penalties may apply for withdrawals made prior to age 59½.
• Penalty-free early distributions are allowed for special purposes or circumstances such as education, first-time home purchase (limited to $10,000), certain medical expenses or death or disability.

Before you make your decision, carefully review the following table, check with your benefits representative to confirm the amount you are eligible to roll over, and talk with your tax adviser to be certain that your choice will support your financial goals.

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Rollover Options at a Glance

How you choose to handle your retirement plan assets can be key to your investment success. To help you make the choice that best reflects your goals, we have created this easy-to-read table that outlines the advantages and considerations of each option.

* Assuming a 28% tax bracket and no applicable exception to early withdrawl penalties.

Please Note: This is general information only. Read the IRA Disclosure Statement and Custodial Agreement and consult your accountant or tax adviser. Because of changing tax laws, we cannot guarantee the table's accuracy.

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FAQs

• Is there any difference between a Rollover IRA and a Traditional IRA?
  Traditional IRAs are subject to an annual contribution limit. However there is no limit to how much you can roll over into a Rollover IRA.
• Can I reinvest the distribution check my former employer sent me?
  Yes, but if the check was made payable to you, 20% of your eligible distribution would have been withheld for taxes. The only way to avoid this 20% withholding is to have your current employer make your distribution check payable to the financial institution you have chosen as custodian for your new Rollover IRA. Either you or your current employer should send this check directly to the financial institution.
• I have already received a check made payable to me, and the 20% was withheld. If I reinvest the money, can I get that 20% back?
  Yes, but first you must replace the 20% that was withheld with your own savings. Then you must reinvest this 20% along with the 80% you received from your former employer in an IRA. The investment must be made within 60 days of receiving the distribution. If you accomplish this, you can receive credit for the 20% that was withheld when you file your tax return. If you do not have the cash to make up the 20% withheld, the IRS will consider that 20% as a distribution, making it subject to taxes and possibly a 10% early withdrawal penalty.
• I requested a Direct Rollover, but my employer sent me a check. What should I do?
  If the distribution check is made out to your Rollover IRA account, just send it immediately to your Rollover IRA account by certified mail, return receipt requested. If the distribution check is made out to you, send it back to your previous employer, return receipt requested and insist that they process a Direct Rollover for you.
• Are employer-sponsored plans required to give employees the option of a Direct Rollover?
  Yes, as long as it is a Direct Rollover to a Traditional IRA or other eligible retirement plan. Distributions of less than $200 are exempted from the Direct Rollover requirement.
• Can I add additional funds to my Rollover IRA?
  Yes. You can make annual contributions under the normal IRA rules and can make future rollovers to the IRA. Previous rules that prevented or discouraged commingling of rollover funds with non-rollover funds have been repealed.
• Can I move my retirement plan assets into a Roth IRA?
  You cannot directly roll over retirement plan assets into a Roth IRA, but you may be eligible to convert a Rollover IRA to a Roth IRA. Before making any conversion decision, you should consider a variety of factors including:
• what portion of the current IRA would be taxable if converted
• how long before you plan to retire and/or when you plan to begin withdrawals
• whether you qualify for the current year deduction to the Traditional IRA
Talk with your tax adviser to review your personal situation.
• What if I need my retirement money to pay for living expenses?
  A good option may be to roll your retirement plan assets into a Rollover IRA. If you do need the money, you can withdraw what you need when you need it and avoid the automatic 20% withholding. A withdrawal from an IRA is subject to ordinary income tax and may be subject to a 10% early withdrawal penalty. Check with your tax adviser to see if there are any special circumstances that could make your distribution eligible for special treatment.

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Rollover IRAs Made Easy

You can open your Jensen IRA Rollover account in just a few simple steps. The two-part process involves removing your money from your old employer's plan and then opening your IRA Rollover and moving the money into the new account.

Please Note: A variety of factors could affect the timing of your rollover. Retirement plans make disbursements on different schedules. Check with your plan administrator to determine your plan's schedule.

The information in this brochure should not be used as a basis for legal and/or tax advice. In any specific case, the parties involved should seek the guidance and advice of their own legal and tax counsel.

Click here to download a PDF version of the Jensen Portfolio IRA's Today. Download is 2.2 MB.