Retirement Plans

Tax deferred earnings growth

A Traditional IRA gives you several tax benefits. Earnings are not subject to federal income tax until withdrawn. You may be able to deduct all or part of your Traditional IRA contribution on your federal income tax return. You can also set up a Traditional IRA for your spouse whether or not he or she earned income in that year.

Making Traditional IRA contributions

To contribute, you must have earned income and be under 70½ years old. You can make contributions to your account any time during the calendar year and until April 15 of the following year. You can contribute up to the lesser of your IRA Contribution Limit or 100% of your earned income. People who are age 50 and over can also make special "catch-up" contributions of $1,000 per year to a Traditional IRA. Your catch-up limit is added to your normal IRA Contribution Limit for each year.

Maximum allowable annual contributions:

• Contribution Limit: $5,500
• "Catch Up" contributions for investors over 50: $1,000

Your contribution may also be tax deductible

Part or all of your contribution to a Traditional IRA may be deductible if:

• You do not participate in an employer-sponsored retirement plan like a 401(k)
• You do participate in an employer-sponsored plan, but your income is below federal limits
• You are married and your spouse is not an active participant in an employer-sponsored retirement plan, the contribution to your spouse's Traditional IRA may be deductible

Withdrawals from your Traditional IRA

You may withdraw from your Traditional IRA at any time. However, withdrawals before age 59½ may be subject to a 10% penalty tax in addition to regular income taxes. When you reach age 70½, you must make minimum withdrawals in order to avoid tax penalties.

Tax-free earnings growth

Roth IRAs offer you an opportunity to save for retirement tax-free: earnings grow tax-free, and qualified withdrawals are not subject to income tax. If you meet the eligibility requirements you can also set up a Roth IRA for your spouse, regardless of whether your spouse had any compensation or earned income in that year. (Of course, if your spouse earned income, he or she can establish his or her own Roth IRA.)

Making Roth IRA contributions

Contribution limits are the same for Traditional and Roth IRAs; up to $5,500. You can make contributions to your account any time during the year and until April 15 of the following year. And people who are age 50 and over can also make special "catch-up" contributions of $1,000 per year to a Roth or Traditional IRA. Your catch-up limit is added to your normal IRA Contri bution Limit for each year.

Key differences between contributing to a Roth versus a Traditional IRA:

• Contributions to a Roth IRA are not tax deductible.
• You may continue making contributions to a Roth IRA after you reach age 70½ providing you have earned income.
• Your Roth IRA limit is reduced by any contributions for the same year to a Traditional IRA. For example, if you contribute $500 to your Traditional IRA for one year, your maximum Roth IRA contribution for that year will be $5,000.
• People with high income levels may not be able to contribute to a Roth IRA, or their allowable contribution amount may be limited.

Withdrawals from your Roth IRA

Withdrawals from your Roth IRA are not taxable as long as the withdrawal is a qualified distribution — generally, if your account has been open for five years, and you are age 59 or older. Unlike Traditional IRAs, you are not required to begin taking minimum distributions from your Roth IRA when you reach age 70.

Deciding which IRA is right for you

This information is intended to provide you with the basic information you will need to decide whether a Traditional or Roth IRA is better for you. We suggest that you consult with a qualified financial advisor and a tax professional to help you make your decision. Your tax advisor can also inform you of important state tax consequences to consider. The table below offers an at-a-glance comparison that may be helpful as you and your advisor consider your retirement planning needs.

Converting a Traditional IRA into a Roth IRA

You can convert an existing Traditional IRA into a Roth IRA in three ways:

1. Withdraw the amount you want to convert from your Traditional IRA and roll it over to a Roth IRA within 60 days.
2. Establish a Roth IRA and then direct the custodian of your Traditional IRA to transfer it to the new Roth IRA.
3. Convert an existing Traditional IRA with State Street Bank and Trust Company as custodian to a Roth IRA. Royce can convert your existing account when the new Roth IRA account has been established.

Anyone, regardless of income or filing status, can convert money from a traditional IRA to a Roth IRA.

Cost of Living Adjustments

Annual limitations for IRA contributions, Modified Adjusted Gross Income (MAGI) deductibility limits for those who are active participants in employer plans and those seeking an income tax credit for retirement saving contributions, have slightly different indices than are used for determining Cost-of-Living Adjustments in employer plans.

The 2013 cost-of-living adjustments are as follows:

Traditional IRA Deduction

• Single active participant: $59,000 - $69,000
• Married active participant filing a joint income tax return: $178,000 - $188,000¹
• Income Limit: For those participating in an employer-sponsored retirement plan, the ability to make a deductible contribution phases out at income levels of $59,000 to $69,000 (individual taxpayer) and $95,000 to $115,000 (married taxpayers filing jointly)

Roth IRA Contributions

• Single individual: $112,000 - $127,000
• Married individual filing a joint income tax return: $178,000 - $188,000¹
• Income Limit: Ability to contribute phases out at income levels of $112,000 to $127,000 (individual taxpayer) and $178,000 to $188,000 (married taxpayers filing jointly)

¹Adjusted gross income includes foreign earned income and income from Guam, American Samoa, North Mariana Islands and Puerto Rico.

When you change jobs or retire, you are faced with making an important decision about what to do with the money you have saved for retirement. The rules governing rollovers are complicated. Consider the information in this brochure and then discuss your options with your tax consultant or the IRS. Most distributions from employer plans, 403(b)s, or 457 plans are eligible for rollover to a Traditional IRA. The main exceptions are:

• Payments over the lifetime or life expectancy of the participant (or participant and a designated beneficiary),
• Installment payments for a period of 10 years or more,
• Required distributions (generally the rules require distributions starting at age 70 or for certain employees starting at retirement, if later), and
• Hardship withdrawals from a 401(k) plan or a 403(b) arrangement.

What is a direct rollover?

If you are eligible to receive a distribution from a tax qualified retirement plan as a result of, for example, termination of employment, plan discontinuance, or retirement, all or part of the distribution may be transferred directly into your Traditional IRA. This is a called a "direct rollover." You may also receive the distribution and make a rollover to your Traditional IRA within 60 days. By making a direct rollover or a regular rollover, you can defer income taxes on the amount rolled over until you subsequently make withdrawals from your Traditional IRA.

Once I have rolled over a plan distribution into a Traditional IRA, can I subsequently roll over into another employer's plan?

Yes, within 60 days of the date of withdrawal.

Can any amount held in my Traditional IRA be rolled over into an employer plan?

Yes, generally speaking, withdrawals from your traditional IRA may be rolled over to an employer's qualified plan or 403(b) arrangement.

Can I make a rollover from my Traditional IRA to another Traditional IRA?

Yes. You have 60 days after the withdrawal from your first Traditional IRA to complete the rollover. Note that you must wait a full year before you can make another such rollover from the same Traditional IRA.

May a rollover or transfer include after-tax or nondeductible contributions?

Yes. After-tax contributions can be rolled over or transferred from another Traditional IRA, a qualified employer plan or a 403(b) to a Traditional IRA.

Do rollovers affect my contribution or deduction limits?

No. Also, rollovers are not deductible and do not affect your deductions limits.