Koehler Financial Services, Inc.

Financial Glossary

We are pleased to provide you with information about many of today's financial products, which include the different types of IRA's, pensions, 401k plans, mutual funds, annuities and their features and benefits. This glossary is a brief overview. You may obtain additional information by calling us at 269-429-0650. Please scroll down to view the glossary.

ANNUITIES

VARIABLE ANNUITY
Tax-deferred growth potential with a wide range of investment choices

Variable annuities can be attractive to help you build for retirement. They provide you the potential for tax-deferred growth and an opportunity to participate in the market through a selection of professionally managed portfolios.^A Asset protection options can protect your annuity investment for loved ones. And once you retire, your annuity can help create a reliable stream of retirement income—even one you can't outlive.

FIXED ANNUITY
Steady growth and guaranteed rates of return

Fixed deferred annuities can be well suited for investors who are looking for the safety of a more conservative retirement investment. A fixed annuity offers the stability of a fixed, guaranteed rate of return. Plus, the interest you earn is tax-deferred until you begin making withdrawals. Fixed annuities also offer the advantage of competitive interest rates versus many other fixed-rate products.

Koehler Financial Services, Inc. offers a line-up of fixed annuitiesthat provide the stability of competitive rates for a variety of time horizons to suit your needs. You can fund a fixed annuity with cash, assets from a direct IRA transfer or a tax-free Section 1035 exchange from another annuity or life insurance policy.

Early withdrawals are subject to market value adjustments, which may either be positive or negative
Contract guarantees are subject to the claims-paying ability of the issuing insurance company.
All withdrawals of tax-deferred earnings are subject to current income tax, and, if made prior to age 59½, may also be subject to a 10% federal income tax penalty.
Koehler Financial Services, Inc., a licensed insurance agency, offers insurance products that are issued by non-affiliated insurance companies.

^{INDEX ANNUITY} Participation in market performance with guaranteed minimum growth

Looking for a retirement savings vehicle offering you higher earnings if the market goes up, yet guaranteed growth even if it doesn't? Index annuities let you participate in the potential growth of an equity index while protecting your savings with minimum guaranteed earnings. This makes them ideal for people who want to participate in the market performance upside without exposing their retirement savings to downside risk.

How do index annuities work?
You purchase an index annuity contract with a single premium payment. Earnings are linked to a formula based on changes in select equity indexes. If the index goes up, you share in the gains, up to the annual interest rate cap. If the market goes down, you're protected—your principal and credited interest can never decrease due to market declines. Index annuities are appealing because like traditional fixed annuities, your principal and credited interest can never decrease due to market declines, with all interest tax-deferred until you make withdrawals. However, index annuities also offer the opportunity for higher returns than many bank or traditional fixed rate vehicles by linking the interest rate to certain equity indexes, however dividends are not used in calculating index values, a valuable component when considering this type of annuity. Then, when it's time to receive a payout, you can choose from a variety of options to set up a reliable stream of retirement income. Yields will be lower than the indexes they track due to margin reductions and market cap limitations.

For clients looking to benefit from the performance of leading market indexes while guaranteeing principal protection plus minimum growth.

Koehler Financial Services, Inc., a licensed insurance agency, offers annuity products that are issued by non-affiliated insurance companies.
Guarantees are subject to the claims-paying ability of the insurance company and surrender charges may apply if money is withdrawn before the end of the contract. Market performance participation is typically subject to a cap and/or margin.
All withdrawals of tax-deferred earnings are subject to current income tax, and, if made prior to age 59½, may also be subject to a 10% federal income tax penalty.

IMMEDIATE ANNUITY
Convert your assets into an income stream

An Immediate Annuity can help reduce concerns about outliving your savings. With a one-time purchase payment, you can convert current assets into an income stream guaranteed for as long as you choose, including for your lifetime.

Reasons to consider this annuity:

· choice of income payout options to suit your cash flow needs.

· security that your payments won't fluctuate with market volatility.

· freedom from having to manage your savings to generate income.

Koehler Financial Services, Inc., a licensed insurance agency offers insurance products that are issued by non-affiliated insurance companies. Guarantees are subject to the claims-paying ability of the issuing insurance company.

MUTUAL FUND FAMILIES
Koehler Financial Services, Inc. a Registered Investment Advisor can assist you in building a portfolio of mutual funds to fit your needs. Please read the prospectus carefully before investing.

Investment value will fluctuate, and shares, when redeemed, may be worth more or less than original cost.

PLEASE READ THE IMPORTANT DISCLOSURES BELOW

Investments in managed accounts should be considered in view of a larger, more diversified investment portfolio. Please read Koehler Financial’s ADV Part II for important information and disclosures relating to Koehler Financial Services, Inc.'s Managed Account.
Koehler Financial Services, Inc. is a Registered Investment Advisor.

401K ROLLOVER
Transfer assets easily and maintain tax-deferred growth

If you’ve changed jobs or are retiring, rolling over your retirement assets to an account managed by Koehler Financial Services, Inc. is a great solution. Done correctly, it’s a non-taxable event and gives you access to a wide range of investments.

Take the hassle out of your 401(k) IRA rollover
Learn more about how to roll over your old 401(k) or get the process started in just one phone call: 800-347-0650.

Let a Koehler Financial Services, Inc. rollover specialist handle all the details, including:

· Contacting your former plan administrator.

· Opening your new rollover IRA over the phone.

· Completing the paperwork and guiding you every step of the way.

Is a Koehler Financial Services, Inc. Rollover IRA^A right for you?

· A Koehler Financial Services Inc.'s Managed Rollover IRA^A is advantageous for anyone who has changed jobs or is retiring and has assets in employer-sponsored retirement plans.

· Gain more flexibility and control over your retirement assets than with other alternatives, such as leaving assets in your former employer’s plan, moving them to a new employer’s plan, or taking a cash distribution.

Visit Koehler Financial Services, Inc. at 5764 James Drive, Stevensville, MI 49127 or call us to find out more at 800-347-0650.

Koehler Financial Services Inc. is a Registered Investment Advisor. Realize the benefits of a Koehler Financial Services Inc. Managed Rollover IRA^AKeep your retirement assets invested in a tax-deferred account.

Avoid current taxes or penalties that may apply to a withdrawal.

Gain access to expert one-on-one retirement planning and investment guidance.

Details: Rollover IRA


Minimum to Open	$2,000
Rollover Deadline	There is generally no deadline for a direct rollover. This is the most efficient way to maintain the tax-deferred status of your 401(k) or other retirement plan distribution. Open your Koehler Financial Services, Inc. Rollover IRA¹ and tell your benefits administrator you want to directly roll your distribution over to a rollover IRA account managed by Koehler Financial Services, Inc. a Registered Investment Advisor. However, if your employer issues you a check for the distribution, you must deposit it into an IRA or other qualified plan within 60 days of its issuing date in order to avoid taxation and penalties.
Tax advantages
Contributions	Tax-deductible (subject to certain limitations)
Earnings	Tax-deferred (not taxed until you begin withdrawing after retirement)
Withdrawals	Taxable (except withdrawals of non-deductible contributions)
Contributions
Who's Eligible	Anyone who is leaving a job or has just retired and wants to preserve the tax-deferred status of funds distributed from an employer-sponsored retirement plan may establish a rollover IRA.
Opening Contribution	Usually funded with eligible rollover distributions from an employer-sponsored retirement plan. You may combine your rollover with a traditional IRA or create a separate rollover IRA account for the rollover. The benefit of a separate IRA is that it allows you to move your rollover IRA into another employer-sponsored plan should you decide to do so at a later time. Beginning in 2002, you do not have to keep your rollover in an IRA separate from your other traditional IRAs to be able to later move your assets into an employer-sponsored plan, but any after-tax (nondeductible) contributions made to your IRA cannot be rolled over to a qualified plan. However, you may wish to keep these assets separate anyway. Each plan determines whether or not it will accept rollover assets that have been co-mingled, and this expansion of the rollover rule is set to expire after 2010. Please consult a tax advisor if you need more information.
Additional Contribution Amounts	You may make additional cash contributions to your rollover IRA or roll over funds from an existing IRA, 401(k) or 403(b) plan (and beginning in 2002, 457(b) governmental plans). However, once you commingle other funds with your rollover IRA, you may no longer be able to roll the account into another employer-sponsored plan.
Withdrawals
Penalty Free	Withdrawals after age 59½ .
Penalty	If you do not start Required Minimum Distribution (RMD) withdrawals by 70½ you will face a penalty. Special distribution rules may apply. Withdrawals before age 59½ are subject to a 10% penalty. (Exceptions are listed below). Investment vehicles may also impose front and/or backend sales and/or withdrawal fees. Please consult the prospectus or an investment advisor for details.
Exceptions to Penalty	· Higher education expenses for you, spouse, children, or grandchildren. Expenses include tuition, fees, books, supplies and room and board (must be enrolled at least part time). · First-time home purchase expenses (up to $10,000) to buy, build or rebuild a first home for you, your parents, children or grand children. · Death or disability. · Certain medical expenses including qualifying health insurance costs for certain unemployed individuals and unreimbursed expenses exceeding 7.5% of Adjusted Gross Income (AGI). · Withdrawals made in equal installments over the account holder's life expectancy.

Compare traditional and Roth individual retirement accounts
The IRA plan comparison chart below gives summary information only. Please review the details for each type of account for more information. You may want to consult your tax professional.

Account	Traditional IRA	Roth IRA
Minimum to open	$2,000	$2,000
Tax advantages
Contributions	Tax-deductible (subject to certain limitations)	Not tax-deductible
Earnings	Tax-deferred (taxed when you begin withdrawing)	Tax-free (subject to certain limitations)
Withdrawals	Taxable	Tax-free (subject to certain limitations)
Contributions
Yearly amount	Up to $5,000 for tax year 2012 ($6,000 for those age 50 and older)	Up to $5,000 for tax year 2012 ($6,000 for those age 50 and older) You can also convert your existing IRA into a Roth.
Age	Under 70½	Any
Income	Must have earned income. Deductibility of contributions varies with Modified Adjusted Gross Income (MAGI).	Must have earned income. Not available to persons with MAGI over: $125,000 (single) $183,000 (married filing jointly) $10,000 (married filing separately).
Withdrawals
Penalty-free	After age 59½	After your account has been open 5 years AND After age 59½ (some withdrawals may be subject to tax)
Penalty	Before age 59½ . If you do not start withdrawing by age 70½.	Before 5-year holding period or before age 59½ unless exceptions to penalty apply.
Exceptions to penalty	Some exceptions for home purchase, education, or other.	Some exceptions for home purchase, education, or other.

Inherited IRA

Retirement resources

Transfer your IRAs to Koehler Financial Services, Inc. a Registered Investment Advisor
Retirement planning
Estate planning services

An inherited IRA allows a spouse or non-spouse IRA beneficiary of a traditional, rollover, SEP, SIMPLE or Roth IRA to keep his or her inherited IRA assets tax-deferred—until the IRS requires the funds in the inherited IRA to be distributed.

When the account holder dies, a spouse beneficiary may either transfer the assets into an inherited IRA, complete a spousal transfer and treat the assets as his/her own or take a distribution from the IRA. A non-spouse beneficiary may transfer the assets into an inherited IRA in his/her own name, and generally continue taking distributions on the same schedule that applied to the original account holder.

Tax rules for inherited IRAs are complex. We recommend that you consult your tax advisor before reaching a final decision.

Inherited IRA
Minimum to Open	$2,000
Who's Eligible	Anyone who has inherited a traditional, rollover, SEP, SIMPLE or Roth IRA, regardless of age
Tax Advantages
Opening Deposit	Not taxed
Earnings	Tax-free (Roth IRA earnings accumulate tax-free provided certain conditions are met) Tax-deferred (traditional IRAs grow tax-deferred until distributed as required by the IRS)
Withdrawals	Tax-free (withdrawal of earnings from a Roth IRA if account has been open 5 years) Tax-deferred (withdrawal of earnings from all other IRAs)
Contributions
Contribution Amounts	· Contributions to Inherited IRAs are not permitted · Contributions to spousal transfers are allowed subject to eligibility
Withdrawals
Withdrawal Choices	Withdrawal choices vary based on the original account holder's age at death, who the beneficiary is (e.g., spouse, non-spouse, trust or estate) and the type of IRA inherited. The choices you make can have serious tax consequences and can impact your retirement. We recommend you speak with your tax advisor prior to making any decisions.

Roth IRA Information

A Roth IRA managed by Koehler Financial Services, Inc. a Registered Investment Advisor ^A may offer greater tax savings and withdrawal flexibility than a traditional IRA. Roth IRA accounts have no mandatory annual distribution requirements, and you can contribute beyond age 70½. Eligibility depends on income.

Your Roth IRA includes:

Your choice of investments, including stocks, bonds, mutual funds, and more

Income on your cash balances

Customized investment advice

Roth IRA
Minimum to Open	$2,000
Contribution Deadline	April 15, 2011 for 2010 tax year
Tax advantages
Contribution	Not tax-deductible You may contribute simultaneously to a traditional IRA and a Roth IRA (subject to eligibility) as long as the total contributed to all (traditional or Roth) IRAs totals no more than $5,000 for each tax year 2010 ($6,000 age 50 and older). 2. Five-year holding periods: There is a single five-year holding period when determining whether earnings can be withdrawn tax-free as part of a qualified distribution from a Roth contributory account. This period begins January 1 of the year of the first contribution to any Roth contributory account.
Earnings	Tax free (earnings grow free of federal income tax)
Withdrawals	Tax free (withdrawal of original contribution) Potentially tax-free (withdrawal of earnings if part of a qualified withdrawal)
Contributions
Eligibility	No age restrictions; eligibility phase-out begins at modified adjusted gross income of $173,000 for married taxpayers filing jointly and $110,000 for single taxpayers.
Annual Contribution Amounts	To determine your allowable contribution amount, please contact Koehler Financial Services, Inc.’s tax planning department, or click here for our current years tax reference sheet.
Withdrawals
Penalty Free	Withdrawal of contributions at any age, or earnings after age 59½ and after account has been open for five years.
Penalty	Withdrawal of earnings before age 59½ or before your account has been open for at least five years.
Exceptions to penalty	Before five-year holding period ends, subject to tax, or after five-year holding period ends, not subject to tax, penalties are waived if you are over 59½ and funds are withdrawn for: · Higher education expenses for you or family members. Expenses include tuition, fees, books, supplies and room and board (must be enrolled at least part time). · First-time home purchase expenses ($10,000 lifetime limit) to buy, build, or rebuild a first home for you, your parents, children, or grandchildren. You must not have owned a home within the past two years. · Death or disability. · Certain medical expenses including qualifying health insurance costs for certain unemployed individuals and unreimbursed expenses exceeding 7.5% of AGI. · Withdrawals made in equal installments over the account holder's life expectancy.

TRADITIONAL IRA
Save for retirement and gain tax advantages

Anyone under age 70½ with earned income can contribute to a traditional IRA. Contributions may be tax deductible, and taxes on earnings are deferred until you withdraw funds from the account, so your investments have the opportunity to compound faster.

Open a traditional IRA account managed by Koehler Financial Services, Inc. a Registered Investment Advisor^A and you'll also get:

A wide choice of investments.

Income availability.

Customized investment advice.

Traditional IRA
Minimum to open	$2,000
Contribution deadline	April 15, 2012 for 2011 tax year
Tax advantages
Contribution	Tax deductible - subject to certain limitations
Earnings	Tax deferred - taxed when you begin withdrawing
Withdrawals	Taxable (except withdrawals of non-deductible contributions)
Contributions
Eligibility	Anyone with earned income may contribute up until age 70½.
Annual contribution amounts	To determine your allowable contribution amount, please see our tax planning experts. You may contribute simultaneously to a traditional IRA and a Roth IRA (subject to eligibility) as long as the total contributed to all (traditional or Roth) IRAs totals no more than $5,000 for each tax year 2012 ($6,000 age 50 and older).
Withdrawals
Penalty free	Withdrawals after age 59½
Penalty	· If you do not start required minimum distribution (RMD) withdrawals by age 70½, you will face a penalty. Special distribution rules may apply. · Withdrawals before age 59½ are subject to a 10% penalty. (Exceptions are listed below.)
Exceptions to penalty	· Higher education expenses for you or family members; expenses include tuition, fees, books, supplies, and room and board (must be enrolled at least part time). · First-time home purchase expenses ($10,000 lifetime limit) to buy, build, or rebuild a first home for you, your parents, children, or grandchildren; you must not have owned a home within the past two years. · Death or disability · Certain medical expenses including qualifying health insurance costs for certain unemployed individuals and unreimbursed expenses exceeding 7.5% of AGI · Withdrawals made in equal installments over the account holder's life expectancy
	Koehler Financial Services, Inc. a Registered Investment Advisor offers a wide range of programs and service plans to meet your needs.

SMALL BUSINESS RETIREMENT PLANS
A simple yet powerful way to save for your future

Whether you're a consultant working for yourself or a business with employees, we have a wide range of retirement plans to meet your needs.

Consider a plan for self-employed individuals without employees

Enjoy higher contribution limits than individual retirement accounts.

Get tax deductions now on your contributions, and let your assets grow tax-deferred until withdrawn.

Consider an Individual 401(k), SEP-IRA, or Personal Defined Benefit.

Or view plans for business owners with employees

Choose a plan to reward employees the way you prefer—immediately or over time.

Get the savings you need, and the flexibility you and your employees want.

Consider a SEP-IRA, SIMPLE IRA, Personal Defined Benefit, Profit-sharing, or 401(k) Plan.

Consider a Company Retirement Account (CRA).

Distributions from retirement accounts before the age of 59½ may result in a 10% early withdrawal penalty. Where specific advice is necessary or appropriate, Koehler Financial Services, Inc. a Registered Investment Advisor recommends consultation with a qualified tax advisor or CPA.

Consider an Individual 401(k)

An Individual 401(k) is a retirement plan designed for self-employed individuals and owner-only businesses who want to make substantial contributions towards their retirement.

It has many of the same benefits as a traditional 401(k), but due to the small plan size, there is less administration required. And, as the owner of your Individual 401(k), you direct how the contributions are invested.


Who’s It for?	An Individual 401(k) may be best for employers who: · Are self-employed or owner-only businesses with no employee other than a spouse - You May exclude employees who are under age 21 - Or have worked less than 1,000 hours in the year beginning with the date of hire · Need to make contributions that are larger than what can typically be made to a SEP-IRA or Profit-sharing plan. · Want flexibility in the amount contributed annually · Want an easy-to-administer, low-cost plan
Establishing a Plan
Plan Establishment	Plan must be established by December 31, or fiscal year-end, whichever comes first.
Contribution Deadline	Profit-sharing contributions are due by the business tax-filing date plus extensions. Salary deferrals generally must be made by end of business tax year.
Tax Advantages
Contributions	Tax-deductible
Earnings	Tax-deferred (taxed when you withdraw them)
Withdrawals	Taxable
Eligibility
An Individual 401(k) is available to sole proprietors or business owners (including S and C corporations and partnerships) with no employees other than a spouse. Business owners must have a minimum 5% business share to be eligible for an Individual 401(k). If you don’t meet this criteria, Koehler Financial can suggest other products that can meet your needs.
Contributions
Funding Requirements	Plan is funded with a combination of salary deferrals and annual profit-sharing contributions. Plan does not need to be funded annually.
Annual Contribution Amounts	· Allows profit-sharing contributions up to 25% of your self-employment income, up to a maximum of $50,000 for 2012. · Plus, a pre-tax salary deferral of up to $17,600 for 2012. Individuals age 50 or over may make an additional catch-up contribution of $4,900 for tax year 2012. · Maximum combined contribution, including salary deferral cannot exceed $50,000 for 2012.
Vesting	Immediate
Withdrawals
Distributions	Participant must have a triggering event (generally termination of employment or retirement) to take a distribution. In-service withdrawals may be available after age 59½ or in case of hardship. Participants owning 5% or more of the business must begin taking required minimum distributions (RMDs) annually, beginning with the year in which the age of 70½ is attained. Most distributions are subject to a mandatory 20% federal tax withholding. Exceptions to this tax-withholding requirement are required minimum distributions, hardship withdrawals and direct rollovers. You may not take loans from your account managed by Koehler Financial Services, Inc. Individual 401(k).
Penalty	If you do not start RMDs when required or take less than the required amount, you will face a 50% penalty. Withdrawals before age 59½ are subject to a 10% penalty. (Exceptions are listed below.)
Exceptions to 10% Penalty	Rollover of distribution to another plan or IRA Termination of employment at or after age 55 Withdrawals made in equal installments over your life or life expectancy Death or disability Non-reimbursed medical expenses exceeding 7.5% of adjusted gross income
Managing Your Individual 401(k)
Tax Filings	When your plan balance reaches $100,000 or more, you are required by law to file Form 5500-EZ annually.

Personal Defined Benefit Plan

Koehler Financial Services, Inc. a Registered Investment Advisor can assist you in opening a Personal Defined Benefit (DB) Plan which provides self-employed individuals (and any participating employees) a lifetime payment, or “benefit," at retirement.

A benefit formula is created—usually tied to an employee’s earnings, length or service or both—that targets your chosen level of retirement income. Contribution amounts are then calculated and adjusted annually to ensure that the target goal is reached. Contributions for all the plan participants are kept in a single account used to pay the promised benefits.

Defined benefit plans favor long-service, highly compensated business owners who are in their peak earning years.


Who’s It for?	Personal Defined Benefit Plan may be best for: · Professionals age 50 or more who can make annual contributions of $60,000 or more for at least five years · Highly compensated business owners, partners and key employees who are in their peak earning years · Business owners with few, if any employees · Individuals who are maximizing funding in their current retirement plan and are looking for a way to quickly increase their retirement assets
Establishing a plan
Establishment Deadline	Plan must be opened by the end of your business’s fiscal year (usually December 31) to make contributions for that tax year.
Tax Advantages
Contributions	100% tax-deductible (within IRS limits)
Earnings	Tax-deferred (taxed when you withdraw them)
Withdrawals	Taxable
Contributions
Contribution Levels	Annual contribution levels are calculated based on several factors including age, compensation and retirement age. Plan contributions are adjusted each year (when necessary) to help you reach your retirement savings goal. Koehler Financial Services, Inc. will provide you with a detailed, customized funding proposal to give you the information you need to decide if the plan is right for you.
Funding Requirements	Plan is funded with employer contributions only. Plan must be funded annually. If you have employees, you must contribute for all eligible employees.¹
Vesting	Choice of immediate or delayed vesting, but no more than 3-year cliff or 6-year graded
Distributions
Penalty-Free	Distributions may be received upon retirement or termination of service. Required Minimum Distributions (RMDs) must begin at age 70½ , even (in the case of a business owner) if you are still working. You may receive your benefit payout by (1) rolling assets into an IRA, (2) setting up an annuity, or (3) receiving a lump-sum distribution.
Penalty	Unauthorized disbursements from the account may result in plan disqualification, federal tax penalties or other liabilities. If you do not start RMDs when required or take less than the required amount, you will face a 50% penalty. Withdrawals before age 59½ are subject to a 10% penalty. (Exceptions are listed below.)
Exceptions to 10% Penalty	Rollover of distribution to another plan or IRA Termination of employment at or after age 55 Withdrawals made in equal installments over your life or life expectancy Death or disability Non-reimbursed medical expenses exceeding 7.5% of adjusted gross income
Recordkeeping
Koehler Financial will assist you in finding a qualified recordkeeping and servicer for your plan: · Compilation of annual actuarial calculations · Preparation of annual IRS Form 5500 or 5500EZ · Calculation of eligible distributions when plan participants retire or leave your company

1. Eligible employees are those who are age 21 or older and who have worked at least 1,000 hours during the year. Union employees may be excluded. Participation may require completion of one year of service, or 2 years of service if vesting is immediate.

SIMPLE IRA

Provides and easy and economical way to establish a retirement program for you and up to 100 employees.

With a SIMPLE IRA, you establish the plan for your business. Eligible employees may fund their own retirement accounts through salary deferral contributions. And, as the employer, you make an additional contribution to eligible employee accounts.


Who’s It for?	A SIMPLE IRA may be appropriate for businesses: · With 100 or fewer employees who don’t currently have another retirement plan · With steady income who can meet mandatory contribution requirements · That have employees who may wish to make salary-deferral contributions · Seeking a low-cost plan that’s easy to administer and maintain · Wishing to retain valuable employees with a retirement plan that both you and your employees can contribute to
Establishing a Plan
Plan Establishment	In order to fund a plan for the current year, the employer must establish the plan before October 1 of that year.
Contribution Deadline	Employer contributions must be made annually by the employer’s tax-filing deadline, including extensions. Employee contributions are deducted from employees’ salaries and must be deposited at least monthly.
Plan Administration	No IRS filing or tax reporting and no compliance testing
Tax Advantages
Contributions	Tax-deductible
Earnings	Tax-deferred (taxed when you withdraw them)
Withdrawals	Taxable
Eligibility
Employers with 100 or fewer employees (including self-employed individuals). Companies maintaining and contributing to another employer-sponsored retirement plan in the same year are not eligible. Employees if they received at least $5,000 in compensation from the employer during any two prior years and whom you reasonably expect will receive at least $5,000 in the current year.¹
Contributions
Funding the Plan	Plan is funded with contributions deducted from your employees’ salaries as well as with annual employer contributions. Each eligible employee can decide whether or not to participate and how much to contribute. Employer contributions are mandatory. Employee contributions are optional.
Annual Contribution Amounts	Employees: · Up to 100% of compensation or a maximum of $11,500² for tax year 2012. · Participants age 50 and over may contribute up to $14,000 for tax year 2012.² View Contribution Limits Employer: · Match employee salary contributions dollar-for-dollar up to 3% of compensation (can be reduced to 1% in any two out of five years³) · Or make a non-elective contribution of 2% of compensation for all eligible employees (including those who decide not to contribute for themselves) · Or match only 1% in any two out of five years³
Vesting	100% Immediate
Withdrawals
Penalty-Free	Withdrawals after age 59½
Penalty	If you do not start Required Minimum Distribution (RMD) withdrawals by age 70½, you will face a 50% penalty. Special distribution rules may apply. Withdrawals before age 59½ are subject to a 10% penalty. (Exceptions are listed below.) If the withdrawal occurs within the first two years of participation in the SIMPLE IRA plan, the 10% penalty is increased to 25%.
Exceptions to 10% Penalty	Rollover of distribution to another IRA or employer plan. Higher education expenses for you or family members. Expenses include tuition, fees, books, supplies, and room and board (must be enrolled at least half-time). First-time home purchase expenses ($10,000 lifetime limit) to buy, build or rebuild a first home for you, your parents, children or grandchildren. You must not have owned a home within the past two years. Death or disability. Certain medical expenses including qualifying health insurance costs for certain unemployed individuals and non-reimbursed expenses exceeding 7.5% of AGI. Withdrawals made in equal installments over the account holder’s life expectancy.

1. You may set a lower minimum compensation amount if you want to allow more employees to
participate.
2. May be adjusted for inflation in future years.
3. Providing you notify employees of the lower percentage match by November 1 preceding the
plan year.

DEATH BENEFITS

Most variable annuities offer some form of guaranteed death benefit in the base contract at not additional charge. This can be as simple as guaranteeing that the value at death will be at least the amount invested, minus any withdrawals (hereafter referred to as net premiums), and can include some other metric such as capturing the highest value on any contact anniversary. In general, and with all else equal, the more levels of guarantee that are built into the standard death benefit, the higher the base contract fee.

OPTIONAL DEATH BENEFITS

There are three broad categories of these: the maximum anniversary value (MAV), which guarantees that the death benefit will be no less than the highest value achieved on any contract anniversary; the rising floor, which guarantees a minimum value at death equal to net premiums compounded at a notional rate of interest; and the earnings enhancement (EEB), which pays some percentage of earnings (40% is typical) in addition to the contract value at death. One can also find combinations of death benefit value calculations within a single option, such as a benefit that guarantees the greater of the maximum anniversary value or the compounded (rising floor) value.

A feature that is becoming more common is spousal continuation, where the contract owner's spouse can continue the contract, with the account value adjusted for the death benefit value (to the extent that the death benefit value exceeds actual account value). Look carefully at the death benefit structure to understand any limitations: the guaranteed value may be capped at 200% or 250% of net premiums or the guaranteed amount may either stop accruing or change significantly at more advanced ages, typically 80 or 85.

Maximum Anniversary Value

MVA death benefits can be structured various ways. The most common is simply a look back to the highest value on any contract anniversary date, but this can also be done at other intervals, such as five years instead of annually. Often the look back will stop at age 80, meaning that if the contract owner dies at age 90 the value of the death benefit will be the greater of current value, net premiums, or the highest value on any anniversary prior to the owner's 81st birthday.

Rising Floor

The benefit value is equal to the greater of net premiums, current value or net premiums compounded at a stated rate, typically 6%. The 6% compounding creates a notional dollars amount that has no value other than as a death benefit payment. The compounding of the death benefit value generally stops at age 80 or 85. Compounding rates can differ, generally ranging from 3% to 7%, but 5% and 6% are common.

Earnings Enhancement Bonus

The EEB is intended to offset the tax consequences of the death benefit payment. The typical structure adds 40% of earnings to the account value to arrive at the total death benefit payment. The 40% typically drops to 25% after a certain age, often 80.

LIVING BENEFITS

While direct statistics are hard to come by, living benefits appear to be a significant driver of variable annuity sales. There are three broad types: the guaranteed minimum withdrawal benefit (GMWB), which guarantees that a fixed dollar amount can be withdrawn each year until net premiums have been completely recovered by the policyholder, regardless of the actual account value; the guaranteed minimum income benefit (GMIB), which guarantees that a minimum value can be annuitized after a set waiting period; and the guaranteed minimum accumulation benefit (GMAB), which guarantees that the account balance of the VA will be equal to net premiums after a defined period.

Often, but not always, living benefit guarantees require the owner to elect and adhere to an asset allocation model or full investment in a fund-of-funds. Where these options aren't required, investors may be prohibited from buying very aggressive, high beta investments. Insurers use such investment allocation practices to manage the risk of providing these guarantees.

Guaranteed Minimum Withdrawal Benefit

The GMWB gives the investor the right to withdraw a fixed dollar amount every year until net premiums have been recaptured, regardless of performance. The dollar amount is calculated as a percentage of the initial investment. Withdrawals are not cumulative (i.e., one cannot withdraw less in one year and make it up the next).

Recent innovations in this benefit include providing the withdrawal guarantee for life rather than only until net premiums are recovered, the addition of step-up features and extending the "for life" benefit to cover a spouse. The "for life" GMWB generally reduces the percentage of net premiums that can be withdrawn each year to 5%, but guarantees that the annual withdrawal can be take for life, regardless of actual account value.

The "for life" GMWB is essentially to attempt by the industry to solve the problem of creating guaranteed lifetime income without risk pooling, i.e., without requiring the investor to give up control over a large portion of assets. To be sure, exercising that control will generally negate the benefit - that is, taking more than 5% of net premiums will void the lifetime guarantee. The account value, however, remains the property of the contract owner rather than becoming part of the general account of the insurer, so there is certainly far great liquidity.

A GMWB covering more than one life (spousal continuation) is a more recent development introduced in 2006. This GMWB extends the lifetime payment guarantee to a second life, usually a spouse, and the annual charge can exceed the annual charge for the single life GMWB by 50% or more. Finally, many GMWB feature now include step-up provisions, which allow the withdrawal amount to be increased on specified contract anniversaries if the actual account value is higher than the benefit base.

Guaranteed Minimum Income Benefit

The GMIB guarantees that the contract owner can annuitize, or create a lifetime stream of income, using the greater of the account value, net premiums compounded at a declared rate, and/or the highest contract value on any anniversary. There is usually a 10-year waiting period before the investor can exercise the benefit, and 6% is a typical declared rate. This benefit is sometimes called the guaranteed retirement income benefit (GRIB).

Be sure to understand how the annuitization payments are limited - age setbacks and/or alternate payout rate tables are almost always used to set the annuity payout amount. In other words, $100,000 in benefit value will produce a lower annuity payment than $100,000 of actual account value, which is annuitized using the insurer's standard tables. A drawback of this design is the potential for an account value lower than the benefit value to produce a higher annuity payment, which might be hard to explain to a client. And compounding rates of GMIB benefits can vary, so a benefit value compounding at 3% that has more favorable payout rates may produce a higher payment than one with a benefit value that compounds at 6%. The GMIB does provide a floor benefit, but take care to ensure that the client understands the limitations involved.

Guaranteed Minimum Accumulation Benefit

The GMAB guarantees that the account value will be no less than premiums paid after a certain number of years, generally 10. This is the most straightforward living benefit, and also the least widely available. Since it's essentially a lump sum guarantee and lacks the additional risk management of paying out the guaranteed amount over time, it's harder for insurers to hedge the risk.

There are literally dozens of nuances to each of these benefit structures that are not covered here, some of which can materially change the value of the guarantee to your client. As VA features have increased in variety and complexity, it is more important than ever to make sure you understand what is guaranteed, the actions the client must take to elect and maintain the guarantee and in what ways the guarantee is limited.

End Notes

^A Koehler Financial Services, Inc. holds no customer funds. Koehler Financial Services, Inc. a
    Registered Investment Advisor assists clients with fund selection and risk management.
    Securities offered through TD Ameritrade and/or Koehler Financial, LLC. This announcement
    constitutes neither an offer to sell nor a solicitation of an offer to buy any securities. The
    offering is made only by the prospectus. Please read it carefully before you invest or send
    monies. Investment returns and principal values vary, and you may have a gain or loss when
    you sell shares. Koehler Financial Services, Inc. it's affiliates, subsidiaries and associates do
    not practice law. Click here for a copy of our ADV Part II. Information deemed
    accurate but is not guaranteed.

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