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These Terms of Use ("Terms of Use") are made between the undersigned user ("you") and Lord, Abbett & Co. ("we" or "us"). They become effective on the date that you electronically execute these Terms of Use ("Effective Date").

A. You are a successful financial consultant that markets securities, including the Lord Abbett Family of Funds;

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C. We wish to provide access to the Intelligence System to you as an information tool responsive to the demands of your successful business pursuant to these Terms of Use. Accordingly, you and we, intending to be legally bound, hereby agree as follows:]

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THE UNIFORM COMPUTER INFORMATION TRANSACTIONS ACT OR ANY VERSION THEREOF, ADOPTED BY ANY STATE, IN ANY FORM ("UCITA") WILL NOT APPLY TO THESE TERMS OF USE. TO THE EXTENT THAT UCITA IS APPLICABLE, THE PARTIES HEREBY AGREE TO OPT OUT OF THE APPLICABILITY OF UCITA PURSUANT TO THE OPT-OUT PROVISION(S) CONTAINED THEREIN.

The Intelligence System is not intended to be used by consumers, nor are the consumer protection laws of any jurisdiction intended to apply to the Intelligence System. You agree to initiate and maintain any action, suit or proceeding relating to these Terms of Use or arising out of the use of the Intelligence System exclusively in the courts, state and federal, located in or having jurisdiction over New York County, New York.

YOU HEREBY CONSENT TO THE PERSONAL JURISDICTION AND VENUE OF THE COURTS, STATE AND FEDERAL, LOCATED IN OR HAVING JURISDICTION OVER NEW YORK COUNTY, NEW YORK. YOU AGREE THAT YOU WILL NOT OBJECT TO A PROCEEDING BROUGHT IN YOUR LOCAL JURISDICTION TO ENFORCE AN ORDER OR JUDGMENT OBTAINED IN NEW YORK.

· Relationship of Parties. The parties to these Terms of Use are independent contractors and nothing in these Terms of Use will be construed as creating an employment relationship, joint venture, partnership, agency or fiduciary relationship between the parties.

· Notice. All notices provided under these Terms of Use will be in writing and will be deemed effective: (a) when delivered personally, (b) when received by electronic delivery, (c) one business day after deposit with a commercial overnight carrier specifying next day delivery, with written verification of receipt, or (d) three business days after having been sent by registered or certified mail, return receipt requested. We will only accept notices from you in English and by conventional mail addressed to: General Counsel Lord, Abbett & Co. 90 Hudson Street Jersey City, N.J. 07302-3973 We may give you notice by conventional mail or electronic mail addressed to the last mail or electronic mail address transmitted by you to us.

· Third-Party Beneficiaries. The members of the Lord Abbett Group are third-party beneficiaries of the rights and benefits provided to us under these Terms of Use. You understand and agree that any right or benefit available to us or any member of the Lord Abbett Group hereunder will also be deemed to accrue to the benefit of, and may be exercised directly by, any member of the Lord Abbett Group to the extent applicable.

· Survival. This Section 8 will survive any termination of these Terms of Use or your use of the Intelligence System. The undersigned hereby signs these Terms of Use. By electronically signing and clicking "Accept" below, these Terms of Use will be legally binding on me. To sign these Terms of Use, confirm your full name and enter your User ID and Password (as your electronic signature) in the fields indicated below and click the “I Accept” button.

 

Retirement Perspectives

Keys to navigating the complex world of IRAs

When the Employee Retirement Income Security Act [ERISA] of 1974 was signed into law, American workers gained unprecedented flexibility to accumulate assets for their golden years. That pension reform bill created the individual retirement account (IRA)—a powerful savings tool with the potential to defer paying taxes on contributions and earnings until you start withdrawing at some later date. Individuals not covered by retirement plans at work could open a traditional IRA through private financial institutions. And retiring workers or individuals changing jobs could transfer the proceeds of their employer-sponsored retirement plans into a rollover IRA.

IRAs have grown into the single largest component of the U.S. retirement market. According to the Investment Company Institute (ICI), IRA assets totaled $5.7 trillion at the end of third-quarter 2013, or more than one out of every four retirement dollars. Yet the ICI reports that only 15% of U.S. households made IRA contributions in 2012 and that very few eligible households made “catch-up” contributions allowed by law.

Lord Abbett believes everyone should have an IRA. One reason is because all IRAs offer tax-deferred compounding, and some (e.g., Roth IRAs) may even be tax-free if certain conditions are satisfied. Another powerful reason an individual should have an IRA is potential access to the funds before age 59½ without paying the 10% penalty, as long as certain IRS exceptions apply.

But with the increasing complexity of IRA rules, an individual would be prudent to contact Lord Abbett or a financial advisor for additional details before making any IRA investment or withdrawal decisions. Here’s a quick guide to the key IRA options that can potentially help you save more for your future:

Traditional IRA

A traditional IRA is a tax-deferred savings plan available to all individuals with earned income who are under age 70½ and their spouses if the spouse is also under age 70½. Individuals who are under age 50 have an individual contribution limit of $5,500 in 2014 (see Table 1). Individuals who are age 50 or older can invest an additional $1,000 above this limit, under what’s commonly called the “catch-up” provision of IRA regulations. Contributions may be made at any time during the calendar year or by the tax filing due date for that year, not including extensions (generally April 15).


Table 1. Contribution and Income Limits for Traditional IRAs
 

Source: Internal Revenue Service.

 

The deduction for contributions made to a traditional IRA depends on (1) household income and (2) whether the participant (and/or the participant’s spouse) was covered for any part of the year by an employer retirement plan. When covered by a retirement plan, the deductible amount is also affected by how much income was earned and by the tax return filing status (see Table 1).

Once a traditional IRA participant reaches age 70½, required minimum distributions must begin, and the amounts withdrawn are generally included as income. Withdrawals are typically subject to ordinary income tax. [Note: Required minimum distributions (RMDs) must be taken from traditional IRAs (as well as SEP1 and SIMPLE2 IRAs) no later than April 1 following the year that a person turns 70½. An RMD must be taken from the IRA in each subsequent year by December 31. Failure to take the RMD will result in a 50% penalty on the amount that was not distributed. Mandatory distributions of dollars that were contributed pretax and deducted from an individual’s taxable income at the time, as well as the earnings on those contributions, are taxed as ordinary income at the time of distribution. Mandatory distributions based on aftertax contributions that were not deducted from taxable income are tax-free.]

Roth IRA

A Roth IRA is a potential tax-free savings plan available to all individuals and their spouses who meet an IRS-imposed income test (see Table 2). In addition, contributions can be made at any age so long as the income test has been satisfied.


 
Table 2. Contribution and Income Limits for Roth IRAs

Source: Internal Revenue Service.


Participation in a company retirement plan, other than lowering current income, does not affect Roth IRA eligibility. Contributions to a Roth plan are always made on an aftertax basis. There are no RMDs at age 70½ (for the account owner or surviving spouse). All of which provides the potential for tax-free growth and withdrawals as long as the Roth account remains open for five years and the distribution is made on or after attaining age 59½; otherwise, there is a 10% penalty. Nonspouse beneficiaries inheriting an individual’s account  generally receive proceeds income tax-free.

Roth Conversion

Although you may not be eligible to make Roth contributions, everyone is eligible to convert pretax assets into a Roth account. There are no longer income requirements, which means any investor can convert a traditional IRA, SIMPLE-IRA, or SEP-IRA to a Roth IRA by paying federal and (if applicable) state taxes on the amount converted in the year of the conversion. This may prove especially attractive to investors concerned about higher tax rates as they get older.

Example: Roth IRA Conversion

Bob has a traditional IRA of $100,000, $90,000 of which reflects a combination of pretax contributions and earnings. Converting it to a Roth IRA would put him in the 39.6% tax bracket, and he is concerned about how much he would owe in taxes. Figures 1 and 2 show the difference between a full conversion and a partial conversion. (Note: Even in a partial conversion, Bob would still be able to convert additional dollars from his traditional IRA account in the future.)


 
Figure 1. A Full Conversion Could Mean a Large Tax Bite

(Hypothetical example; for illustrative purposes only)

Figure 2. A Partial Conversion Limits Taxes and Lets You Convert More in the Future

(Hypothetical example; for illustrative purposes only)

* In a partial conversion of a traditional IRA, the nontaxable amount is determined by taking the amount converted and multiplying it by a fraction. The numerator of the fraction is the total aftertax dollars in all of the individual's existing non-Roth IRAs, and the denominator is the non-Roth IRA's account value at year-end plus the converted amount. The balance of the conversion is taxable.

 

 

You may find a Roth conversion attractive if you:

  • Believe that future tax rates will be greater than today.
  • Wish to leave a potential tax-free legacy to a nonspouse beneficiary. (This option may appeal to investors who do not plan to use their IRAs as their primary source of retirement income.)
  • Have made significant nondeductible (aftertax) IRA contributions, minimizing potential tax consequences; and
  • Can afford to pay the taxes using non-IRA assets. Paying taxes using IRA assets can result in a 10% penalty if the individual is under age 59½ and an exception does not apply, and fewer dollars would be available to potentially grow tax-free. In addition, paying taxes using IRA assets can reduce the amount that could later be “recharacterized”7 back to a traditional IRA—a step some investors may take if the value of their IRAs fall after they convert.

Rollover IRAs

Many 401(k) plan participants do not realize that rollovers to IRAs provide great flexibility and portability. Aside from the potential to bequeath IRA assets to your heirs and control how that legacy will be allocated (stretch IRA8 option), an IRA can be moved to another institution’s IRA or another qualified plan (so long as the plan allows). The account can be converted into a Roth IRA, which generally will eliminate further taxation. Of course, there may be administrative fees and other costs involved with an IRA rollover.

Making the Right Choice

Which type of IRA is right for you? Your financial advisor can help you decide. You also may want to consider the benefits of consolidating your IRAs9 with one financial institution. There’s less paperwork. It’s also easier to develop a balanced strategy; assemble a diversified portfolio; monitor performance; calculate required minimum distributions; and track beneficiary options.


 
Table 3. How Traditional IRAs Compare with Roth IRAs

Source: Lord Abbett.


Whatever you choose, don’t wait until the tax deadline to fund your IRA each year. You could miss out on tax-deferred growth. The sooner you contribute to your IRA for 2014, the better your chances of boosting your retirement savings in the long run.

In summary, traditional IRA contributions plus earnings, interest, dividends, and capital gains may compound tax-deferred until you withdraw them as retirement income. Amounts withdrawn from traditional IRA plans are generally included as taxable income in the year received and may be subject to 10% federal tax penalties (in addition to ordinary income tax) if withdrawn prior to age 59½, unless an exception applies. As a general rule, withdrawals both on and after 59½ that represent deductible contributions and all earnings are taxed as ordinary income. Withdrawals made on or after age 59½ based on nondeductible contributions are tax-free. Contributions to a Roth IRA are not tax-deductible, but withdrawals during retirement are generally tax-free. 


1 A simplified employee pension plan, commonly known as a SEP-IRA, is a retirement plan specifically designed for self-employed people and small-business owners. When establishing a SEP-IRA plan for your business, you and any eligible employees establish your own separate SEP-IRA; employer contributions are then made into each eligible employee’s SEP-IRA.
2 A SIMPLE IRA plan is an IRA-based plan that gives small-business employers a simplified method to make contributions toward their employees’ retirement and their own retirement. Under a SIMPLE IRA plan, employees may choose to make salary reduction contributions and the employer makes matching or nonelective contributions. All contributions are made directly to an individual retirement account (IRA) set up for each employee (a SIMPLE IRA). SIMPLE IRA plans are maintained on a calendar-year basis.
3 MAGI or modified adjusted gross income is used to determine how much of an individual’s IRA contribution is tax deductible. It is determined by taking the adjusted gross income and adding back certain items, such as student loan deductions and IRA contribution deductions.
4 Deductibility of contributions is based on an individual receiving or making contributions through a work retirement plan.
5 Deductibility of contributions is based on both spouses being covered by a work retirement plan.
6 Deductibility of contributions is based on one spouse being covered by a work retirement plan.
7 Recharacterization of an IRA involves first converting a traditional IRA to a Roth IRA and then undoing the conversion—recharacterizing—and reverting to a traditional IRA. The process must be completed within a legally prescribed period of time.
8 The stretch IRA uses beneficiary designation to achieve a more efficient way of passing on family assets to succeeding generations. A stretch IRA is for investors who will not need their IRA money during their own retirements. While the law does not restrict which taxpayers can select the stretch IRA option, the stretch strategy is appropriate only for those individuals who simply need and plan to receive the required minimum withdrawals, taken at the latest time the law allows without penalty, which is age 70½.
9 There may be fees involved when combining and consolidating IRAs. Combining a rollover and a contributory IRA may result in the loss of income averaging and capital gains treatment with respect to the rollover assets, if applicable. It also may affect the calculation you may need to perform to exempt your rollover IRA from any claims in the event of bankruptcy. You should consult your tax advisor before combining accounts. 


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