In 2002, your ability to invest for retirement was greatly enhanced through the Economic Growth and Tax Relief Reconciliation Act. This quick guide will help you take full advantage of those changes effective January 1, 2002 and beyond.

Enhancements to 403(b)Retirement Plans

· In 2012, the maximum "elective" deferral contribution amount allowable for 403(b) programs is $17,000 through your 403(b) plan.

· A special $5,500 catch-up* deferral for 403(b) plans is available for individuals reaching age 50 during the 2012 calendar year.

· An overall 415(c) contribution limitation for employers/employees was increased in 2002 to 100% of your includible compensation. The limit for 2012 is $50,000.**

• Qualified retirement plans.
• 403(b) plans
• Simplified Employee Pension (SEP) plans
• SIMPLE plans.

**If eligible for catch-up provision, amount may exceed $50,000 for 2012.

Post-Retirement Employer 403(b) Contributions   Post-retirement employer 403(b) contributions, new in 2002, remain in effect subject to the 415(c) contribution limit. For each year after an employee terminates, employers may contribute up to 100% of includible compensation (subject to IRS limits & rules) into an employee's 403(b) plan. This contribution is allowed for up to five years following the employee's termination from service. Any contribution to a 403(b) plan under this rule on behalf of a former employee "must be employer contributions" and "that post-retirement contributions cannot continue after the participant’s death".

403(b) Special Catch-Up Provision   The $15,000 special catch-up provision remains available. However, this benefit remains subject to the qualification requirements regarding minimum employment service time (i.e. 15 or more years of service with the same employer) and prior contributions. (The average elective contribution may not exceed a $3,000 annual threshold. This "average" is based over all years of employment with the same employer, not just the years of contribution.)

Contribution Limits for 457(b) Governmental Plans

· The limit for 457(b) plans for 2012 is $17,000.

· The 457(b) plan catch-up provision for individuals reaching age 50 during 2012 remains the same at $5,500.

Contributions to Both 403(b) Plans and 457(b) Plans

· 457(b) plans continue to be available to public school district members, and as 457(b) plan contributions are not coordinated with 403(b) plans this doubles the opportunity for elective income deferral.

· A 457(b) special catch-up contribution is allowed but only in the last three full years before the year of retirement. This special catch-up* allows you to double (i.e. 200%) the normal annual elective contribution limit.

*Caution: If elected, you can not use the over 50 catch-up simultaneously.

Purchasing MPSERS Retirement Service Credit   Employees can use 403(b) or 457 (b) assets to purchase service credit in MPSERS, the State retirement system. Check with the Office of Retirement Services by calling (800) 381-5111 to obtain the required forms and program details or use their Web site at: http://www.michigan.gov/ors

The contribution limit on Traditional IRAs and Roth IRAs are $5,000 for 2012. The catch-up provision (if you are age 50 or over) is $1,000 for 2012.

Education 529 Plans   Distributions used for expenses at qualified institutions of higher learning on behalf of plan beneficiaries of Education 529 plans are tax free.

• Beneficiaries can be changed to any other person within the relationship of first cousin to the initial beneficiary.
• For the estate of an individual who died or dies after June 8, 1997, an interest in a 529 plan is excluded from the decedent's estate. There are two exceptions:

1) A 529 plan distribution to the decedent's estate upon his or her death is included in the estate.
2) If a contributor dies before the end of a five-year gift tax spread period his or her gross estate will include the portion of contributions allocable to periods after the death of the donor.

Student Loan Interest Deductions See the new Tax Benefits for Education section on the IRS web site.

• Maximum Benefit: You can reduce your income subject to tax by up to $2,500.
• The amount above may be gradually reduced (phased out) or eliminated based on your filing status and modified adjusted gross income.

IRA Funding for Education   Coverdell IRA annual contribution limits remain at $2,000 per child for 2012. This contribution can be made up to April 15, 2012 as a 2011 contribution. These funds may be used for elementary and secondary education expenses, as well as higher education expenses.

415(c) Limits   415(c) contribution limits are the lesser of 100% of includible compensation or $50,000 (up from the $49,000 limit in 2011).

Pension Portability / Plan Rollovers   At distribution pension portability allows for full rollovers between most retirement plans. Participants may rollover funds from different retirement plans into any other type of eligible retirement plan. An example: 457 and 403(b) plans may now be rolled into IRAs, Roth IRAs and other "qualified" retirement plans.

Any amount rolled over from a qualified plan IRA or 403(b) plan into a 457 plan will be subject to a 10% penalty tax.

Low Wage Earners Should Use Tax Credit   Eligible low wage earners should take advantage of a continuing tax credit of up to 50% of the amount they contributed to qualified retirement plans to a maximum tax credit of $1,000 (up to $2,000 if filing jointly). The tax credit and percentage limit is based on sliding scale, which is based on the eligible individual's modified adjusted gross income.

Disclosures
MEA Financial Services/Paradigm Equities, Inc. does not give tax or legal advice. The comments regarding the law and tax treatment simply reflect our understanding of current interpretations of such laws. Since laws are always subject to interpretation and possible changes, we recommend that you seek the counsel of an attorney, accountant or other qualified tax advisor regarding these matters as it applies to your particular situation.

This is to alert you to the changes to the tax code effective in 2002 and the changes that follow in future years. This is not intended to be tax advice. Please check with your tax advisior to determine how these changes may affect your tax situation.