A mutual fund pools the assets of multiple investors and purchases securities to achieve a common, pre-defined goal. With its pooled assets, mutual funds provide advantages that an individual investor would not be able to receive.
The Main Advantages of Mutual Fund Investing:
- Diversification: Mutual funds hold many different investments in their portfolios, generally stocks, bonds, and money market instruments. Because of the variety of securities within the portfolio, poor results from one investment will most likely not have a dramatic effect on the mutual fund as a whole. These poor results may be offset by positive results from other investments in the portfolio.
- Professional Management: Experienced investment professionals research, select, and invest in securities they believe will achieve the fund's specific investment objective.
- Affordability: Most mutual funds have a low minimum investment amount and offer automatic investment plans, which allow the investor to add to the fund in small increments. An individual investor would most likely not be able to purchase such a wide variety of securities because the cost would be prohibitive. The fund buys and sells many securities at a time, so the result is often lower brokerage costs to the individual shareholder.
- Liquidity: Unlike some investments, such as certificates of deposits or bonds, a shareholder may redeem his or her shares on any business day desired. The shares are easily converted to cash, and can be sent to the shareholder in the form of a check or directly deposited in the shareholder's bank account.
Types of Mutual Funds
- Open-end Mutual Funds: Mutual Funds which issue as many shares as the public wishes to purchase. When an investor sells his shares, the mutual fund will redeem all shares tendered.
- Closed-end Mutual Funds: Mutual Funds which have a fixed number of shares. The shares in a closed-end fund are traded on public exchanges. Closed-end mutual funds are much less common than open-end funds.
Investment Objectives
Equity Funds
- Aggressive Growth Funds: Invest in stocks of smaller, growing companies.
- Growth Funds: Have an emphasis on long-term capital growth, usually through investing in stock.
- Sector Funds: Invest in companies of one economic sector (e.g., technology, health, communications equipment, etc.) Sector fund’s investments are concentrated in a specific industry or sector, and are subject to greater risk than traditional diversified equity growth funds.
- Growth & Income Funds: Invest in stocks of larger, established companies with potential for growth and a history of consistent dividend payments to its shareholders.
- Income-Equity Funds: Invest primarily in companies who have a solid history of paying consistent dividends. These funds have a primary consideration for income, and capital appreciation is a secondary consideration.
Global/International Funds
- Emerging Market Funds: Invest in stocks and bonds in developing regions of the world.
- Global Funds: Invest in stocks and bonds worldwide, including U.S. companies.
- International Equity Funds: Invest in stocks outside the U.S., and cannot invest in companies in the U.S.
Investing in foreign securities may involve different and additional risks associated with foreign currencies, investment disclosure, accounting, securities regulation, commissions, taxes, political or social instability, war or expropriation.
Balanced Funds: Invest in stocks, bonds, and cash equivalents. May invest 100% of its assets in any one type of security, although it generally diversifies among these three asset classes. Allocations may change depending on market conditions.
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Annuities
An annuity is an investment vehicle designed for long-term goals, such as retirement. While The Hartford offers many types of annuities, most have common features that can make saving more effective, such as:
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Tax deferral1
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Income potential1
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Death benefits2
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Earnings accumulate tax deferred, so you don't pay taxes until you take a distribution.
With more money invested with the potential to compound over time, tax-deferred investments generally accumulate faster than taxable investments.
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Annuity payouts are guaranteed to last for as long as you choose -- from a certain number of years to your lifetime, or that of you and your spouse. Guarantees are based on the claims-paying ability of the issuing company and do not apply to the investment performance or safety of the underlying funds.
Plus, annuities may offer tax-advantaged distributions over that period.
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The protection offered through death benefits allow you to pursue your retirement goals knowing your beneficiaries will use those assets if you can't. Guarantees are based on the claims-paying ability of the issuing company and do not apply to the investment performance or safety of the underlying funds.
Also, those assets are transferred directly, without the cost and delay of probate.
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There are fixed annuities where there is a guaranteed minimum rate of return with most companies paying a higher interest rate based on the current interest rate environment.
A variable annuity is designed to give you the opportunity to invest in mutual fund type sub accounts of different fund families giving you the opportunity to diversify your investments while taking advantage of the potential for tax deferred growth.
You can purchase an annuity that begins making monthly payments to you immediately or you can have them start at some later date of your choosing.
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IRA’s
Traditional IRAs
By investing in a traditional IRA, you won't owe any taxes on interest, dividends and capital gains from your investments. This means that the money you would have otherwise paid in income taxes can stay in the account working hard for you.
If you are under the age of 70 ½ and have earned income, you are eligible to make contributions to a traditional IRA (no income limit). There are a few factors, however, which determine whether the contributions you make to your traditional IRA will be tax deductible. If neither you nor your spouse participates in an employer's retirement plan, you are eligible to make a fully deductible traditional IRA contribution.
If either you or your spouse participates in an employer's plan, a deductible contribution may be made on behalf of the non-participating spouse if your modified adjusted gross income (MAGI) is less than $160,000. (This contribution is phased out between $150,000 and $160,000.)
If you do participate in your employer's plan, you may be eligible to make a deductible contribution if your MAGI doesn't exceed $50,000 (if you're single) or $70,000 (if you're married).
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Traditional IRA Contribution Limits
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Year
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Contribution Limit
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Contribution Limit for Individuals Over Age 50
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2004
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$3,000
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$3,500
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2005
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$4,000
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$4,500
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2006-2007
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$4,000
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$5,000
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2008-2010
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$5,000
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$6,000
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Source: IRS Publication 590, 2004
Traditional IRAs may be funded by many different types of investments such as stocks, bonds and certificates of deposit (CDs). Traditional IRAs can be funded by either mutual funds or variable annuities.*
Funds may be withdrawn from a traditional IRA at any time. When you do withdraw the money from your traditional IRA, however, you'll be subject to ordinary income taxes on any untaxed portion of your investment. If you're under the age of 59 ½, you'll also be subject to an additional 10% federal income tax penalty, unless your withdrawal is taken for one of the following reasons:
- First Time Home Purchase: Up to $10,000 per lifetime may be taken as a qualified first-time home buyer distribution;
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Education: Distributions may be taken to pay the qualified higher education expenses of your child or grandchild. Generally, expenses include tuition, room and board, and required books, equipment and supplies;
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Medical Expenses: Distributions taken to pay for medical expenses in excess of 7.5% of MAGI;
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Substantially Equal Periodic Payments: Distributions taken as part of a series of substantially equal periodic payments made over the single or joint life expectancy of the IRA owner and his or her primary beneficiary at least annually, for the greater of 5 years or until the IRA owner attains age 59 ½;
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Death;
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Disability.
*If you are investing in a variable annuity through a tax-advantaged retirement plan such as an IRA, you will receive no additional tax advantage from the annuity. Under these circumstances, you should only consider a variable annuity because of its other features, such as lifetime income payments and death benefit protection.
Neither The Hartford nor its agents or employees provide financial, tax, legal or accounting advice. You should consult your attorney or qualified advisor regarding these matters.
Roth IRAs
By investing in a Roth IRA, you won't owe any taxes on interest, dividends and capital gains from your investments. This means that the money you would have otherwise paid in income taxes can stay in the account working hard for you. Further, withdrawals from Roth IRAs are exempt from federal income taxes (subject to certain restrictions).
There is no age limit for opening a Roth IRA. If you are single and have earned income of less than $110,000, you're able to make a Roth IRA contribution (phased out between $95,000 and $110,000). If you are married and have earned income of less than $160,000, you are eligible to make a Roth IRA contribution (phased out between $150,000 and $160,000). The maximum contribution that can be made to a Roth IRA is $3,000 for individuals under age 50 and $3,500 for individuals age 50 and older. Contribution limits will increase gradually over the next several years as follows:
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Contribution Limits for Individuals Under Age 50
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Year
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Contribution Limit
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2004
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$3,000
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2005-2007
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$4,000
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2008-2010
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$5,000
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Additional "Catch-Up" Contributions for Individuals Age 50 or Older
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Year
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Contribution Limit
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2004-2005
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$500
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2006-2010
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$1,000
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Roth IRAs may be funded by either mutual funds or variable annuities.*
Funds may be withdrawn from a Roth IRA at any time. If you don't meet certain criteria, however, you may be subject to ordinary income taxes and a possible 10% federal income tax penalty. Your Roth IRA distribution will be exempt from federal income taxes if:
- your Roth IRA has been held for at least 5 years and you have attained the age of 59 ½ Required minimum distributions are not required to be taken from a Roth IRA;
- your Roth IRA distribution is taken as a "qualified first-time home buyer distribution" and your Roth IRA has been held for at least 5 years; or
- your Roth IRA distribution is taken due to death or disability after you've held the Roth IRA for at least 5 years.
*If you are investing in a variable annuity through a tax-advantaged retirement plan such as a Roth IRA, you will receive no additional tax advantage from the annuity. Under these circumstances, you should only consider an annuity because of its other features, such as lifetime income payments and death benefit protection.
Neither The Hartford nor its agents or employees provide financial, tax, legal or accounting advice. You should consult your attorney or qualified advisor regarding these matters.
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401K Plans
We offer 401K Plans through the Hartford. They are committed to being the premiere provider of retirement plans for small businesses in the country.
Whatever your retirement program needs may be, we think you’ll find out why thousands of Plan Sponsors share in our vision and our commitment to matching real needs with real solutions. Our programs are not cookie-cutter; we offer solutions that are as unique as your business’ needs.
Not only do we have the administrative support you expect to find from an experienced provider, we take pride in going above and beyond to make your job easier. In addition to our standard plan services, our programs include:
- Interactive website
- Electronic enrollment
- E-Remittance
- E-Payment
- Prompt, accurate data transmission & reporting
- Award-winning1 customer service
- Transition support
For more information regarding The Hartford’s retirement programs, contact us.
1In 2003, The Hartford’s Retirement Plan Service Center was awarded the DALBAR Service Award for outstanding retirement plan service. DALBAR, Inc., is an independent research firm, and awards the DALBAR Service Award only to those financial service firms that exceed industry norms in key service areas.
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IRA & 401K Plan Rollover
A Rollover IRA may be the most suitable choice to continue tax-deferred growth. It may also provide you with the greatest flexibility and control of your retirement assets. By completing a full or partial rollover distribution from your employer sponsored plan, you can benefit from:
- Continued tax deferred growth.
- Access to your money.1 You will no longer be subject to the guidelines of your plan.
- Not being subject to a mandatory 20% federal income tax withholding for distributions.
- A choice of investments best suited for you and your objectives, not just the ones provided by the plan.
- Consolidating your retirement assets when and how you want. A rollover to an IRA and the consolidation of any other IRAs may be to your advantage for the ease of tracking one IRA and reducing administrative costs.
1Taxable distributions (and certain deemed distributions) are subject ordinary income tax and, if taken before age 59 1/2, may also be subject to a 10% penalty. Early surrender charges may also apply.
You may fund your Rollover IRA with an investment vehicle that best suits your needs and personal situation. Our agency prefers to place the majority of our Rollover IRAs with the Hartford. They are an industry leader in both mutual funds and annuities. The Hartford offers a wide array of investment opportunities including fixed annuities.
A Mutual Fund IRA can be a quality investment that offers the benefits of diversification, convenience and expert money management.
An Individual Retirement Annuity can also offer the benefits of diversification and expert money management, along with the ability of The Hartford to provide guaranteed income payments for life. If you are investing in a variable annuity through a tax-advantaged retirement plan such as an IRA, you will receive no additional tax advantage from the annuity. Under these circumstances, you should only consider an annuity because of its other features, such as lifetime income and death benefit protection.
The Hartford offers these services for both mutual funds and annuities:
- Automatic Required Minimum Distribution Program – You can elect to have the Hartford automatically calculate your Required Minimum Distribution based on the IRS Uniform Lifetime Table.
- Automatic 72(t) Program –Clients under the age of 59 ˝ who require an income Stream from their IRA can enroll in this program to avoid the 10% premature distribution penalty. A client can take a series of substantially equal periodic payments over their life expectancy or their joint life expectancy with their beneficiary. If elected this program must be adhered to for the greater of five years or until the client reaches the age of 59 ˝.
We recommend that clients wishing to enroll in these programs consult a qualified tax advisor to ensure full compliance with the applicable IRS regulations.
Don’t jeopardize your retirement future. Be sure you know the facts before you make a decision about your retirement plan. Using the expertise of an investment professional can be an important tool in building a successful retirement future. You may benefit from many of the various services that we, as investment professionals, can provide.
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