Principal Mutual Life Insurance Company Master Individual
Retirement Account Plan and Custody Agreement
This is the Principal Mutual Life Insurance Company's Master Individual
Retirement Account Plan and Custody Agreement for use by individuals who desire
to establish an Individual Retirement Account (XXX), as described in Section
408(a) of the Internal Revenue Code (Code). Principal Mutual Life Insurance
Company hereby agrees to act as Custodian of any XXX established under the Plan
and this Agreement, subject to the following terms and conditions:
ARTICLE I - Limitations on Contributions
In addition to the initial contribution made at the time the Account is
established, the Custodian may accept additional cash contributions from, or on
behalf of, the Participant for a taxable year of the Participant except as
limited below.
Only cash contributions will be accepted, and such contribution shall not exceed
the lesser of $2,000 or 100% of compensation, except in the case of a Rollover
Contribution as that term is described in Code Sections 402(c), 403(a)(4),
403(b)(8) or 408(d)(3), or an employer contribution to a Simplified Employee
Pension as defined in Section 408(k).
Two applications are necessary if both spouses are establishing an XXX. The
maximum combined contribution in the event of a non-working spouse is the lesser
of 100% of compensation or $4,000. The maximum contribution must be split
between the two accounts so no more than $2000 is placed in either account.
Excess Contributions
A retirement savings deduction will not be allowed for contributions to an XXX
in excess of the 100%-$2,000/$4,000 limits, or in the case of a Simplified
Employee Pension, 15%-$30,000 limitation discussed above; nor will the deduction
be allowed for any contribution made during the year in which or after the
Participant reaches 70 1/2 (except in the case of a Simplified Employee
Pension), or in the case of a Participant who is a non-working spouse, the year
in which or after the working spouse reaches age 70 1/2. (A deductible spousal
contribution can be made to the XXX of the non-working spouse as long as the
non-working spouse is under age 70 1/2 and the working spouse has earned
income.) Additionally, a nondeductible federal excise tax penalty in the amount
of 6% of such excess contributions will be imposed on any Participant who has
excess contributions in his XXX. This penalty will be imposed each year until
the excess contributions are removed.
An excess contribution may be removed from an XXX by withdrawing the amount of
the excess or by applying the excess toward the retirement savings deduction of
the Participant in a subsequent year. If an excess contribution is withdrawn
from the Retirement Account, together with the net income of such excess
contribution, prior to the due date for filing the Participant's income tax
return for the year in which the excess contribution was made (including
extensions of time), the 6% nondeductible excise tax will not be imposed, the
contribution withdrawn will not be included in the Participant's gross income
for the year in which received, and the federal 10% tax on premature
distributions (see Distributions) will not be imposed on the excess withdrawn.
The net income on such excess contribution that is withdrawn will be deemed to
have been earned and is taxable in the taxable year in which such excess
contribution was made.
If an excess contribution is withdrawn after the due date for filing the
Participant's income tax return for the taxable year (including extensions of
time) and no deduction was taken for the excess portion of the contribution, the
excess withdrawn will not be included in the Participant's federal gross income
for the year in which received, and the 10% federal tax on premature
distributions will not be imposed on the excess withdrawn, provided that the
total contributions during the year, including the excess contribution, did not
exceed $4,000. Any earnings of such excess contributions withdrawn after the due
date for filing the Participant's income tax return (including extensions of
time) will be subject to the taxes on premature distributions and will be
included in federal gross income.
If an excess contribution is withdrawn after the due date for filing the
Participant's income tax return for the taxable year (including extensions of
time) and the total contribution for the taxable year exceeded $4,000, the
excess contribution that is withdrawn will be included in the Participant's
federal gross income for the year in which received, the 10% federal tax on
premature distributions will be imposed on the amount withdrawn, and the 6%
nondeductible excise tax will be imposed for each year until the excess
contribution is removed.
ARTICLE II - Nonforfeitability
The interest of the Participant in the balance in his or her Account shall at
all times be nonforfeitable.
The Account is established for the exclusive benefit of the Participant and his
or her beneficiaries.
ARTICLE III - Prohibited Investments
No part of the custodial funds shall be invested in life insurance contracts,
nor may the assets of any Participant's Account be commingled with other
property except in a common trust fund or common investment fund [within the
meaning of Code Section 408(a)(5)]. All funds shall be invested in shares of
such Mutual Funds as Participant shall designate.
ARTICLE IV - Distributions
The entire amount of any distribution from an XXX, other than a timely
withdrawal of excess contribution, including amounts deemed distributed as the
result of a prohibited transaction (see Prohibited Transactions) will be
includible in the gross income of the person receiving such distribution and
taxable as ordinary income. If the distribution occurs before the Participant is
age 59 1/2, the Participant will be charged with a nondeductible federal excise
tax of 10% of the amount of the premature distribution. The excise tax will not
be applied, however, if the distribution or withdrawal is due to the
Participant's death, disability as defined in the Plan, or if distributions are
made in substantially equal periodic payments (at least annually) for the life
expectancy of the individual or the joint life expectancies of the individual
and his or her own beneficiary.
The Participant may begin to take money out of an XXX without penalty after
the age of 59 1/2, but must begin receiving a distribution from his or her
Account not later than the April 1 following the calendar year in which the
Participant attains age 70 1/2 (required beginning date). At least 30 days prior
to that date the Participant must elect to have the balance in the Account
distributed in:
(a) a single sum payment,
(b) equal, or substantially equal, monthly, quarterly, semiannual or annual
payments (see "Minimum amounts to be distributed" below) commencing not
later than the above date and not extending beyond the life expectancy of
the Participant, or
(c) equal, or substantially equal, monthly, quarterly, semiannual or annual
payments (see "Minimum amounts to be distributed" below) commencing not
later than the above date and not extending beyond the joint and last
survivor expectancy of the lives of the Participant and the designated
Beneficiary.
Minimum amounts to be distributed. If the Participant's entire interest is to be
distributed in other than a lump sum, then the amount to be distributed each
year (commencing with the required beginning date and each year thereafter) must
be at least equal to the quotient obtained by dividing the Participant's benefit
by the applicable life expectancy.
The amount to be distributed each year, beginning with the first calendar year
for which distributions are required and then for each succeeding calendar year,
shall not be less than the quotient obtained by dividing the Participant's
benefit by the lesser of (1) the applicable life expectancy or (2) if the
Participant's spouse is not the designated beneficiary, the applicable divisor
determined from the table set forth in Q&A-4 of section 1.401(a)(9)-2 of the
Proposed Income Tax Regulations. Distributions after the death of the
Participant shall be distributed using the applicable life expectancy as the
relevant divisor without regard to proposed regulations section 1.401(a)(9)-2.
Life expectancy is computed by use of the expected return multiples in Tables V
and VI of section 1.72-9 of the Income Tax Regulations. Unless otherwise elected
by the Participant by the time distributions are required to begin, life
expectancies shall be recalculated annually. Such election shall be irrevocable
as to the Participant and shall apply to all subsequent years. The life
expectancy of a non-spouse beneficiary may not be recalculated; instead, life
expectancy will be calculated using the attained age of such beneficiary during
the calendar year in which distributions are required to begin pursuant to this
section, and payments for subsequent years shall be calculated based on such
life expectancy reduced by one for each calendar year which has elapsed since
the calendar year life expectancy was first calculated.
A 50% excise tax will be imposed on the difference between the minimum payout
required and the amount actually paid, unless the underdistribution was due to
reasonable cause.
Notwithstanding that distributions may have commenced pursuant to (b) or (c)
above, the Participant may receive a larger distribution from the Account upon
written request to the Custodian. If the Participant fails to elect any of the
methods described above on or before April 1 following the year in which the
Participant attains age 70 1/2, distribution will be made in a single sum
payment on or before that date.
Notwithstanding any other provision of this Plan, the Participant or a
Beneficiary may elect to receive distribution in any manner permitted by law
which satisfies the requirements of Section 401(a)(9) of the Code and
Regulations thereunder, and approved by the Custodian.
The duty to determine the amount of the distributions hereunder shall be the
Participant's or, when applicable, the designated Beneficiary. The Custodian
shall not be liable to the Participant or any other person for taxes or other
penalties incurred as a result of failure to distribute the minimum amount
required by law.
Any distributions before the age of 59 1/2 will result in an additional tax
equal to 10% of the taxable amount of the distribution, unless the participant
is disabled. The 10% penalty does not apply to amounts not exceeding the amount
allowable as a deduction for medical expenses, or to a series of substantially
equal periodic payments over the participant's life or life expectancy or the
joint lives or life expectancies of the participant and the beneficiary.
Distributions are generally taxed as ordinary income in the year they are
received, and are not eligible for capital gains treatment or the special
averaging rules that apply to lump sum distributions from qualified employee
plans. Distributions are nontaxable to the extent they represent a return of
certain nondeductible contributions made for years after 1986 (See Income Tax
Considerations). The nontaxable percentage of such a distribution is determined
by dividing (a) undistributed nondeductible contributions by (b) the total value
of all IRAs (including SEPs and Rollover IRAs).
Unless a special election is made by a taxpayer, any distributions from IRAs and
other qualified plans within one year in excess of $160,000 may be subject to a
15% excess distribution penalty.
ARTICLE V - Death Benefits
If the Participant dies before receiving full distribution from the Account, the
balance in the Account must be distributed in the following manner:
(a) Distributions beginning before death. If the owner dies after distribution
of his or her interest has begun, the remaining portion of such interest
will continue to be distributed at least as rapidly as under the method of
distribution being used prior to the owner's death.
(b) Distributions beginning after death. If the owner dies before distribution
of his or her interest begins, the owner's entire interest will be
distributed in accordance with one of the following four provisions:
(1) The owner's entire interest will be paid by December 31 of the
calendar year containing the fifth anniversary of the owner's death.
(2) If the owner's interest is payable to a Beneficiary designated by the
owner and the owner has not elected (1) above, then the entire
interest will be distributed over the life or over a period certain
not greater than the life expectancy of the designated Beneficiary
commencing on or before December 31 of the calendar year immediately
following the calendar year in which the owner died. The designated
Beneficiary may elect at any time to receive greater payments.
(3) If the designated Beneficiary of the owner is the owner's surviving
spouse, the spouse may elect to receive equal or substantially equal
payments over the life or life expectancy of the surviving spouse
commencing at any date prior to the later of (1) December 31 of the
calendar year immediately following the calendar year in which the
owner died and (2) December 31 of the calendar year in which the owner
would have attained age 70 1/2. Such election must be made no later
than the earlier of December 31 of the calendar year containing the
fifth anniversary of the owner's death or the date distributions are
required to begin pursuant to the preceding sentence. The surviving
spouse may increase the frequency or amount of such payments at any
time.
(4) If the designated Beneficiary is the owner's surviving spouse, the
spouse may treat the account as his or her own individual retirement
arrangement (XXX). This election will be deemed to have been made if
such surviving spouse makes a regular XXX contribution to the account,
makes a rollover to or from such account, or fails to elect any of the
above three provisions.
(c) Life expectancy is computed by use of the expected return multiples in
Tables V and VI of section 1.72-9 of the Income Tax Regulations. For
purposes of distributions beginning after the owner's death, unless
otherwise elected by the surviving spouse by the time distributions are
required to begin, life expectancies shall be recalculated annually. Such
election shall be irrevocable as to the surviving spouse and shall apply to
all subsequent years. In the case of any other designated Beneficiary, life
expectancies shall be calculated using the attained age of such beneficiary
during the calendar year in which distributions are required to begin
pursuant to this section, and payments for any subsequent calendar year
shall be calculated based on such life expectancy reduced by one for each
calendar year which has elapsed since the calendar year life expectancy was
first calculated.
(d) For purposes of this requirement, any amount paid to a child of the owner
will be treated as if it had been paid to the surviving spouse if the
remainder of the interest becomes payable to the surviving spouse when the
child reaches the age of majority.
ARTICLE VI - Declaration of Intention
Except in the case of the Participant's death, Disability [as defined in Section
72(m) of the Code] or attainment of age 59 1/2, the Custodian shall receive from
the Participant a declaration of the Participant's intention as to the
disposition of the amount distributed before distributing an amount from the
Participant's Account.
ARTICLE VII - Notices And Reports
The Participant agrees to provide information to the Custodian at such time and
in such manner and containing such information as may be necessary for the
Custodian to prepare any reports required pursuant to Section 408(i) of the Code
and the regulations thereunder.
The Custodian agrees to submit reports to the Internal Revenue Service and the
Participant at such time and in such manner and containing such information as
is prescribed by the Internal Revenue Service. Currently, calendar year reports
concerning the status of the account are required to be furnished annually.
ARTICLE VIII - Controlling Article
Notwithstanding any other articles which may be added or incorporated, the
provisions of Articles I through III and this sentence shall be controlling.
Furthermore, any such additional article shall be wholly invalid if it is
inconsistent, in whole or in part, with Section 408(a) of the Code and the
regulations thereunder.
ARTICLE IX
The Custodian shall have the authority to amend this Agreement from time to time
in order to comply with the provisions of the Code and regulations thereunder.
The Custodian shall have the right to amend its fee structure and amounts. Such
an amendment shall apply to current and/or future years only. The Custodian
shall also have the right to amend this agreement by adding additional
investment alternatives. Furthermore, other amendments may be made upon written
consent of the Custodian and the Participant.
ARTICLE X - Definitions
Account shall mean the Principal Mutual Life Insurance Company Individual
Retirement Account which has been established in accordance with Section 408 of
the Code and consists of the terms and conditions herein set forth together with
the provisions of the Application.
Beneficiary shall mean the person(s) or entity(ies) designated to receive the
balance in the Account upon the death of the Participant or upon the death of a
prior Beneficiary.
ERISA means the Employee Retirement Income Security Act of 1974, as it may be
amended from time to time.
Compensation means wages, salaries, professional fees, and other amounts derived
from or received for personal services actually rendered (including, but not
limited to, commissions-paid salespersons, remuneration for services on the
basis of a percentage of profits, commissions on insurance premiums, tips and
bonuses) and includes earned income, as defined in Section 401(c)(2) of the Code
(reduced by the deduction the self-employed individual takes for contributions
made to a self-employed retirement plan). For purposes of this definition,
Section 401(c)(2) shall be applied as if the term trade or business for purposes
of Section 1402 included service described in subsection (c)(6). Compensation
does not include amounts derived from or received as earnings or profits from
property (including, but not limited to, interest and dividends) or amounts not
includible in gross income. Compensation also does not include any amount
received as a pension or annuity or as deferred compensation. The term
compensation shall include any amount includible in the individual's gross
income under Section 71 with respect to a divorce or separation instrument
described in subparagraph (A) of Section 71(b)(2).
Custodian means Principal Mutual Life Insurance Company or any successor
thereto.
Investment Manager refers to Princor Management Corporation. This term shall
have the same meaning as that in Section 3(38) of ERISA. The Investment Managers
with respect to the Mutual Funds hereby acknowledge that they are fiduciaries
with respect to the Plan. The Investment Managers with respect to the individual
Participant's Account hereby acknowledge that they are fiduciaries with respect
to the funds of the Participant.
Princor Group of Funds, Mutual Fund, Fund, or The Princor Family of Mutual Funds
means the fund or funds managed by Princor Management Corporation which have
been made available for the investment of XXX contributions and in which all
contributions made under this Plan shall be invested.
Participant means any individual of legal age who shall execute the
Participation Agreement and make contributions to this Plan.
Participation Agreement means the written agreement executed by the Participant
and, where applicable, the Broker, whereby the Participant agrees to participate
in the Plan.
Plan means the terms and conditions of this Principal Mutual Life Insurance
Company XXX Plan and Custody Agreement including any amendments made pursuant to
Article XV of the Plan.
Spousal XXX means two contributory IRAs established by a working individual for
himself or herself and for the benefit of his or her non-employed spouse.
All other capitalized words, terms and phrases not specifically defined shall
have and carry the meaning given them under the Code.
ARTICLE XI - Investments
All contributions received by the Custodian shall be invested in such Mutual
Funds as the Participant may designate.
At the time the Participant executes the Participation Agreement, the
Participant shall specify the particular Mutual Fund or Funds in which
contributions shall be invested. After the initial contribution, the Participant
may, at any time, direct the Custodian to transfer contributions then invested
in any such Fund into any other such Funds. Transfers made pursuant to such
direction shall not be considered a distribution of any Account to the
Participant.
No party identified herein shall be required to comply with any direction of the
Participant which in the judgment of such party may subject it to liability or
expense unless such party shall be indemnified in manner and amount satisfactory
to it.
The Participant is 100% vested at all times in all funds attributed to his
Account.
The Participant may not borrow funds from his Account, nor may he use the funds
as security for any loan or extension of credit.
Except as provided in this Plan, no right, interest or claim in or to any funds
held in the Mutual Fund shall be transferable, assignable or subject to pledge
by the Participant or Beneficiary, and any attempt to transfer, assign or pledge
the same shall not be recognized except as required by law. The right, interest
or claim in or to any funds held in the Mutual Fund shall not be subject to
garnishment, attachment, execution or levy except as permitted by law.
Any Participant under the Plan may transfer his or her interest, in whole or in
part, to his or her spouse under a decree of divorce or dissolution of marriage
or a written instrument incident to such divorce or dissolution. At the time of
transfer, such interest shall be deemed an XXX of such spouse. The Participant
shall promptly notify Custodian of any such transfer by delivery to Custodian of
a certified copy of such decree or a true copy of such written instrument. Upon
receipt of the certified copy of such decree or a true copy of such written
instrument from any source, Custodian shall promptly adjust its books and
records to reflect that such Account is for the benefit of such former spouse.
Custodian shall not be required to accept contributions to or make distributions
from an Account established for a former spouse by reason of a transfer of
interest by a Participant to such former spouse hereunder until such former
spouse shall execute a Participation Agreement.
The Plan and the Accounts established hereunder shall be governed by all
applicable laws, rules and regulations of the United States of America and the
State of Iowa.
ARTICLE XII - Contributions
All initial contributions shall be paid to the Custodian at the time the
Participation Agreement is executed. Additional contributions may be paid to the
Custodian in such manner and in such amounts as the Custodian shall specify.
Contributions made by or on behalf of the Participant may be paid at any time
during the calendar year, but in no event later than the last day for the filing
of the Federal Income Tax Return for the calendar year to which they relate, not
to include any extensions thereof.
Except in the case of a Rollover XXX or Simplified Employee Pension,
contributions made by or on behalf of the Participant shall not be made during
or after the calendar year in which the Participant attains age 70 1/2 years.
All XXX contributions must be in cash.
If an Excess Contribution is made by or on behalf of the Participant for any
calendar year, upon written request for distribution from the Participant
stating the amount of the Excess Contribution to be distributed, Custodian will
distribute such amount of the Excess Contribution to the Participant, together
with the income attributable thereto. The Custodian shall not have any duty to
determine whether an Excess Contribution has been made by or on behalf of the
Participant, and the Custodian shall not be held liable by the Participant or
any other person for failing to determine whether an Excess Contribution was
made or for failing to make distribution of such Excess Contribution without
request of the Participant. The Custodian shall not be liable to the Participant
or any other person for taxes or other penalties incurred as a result of an
Excess Contribution and any income attributable thereto or as a result of a
distribution of an Excess Contribution and any income attributable thereto.
Before the Custodian shall accept a contribution by or on behalf of the
Participant as a Rollover Contribution, the Participant shall deliver to the
Custodian a written declaration, in a form acceptable to the Custodian, that
such contribution is eligible for treatment as a Rollover Contribution.
Notwithstanding anything to the contrary in the Plan, once the Custodian has
received a declaration from the Participant that a contribution is a Rollover
Contribution, the Custodian may conclusively rely on the Participant's
declaration and may accept and treat the contribution as a Rollover
Contribution. All Rollover Contributions from a qualified employer plan shall be
maintained in a separate Rollover XXX.
ARTICLE XIII - Designation of Beneficiary
The Participant may designate the Beneficiary of his or her Account by a written
form acceptable to and filed with Custodian. Community property states and
marital property states require spousal consent if someone other than the spouse
is to be named as Beneficiary.
If the Participant designates more than one Beneficiary, he or she shall
designate the percentage interest that each such Beneficiary shall receive from
his or her Account upon distribution. In the event no such percentage interest
is designated, the interest of each Beneficiary shall be equal.
If the Participant predeceases his or her spouse before his or her entire
Account is distributed in accordance with Article IV(c) of the Plan and the
Participant has designated no Beneficiary for the remaining interest or all such
Beneficiaries predecease the Participant's spouse, then the interest of the
Participant's spouse in the Account shall be fully vested and subject to the
terms and conditions of this Article and the Participant's spouse shall be
entitled to designate the Beneficiary of the Account in accordance with this
Article.
The Participant may, at any time, change or revoke any designation made under
this Article in a written form acceptable to and filed with the Custodian. Upon
the death of the Participant, the designation or designations made hereunder
shall be irrevocable. The designation shall be effective only if received by the
Custodian prior to the death of the Participant.
If the Participant fails to designate any Beneficiary or if the Participant
revokes the designation of Beneficiary or if all Beneficiaries designated
predecease the Participant, then the entire interest of the Participant in his
Account shall pass to the Participant's estate.
ARTICLE XIV - Administrative Duties
This Article shall delineate the responsibilities of the Custodian. The
Custodian shall maintain the Account in the name of the Participant and shall be
responsible only for the contributions of which it receives notice from the
Participant. The Custodian shall make distributions and transfers only in
accordance with the directions of the Participant. The Custodian shall keep
records of all receipts, investments and disbursements relating to the Account.
The Custodian shall furnish the Participant or the Beneficiary, where
applicable, with a written Statement of transactions relating to the Account.
Unless the Participant shall have filed with the Custodian Agent written
exceptions or objections to such Statement within thirty (30) days after it is
furnished, the custodian shall be forever released and discharged from liability
or accountability to the Participant or the Beneficiary, with respect to the
acts and transactions shown in the Statement. No Beneficiary shall be entitled
to Statements hereunder until the Participant is deceased and distribution shall
have commenced to such Beneficiary.
The duties and responsibilities of all parties to this Agreement are limited to
those specifically stated herein and no other or further duties or
responsibilities shall be implied.
ARTICLE XV - Amendments Or Revocation Of Participation in Plan
The Participant may terminate participation in the Plan at any time by notifying
the Custodian in writing of the intention to terminate and instructing the
Custodian in writing to whom and by what means the funds on deposit in his
Account shall be transferred. Withdrawal of all funds invested in the Mutual
Fund shall terminate participation in the Plan. Although termination of this
Account could have an adverse effect on a Simplified Employee Pension in which
the Participant is participating, the Custodian has no liability to the
Participant, the employer, or to any other employees of that employer with
respect to such termination.
The Participant may revoke participation in the Plan within seven (7) business
days from the date the Participant executes the Participation Agreement by
notice to the Custodian in writing.
The Custodian may be required to withhold 10% from any taxable distribution an
XXX unless the Participant elects no withholding at the time distributions
begin. Whether or not the Participant allows the Custodian to withhold, he or
she may be required to make quarterly estimated tax payments. In addition,
unless the Participant indicates at the time he or she closes an XXX account
that it is being transferred to another tax qualified plan, the Custodian will
be required to withhold at least 10% of the distribution.
ARTICLE XVI - Miscellaneous
All instructions to the Custodian shall be in writing. The Participant may
authorize an agent to give instructions hereunder. Any such agent, including any
Broker authorized to direct the investment of a Participant's Account, must be
authorized in writing by the Participant in such form which is approved by and
filed with the Custodian. Any instruction by an agent so authorized shall be
binding on the Participant. Any authorization hereunder shall remain in effect
until revoked by the Participant in writing filed with the Custodian.
Principal Mutual Life Insurance Company shall substitute another Trustee or
Custodian upon notification by the Internal Revenue Service that such
substitution is required because it has failed to comply with the requirements
of Section 1.401-12(n) of the Treasury Regulations, or is not keeping such
records, or mailing such returns or sending such statements as are required by
forms or regulations.
In no event shall the Custodian be liable or responsible for the payment of any
tax or any penalty attributable to Excess Contributions, retention of Excess
Contributions, failure to make the minimum distribution from the Account, or
withdrawals or distributions made from the Account. Custodian shall not be
required to make any distribution which, in the judgment of Custodian, will
render Custodian directly liable for any such tax or penalty.
In the event Custodian shall receive any claim to the funds held under the Plan
which claim is adverse to the interest of the Participant or the Beneficiary and
which claim Custodian, in its absolute discretion, deems meritorious, Custodian
may withhold distribution under the Plan until the claim is resolved or until
instructed by a court of competent jurisdiction or Custodian may pay all or any
portion of the funds then invested in the Mutual Fund into such court. Payment
to a court under the Plan shall relieve Custodian of any further obligation to
anyone for the amount so paid.
In the event any question arises or ambiguity exists as to the meaning,
interpretation or construction of any provisions of the Plan, the Custodian is
authorized to construe or interpret any such provision and such construction and
interpretation shall be binding upon the Participant and the Beneficiary.
As compensation for its service hereunder, the Custodian shall be paid an annual
maintenance fee of $15 per XXX Plan Participant Account on the first business
day of December each year. Such fees shall be deducted from the Accounts as
applicable and paid to the Custodian unless the participant elects, in a writing
filed with the Custodian, to pay such fee directly. Any fee not paid directly
when due may be deducted from theAccount and paid to the Custodian.
Any notices required or permitted to be given to Custodian under the Plan shall
be given to Custodian at the office of Custodian or any of its offices, and any
notices required or permitted to be given to the Participant under the Plan
shall be given to the Participant at the address for notice the Participant may
file with Custodian from time to time. Notices hereunder may be personally
served or sent by United States mail, first class, with postage prepaid and
properly addressed.
Any provision of the Plan which disqualifies it as an XXX shall be disregarded
to the extent necessary to continue to qualify it as an XXX under the code.
Titles to Articles in this Plan are for convenience only and, in the event of
any conflict, the text of the Plan rather than the titles shall control.
Individual Retirement Custody
Account Disclosure Statement
Right To Revoke AN INDIVIDUAL MAY REVOKE HIS OR HER INDIVIDUAL RETIREMENT
ACCOUNT (XXX) AND HIS OR HER PARTICIPATION IN THE PLAN AT ANY TIME WITHIN SEVEN
(7) BUSINESS DAYS AFTER HIS OR HER ADOPTION OF THE PLAN. In the event of such a
revocation, the entire amount contributed by the individual will be returned.
Individuals wishing to revoke their Individual Retirement Accounts are required
to mail or deliver a written notice of revocation to the custodian not later
than the seventh business day after the establishment of his Retirement Account.
The notice shall be deemed delivered on the date of the postmark.
Custodian: Principal Mutual Life Insurance Company
Princor Financial Services Corporation
Attn: XXX Section
XX Xxx 00000
Xxx Xxxxxx, Xxxx 00000
Telephone Number: 0-000-000-0000
Sponsor: Princor Group of Funds
General Description Of The Plan
Except in the case of Rollover Contributions and Simplified Employee Pension
Contributions, an Individual Retirement Account may be established under the
Plan by any working individual who will not reach the age of 70 1/2 before the
end of the year. See the Plan for a more detailed description of the
restrictions on participation.
Contributions may be invested in any of the Mutual Funds named in the
application. All dividends, capital gains distributions and interest will be
reinvested in the Funds selected and will accumulate in the account on a
tax-deferred basis. The individual (or the named beneficiary who survives the
individual) may request the Custodian to exchange shares of one fund for any
other eligible fund. Investments may be split among any of the funds named in
the application.
The Participant may begin receiving distributions from their Individual
Retirement Account without incurring a 10% penalty tax on premature
distributions at any time after a Participant reaches age 59 1/2. (Please note
the exceptions to distributions prior to the age of 59 1/2 in Article IV -
Distributions.) The Participant must begin receiving distributions before April
1 following the year in which he or she attains age 70 1/2. He or she may elect
to receive their distribution in a lump sum or in installments over any number
of years selected by the Participant, but not exceeding their life expectancy or
the joint and survivor expectancy of the Participant and his or her designated
Beneficiary. Each payment is calculated by dividing the net asset value of the
shares in the account, and any dividends held, by the number of payments
remaining until the end of the period selected. A Participant may begin
distributions before age 59 1/2 without incurring a 10% tax applicable to
premature distributions if he or she proves that he or she is disabled, as
defined in the Plan.
Income Tax Considerations
Persons who are not covered by an employer retirement plan can deduct amounts
contributed to an XXX up to the lesser of $2,000 or 100% of compensation.
Persons who are covered by an employer retirement plan will only be able to make
tax-deductible contributions to IRAs if their incomes are below certain levels.
For married persons filing separate tax returns, the fact that the spouse is
covered by an employer retirement plan does not affect the non-covered spouses
ability to make deductible contributions. For married persons filing jointly
where either spouse has an employer retirement plan, the full XXX deduction may
be taken if adjusted gross income (AGI) is $40,000 or less ($25,000 or less for
single taxpayers.) However, as the joint AGI exceeds $40,000 ($25,000 for
singles), the XXX deduction is phased down at 20 cents (22.5 cents for spousal
IRAs) per dollar of AGI and is eventually phased-out when joint AGI reaches
$50,000 ($35,000 for singles). The phaseout is based on AGI before it is reduced
for deductible XXX contributions. The deduction is rounded down to the next
lowest multiple of $10 when not already a multiple of $10. There is a $200
minimum deduction for anyone without phaseout limits. The amount of a
contribution that is deductible is determined by the Participant and must be
reported to the Custodian.
Employer retirement plans include pension and profit sharing plans, 401(k)
plans, 403(b) plans, government plans and just about every other type of
employer-maintained retirement plan. One exception: unfunded deferred
compensation plans of state and local government and tax-exempt organizations. A
person will be considered a participant in an employer retirement plan even if
not vested. However, a person who works for an employer that has a plan, but who
has not yet met the plan's eligibility requirements, can make deductible XXX
contributions. A person's Form W-2 for the year should indicate whether that
person is covered by an employer retirement plan.
The $2,000 annual contribution limit is reduced by any voluntary employee
contributions to a qualified retirement plan maintained by an employer which are
deductible from AGI.
Set-up charges and annual fees are considered miscellaneous deductions and,
therefore, are not deductible unless miscellaneous deductions are in excess of
2% of the Participant's adjusted gross income.
Rollover Contributions
Certain distributions from qualified employee benefit plans and 403(b) plans
(tax-sheltered annuities) are eligible to be paid to an individual retirement
account or to another employee benefit plan or 403(b) plan. Such a payment is
referred to as a rollover of an eligible rollover distribution. The
administrator or custodian for the employee benefit plan or 403(b) plan from
which the distribution is made can indicate which portion of a distribution is
an eligible rollover distribution. Non-taxable distributions, distributions that
are part of a series of substantially equal payments made at least once a year
over long periods of time and distributions that are required after a
participant attains age 70 1/2 are not eligible rollover distributions.
A rollover can be completed as a direct rollover to an individual retirement
account (which avoids the application of a 20% income tax withholding
requirement) or by reinvesting distribution proceeds paid to the plan
participant in an individual retirement account within 60 days of the date the
participant receives the distribution. If the distribution is not reinvested
within 60 days of its receipt, the payment is taxed in the year in which the
participant received it. Distributions from a qualified employee benefit plan
may be eligible for special tax treatment such as 5-year averaging, 10-year
averaging and capital gain tax treatment. This special tax treatment is not
available if an individual previously rolled over a payment from the employee
benefit plan or certain other similar plans of the employer. The special tax
treatment is also not available for distributions rolled over to an XXX when
distributions are subsequently made from that XXX. Also, if only part of a
distribution from an employee benefit plan is rolled over to an XXX, this
special tax treatment is not available for the part of the distribution that was
not so rolled over. Additional restrictions are described in IRS Form 4972,
which has more information on lump sum distributions and how an individual may
elect the special tax treatment. The Plan provides that Rollover contributions
from a qualified employer plan shall be held in a separate XXX at all times.
Amounts distributed from another XXX may be rolled over to the Princor XXX.
Rollovers between IRAs may occur no more than once a year; however, direct
transfers of XXX assets to another XXX may occur at any time.
Under the Plan, Rollover Contributions may only be made in cash. If an
individual receives a distribution from a qualified employee benefit plan of
property other than cash, the individual may sell such property and invest the
proceeds of the sale in a Rollover XXX under the Plan within 60 days after
distribution.
Simplified Employee Pension Contribution
If an Individual Retirement Account is being used as a receptacle for employer
contributions made under a Simplified Employee Pension (SEP) Plan, the limit on
employer contributions in a taxable year is the lesser of $30,000 or 15% of a
Participant's compensation.
Contributions must bear a uniform relationship to the total compensation (not in
excess of the first $150,000 beginning in 1994) of each employee maintaining a
SEP.
The employer's contribution is excluded from the Participant's taxable income.
Please see your Registered Representative for additional information about
Simplified Employee Pension plans.
Excess Contributions
Contributions for an individual during a taxable year are considered excess
contributions if they exceed 100% of compensation or $2,000, or such other limit
as may be prescribed by law. Contributions to individual accounts for a person
and that person's spouse are considered excess contributions if contributions
exceed the lesser of: (1) $2,250; (b) 100% of the compensation includable in
gross income for the taxable year; or (c) more than $2,000 paid to a single
individual retirement account for the individual or the individual's spouse. If
excess contributions are made, the individual must pay a cumulative,
non-deductible 6% excise tax on the portion of the contribution that exceeds the
amounts permitted by law. An individual can avoid this excise tax by withdrawing
the excess contribution prior to filing the tax return. Any income earned by the
excess contribution must also be withdrawn at the time the excess contribution
is withdrawn. Since the excess contribution was not deductible when made, it is
not included in the individual's income when returned, nor is it subject to the
10% tax on premature distributions. Income earned by the excess contribution,
however, must be included in the individual's income tax return for the tax year
in which it was earned. The foregoing is inapplicable if: (a) a deduction was
allowed for the excess contribution or (b) full contributions (including excess
contributions) for the year exceeded $2,250. If the 6% excise tax is imposed for
the taxable year, its cumulative effect can be avoided by making reduced
contributions in a future year. Excess rollover contributions can also be
corrected (with regard to dollar limitations) if the excess contribution was due
to reasonable cause.
Form 5329
Form 5329 (Return for Individual Retirement Savings Arrangement) must accompany
an individual's tax return (Form 1040) only if the individual owes excess
contribution taxes, premature distribution taxes, or taxes on certain
accumulations.
Distributions/Transfers
Distributions are taxed as ordinary income when received. Ten-year and/or
five-year averaging is not permissible.
If nondeductible contributions are made, the portion of the XXX contribution
consisting of non-deductible contributions will not be taxed again when
distributed. A distribution of a non-deductible XXX contribution will generally
consist of a non-taxable portion (the return of non-deductible contributions)
and a taxable portion (the return deductible contributions, if any, and account
earnings).
Thus, an individual may not take a distribution which is entirely tax free. The
following formula is used to determine the nontaxable portion of distributions
for a taxable year:
[Remaining NonDeductible Contributions Year-End / Total XXX Account
Balances] X Total Distributions (for the year) = NonTaxable Distributions
(for the year)
All of an individual's IRAs are treated as a single XXX to figure the year-end
total XXX account balance. This includes all regular IRAs, as well as Simplified
Employer Pension (SEP) IRAs, and Rollover IRAs. Distributions taken during the
year must also be added back in.
Financial Disclosure
Information about the Funds and the method by which the annual earnings are
computed and allocated to each shareholder's account is described in the
prospectus accompanying this disclosure statement.
An annual administration fee of $15.00 is also required. This fee will be
deducted from the account as a separate item on the first business day of
December each year. You will be notified of this fee by invoice and may pay by
separate check before November 15. There is also a sales charge deducted on the
purchase of Class A shares of most of the Funds amounting to 4.75% or less of
the amount of the transaction at offering price. The sales charges are reduced
under various circumstances described in detail in the Fund's prospectus. A
contingent deferred sales charge of up to 4% applies to Class B shares of each
of the Funds. A complete description of the Fund's shares is provided in the
prospectus. You must have received a prospectus prior to submitting your
application to create an XXX. The annual earnings on your XXX will depend upon
the investment income received by the Fund or Funds which you select. Growth in
value of this account is neither guaranteed nor projected. All certificates
shall be held by the Custodian. The Custodian has the right to change its fees
in the current and/or future years.
Prohibited Transactions
If Participant borrows money by use of their XXX or uses any portion of his or
her XXX as security for a loan (which the Plan prohibits), the portion so used
will be treated for tax purposes as having been distributed to them. In
addition, if a Participant or his or her Beneficiary engages in a prohibited
transaction (as defined in Section 4975 of the Internal Revenue Code) with
respect to his or her XXX, the Account will be disqualified and the entire
amount in the XXX Account will be treated as having been distributed to him or
her. Examples of prohibited transactions are the borrowing of the income or
principal from an XXX, selling property to or buying property from an XXX, or
receiving more than reasonable compensation for services performed for an XXX.
When all or a portion of an XXX is treated as having been distributed, such
amounts will be includable in the Participant's gross income for that taxable
year and will generally be subject to the 10% federal tax on premature
distributions (unless the Participant is disabled or has reached the age of 59
1/2).
Estate And Gift Tax Considerations
Transfers of IRAs are generally subject to taxation under federal estate and
gift tax laws. To the extent that benefits are distributed to the spouse of the
Participant, the amount of the benefits may be eligible for the estate tax
marital deduction
The excise tax on excess retirement distributions does not apply to such
distributions after the death of the Plan Participant, but a federal estate tax
is imposed amounting to 15% of any excess retirement accumulation. This estate
tax is imposed regardless of whether the decedent had a taxable estate and
cannot be reduced or offset by any estate tax credits or deductions. However, a
surviving spouse beneficiary of essentially all of the decedent's aggregate
retirement plans may elect out of the estate tax treatment and have the
decedent's aggregate retirement plans be treated as those of the surviving
spouse for income and estate tax purposes.
An irrevocable beneficiary designation may result in a taxable gift of a future
interest which would not qualify for the gift tax annual inclusion. However, if
a spouse is the beneficiary, the gift will generally qualify for the marital
deduction. In community property states, if a person other than a spouse is
designated as the plan beneficiary, the spouse might be considered to have made
a gift on one-half of the value of the benefit conveyed when the conveyance is
complete.
XXX Approval Letter
The IRS approval letter provided in this booklet is a determination only as to
the form of the XXX and does not represent a determination of the merits of the
XXX investment plan.
Further Information
Further information regarding Individual Retirement Accounts and the retirement
savings deduction may be obtained from any district office of the Internal
Revenue Service.
BECAUSE LEGAL AND TAX CONSEQUENCES OF THE USE OF THE PLAN MAY VARY IN PARTICULAR
CASES, INDEPENDENT ADVICE SHOULD BE SOUGHT FROM YOUR ATTORNEY OR TAX ADVISOR.
IRS OPINION LETTER
Below is the Internal Revenue Service opinion letter approving the form of the
custodian agreement for the Princor XXX.
Internal Revenue Service Department of Treasury
Plan Name: XXX Custodial Account Xxxxxxxxxx, XX 00000
FFN: 50107440000-016 Case: 9170139
EIN: 00-0000000 Person to Contact: Xx. Xxxxx
Letter Serial No: D112912a
Telephone Number: (000)000-0000
PRINCIPAL MUTUAL LIFE INSURANCE CO.
THE PRINCIPAL FINANCIAL GROUP Refer Reply to: E:EP:Q:2
XXX XXXXXX XX 00000 Date: 08/29/91
Dear Applicant:
In our opinion, the form of the prototype trust, custodial account or annuity
contract identified above is acceptable under section 408 of the Internal
Revenue Code, as amended by the Tax Reform Act of 1986.
Each individual who adopts this approved plan will be considered to have a
retirement savings program that satisfies the requirements of Code section 408,
provided they follow the terms of the program and do not engage in certain
transactions specified in Code section 408(e). Please provide a copy of this
letter to each person affected.
The Internal Revenue Service has not evaluated the merits of this savings
program and does not guarantee contributions or investments made under the
savings program. Furthermore, this letter does not express any opinion as to
the applicability of Code section 4975, regarding prohibited transactions.
Code section 408(i) and related regulations require that the trustee, custodian
or issuer of a contract provide a disclosure statement to each participant in
this program as specified in the regulations. Publication 590, Tax Information
on Individual Retirement Arrangements, gives information about the items to be
disclosed.
The trustee, custodian or issuer of a contract is also required to provide each
adopting individual with annual reports of savings program transactions.
Your program may have to be amended to include or revise provisions in order to
comply with future changes in the law or regulations.
If you have any questions concerning IRS processing of this case, call us at the
above telephone number. Please refer to the Letter Serial Number and File
Folder Number shown in the heading of this letter. Please provide those
adopting this plan with your phone number, and advise them to contact your
office if they have any questions about the operation of this plan.
You should keep this letter as a permanent record. Please notify us if you
terminate the form of this plan.
Sincerely yours,
XXXX XXXXXX
Xxxx Xxxxxx
Chief, Employee Plans
Qualifications Branch
