Post on 05-Jun-2018
transcript
CAC.1061 (07.12)
IRA Maximization
CLC.1123 (11.15)
Wealth transfer strategies to
enhance your legacy
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Important IRA Tax InformationThis material contains statements regarding the tax treatment of certain financial assets and
transactions. These statements represent only our current understanding of the law in general and are
not to be considered legal or tax advice by purchasers. The tax treatment of life insurance and
Individual Retirement Accounts (IRAs) are subject to change. Income, estate, gift, and generation
skipping tax rules are subject to change at any time. Neither Protective Life nor its representatives offer
legal or tax advice. Purchasers should consult with their legal or tax advisor regarding their individual
situations before making any tax-related decisions.
The income tax on an IRA is not due until each distribution is taken. If the participant made non-
deductible contributions to the IRA, a portion of the IRA proceeds may be an income tax-free return of
basis.
While these strategies may help reduce or eliminate income taxes, they may cause an equal or greater
amount of estate taxes, depending on the client’s individual situation.
Protective and Protective Life refer to Protective Life Insurance Company (PLICO) and its affiliates,
including Protective Life & Annuity Insurance Company (PLAICO). Insurance issued by PLICO in all
states, except New York, and in New York by PLAICO. Both companies are located in Birmingham, AL.
Product availability and features may vary by state. Each company is solely responsible for the financial
obligations accruing under the policies it issues.
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Case studies and benefit values represented in the presentation are based on hypothetical client
age, gender, underwriting classification, premium and interest rate assumptions and are solely
intended to introduce IRA Maximization concepts using life insurance contracts. Life insurance
death benefits and cash values will always vary based on a variety of factors including age, gender,
health, and other underwriting factors. Consumers should consult specific information regarding
the products they are considering.
Taking additional withdrawals from the IRA to pay life insurance premiums may not be the best
alternative. Whenever life insurance premiums exceed RMDs, an individual should consider paying
those premiums from sources other than the IRA.
Estate Planning InformationThis presentation depicts certain estate planning options for IRA accumulation and distribution.
Inclusion of these options does not constitute a recommendation of that option over any other
option.
Property generally passes first by deed, next by contract, and then as directed in the decedent’s
will. Implementing any of these strategies may entail changing asset ownership, altering beneficiary
designations, or revising your will(s). Estate planning intentions may change in the future; you
should compare your actual results to your original objectives, discuss the information with your
advisor(s), and make appropriate adjustments as necessary.
Important Information
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Introduction
Congratulations!
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Introduction• Are you willing to let…
– Your IRA value go away to pay taxes
– Your inheritance benefit no one
– Your legacy vanish before it could begins
Do you have a plan?
Do you have a strategy?
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Agenda• What is IRA Maximization?
• Five IRA Maximization Strategies
• Question & Answers
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What is IRA Maximization• IRA Maximization
– Is a wealth transfer strategy that allows you to transfer
the value of an IRA in a more tax-efficient manner.
– It can help preserve or keep the value of an IRA when
passed to beneficiaries
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• Who can benefit from it
Individuals who don’t need their IRA assets for
their retirement income needs
Individuals more interested in transferring their
assets than generating income
Individuals who want to provide a legacy of
lifetime income for their beneficiaries
What is IRA Maximization
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Five IRA Maximization Strategies
• Tax Offset
• Tax Elimination
• Legacy Enhancement
• Multi-Generational
• Spousal Roth IRA
The income tax on an IRA is not due until each required minimum distribution (RMD) is taken. RMDs must be
withdrawn annually starting with the year that the account holder is age 70 ½. If an individual made non-deductible
contributions to the IRA, a portion of the IRA proceeds may be an income tax-free of basis.
While these strategies may help reduce or eliminate income taxes, they may cause an equal or greater amount of
estate taxes, depending on an individual’s situation.
10Tax Offset
Income, estate, gift, and generation skipping tax rules are subject to change at any time. Neither
Protective Life nor its representatives offer legal or tax advice. Purchasers should consult with
their legal or tax advisor regarding their individual situations before making any tax-related
decisions.
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Tax Offset• How it Works:
1. Determine the projected value of the IRA
2. Estimate the income tax your beneficiary will owe
3. Purchase a life insurance
Results:Beneficiary uses proceeds from death benefit to cover the cost of taxes
on the inherited IRA.
Income, estate, gift, and generation skipping tax rules are subject to change at any time. Neither Protective Life nor its
representatives offer legal or tax advice. Purchasers should consult with their legal or tax advisor regarding their
individual situations before making any tax-related decisions.
Taking additional withdrawals from the IRA to pay life insurance premiums may not be the best alternative. Whenever
life insurance premiums exceed RMDs, an individual should consider paying those premiums from sources other than
the IRA.
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Tax Offset• Hypothetical Example:
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$577, 208Projected IRA Value
-$161,619Estimated Income Tax
$161,619Life Insurance Policy
JOHN
Age 70 (Survives to Age 80)
JAMES
Age 45 (Survives to Age 80)
$500,000 IRA Balance
6% IRA Annual Return
28% Income Tax Rate
$577,208 James’ Inheritance
.
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2
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B ResultA BA Tax Off-Set StrategyAssumptions
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Life Insurance
Policy value
estimated to pay
income tax on the
projected IRA valueProjected
IRA value
INCOME TAX(taxes on IRA RMD)
RMD(uses after-tax portion of RMD to puchase llife
insurance policy)
JAMES(receives death benefit from life insurance &
inherits IRA)INCOME TAX
(life insurance proceeds pay
IRA taxes)
$500,000
IRA
$577,208
IRA
Current
IRA value
$161,619Life Insurance
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Tax Elimination
Income, estate, gift, and generation skipping tax rules are subject to change at any time. Neither
Protective Life nor its representatives offer legal or tax advice. Purchasers should consult with their legal
or tax advisor regarding their individual situations before making any tax-related decisions.
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Tax Elimination• How it works:
1. Determine the projected value of the IRA
2. Purchase a life insurance policy
3. Name a charity as beneficiary
Results:At death, the charity receives the IRA tax free and the beneficiary of the
life insurance policy receives the death proceeds tax free.
The term “charity,” as used in this context, means a charitable organization exempt from income tax under the Internal
Revenue Code.
Taking additional withdrawals from the IRA to pay life insurance premiums may not be the best alternative. Whenever
life insurance premiums exceed RMDs, an individual should consider paying those premiums from sources other than
the IRA.
Income, estate, gift, and generation skipping tax rules are subject to change at any time. Neither Protective Life nor its
representatives offer legal or tax advice. Purchasers should consult with their legal or tax advisor regarding their
individual situations before making any tax-related decisions.
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Tax Elimination
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$577, 208Projected IRA Value
$577,208Life Insurance Policy
Name a Charity
JOHN
Age 70 (Survives to Age 80)
JAMES
Age 45 (Survives to Age 80)
$500,000 IRA Balance
6% IRA Annual Return
28% Income Tax Rate
$577,208James’ Inheritance
$577,208Charity Inheritance
.
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2
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B ResultA BA Tax Elimination StrategyAssumptions
• Hypothetical Example:
Income, estate, gift, and generation skipping tax rules are subject to change at any time. Neither Protective
Life nor its representatives offer legal or tax advice. Purchasers should consult with their legal or tax advisor
regarding their individual situations before making any tax-related decisions.
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Life Insurance
Policy purchased
equal to the
projected IRA value
Projected
IRA value
Beneficiaries pay
no income tax
INCOME TAX(taxes on IRA RMD)
JAMES(receives death benefit
from life insurance)
Charity(receives IRA)
$500,000
IRA
$577,208Life Insurance
$577,208
IRA
RMD(uses after-tax portion of RMD to puchase llife
insurance policy)
Current
IRA value
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Legacy Enhancement
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Legacy Enhancement• How it works:
1. Withdraw the annual earnings from the IRA
2. Use the after-tax withdrawal amount to purchase
life insurance
3. Name the individual as beneficiary of the life
insurance policy and IRA
Results:In naming the same beneficiary on the life insurance policy and the IRA it
will enhance the amount of their inheritance for the beneficiary.
Taking additional withdrawals from the IRA to pay life insurance premiums may not be the best alternative. Whenever
life insurance premiums exceed RMDs, an individual should consider paying those premiums from sources other than
the IRA.
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$30,000IRA Annual Earnings
$617,492Life Insurance Policy
Legacy Enhancement• Hypothetical Example:
JOHN
Age 70 (Survives to Age 80)
Jill
Age 40
$500,000 IRA Balance
6% IRA Annual Return
28% Income Tax Rate
$500,000Inherited IRA Balance
$617,492Inherited Death Benefit
$1,117,492Total Inheritance
.
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B ResultA BA Legacy Enhancement StrategyAssumptions
Subject to full medical and financial underwriting. Maximum face amount may be limited.
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Life insurance value
based on $21,600
annual premium
paid annually to age
121, non-tobacco
Beneficiary pays no
income tax on
insurance death
benefit
INCOME TAX(taxes on
annual earnings)
INCOME TAX(taxes on
IRA proceeds)
$500,000
IRA
$617,492Life Insurance
JILL(receives death benefit From life Insurance &
inherits IRA)
IRA Annual Earnings(uses after-tax portion
to puchase llife insurance policy)
Inherited IRA
value remains
the same due
to earnings
withdrawals
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Multi-Generational
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Multi-Generational• How it works:
1. Determine the projected value of the IRA
2. Purchase a life insurance policy
3. Name grandchildren as beneficiary of the IRA
Results:
• Children inherit a life insurance amount equal to the projected value of
the IRA.
• Grandchildren inherit the IRA and instead of paying taxes on the entire
amount they are able to continue the tax deferral over rest of their life
expectancies.
Taking additional withdrawals from the IRA to pay life insurance premiums may not be the best alternative. Whenever
life insurance premiums exceed RMDs, an individual should consider paying those premiums from sources other than
the IRA.
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$577, 208Projected IRA Value
$577, 208Life Insurance Policy
James & GregBeneficiaries
Multi-Generational
JOHNAge 70 (Survives to Age 80)
JAMESAge 45 (Survives to Age 80)
GREGAge 13 (Survives to Age 83)
$500,000 IRA Balance
$19,936Insurance Premium
6% IRA Annual Return
28% Income Tax Rate
$577,208James’ Inheritied Death Benefit
$6,747,694Greg’s projected inherited
IRA distributions
$7,324,902TOTAL DISTRIBUTIONS
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B ResultA BA Multi-Generational StrategyAssumptions
• Hypothetical Example:
Stretch distributions from the IRA will be taxable to the recipient. Distribution amounts shown on this slide do not
reflect the deduction of taxes
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Life Insurance
Policy purchased
equal to the
projected IRA value
Beneficiary pays no
income tax on insurance
death benefit
Forecasted IRA
distributions
stretched over
his lifetime would
be $6,747,694
INCOME TAX(taxes on IRA RMD)
$500,000
IRA
$577,208Life Insurance
$577,208
IRA
JAMES(receives death benefit
from life Insurance)
GREG(inherits IRA)
RMD(uses after-tax portion of RMD to puchase llife
insurance policy)
Current
IRA value
Beneficiary is
able to defer
taxes
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Spousal Roth IRA
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Spousal Roth IRA• How it works:
1. Determine the projected value of the IRA
2. Estimate the income tax your spouse would owe
3. Purchase a life insurance policy
4. Use death benefit to pay income taxes
Results:• Spouse inherits the IRA and the death benefit. Proceeds from the death
benefit pay the income taxes for Roth IRA conversion.
• Spouse can enjoy: no RMDs, tax-free withdrawals, tax-free transfer to
heirs.
• Heirs pay no income taxes on any distributions from the Roth IRA if
when inherited from the spouse.Taking additional withdrawals from the IRA to pay life insurance premiums may not be the best alternative. Whenever
life insurance premiums exceed RMDs, an individual should consider paying those premiums from sources other than
the IRA.
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1
$577, 208Projected IRA Value
-$161,619Estimated Income Tax
3-$161,619
Life Insurance Policy
Spousal Roth IRA
JOHN
Age 70 (Survives to Age 80)
JANE
Age 65 (Survives to Age 80)
$500,000 IRA Balance
6% IRA Annual Return
28% Income Tax Rate
Jane Inherits
$577,208IRA Inheritance
$161,619Death Benefit from Insurance Policy
.
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2
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B ResultSpousal Roth IRA StrategyAssumptions
• Hypothetical Example:
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Life Insurance Policy
value estimated to
pay income tax on
the projected IRA
value
Projected
IRA value
INCOME TAX(taxes on IRA RMD)
INCOME TAX(life insurance
proceeds pay conversion
taxes)
$500,000IRA
$161,619Life Insurance$577,208
IRA
JANE(receives death benefit from life Insurance &
Inherits IRA)
HEIRSreceive tax free RMDs for Life
Roth IRAbalance
Roth IRA Conversion
Current
IRA value
RMD(uses after-tax portion of RMD to puchase llife
insurance policy)
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Conclusion
This presentation depicts certain estate planning options for IRA accumulation and distribution. Inclusion of these
options does not constitute a recommendation of that option over any other option.
Income, estate, gift, and generation skipping tax rules are subject to change at any time. Neither Protective Life nor
its representatives offer legal or tax advice. Purchasers should consult with their legal or tax advisor regarding their
individual situations before making any tax-related decisions.
IRA
Maximization
Strategies
IRA BeneficiaryLife Insurance
Beneficiary
Spouse Child Grandchild Charity Spouse Child Grandchild Charity
Tax Offset ✓ ✓ ✓ ✓
Tax Elimination ✓ ✓ ✓
Legacy Enhancement ✓ ✓ ✓ ✓
Multi-Generational ✓ ✓
Spousal Roth IRA ✓ ✓
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Questions and Answers
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