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maximizing a legacy with ira assets

Maximizing a Legacy with IRA Assets

For producer use only. Not for presentation to the public.

OLA 1656 T 1008

slide2
This material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. This material was written to support the promotion or marketing of the products, services, and/or concepts addressed in this material. Anyone to whom this material is promoted, marketed, or recommended should be advised to consult with and rely solely on their own independent advisors regarding their particular situation and the concepts presented here.

For producer use only. Not for presentation to the public.

ira maximization strategy
IRA Maximization Strategy
  • Using after-tax withdrawals or required minimum distributions from IRA to fund universal life insurance policy in order to increase family legacy

For producer use only. Not for presentation to the public.

ira maximization strategy candidate
IRA Maximization Strategy Candidate
  • Those not needing IRA assets for retirement income
  • High net–worth individuals
  • People wanting to create a legacy for their loved ones

For producer use only. Not for presentation to the public.

types of qualified retirement plans
Types of Qualified Retirement Plans
  • Profit-sharing, 401(k), Roth 401(k)
  • 403(b), Roth 403(b)
  • Money purchase
  • Defined benefit

For producer use only. Not for presentation to the public.

types of individual retirement accounts iras
Types of Individual Retirement Accounts (IRAs)
  • Traditional IRA
  • Roth IRA
  • SEP IRA
  • SIMPLE IRA

For producer use only. Not for presentation to the public.

ira rollovers from employer sponsored qualified retirement plans
IRA Rollovers from Employer-Sponsored Qualified Retirement Plans
  • Many lump-sum benefits may eventually be rolled into IRAs
  • Qualified retirement plan assets can be rolled over to IRA or another company-sponsored retirement plan if the plan permits

For producer use only. Not for presentation to the public.

current u s retirement plan assets
Current U.S. Retirement Plan Assets
  • Americans had $1.9 trillion invested in qualified retirement plans at the end of 2003
  • Source: Employee Benefit Research Institute, 2004
  • IRA assets increased to $4.2 trillion by 2007
  • Source: Investment Company Institute, 2008

For producer use only. Not for presentation to the public.

ira income tax facts
IRA Income Tax Facts
  • IRA is tax-deferred
  • Distributions taxed to owner in year distributed as ordinary income
  • Distributions prior to age 59½ can be subject to additional 10% federal income tax penalty
  • Required minimum distributions (RMD) are required after age 70½ based on IRS-issued table

For producer use only. Not for presentation to the public.

ira estate tax facts
IRA Estate Tax Facts
  • Value of IRA included in owner’s estate
  • Current exemption is $2 million
    • Estate tax exemption amount increases to $3.5 million in 2009
    • Complete elimination in 2010
    • In 2011, estate tax exemption returns to $1 million per decedent

For producer use only. Not for presentation to the public.

ira distributions at owner s death
IRA Distributions at Owner’s Death
  • Distributions from IRA on owner’s death treated as “income in respect of a decedent” (IRD)
    • IRA does not receive step-up in basis
    • IRD included in gross income of recipient
    • Income tax deduction permitted for any estate and generation-skipping taxes paid on IRA
    • Amount of deduction = federal transfer tax including IRD – federal transfer tax excluding IRD

For producer use only. Not for presentation to the public.

surviving spouse ira planning
Surviving Spouse IRA Planning
  • Can roll over decedent’s IRA assets into his/her own IRA, delaying income tax recognition
  • Not subject to estate taxation due to unlimited marital deduction

For producer use only. Not for presentation to the public.

nonspouse ira planning
Nonspouse IRA Planning
  • Can inherit IRA, avoiding immediate income taxation on full value, but must take RMDs based on his/her life expectancy
  • May choose to receive full amount of IRA and immediately recognize income for tax purposes
  • Lack of estate plan may reduce IRA account value by up to 60% due to federal estate and income taxes, as well as state taxes

For producer use only. Not for presentation to the public.

agnes affluent plans to maximize her ira legacy
Agnes Affluent Plans to Maximize Her IRA Legacy
  • Agnes Affluent, widow, age 72
  • Has $765,000 in IRA and $2 million in other assets
  • Does not need IRA minimum distributions for standard of living
  • Two adult children are primary IRA beneficiaries
  • Interested in maximizing her children’s inheritance

For producer use only. Not for presentation to the public.

life insurance to enhance legacy
Life Insurance to Enhance Legacy
  • IRA Balance $765,000
  • Assumed Annual Growth 6%
  • First year’s RMD $29,883*
  • After-Tax Amount $19,424**
  • TransACE® Universal Life Policy
  • Female, Preferred Nonsmoker
  • Annual Premium $19,424
  • Guaranteed Death Benefit $739,000
  • *Will differ annually based on age and IRA value.
  • **Assumes 35% state and federal income tax rate on all income.

For producer use only. Not for presentation to the public.

increased legacy for children
Increased Legacy for Children

Net to Heirs

Year of Death

With Gifts for Life Insurance

No Gifts for Life Insurance

Assumes all assets earn 5% annually except the IRA earns 6% annually. Minimum distributions were added to nonqualified assets or paid life insurance premiums on an after-tax basis. This analysis assumes no change to the current estate tax laws and 35% income tax bracket. 

For producer use only. Not for presentation to the public.

setting up the legacy
Setting Up the Legacy
  • An irrevocable trust or children purchase Transamerica Life or Transamerica Financial Life universal life insurance policy
  • Premiums paid by distributions from IRA with subsequent gifts to trust or children
  • Gifts may qualify as present interest
  • Life insurance death benefit can provide liquidity for any taxes due at death and successfully increases legacy

For producer use only. Not for presentation to the public.

conclusion
Conclusion
  • IRAs are primarily designed for retirement savings and can lose much of their value at death to income and estate taxes
  • Life insurance can ensure IRA assets are kept intact by providing funds to pay associated income/estate taxes and expenses
  • Financial professionals have great opportunity to offer life insurance planning to IRA owner and beneficiaries

For producer use only. Not for presentation to the public.

slide19
TransACE® is a nonparticipating, flexible-premium universal life insurance policy issued by Transamerica Life Insurance Company, Cedar Rapids, IA 52499. Policy Form #1-12611107 (CVAT), Group Certificate #2-73636107 (CVAT) for certificates issued under a group policy issued to the Rhode Island National Consumer Protection Trust. Policy form and number may differ, and this policy may not be available in all jurisdictions. TransACE NY (Policy Form #3-12638107 CVAT) is a nonparticipating, flexible-premium universal life insurance policy issued by Transamerica Financial Life Insurance Company, Purchase, NY. This product is available only in New York.
  • Transamerica Life Insurance Company and Transamerica Financial Life Insurance Company (collectively “Transamerica”) and their representatives do not give ERISA, tax, or legal advice. This presentation is provided for informational purposes only and should not be construed as ERISA, tax, or legal advice. Clients and other interested parties must consult with and rely solely upon their own independent advisors regarding their particular situation and the concepts presented here.
  • Discussions of the various planning strategies and issues are based on our understanding of the applicable federal income, gift, and estate tax laws in effect at the time of this presentation. However, tax laws are subject to interpretation and change, and there is no guarantee that the relevant tax authorities will accept Transamerica’s interpretations. Additionally, this material does not take into consideration the general tax and ERISA provisions applicable to qualified retirement plans or the applicable state laws of clients and prospects.
  • Although care is taken in preparing this material and presenting it accurately, Transamerica disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it. This information is current as of October 2008.
  • Transamerica Financial Life Insurance Company is authorized to conduct business in the state of New York. Transamerica Life Insurance Company is authorized to conduct business in all other states.

For producer use only. Not for presentation to the public.

maximizing a legacy with ira assets20

Maximizing a Legacy with IRA Assets

For producer use only. Not for presentation to the public.

OLA 1656 T 1008

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