Individual Retirement Accounts Wealth Protection Strategies. Maintain the Value of Your Account for Your Heirs. All specific legal and tax questions should be referred to your legal and tax advisers.
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Maintain the Value of Your Account for Your Heirs
All specific legal and tax questions should be referred to your legal and tax advisers.
Insurance products issued by the Ohio National Life Insurance Company and Ohio National Life Assurance Corporation.
Guarantees re based upon the claims-paying ability of the issuer.
Product, product features and rider availability vary by state.
Issuers not licensed to conduct business and products not distributed in AK, HI or NY.
Survivor Life LP is issued as policy form 96-QL-1/-1U and any state variations.Disclosures
You saved wisely with
accounts (IRAs) and
Federal and state
income taxes = 35% or more.
Federal and state
estate taxes = 45% or more.You Can’t Take It With You
(Post-death taxes on a $500,000 IRA*)
Net To Heirs $178,750
Estate Taxes $225,000
Income Taxes $96,250
*Our example assumes that an IRA is passed to a non-spouse beneficiary and is subjected to state and federal estate taxes totaling 45%. It also assumes that the IRA’s beneficiaries take the remaining IRA in a lump-sum (the option most beneficiaries select) and are subjected to state and federal income taxes totaling 35%.
Pass the value of your IRA, qualified
retirement plan, or other savings
accounts to your heirs.
If structured properly, the value of your IRA can be repositioned as tax-free life insurance proceeds.
StepsHow This Wealth Protection Strategy Works
Step One:Take distributions from your IRA.
Distributions are taxable.
70 ½How This Wealth Protection Strategy Works
Subject to specific rules, penalty-free distributions prior to age 59½*
Penalty-free distributions after age 59½**
Distributions must begin after age 70½***
*Early penalty tax of 10% waived for distributions in case of death or disability, or if taken as a series of substantially equal periodic payments. Other restrictions and exceptions may apply. See a tax specialist for details.
**In some limited cases, distributions after age 59½ may still trigger an early withdrawal penalty. See a tax specialist for details.
***Subject to certain restrictions, individuals who remain employed after age 70 ½ may delay distributions until April 1 of the year following the year in which they retire. See a tax specialist for details.
Step Two: Create an irrevocable life insurance trust and fund it with gifts from your after-tax
With assistance from an attorney, you establish a trust.
You name a trustee.
You select the trust’s beneficiaries.
You can choose to use part, or all, of yourafter-tax distribution to fund the trust.How This Wealth Protection Strategy Works
Step Three:The trustee purchases
a life insurance policy covering you
and/or your spouse.*
The policy is owned by the trust.
The trustee manages the policy according to your instructions.
*Assuming you and/or your spouse qualify for life insurance based
on your age and health.
Depending on your age and health, your policy amount may exceed the value of your IRA.How This Wealth Protection Strategy Works
Step Four:At death, the trust receives
tax-free life insurance benefits.
Death benefits are income tax-free.
Death benefits are estate tax-free.How This Wealth Protection Strategy Works
Your specific instructions are contained in the life insurance trust and the trustee must adhere to the trust provisions.How This Wealth ProtectionStrategy Works
Step Five:The trustee distributes
the policy proceeds to your heirs
according to your instructions, estate
and income tax free.
1 insurance trust and the trustee must adhere to the trust provisions.
Life Insurance PolicySummary
$250,000 IRA held until death of second spouse with required mini-mum distributions starting at age 70½ and reinvested in a side fund growing at 6%, after tax. IRA value is then passed to heirs at death.
The IRA value consists of the IRA balance at the death of the second spouse, plus the IRA required minimum distributions taxed to the parents at 30% and reinvested at 6%, after tax. Example assumes a 8% annual rate of return on the IRA. Example applies a 45% estate tax on IRA value and side fund. Example also assumes heirs elect to take a lump-sum distribution of the IRA with income taxes of 30%.
The $250,000 IRA is distributed with after-tax amounts used to fund a life insurance contract owned by an irrevocable life insurance trust.
*Example depicts Ohio National’s Lifetime G, a guaranteed death benefit universal life insurance policy, on a 65-year-old female, preferred nonsmoker with a single premium of $162,500 (assuming an income tax rate of 35% on the $250,000 IRA distribution). Product availability varies by state.
Use an IRA Protection Strategy
Keep The IRA
Net to Heirs $625,000
A difference of $177,466
Be aware of penalties for withdrawals from qualified plans prior to age 59 ½. With proper planning, withdrawals are penalty free.
A trust ensures:
If you do not want to use a trust, you can name someone outside your estate (for example, your children as owners of the insurance policy to preserve estate tax-free benefits.