imo 668 - for agent use only presented by michael f. kresl, cpa national sales manager

IMO 668 - FOR AGENT USE ONLYIMO 668 - FOR AGENT USE ONLY

Presented By

Michael F. Kresl, CPA

National Sales Manager


AMERICAN NATIONAL AMERICAN NATIONAL INSURANCE COMPANYINSURANCE COMPANY

GALVESTON, TEXAS


The Small Business The Small Business Retirement Plan MarketRetirement Plan Market

• EGTRRA….MORE THAN 60 CHANGES LIBERALIZING SMALL BUSINESS PLANS

• PPA ’06….MADE THE PROVIONS OF EGTRRA PERMANENT

• CREATED OPPORTUNITES WITH COMBO PLANS AND TRADITIONAL DB AND GAVE THE GREEN LIGHT TO CASH BALANCE PLANS


OPPORTUNITIES IN THE OPPORTUNITIES IN THE SMALL BUSINESS SMALL BUSINESS

PENSION MARKETPLACEPENSION MARKETPLACE

EVERY BUSINESS ENTITY CAN HAVE EVERY TYPE OF PLAN

THE POSSIBILITIES ARE ENDLESS – WHETHER THEY HAVE A PLAN OR NOT


WHY SHOULD YOU CONSIDER WHY SHOULD YOU CONSIDER THE SMALL BUSINESS THE SMALL BUSINESS

PENSION MARKET?PENSION MARKET?

• DOOR OPENER

• DOOR CLOSER

• YOU’RE SELLING “TAX DEDUCTIONS” AND “RETIREMENT INCOME”

• GETS YOU IN FRONT OF THE PEOPLE THAT HAVE THE MONEY


THE BUSINESS OWNER THE BUSINESS OWNER NEEDS TO UNDERSTANDNEEDS TO UNDERSTAND

• IT MAY BE COSTING HIM MONEY NOT HAVING A PLAN

OR

• NOT HAVING THE RIGHT PLAN


WHAT IS A DEFINED WHAT IS A DEFINED BENEFIT PLAN?BENEFIT PLAN?

• A PROMISE OF FUTURE BENEFITS

• NO FLEXIBILITY IN FUNDING


WHAT IS THE MAXIMUM WHAT IS THE MAXIMUM BENEFIT FROM A DB PLAN?BENEFIT FROM A DB PLAN?

• GENERALLY THE PLAN CAN FUND FOR A MAXIMUM BENEFIT OF 100% OF SALARY WITH A DOLLAR LIMIT OF $195,000 (FOR THE YEAR 2011)

$16,250 MAXIMUM MONTHLY BENEFIT (WITH 10 YEAR’S PARTICIPATION)


WHAT IS THE MAXIMUM WHAT IS THE MAXIMUM DEDUCTION ALLOWED TODEDUCTION ALLOWED TO

A DB PLAN?A DB PLAN?

• WHATEVER IS NECESSARY TO FUND THE BENEFITS IN THE PLAN

• THEREFORE, NO MAXIMUM CONTRIBUTION


WHAT’S THE BIG DEAL WHAT’S THE BIG DEAL WITH 412(e) and DEFINED WITH 412(e) and DEFINED

BENEFIT PLANS?BENEFIT PLANS?

BIG TAX DEDUCTIONS


412(e) FULLY INSURED412(e) FULLY INSUREDDEFINED BENEFIT PLANSDEFINED BENEFIT PLANS

• THE LARGEST POSSIBLE DEDUCTION FOR THE BUSINESS OWNER WITH LITTLE TIME LEFT FOR RETIREMENT


IF GOAL IS MAX DEDUCTIONIF GOAL IS MAX DEDUCTION OWNER AGE 52 (Ret age 62)

SALARY $195,000

DEDUCTION LIMITS:

• PROFIT SHARING $ 49,000• 401(k) PLAN $ 54,500• DEFINED BENEFIT $ 191,421• 412(e) DEFINED BENEFIT $ 274,458


412(e)…. IT’S A DEFINED 412(e)…. IT’S A DEFINED BENEFIT PLANBENEFIT PLAN

• ALL ASPECTS OF THE PLAN ARE THE SAME AS ANY OTHER DB PLAN– PARTICIPATION– ELIGIBILITY– VESTING– MAXIMUM BENEFIT LIMIT, ETC.


PLAN FUNDINGPLAN FUNDING

• PLAN INVESTMENTS MUST BE:– IN GUARANTEED INSURANCE

COMPANY CONTRACTS– USUALLY….

1. 100% FIXED ANNUITY, OR 2. COMBINATION OF FIXED ANNUITY

AND WHOLE LIFE INSURANCE

BENEFITS MUST BE GUARANTEED


AT RETIREMENTAT RETIREMENT

• CASH OPTION IS CHOSEN

• ASSETS ARE ROLLED TO IRA

• IF ANNUITY DESIRED, THE MARKET CAN BE SHOPPED FOR THE BEST POSSIBLE RATE TO ANNUITIZE

• INTERGENERATIONAL IRA POSSIBILITIES


PROSPECTS FOR 412(e)PROSPECTS FOR 412(e)

• AN OLDER OWNER OF A SMALL BUSINESS (USUALLY AGE 45+)

• MAKING A LOT OF MONEY

• WANTS LARGE DEDUCTIONS

• HAS FEW EMPLOYEES

• WILLING TO SETTLE FOR “FIXED ASSETS” FOR THE PLAN


MAXIMUM LIFE INSURANCE MAXIMUM LIFE INSURANCE SAFE HARBORSSAFE HARBORS

1) FACE AMOUNT OF 100 TIMES THE

PROJECTED MONTHLY BENEFIT OR

2) PREMIUM CALCULATED UNDER

REV. RUL. 74-307


INSURANCE IN A INSURANCE IN A DEFINED BENEFIT PLANDEFINED BENEFIT PLAN

NO INSURANCE IN THE PLAN: INSURANCE ANNUITY TOTAL

PREMIUM DEPOSIT PLAN COST

-0- $99,394 $99,394

$2,594,436 FACE AMOUNT IN THE PLAN: INSURANCE ANNUITY TOTAL

PREMIUM DEPOSIT PLAN COST

$66,261 $44,743 $111,004


INSURANCE IN A INSURANCE IN A DEFINED BENEFIT PLANDEFINED BENEFIT PLAN

CORPORATE SITUATION:CORPORATE SITUATION:

NO INS = $99,394 / WITH INS = $111,004

PLAN COST TO ADD INSURANCE = $11,610AFTER TAX COST (40% BRACKET) = $ 6,966 $66,261 INSURANCE PREMIUM $6,966 AFTER TAX COST

90% DISCOUNT !! TO THE CORPORATION


INSURANCE IDEA: INSURANCE IDEA: • INSURANCE CAN BE PURCHASED FROM

THE PLAN AFTER A FEW YEARS (NO TAXABLE EVENT) AND TRANSFERRED TO AN IRREVOCABLE TRUST TO BE EXCLUDED FROM ESTATE TAXES AT DEATH

• A COST EFFECTIVE METHOD OF PURCHASING NEEDED INSURANCE

Neither American National Insurance Company nor its Representatives gives Legal, Accounting or Tax Advice. Have clients consult their own Tax Advisor


ADDITIONAL INSURANCE ADDITIONAL INSURANCE NOTE:NOTE:

• LIFE INSURANCE DIVIDENDS MUST BE USED TO REDUCE THE NEXT YEAR’S PLAN CONTRIBUTION

• INTEREST PAID ON THE ANNUITY IN EXCESS OF THE GUARANTEED RATE MUST BE USED TO REDUCE THE NEXT YEAR’S CONTRIBUTION


INSURANCE OPTIONS AT INSURANCE OPTIONS AT RETIREMENTRETIREMENT

• SURRENDER THE POLICY

• DISTRIBUTE THE POLICY

• PURCHASE THE POLICY


CASH BALANCECASH BALANCE

AGE SALARY ALLOCATION % OF SALARY

55 $225,000 $153,000 70%

44 34,000 5,380 15%

36 30,000 4,750 15%

25 28,000 4,430 15%

22 20,000 3,160 15%

$365,000 $170,720

OWNER’S SHARE = 90%


NEW COMPARABILITYNEW COMPARABILITY


54 $225,000 $49,000 25%

44 34,000 1,700 5%

36 30,000 1,500 5%

25 28,000 1,400 5%

22 20,000 1,000 5%

$337,000 $54,600

OWNER’S SHARE = 89.7%


SIDE BY SIDESIDE BY SIDE

AGE SALARY NEW COMP CASH BALANCE

55 $225,000 $49,000 $153,000

44 34,000 1,700 5,380

36 30,000 1,500 4,750

25 28,000 1,400 4,430

22 20,000 1,000 3,160

$337,000 $54,600 $170,720

OWNER’S SHARE = 89.7% 90%


““TRADITIONAL” TRADITIONAL” PROFIT SHARINGPROFIT SHARING


60 $196,000 $29,400 15% 33 46,000 6,900 15% 34 47,000 7,050 15% 54 39,000 5,850 15% 42 35,000 5,250 15% 43 29,000 4,350 15%

$392,000 $58,800



““NEW COMPARABILITY” NEW COMPARABILITY” PROFIT SHARINGPROFIT SHARING


60 $196,000 $49,000 25% 33 46,000 2,300 5% 34 47,000 2,350 5% 54 39,000 1,950 5% 42 35,000 1,750 5% 43 29,000 1,450 5%

$368,000 $55,200



SIDE BY SIDE COMPARISONSIDE BY SIDE COMPARISON

PLAN 1 PLAN 2

$27,600 15% $49,000 25% 6,900 15% 2,300 5% 7,050 15% 2,350 5% 5,850 15% 1,950 5% 5,250 15% 1,750 5% 4,350 15% 1,450 5% $55,200 $55,200

(50%) (83%)


WHY IS THIS NOT WHY IS THIS NOT DISCRIMINATORY?DISCRIMINATORY?

DISCRIMINATION TESTING IS PERFORMED ON PROJECTED BENEFITS, NOT THE CONTRIBUTION LEVELS OF THE PARTICIPANTS


PLAN ELECTIVE TOTAL AGE SALARY CONTRIBUTION DEFERRAL DEDUCTIONS

Owner 50 $211,000 $32,500 $22,000 $54,500Spouse 50 $ 49,000 $32,500 22,000 $54,500

Total $260,000 $65,000 $44,000 $109,000

Taxable salary for spouse = $ 27,000 Total deductions for spouse = $ 54,500 TOTAL DEDUCTION IS 202% OF TAXABLE SALARY!

Note: PS plan contribution of 66.3% of salary(to maximum of $32,500) with $22,000 elective deferral each

401(k) PROFIT SHARING 401(k) PROFIT SHARING (WITH SPOUSE ON PAYROLL)(WITH SPOUSE ON PAYROLL)


““OWNER ONLY” CORPORATION OWNER ONLY” CORPORATION LOOKING FOR THE LARGEST LOOKING FOR THE LARGEST

DEDUCTION!DEDUCTION! ESTABLISH 412(e) DB PLAN ADD 401(k) PROFIT SHARING PLAN ADD SPOUSE TO PAYROLL FOR $20,500

MAX 412(i) PLAN PROFIT 401 (k) TOTAL

AGE SALARY WITH INSURANCE SHARING DEFERRAL DEDUCTION

OWNER 55 $245,000 $258,772 $14,700 $22,000 $295,472 SPOUSE 55 $ 22,000 $ 23,709 $ 1,320 $22,000 $ 47,029 $282,481 $16,020 $44,000 $342,501

(Note: this is NRA 65 so could create even larger deductions with a lower NRA)

(Spouse’s salary for income tax purposes = 0)


GET MY #%^&*! ACCOUNTANT ON THE PHONE !!!!!!


ESTABLISH PROFIT ESTABLISH PROFIT SHARING PLAN AND ROLL SHARING PLAN AND ROLL IRA FUNDS INTO IT IRA FUNDS INTO IT

WHY?

• AVAILABLE FOR LOANS (SP, SUB-S, PARTNERS)

• PURCHASE OF INSURANCE

• AGE 55 DISTRIBUTIONS

• CREDITOR PROOF


TAKING OVER AN EXISTING TAKING OVER AN EXISTING PLAN IS VERY POSSIBLE IF PLAN IS VERY POSSIBLE IF

YOU CAN SUPPLYYOU CAN SUPPLY

1. MORE FAVORABLE PLAN DESIGN

2. MORE INVESTMENT OPTIONS

3. LOWER ADMINISTRATION FEES

4. PLAN DESIGN, ADMINISTRATION, AND FUNDING ALL IN ONE PLACE


ANICO ADVANTAGESANICO ADVANTAGES

• MORE FAVORABLE PLAN DESIGN

• LOWER ADMINISTRATIVE FEES

• MORE INVESTMENT OPTIONS

• ACTIVE INVESTMENT MANAGEMENT

• DESIGN, ADMINISTRATION, AND FUNDING ALL DONE IN ONE PLACE


THAT INCLUDES..THAT INCLUDES..

• PLAN DESIGN

• ADMINISTRATION

• FUNDING

• INVESTMENT ADVICE

• ALL IN ONE PLACE


Roth IRA Sales IdeaRoth IRA Sales Idea Small Business Owners can Mitigate the

Substantial Personal Income Taxes Due on Roth IRA Conversions!

Yes, It’s True . . . And Somebody’s

Not Happy!

Here’s how . .Here’s how . . . .


Roth IRA Conversion Tax ConsequencesRoth IRA Conversion Tax ConsequencesExample: Married Taxpayer, $100,000 AGI with taxable income of $80,000

(pre conversion net tax rate of 18%) converts $100,000 to Roth IRA.

Prior to Conversion After Conversion

AGI $ 100,000 $ 100,000

Taxable Income 80,000 180,000

Taxes Due (Fed) $ 14,870 $ 41,160

After conversion net tax rate of 23% but an increase in federal income taxes due of $26,290. Add in an additional 5% in state income taxes and the total additional taxes due would approach $ 32,000!

__________________

How are the substantial additional taxes to be paid?

For Broker/Dealer or Agent Use Only. © 2009 Michael F. Kresl, CPA


The Concept is Simple . . .

Execute the Roth Conversion . . . and

Contribute to a Qualified Plan . . . and

Mitigate the taxes due on the Roth Conversion

. . . by not writing the by not writing the check to the IRS!check to the IRS!


Roth IRA – Qualified PlanRoth IRA – Qualified Plan Tax Tax Planning StrategyPlanning Strategy

Business Owner, Age 50, Compensation: $260,000 No “Eligible” Employees except spouse, $200,000 in NQ “Liquid” Assets Available,

30% Combined Federal & State Tax Rate

Objective: Convert $ 200,000 to Roth IRA and NOT PAY the additional $ 60,000 current Federal & State Income Taxes.

2011 Agenda

1. Establish Defined Contribution Contribution Plan

2. Partial conversion ($100,000) to Roth IRA each year

3. Fund 401(k) Plan @ $ 100,000 per Year

Result: $60,000 saved over 2 years in federal & state taxes.Result: $60,000 saved over 2 years in federal & state taxes.

For Broker/Dealer or Agent Use Only. © 2009 Michael F. Kresl.


PLAN ELECTIVE TOTAL AGE SALARY CONTRIBUTION DEFERRAL DEDUCTIONS

Owner 50 $211,000 $32,500 $22,000 $54,500Spouse 50 $ 49,000 $32,500 22,000 $54,500

Total $260,000 $65,000 $44,000 $109,000

Taxable salary for spouse = $ 27,000 Total deductions for spouse = $ 54,500

Note: PS plan contribution of 66.3% of salary(to maximum of $32,500) with $22,000 elective deferral each

For Broker/Dealer or Agent Use Only.

401(k) Profit Sharing Plan 401(k) Profit Sharing Plan (With Spouse on the Payroll)(With Spouse on the Payroll)

imo 668 - for agent use only presented by michael f. kresl, cpa national sales manager

Documents

agent use onlyimo

agent use only412e

agent use onlyopportunities

agent use onlywhats

agent use onlywhy

agent use onlyif goal

maximum monthly benefit

plan ornot