OLA 968 T 1008

A Look at IRAs Beyond Retirement

Consumer Seminar

2

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 consult with and rely solely on their own independent advisors regarding their particular situations and the concepts presented here.

3

Seminar focus: Stretch-out strategies for Individual Retirement Accounts (IRAs)

Strategies can also pertain to rollovers from employer-sponsored qualified retirement plans such as 401(k), pension, and profit-sharing plans

Your plan’s document may differ in types of strategies it allows versus those highlighted in this seminar

Consult your qualified retirement plan administrator and your tax advisor prior to requesting or making a rollover

A Look at IRAs Beyond Retirement

4

Passes your IRA assets to your beneficiary(ies)

Stretches out income and continues IRA’s tax-deferred growth

What Is the Stretch-Out IRA Strategy?

5

You should consider it if:

You have substantial wealth

You don’t need your IRA assets during retirement

You want to create a legacy for your loved ones

Is a Stretch-Out IRA for You?

6

Your Stretch-Out IRA planning team should consist of your:

Attorney

Accountant/CPA

Insurance Representative

Your Stretch-Out IRA Planning Team

7

Taxation and IRAs

Traditional IRA is tax-deferred, not tax-exempt

Distributions are taxed as ordinary income

Taxable to IRA holder

8

Required Minimum Distribution (RMD) Rules RMD rules force you to take IRA money

You must take distributions after you turn 70½ or a 50% penalty applies

You then have to take IRA distributions at least annually

9

RMD Rules (Cont.)

Required Minimum Distributions based on simplified life expectancy tables

Distributions may be made as withdrawals or annuity payments

IRA owner can name and change beneficiaries as often as he/she wishes

Beneficiary choices may not change after death

10

Treasury Regulation § 1.401(a)(9) Uniform Lifetime Table Most IRA owners over age 70½ can now use Uniform

Lifetime Table for RMD calculations

Distribution period based on individual’s age and beneficiary 10 years younger

If married to spouse more than 10 years younger, IRA owner can use actual joint life expectancy

Table determines minimum required amount, but larger distributions may be taken

11

Estate Planning for IRAs

What you should consider:

IRA assets are not subject to probate if beneficiary other than estate is named

IRAs cannot be gifted or transferred during IRA owner’s lifetime

IRA’s value is included in IRA owner’s gross estate

12

Estate Planning for IRAs (Cont.)

Increased estate tax exemption of up to $3.5 million per decedent through 2009

Complete estate tax elimination in 2010

Estate taxes return in 2011 with $1 million exemption per decedent

Base estate planning on current tax law

13

Estate Planning for IRAs (Cont.)

Without a properly executed estate plan, a substantial amount of IRA assets could be lost at death to federal estate and income taxes, as well as state taxes!

14

Estate Planning for IRAs (Cont.)

Choice of beneficiaries is key to how IRA is stretched out

Legacy can continue for future generations

15

Options for Payment of Estate Taxes

To pay estate taxes and other costs at death, beneficiaries can use:

IRA assets

Other assets

Life insurance proceeds

16

Where Does Life Insurance Fit In?

Beneficiaries may have to deplete your IRA assets or sell other assets to pay estate taxes

Life insurance can help provide needed funds to pay associated taxes

IRA assets can be kept intact to pass on

17

Important Planning Considerations

Starting the Stretch-Out IRA Strategy

Carefully choose IRA custodian

Discuss estate plan with advisors and IRA custodian to make sure it can accommodate your wishes

To stretch out IRA assets, IRA has to remain in name of deceased for nonspouse beneficiaries

Example: Mary Jones, deceased, FBO Joan Smith

18

Life Insurance Planning

*Consult your tax advisor regarding whether or not this gift qualifies under annual gift tax exclusion, which is $12,000 in 2008.

Establish Family Trust that purchases fixed or variable universal life insurance

Family Trust will help assure that life insurance proceeds are not included in estate

Helps provide funds needed to offset estate and transfer taxes at death

You gift money to Family Trust each year to pay insurance policy premiums*

19

Naming Beneficiaries

You can name:

Your spouse, if you are married,

Children, grandchildren, or other individuals,

A charity,

A trust, or

A combination of the above

20

Naming Spouse as Beneficiary

Most married couples name each other as primary beneficiary

At death, spouse beneficiary can roll decedent’s IRA assets into his/her own IRA

Spouse will not have to take distributions from new IRA until after reaching age 70½

Spouse can also disclaim inherited IRA assets if not needed

21

Example 1: The Successful Family

Sam and Susan: Wealthy, married baby boomers

Sam is 60 years old

Susan is 55 years old

Two young adult children, James (25) and Thomas (20)

Sam has $2 million IRA, $4 million in other assets

Assumed annual rate of return on IRA assets of 8%

Neither spouse will need to access IRA during their lifetimes

Susan is primary IRA beneficiary

Both want to stretch out IRA distributions and create lasting family legacy

22

Example 1: The Successful Family (Cont.)

Sam wants to pass on his IRA assets and estate to his sons

Sam and Susan establish a Family Trust

23

Example 1: The Successful Family (Cont.)

Sam's IRAIRA Value Now (2007): Distributions Start (age 70): Death Assumed (age 95):

Sam's death assumed in 2043. No income or estate tax due on IRA at death.

Susan rolls over the value at Sam's death.Distributions are based on the Uniform Lifetime Table.

$6,991,732Remaining distributions

$7,596,507Remaining distributions

$11,043,666

Distributions during Sam’s lifetime

Value of Susan’s inherited IRA in 2044: $6,040,231

Susan dies in 2048Value included in estate

$2,998,419Distributions during

Susan’s lifetime

The estate must have liquidity of $2,160,543 for

federal estate taxes attributable to the IRA to provide the total distributions

shown here.

$2,000,000$4,439,280$6,040,231

IRA splits into separate shares at Susan’s death. Distributions based on life expectancy of each named beneficiary.

The Split-Benefit IRA—Rollover to Spouse and Split Approach

Total distributions during lives of Sam, Susan, and each non-spouse beneficiary: $28,630,324

24

Example 1: The Successful Family (Cont.)

Purchasing the Insurance Coverage

Based on life expectancies, estate will need about $4.5 million in cash

The Successfuls consider survivorship universal life insurance policy

Family Trust is established to purchase life insurance

Gifts of cash may be made to Family Trust to pay premiums on life insurance*

Cash may be taken from IRA to make gifts

*IRA distributions will be subject to income tax

25

Stretching Out the Legacy

Naming children, grandchildren, or other individuals as beneficiaries:

Gives you greater flexibility

Provides you ability to create legacy with IRA assets

Allows you to stretch out IRA assets without spousal rollover

Lets you split large IRA into several smaller “beneficiary IRAs”

26

Example 2: The Successful Family

Changing Beneficiaries

Sam Successful dies and Susan is beneficiary of his IRA

Sons James and Thomas have families of their own

Susan names James and Thomas beneficiaries of her IRA

Later, Susan decides to change beneficiary from James to trust for grandson William

27

Example 2: The Successful Family (Cont.)

Disclaiming the IRA

Thomas is already well-prepared for retirement

Susan names Thomas’s other child, Noelle, as contingent beneficiary

It is up to Thomas to disclaim his interest in Susan’s IRA after her death

Thomas has nine months to disclaim

Since Noelle is a minor, Susan may set up trust to manage assets for her

28

Example 2: The Successful Family (Cont.)

Estate Planning

Thomas sets up a Family Trust

Sam’s original $2 million IRA grows tax-deferred to provide substantial legacy for his loved ones

29

Naming a Charity as Beneficiary

Name charity(ies) as sole beneficiary(ies) of your IRA

Purchase enough life insurance to give similar benefit to your loved ones

Life insurance proceeds are generally income tax–free at death

Charitable contributions may reduce amount of estate taxes

30

Naming a Trust as Beneficiary

Gives maximum control over IRA assets after death

Distributions are paid to trust—with instructions on who receives what money and when

Will use life expectancy of oldest trust beneficiary

All trust beneficiaries must be individuals

31

Summary

Stretch-Out IRAs can create a tax-deferred legacy for your loved ones

You have many options for naming beneficiaries

Life insurance can play valuable role in Stretch-Out IRA planning

32

Transamerica Life Insurance Company, 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 situations 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.

OLA 968 T 1008

A Look at IRAs Beyond Retirement

Consumer Seminar