section 79 powerpoint v 97
DESCRIPTION
Tax Free Income Strategy for 2+ person business.TRANSCRIPT
For Producer Use Only – Not for Use with General Public
For Producer Use Only – Not for Use with General Public
Successful
InnovativeExperienced
CJA is a national employee benefits company
CJA specializes in the design and marketing of innovative insurance products and employee benefit plans for the small business and estate planning markets.
CJA has over thirty years of experience working with leading insurance companies. Our actuarial, marketing, legal and administrative offer expert support and expertise to help you in the field.
We help our partners become more successful with complex employee benefit programs.
About Us
For Producer Use Only – Not for Use with General Public
Where are we today?
• State of economy– Concern for retirement and income in a down
market– Concern with discretionary income– Cost of living rising– Inflation on the rise– Housing market– Fuel costs– Uncertainty
For Producer Use Only – Not for Use with General Public
Where are we today?
So what does that mean for us as planners?
Different motivations for clients
Time to re-evaluate
Additional tax burden
For Producer Use Only – Not for Use with General Public
Qualified Retirement Plan• Take monthly pension income (taxable)
• Plan can provide monthly benefit• Roll assets to an IRA
Tax-leveraged Medical Account for retirement• Titanium Plan-Single employer welfare benefit
plan• Tax deductible and Tax deferred• Tax free reimbursements for medical expense at
retirement
Section 79 –Ultimate 79 • Tax deductible• Addition/alternative to qualified plans
We have solutions to help your clients
For Producer Use Only – Not for Use with General Public
Section 79– How it works at a glance
For Producer Use Only – Not for Use with General Public
Section 79– How it works at a glance
Section 79 is not just group insurance
Regulation say that plan can provide “permanent benefits” as well
What is a permanent benefit:
“…an economic value extending beyond one policy year (for example, a paid-up or cash surrender value) that is provided under a life insurance policy.”
Simply stated: The plan may use cash value life
insurance contracts
For Producer Use Only – Not for Use with General Public
Section 79-Ultimate planning tool How it works
Death Benefit and Tax-free withdrawalsPre-tax
dollars
Offers non-discriminatory benefits to employees
Typically only key employees/owners opt forPermanent benefit
Indexed Universal Life permanent
policy
Corporation sets up a Group Section 79 Plan
5 Year commitment*
*when using certain products designed for Section 79.
For Producer Use Only – Not for Use with General Public
Section 79– How it works at a glance
• Not another retirement plan– Tax deductible contribution for corporation
– 5 year commitment
– Tax free income
– Permanent life insurance
– Competitive product with guarantees
– flexibility
• Not a “new” financial planning tool
For Producer Use Only – Not for Use with General Public
Section 79– How it works at a glance
Can only be adopted by a C Corporation
For Producer Use Only – Not for Use with General Public
Section 79– How it works at a glance
•100% deductible to Employer under §162*•Employee excludes value of up to $50,000
of pure insurance protection (IRS Table I Term Cost)•Employee must include
Value of Permanent Benefit
Value of Insurance protection > $50,000•Bottom line: Employee gets to exclude 35-40% of premium•Plan is terminated after 5 years
Key Planning Points:
For Producer Use Only – Not for Use with General Public
Section 79
Section 79 Group Life Insurance [Providing Permanent Benefits for Key Employees]
PROGRAM CENSUS AND BENEFIT SUMMARY
For Program Year 10/18/2008 through 10/17/2009
OWNERINITIAL DEATH
BENEFITFIRST YEAR
PREMIUMEMPLOYEE AGE SEX RATING SALARY
Valued Client 45 Male Preferred Yes $208,381 $2,083,810 $100,000
Employee 35 Male Preferred No 40,000 400,000 13,554
For Producer Use Only – Not for Use with General Public
Section 79
Section 79 Group Life Insurance [Providing Permanent Benefits for Key Employees]
SUMMARY OF PROGRAM BENEFIT OPTIONS
For Program Year 10/18/2008 through 10/17/2009
OPTION A OPTION B OPTION C
PERMANENT INSURANCE TERM INSURANCE $50,000 TERM
Premium
Assumed Taxable
Income to Employee*
GuaranteedValue
Taxable Table I
CostPremium
Taxable Table I
CostPremium
Taxable Table I
CostEMPLOYEE
Valued Client $100,000 $57,453 $50,754 $3,377 $2,236 $3,661 $159 $0Employee 13,554 7,647 6,995 347 182 378 75 0
For Producer Use Only – Not for Use with General Public
Section 79
Section 79 Group Life Insurance [Providing Permanent Benefits for Key Employees]
FIRST YEAR SUMMARY OF COST FOR CORPORATION(Assumes employees waive benefits in excess of $50,000 minimum)
For Program Year 10/18/2008 through 10/17/2009
Annual Insurance Premium: $100,159
1st. Year Trust Fee: 500
Total Annual Contribution: $100,659 Tax Savings @ 40.00%:* $40,264 1st YEAR AFTER TAX COSTS:* $60,395
For Producer Use Only – Not for Use with General Public
Section 79
Total after tax contributions: 301,975Total tax due from W-2: 135,466Net cost to owner: 437,441Total tax free withdrawals: $3,557,380
OPTION APREPARED FOR: Valued Client
Annual Premium: $100,000 Assumed Tax Rate: 40.00%
Death Benefit: $2,083,810
PolicyYear
AgePlanned Premium
Assumed Employee
Taxable Income1
Employee Net Tax on
Income1
Tax to Employee1
Cash Surrender
Value
Policy Loans2
1 45 100,000 60,831 24,332 24,332 0 02 46 100,000 63,823 25,529 49,861 69,547 03 47 100,000 67,272 26,909 76,770 157,227 04 48 100,000 71,175 28,470 105,240 251,759 05 49 100,000 75,566 30,227 135,466 353,779 0
10 55 0 0 0 0 539,703 020 65 0 0 0 0 1,257,012 177,86940 85 0 0 0 0 199,177 3,557,380
For Producer Use Only – Not for Use with General Public
Section 79
This is the equivalent of
8,893,450*of income from a retirement plan.
*Assuming a tax rate of 40%
For Producer Use Only – Not for Use with General Public
Section 79- practical applications & case studies
• Business transition• Family business• Physician Groups• Multiple Business Owners
• Use Section 79 to create segregated funds for buy-out of business
• Allow tax leverage and flexibility
• Defined benefit plan too costly
Business transition
Challenges:
Cost of the plan design with employees too high for current employer
Both owners wanted additional future income
Needed to equalize benefits to both owners.
For Producer Use Only – Not for Use with General Public
Section 79- practical applications & case studies
BENEFITS AT AGE 65
DEATH BENEFIT PREMIUM
ANNUAL LOAN
TOTAL LOANS
REMAINING BENEFIT AGE SALARY
Wiley 48 $200,000 $2,000,000 $53,058 $157,071 $3,141,420 $498,072
Bird 34 $100,000 $1,000,000 $32,728 $70,519 $1,410,380 $223,272
$85,786
After tax cost at 5 years $257,358
Total tax free loans $4,551,800
% to OwnersDefined Benefit Plan 81.7%Section 79 Plan 97.6%
Business transition
For Producer Use Only – Not for Use with General Public
Section 79- practical applications & case studies
• Numerous Highly compensated employees
• Employee cost too high for company
• Use Section 79 to create plan utilizing class system
• Provided key employees with benefits at reasonable cost
For Producer Use Only – Not for Use with General Public
.
Section 79-practical application & case studies Class system solution
Challenge: Older employees drove the cost of the plan too high for current employer to implement
For Producer Use Only – Not for Use with General Public
Section 79- practical applications & case studies
• Implemented Section 79 Program
Owners premium $279,000 – 93.6% of benefitsRank and file cost $19,000Total Program cost $298,000
• Owners each received over $2,000,000 in Death benefits
• Provided key employees with benefits based on their functions and positions at reasonable cost—allowed important employees to receive greater benefits (bonus for Table I)
Class system solution
For Producer Use Only – Not for Use with General Public
Must be adopted by a C Corporation
•Section 79 is for “employees”
•The following are not “employees”
Self-employed individualsPartners2% owners of S
corporations
•Owner must have W-2 income from a C corporation to be a participant
Section 79- Key considerations
For Producer Use Only – Not for Use with General Public
Who do you know….
• Owns a small profitable business• Complains about paying
income tax • Incomplete Estate Planning• Interested in wealth transfer and
flexibility
For Producer Use Only – Not for Use with General Public
ContactsRegional VP List
Tom Bacharach, New England Region [email protected] David Jones, West Coast [email protected] Ken Shapero, Mid-Atlantic and Southeast Region [email protected]
Mike Seltzer, Mid-West [email protected]
For Producer Use Only – Not for Use with General Public
Resources
www.cjamarketing.com
www.plangen.com
Due diligence materialsBrochuresSample IllustrationsQ & A’sWebcast replays
Websites
For Producer Use Only – Not for Use with General Public