Solutions That Leave an ImpressionSolutions That Leave an ImpressionIn the Wholesale Brokerage WorldIn the Wholesale Brokerage World

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Putting Your IRA To Work –Putting Your IRA To Work –Three Strategies Three Strategies

for Transferring Wealthfor Transferring Wealth

Is this YOU?

Retired, Retired, underunder age 70 age 70– Owns an IRAOwns an IRA– Not taking any money out of IRANot taking any money out of IRA• If not, will you need RMDs after you reach age If not, will you need RMDs after you reach age

70 ½?70 ½?

Retired, Retired, overover age 70 age 70– Don’t need your RMDsDon’t need your RMDs• Tend to reinvest your RMDsTend to reinvest your RMDs

– If it weren’t for RMDs, you wouldn’t take any If it weren’t for RMDs, you wouldn’t take any money out of your IRAmoney out of your IRA

IRA Reviews

Take out an RMDTake out an RMD

Rebalance the IRA for appropriate asset allocation Rebalance the IRA for appropriate asset allocation (in relation to the rest of your portfolio)(in relation to the rest of your portfolio)

Put it back in the drawer until next yearPut it back in the drawer until next year

Next year. . . Repeat the processNext year. . . Repeat the process

It’s not really a “long-term strategy”It’s not really a “long-term strategy”

How do we tend to look at IRAs for individuals that How do we tend to look at IRAs for individuals that do not do not need theirneed their RMDs? RMDs?

Projected IRA Values

$0

$20,000

$40,000

$60,000

$80,000

$100,000

$120,000

$140,000

$160,000

70 75 80 85 90 95 100 105 110 115

$100,000 IRA; 7% hypothetical annual return$100,000 IRA; 7% hypothetical annual return

Consider This:

There might be a better way. Today you will There might be a better way. Today you will learn about three new recommendations you learn about three new recommendations you can consider.can consider.

When you are forced to take an RMD you don’t need, and When you are forced to take an RMD you don’t need, and then asked to reinvest it…you may be compounding a then asked to reinvest it…you may be compounding a problemproblem

Case Study

John Smith, age 70John Smith, age 70– Normal healthNormal health– Survives until age 80Survives until age 80

Jane Smith, age 65Jane Smith, age 65– Normal healthNormal health– Survives until age 85Survives until age 85

IRA Balance: $500,000IRA Balance: $500,000

IRA Hypothetical Annual Return: 7.00%IRA Hypothetical Annual Return: 7.00%

In The Absence Of A Strategy

*Some values have been rounded for simplicity. ** Taxes include Federal and State income taxes.

Keep in mind that IRA owners are not required to take an RMD in the year 2009. For information specific to your situation, please refer to an illustration prepared especially for you. Taking additional withdrawals from the IRA to pay life insurance premiums may not be the best alternative. Whenever life insurance premiums exceed RMDs, you should consider paying those premiums from sources other than the IRA.

AgesAges IRA Value*IRA Value* RMD*RMD*70 /6570 /65 $500,000$500,000 $18,249$18,249

80 / 7580 / 75 $640,014$640,014 $33,794$33,794

85 (Jane)85 (Jane) $711,519$711,519 $48,187$48,187

Less Taxes @ 35%**Less Taxes @ 35%**

DaughterDaughter $462,487$462,487

IRA Legacy Strategies

Keep your IRA in your Care, Custody, and Keep your IRA in your Care, Custody, and ControlControl– For the rest of you and your spouses lifeFor the rest of you and your spouses life– In case of emergencyIn case of emergency

Significantly increase the value of your Significantly increase the value of your IRA legacy, IRA legacy, andand

Take no additional market risk in Take no additional market risk in your portfolioyour portfolio

3 IRA Strategies that have the potential to:3 IRA Strategies that have the potential to:

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Your money can go to three places at your death. Your money can go to three places at your death.

Cross out the one you would Cross out the one you would leastleast like to get your money at like to get your money at that time.that time.

Most choose the “government”Most choose the “government”

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You Have Control

You have control over how much of your You have control over how much of your money each of these three circles gets, and. . money each of these three circles gets, and. . ..

How much your decisions about the three How much your decisions about the three circles will affect your IRA legacycircles will affect your IRA legacy

Today you will learn:Today you will learn:

Current PlanCurrent Plan $462,487$462,487 - 0 -- 0 - $249,032$249,032

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*Values have been rounded for simplicity.

Choose From 3 IRA Strategies

Income Tax OffsetIncome Tax Offset

Income Tax EliminationIncome Tax Elimination

Legacy EnhancementLegacy Enhancement

Income Tax Offset

Income Tax Offset

Daughter’s estimated income taxes when she Daughter’s estimated income taxes when she inherits $711,519* = $249,032inherits $711,519* = $249,032– Assumes taxes at 35%Assumes taxes at 35%

Purchase a $250,000 survivorship Universal Purchase a $250,000 survivorship Universal Life policy todayLife policy today– Name the Daughter as the beneficiaryName the Daughter as the beneficiary

It’s almost like having someone else pay the It’s almost like having someone else pay the IRA income taxes for you!IRA income taxes for you!– What does it cost to do that?What does it cost to do that?

*Some values have been rounded for simplicity.

Income Tax Offset

What does the life insurance policy cost?What does the life insurance policy cost?– Approximately $3,909 per yearApproximately $3,909 per year

• Based on M70 / F65, Standard underwriting Based on M70 / F65, Standard underwriting classclass

Where do we find $3,909 per year?Where do we find $3,909 per year?– From the RMDs that John & Jane don’t needFrom the RMDs that John & Jane don’t need

$18,249* in year 1$18,249* in year 1$33,794* in year 10$33,794* in year 10$48,187* in year 20$48,187* in year 20

– The life insurance premium is just a fraction of The life insurance premium is just a fraction of the total RMD amountthe total RMD amount

*Values have been rounded for simplicity.

For information specific to your situation, please refer to an illustration prepared especially for you. Taking additional withdrawals from the IRA to pay life insurance premiums may not be the best alternative. Whenever life insurance premiums exceed RMDs, you should consider paying those premiums from sources other than the IRA.

Results of Income Tax Offset

The IRA remained in John & Jane’s C-C-C The IRA remained in John & Jane’s C-C-C (Care, Custody, and Control)(Care, Custody, and Control)

The after-tax legacy increased by over 50%The after-tax legacy increased by over 50%– From $462,487 to $711,519*From $462,487 to $711,519*

John & Jane took no additional market or John & Jane took no additional market or investment risk in the portfolioinvestment risk in the portfolio

*Some values have been rounded for simplicity.

Current PlanCurrent Plan $462,487$462,487 - 0 -- 0 - $249,032$249,032

Income Tax OffsetIncome Tax Offset $711,519$711,519 - 0 -- 0 - $249,032$249,032

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*Values have been rounded for simplicity.

Income Tax Elimination

Income Tax Elimination

We forecasted the future value of the IRAWe forecasted the future value of the IRA– Approximately $711,519 at Jane’s deathApproximately $711,519 at Jane’s death

Instead of purchasing a $250,000 survivorship policy, Instead of purchasing a $250,000 survivorship policy, purchase a $711,519 survivorship policypurchase a $711,519 survivorship policy– Still name daughter as beneficiaryStill name daughter as beneficiary

Daughter inherits $711,519 income-tax-freeDaughter inherits $711,519 income-tax-free– That’s over 50% more (net after-tax) than her original That’s over 50% more (net after-tax) than her original

$462,487 after-tax inheritance!$462,487 after-tax inheritance!

Jane names a Charity* as beneficiary of her $711,519 IRAJane names a Charity* as beneficiary of her $711,519 IRA– No income taxes are due—charities are considered exempt No income taxes are due—charities are considered exempt

from paying income taxesfrom paying income taxes* The term “charity,” as used in this context, means a charitable organization exempt from income tax under the Internal Revenue Code.

Income Tax Elimination

What does the life insurance What does the life insurance policy cost?policy cost?– Approximately $11,125 per yearApproximately $11,125 per year

Where do we find $11,125 Where do we find $11,125 per year?per year?– From the RMDs that John & Jane From the RMDs that John & Jane

don’t needdon’t need• $18,249 in year 1$18,249 in year 1• $33,794 in year 10$33,794 in year 10• $48,187 in year 20$48,187 in year 20

For information specific to your client’s situation, please refer to an illustration prepared especially for you. Taking additional withdrawals from the IRA to pay life insurance premiums may not be the best alternative. Whenever life insurance premiums exceed RMDs, you should consider paying those premiums from sources other than the IRA.

Results of Income Tax Elimination

IRA remained in John & Jane’s C-C-CIRA remained in John & Jane’s C-C-C

More than More than tripledtripled the total legacy: the total legacy:– Original legacy was $462,487 after-taxOriginal legacy was $462,487 after-tax– New legacy:New legacy:• $711,519 income-tax-free to daughter$711,519 income-tax-free to daughter• $711,519 $711,519 income-tax-free to Charityincome-tax-free to Charity• $1,423,038 total legacy$1,423,038 total legacy

John and Jane took no additional market risk John and Jane took no additional market risk in the portfolioin the portfolio

Current PlanCurrent Plan $462,487$462,487 - 0 -- 0 - $249,032$249,032

Income Tax OffsetIncome Tax Offset $711,519$711,519 - 0 -- 0 - $249,032$249,032

Income Tax EliminationIncome Tax Elimination $711,519$711,519 $711,519$711,519 - 0 -- 0 -

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*Values have been rounded for simplicity.

Legacy Enhancement

Legacy Enhancement

From a tax perspective, what is one of the From a tax perspective, what is one of the worstworst assets to die with? assets to die with? IRAIRA

If you don’t need the RMDs, then stop the growth!If you don’t need the RMDs, then stop the growth!– Withdraw the annual earningsWithdraw the annual earnings– $500,000 x 7% = $35,000 per year$500,000 x 7% = $35,000 per year– $35,000 – 25% tax = $26,250$35,000 – 25% tax = $26,250– $26,250 as an annual premium can purchase approx. $26,250 as an annual premium can purchase approx.

$1,678,902 income-tax-free death benefit$1,678,902 income-tax-free death benefit• Based on M70 / F65, Standard underwriting class.Based on M70 / F65, Standard underwriting class.

– $500,000 IRA donated to Charity$500,000 IRA donated to Charity

Results of Legacy Enhancement

IRA remained in John & Jane’s C-C-CIRA remained in John & Jane’s C-C-C

Increased the total legacy Increased the total legacy by nearly 5 times!by nearly 5 times!– Original legacy was $462,487 after-taxOriginal legacy was $462,487 after-tax– New legacy:New legacy:

• $1,678,902 income-tax-free to daughter$1,678,902 income-tax-free to daughter• $500,000 $500,000 income-tax-free to Charity* income-tax-free to Charity* • $2,178,902 total legacy$2,178,902 total legacy

John and Jane took no additional market risk in John and Jane took no additional market risk in the portfoliothe portfolio

* The term “charity,” as used in this context, means a charitable organization exempt from income tax under the Internal Revenue Code.

Current PlanCurrent Plan $462,487$462,487 - 0 -- 0 - $249,032$249,032

Income Tax OffsetIncome Tax Offset $711,519$711,519 - 0 -- 0 - $249,032$249,032

Income Tax EliminationIncome Tax Elimination $711,519$711,519 $711,519$711,519 - 0 -- 0 -

Legacy EnhancementLegacy Enhancement $1,678,902$1,678,902 $500,000$500,000 - 0 -- 0 -

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*Values have been rounded for simplicity.

Flexibility of Legacy Enhancement

You can change how you divide the You can change how you divide the inheritance between your Loved Ones and inheritance between your Loved Ones and the Charity at any time prior to your death.the Charity at any time prior to your death.

Choose From 3 IRA Strategies

Income Tax OffsetIncome Tax Offset

Income Tax EliminationIncome Tax Elimination

Legacy EnhancementLegacy Enhancement

QuestionsQuestions