0. A Look at IRAs Beyond Retirement
Consumer Seminar
A Look at IRAs Beyond Retirement
OLA 968 T 1008

1. 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.

2. A Look at IRAs Beyond Retirement
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

3. What Is the Stretch-Out IRA Strategy?
Passes your IRA assets to your beneficiary(ies)
Stretches out income and continues IRA’s tax-deferred growth

4. Is a Stretch-Out IRA for You?
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

5. Your Stretch-Out IRA Planning Team
Your Stretch-Out IRA planning team should consist of your:
Attorney
Accountant/CPA
Insurance Representative

6. Taxation and IRAs Traditional IRA is tax-deferred, not tax-exempt
Distributions are taxed as ordinary income
Taxable to IRA holder

7. 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

8. 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

9. 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

10. 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

11. 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

12. 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!

13. Estate Planning for IRAs (Cont.)
Choice of beneficiaries is key to how IRA is stretched out
Legacy can continue for future generations

14. 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

15. 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

16. 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

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

18. 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

19. 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

20. 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

21. 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

22. Example 1: The Successful Family (Cont.)
The Split-Benefit IRA—Rollover to Spouse and Split Approach
Sam's IRA
$2,000,000
$4,439,280
$6,040,231
IRA Value Now (2007):
Distributions Start (age 70):
Death Assumed (age 95):
Sam's death assumed in No income or estate tax due on IRA at death.
$11,043,666
Distributions during Sam’s lifetime
Susan rolls over the value at Sam's death.
Distributions are based on the Uniform Lifetime Table.
The estate must have liquidity of $2,160,543 for federal estate taxes attributable to the IRA to provide the total distributions shown here.
Value of Susan’s inherited IRA in 2044: $6,040,231
Susan dies in 2048 Value included in estate
$2,998,419 Distributions during
Susan’s lifetime
IRA splits into separate shares at Susan’s death. Distributions based on life expectancy of each named beneficiary.
$6,991,732
Remaining distributions
$7,596,507
Remaining distributions
Total distributions during lives of Sam, Susan, and each non-spouse beneficiary: $28,630,324

23. 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

24. 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”

25. 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

26. 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

27. 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

28. 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

29. 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

30. 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

31. 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.

32. A Look at IRAs Beyond Retirement
Consumer Seminar
A Look at IRAs Beyond Retirement
OLA 968 T 1008