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0 For Producer Use Only Life Insurance Retirement Planning A life insurance strategy that helps diversify your taxes during retirement The conversation:

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Presentation on theme: "0 For Producer Use Only Life Insurance Retirement Planning A life insurance strategy that helps diversify your taxes during retirement The conversation:"— Presentation transcript:

1 0 For Producer Use Only Life Insurance Retirement Planning A life insurance strategy that helps diversify your taxes during retirement The conversation: Pay them now, or pay them later! Presenter Title

2 1 For Producer use Only Todays Focus Today well learn about income-tax diversification for your retirement savings By discussing retirement plan taxation during contribution, accumulation and distribution So that you can offer your high-income-earning clients and prospects a powerful supplemental retirement solution

3 2 For Producer use Only History of Top Marginal Tax Rates

4 3 For Producer use Only 30 Years Ago Pension Social Security Savings Today Pension Social Security Savings Sources of Retirement Cash Flow

5 4 For Producer use Only What has been the secret to success? Pre-tax/Tax-Deductible Tax-Deferral 401(k), 403(b), 457, Traditional IRA

6 5 For Producer use Only What makes pre-tax/tax-deductible tax-deferral work? ContributionDistribution High Tax RateLow Tax Rate Big Tax Deduction/ ReductionLowest Possible Taxes

7 6 For Producer use Only What makes pre-tax/tax-deductible tax-deferral work? ContributionDistribution High Tax RateLow Tax Rate Big Tax Deduction/ ReductionLowest Possible Taxes

8 7 For Producer use Only It worked before... Tax rates were high in the 1940s – 1970s Tax rates dropped dramatically in the 1980s Lower retirement income meant lower retirement tax rate With pensions and Social Security, retirees didnt own the assets and, therefore, didnt pass them on to their children Contribution Distribution

9 8 For Producer use Only It worked before... Tax rates were high in the 1940s – 1970s Tax rates dropped dramatically in the 1980s Lower retirement income meant lower retirement tax rate With pensions and Social Security, retirees didnt own the assets and, therefore, didnt pass them on to their children

10 9 For Producer use Only Will it work now? 401(k) contributors had much lower tax rates from 1980s through today Pressure for tax rates to increase Increasing levels of wealth for financially successful retirees Because of personal savings in 40(k)s, IRAs, etc., retirees now own significant assets that will be passed to their children Childrens tax rates are rising, creating significant income tax implications

11 10 For Producer use Only Contribution, Accumulation, Distribution Every dollar put towards retirement goes through three phases: The bad news is: –You must pay taxes on at least one of these three phases The good news is: – You get to decide which one –It depends on the investments you choose Contribution AccumulationDistribution

12 11 For Producer use Only Successful Investing In a successful retirement investment strategy, consistent long-term investment growth means: – Your assets continue to grow throughout each phase Assumptions: $10,000 annual contribution for 25 years. $42,800 distributions for the next 25 years. 6.00% growth rate

13 12 For Producer use Only Successful Investing If the choice was yours, which would you pay taxes on? Assumptions: $10,000 annual contribution for 25 years. $42,800 distributions for the next 25 years. 6.00% growth rate

14 13 For Producer use Only Ask yourself: Which phase would I rather pay taxes on? Its likely your answer will be: The lowest dollar figure!

15 14 For Producer use Only Successful Investing Where are the bulk of your retirement assets currently invested? – 401(k), IRA Which phase will you pay taxes on with those plans? Assumptions: $10,000 annual contribution for 25 years. $42,800 distributions for the next 25 years. 6.00% growth rate

16 15 For Producer use Only What makes pre-tax/tax-deductible tax-deferral work? ContributionAccumulationDistribution Traditional Qualified Plan/ IRA Tax Treatment Non-Taxable / Deductible Tax-DeferredTaxable Your Desired Tax Treatment Taxable / Non-Deductible Tax-DeferredTax-Free

17 16 For Producer use Only What makes pre-tax/tax-deductible tax-deferral work? ContributionAccumulationDistribution Traditional Qualified Plan/ IRA Tax Treatment Non-Taxable / Deductible Tax-DeferredTaxable Your Desired Tax Treatment Taxable / Non-Deductible Tax-DeferredTax-Free

18 17 For Producer use Only Wouldnt it make sense to position a portion of your retirement assets to add tax diversification to your portfolio?

19 18 For Producer use Only Option 1: Roth-IRA ProsCons Accumulates tax deferred No tax on qualified distributions No RMDs for Roth-IRA owners Income-tax-free inheritance to beneficiaries Limited amount you can contribute per year Cannot make-up missed contributions If your income is too high you cannot contribute Tax penalty may apply to withdrawals prior to age 59½ RMDs for Roth-IRA beneficiaries No death benefit for self-completing

20 19 For Producer use Only Is there another way? Maximum Funded Life Insurance

21 20 For Producer use Only * Policy must comply with IRS requirements to qualify as a life insurance contract. Total premiums in the policy cannot exceed funding limitations under IRC Withdrawals during the first 15 years of the contract may be treated as income first and includible in policyholders income. If the policy is classified as a modified endowment contract (see IRC 7702A), withdrawals or loans are subject to regular income tax and an additional 10% tax penalty may apply if taken prior to age 59 ½. Distributions will reduce policy values and may reduce benefits. Availability of policy loans and withdrawals depend on multiple factors including but not limited to policy terms and conditions, performance, and fees or expenses. Income-tax-free death benefit for beneficiaries* No defined IRS limitation on premiums* No limit on gross income affecting your ability to contribute premiums Missed premiums may be made up at a later time* Tax-deferred accumulation* Distributions using withdrawals and loans are income-tax-free when structured properly* Access to your values prior to age 59½ Take distributions as needed* No required minimum distributions (RMDs) for owners Self-completing upon death – Death benefit exceeds account value Life Insurance The list of benefits is long and powerful!

22 21 For Producer use Only Case Study: Darren Johnson Age: 40, good health Occupation: Chiropractor Annual W-2 Income: $400,000 Targeted Retirement Age: 67 (full Social Security benefits) Targeted Annual Retirement Savings: – 10% of W-2 income = $40,000 Current annual contributions to 401(k): $17,000 Additional annual amount targeted to contribute: $23,000

23 22 For Producer use Only Case Study: Darren Johnson Life Insurance Policy Assumptions (VUL): Minimum death benefit (Initially $600,000) Underwriting Class: Preferred Option B increasing death benefit during contribution phase Option A level death benefit during distribution phase Assumed average annual growth rate (gross): 7.00% Weighted annual average fund expense:.76% (76 bps) Pay premiums to age 67 Withdrawals and loans for 20 years beginning at age 68 Policy endows at age 100 on a current assumption basis

24 23 For Producer use Only Case Study: Darren Johnson Life Insurance Policy Non-Guaranteed Values: Premiums: $23,000 per year for 27 years = $621,000 Illustrated Accumulated Value: At age 67 = $1,334,772 Distributions: $130,000 per year for 20 years = $2,600,000

25 24 For Producer use Only Case Study: Darren Johnson Assumptions: $23,000 annual contribution for 27 years. $130,000 distributions for next 20 years. 7.00% growth rate Will Darren be glad he paid tax on the $621k and not the $2.6M? Maximum Funded Life Insurance may be the only way to achieve these results!

26 25 For Producer use Only Case Study : Darren Johnson Assumptions: $23,000 annual contribution for 27 years. $130,000 distributions for next 20 years. 7.00% growth rate Will Darren be glad he paid tax on the $621k and not the $2.6M? Maximum Funded Life Insurance may be the only way to achieve these results!

27 26 For Producer use Only Now, lets tell the story….. Contribution – Accumulation – Distribution The Napkin Sale

28 27 For Producer use Only $5 $10 $20 The Bad News: You must pay tax on one of these three The Good News: You get to choose Where are the bulk of your retirement assets currently invested? Which of the numbers above is going to get taxed? Wouldnt it make sense to diversify a portion of your portfolio? If you had access to a retirement strategy that provided you with the tax treatment you want, and you could put in as much money as you want, how much would you put into a plan like that every year? Additional Benefits: 1.Self-Completing at owners death 2.No set limit on contributions 1 3.Pre age 59 ½ access – No income tax or penalty tax 2 4.Catch-up on missed contributions 5.No RMDs for owners 6.No RMDs for beneficiaries 1.Policy must comply with IRS requirements to qualify as a life insurance contract. Total premiums in the policy cannot exceed funding limitations under IRC Assumes the policy is not a Modified Endowment Contract Withdrawals during the first 15 years of the contract may be treated as income first and includible in policyholders income.

29 28 For Producer use Only $5 $10 $20 The Bad News: You must pay tax on one of these three The Good News: You get to choose Where are the bulk of your retirement assets currently invested? Which of the numbers above is going to get taxed? Wouldnt it make sense to diversify a portion of your portfolio? If you had access to a retirement strategy that provided you with the tax treatment you want, and you could put in as much money as you want, how much would you put into a plan like that every year? Additional Benefits: 1.Self-Completing at owners death 2.No set limit on contributions 1 3.Pre age 59 ½ access – No income tax or penalty tax 2 4.Catch-up on missed contributions 5.No RMDs for owners 6.No RMDs for beneficiaries 1.Policy must comply with IRS requirements to qualify as a life insurance contract. Total premiums in the policy cannot exceed funding limitations under IRC Assumes the policy is not a Modified Endowment Contract Withdrawals during the first 15 years of the contract may be treated as income first and includible in policyholders income.

30 29 For Producer use Only What is this incredible tool? Its a life insurance policy!

31 30 For Producer use Only Todays Focus Today well learn about income-tax diversification for your retirement savings By discussing retirement plan taxation during contribution, accumulation and distribution So that you can offer your high-income earning clients and prospects a powerful supplemental retirement solution

32 31 For Producer use Only Target Audiences Doctors Dentists Attorneys CPAs Chiropractors Veterinarians Funeral Home Directors Successful business owners High-income business executives

33 32 For Producer use Only Questions or Comments

34 33 For Producer use Only A life insurance strategy that helps diversify your taxes during retirement The conversation: Pay them now, or pay them later!

35 34 For Producer use Only Important Information Policies issued by American General Life Insurance Company (AGL), a member of American International Group, Inc. (AIG) The underwriting risks, financial and contractual obligations and support functions associated with the products issued by AGL its responsibility. Guarantees are subject to the claims-paying ability of the issuing insurance company. AGL does not solicit business in New York. Policies and riders not available in all states. Keep in mind that American General Life Insurance Company and their distributors and representatives may not give tax, accounting or legal advice. Any tax statements in this material are not intended to suggest the avoidance of U.S. federal, state or local tax penalties. Such discussions generally are based upon the companys understanding of current tax rules and interpretations. Tax laws are subject to legislative modification, and while many such modifications will have only a prospective application, it is important to recognize that a change could have retroactive effect as well. Individuals should seek the advice of an independent tax advisor or attorney for more complete information concerning their particular circumstances and any tax statements made in this material. ©2014. All rights reserved. AGLC

36 35 For Producer use Only Appendix Life Insurance Illustration

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