Presentation on theme: "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."— Presentation transcript:
0 A Look at IRAs Beyond Retirement Consumer SeminarA Look at IRAs Beyond RetirementOLA 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 plansYour plan’s document may differ in types of strategies it allows versus those highlighted in this seminarConsult 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 wealthYou don’t need your IRA assets during retirementYou 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:AttorneyAccountant/CPAInsurance Representative
6 Taxation and IRAs Traditional IRA is tax-deferred, not tax-exempt Distributions are taxed as ordinary incomeTaxable to IRA holder
7 Required Minimum Distribution (RMD) Rules RMD rules force you to take IRA moneyYou must take distributions after you turn 70½ or a 50% penalty appliesYou then have to take IRA distributions at least annually
8 RMD Rules (Cont.)Required Minimum Distributions based on simplified life expectancy tablesDistributions may be made as withdrawals or annuity paymentsIRA owner can name and change beneficiaries as often as he/she wishesBeneficiary 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 calculationsDistribution period based on individual’s age and beneficiary 10 years youngerIf married to spouse more than 10 years younger, IRA owner can use actual joint life expectancyTable 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 namedIRAs cannot be gifted or transferred during IRA owner’s lifetimeIRA’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 2009Complete estate tax elimination in 2010Estate taxes return in 2011 with $1 million exemption per decedentBase 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 outLegacy 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 assetsOther assetsLife insurance proceeds
15 Where Does Life Insurance Fit In? Beneficiaries may have to deplete your IRA assets or sell other assets to pay estate taxesLife insurance can help provide needed funds to pay associated taxesIRA assets can be kept intact to pass on
16 Important Planning Considerations Starting the Stretch-Out IRA StrategyCarefully choose IRA custodianDiscuss estate plan with advisors and IRA custodian to make sure it can accommodate your wishesTo stretch out IRA assets, IRA has to remain in name of deceased for nonspouse beneficiariesExample: Mary Jones, deceased, FBO Joan Smith
17 Life Insurance Planning Establish Family Trust that purchases fixed or variable universal life insuranceFamily Trust will help assure that life insurance proceeds are not included in estateHelps provide funds needed to offset estate and transfer taxes at deathYou 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, orA combination of the above
19 Naming Spouse as Beneficiary Most married couples name each other as primary beneficiaryAt death, spouse beneficiary can roll decedent’s IRA assets into his/her own IRASpouse will not have to take distributions from new IRA until after reaching age 70½Spouse can also disclaim inherited IRA assets if not needed
20 Example 1: The Successful Family Sam and Susan: Wealthy, married baby boomersSam is 60 years oldSusan is 55 years oldTwo young adult children, James (25) and Thomas (20)Sam has $2 million IRA, $4 million in other assetsAssumed annual rate of return on IRA assets of 8%Neither spouse will need to access IRA during their lifetimesSusan is primary IRA beneficiaryBoth 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 sonsSam and Susan establish a Family Trust
22 Example 1: The Successful Family (Cont.) The Split-Benefit IRA—Rollover to Spouse and Split ApproachSam's IRA$2,000,000$4,439,280$6,040,231IRA 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.$11,043,666Distributions during Sam’s lifetimeSusan 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: $6,040,231Susan dies in 2048 Value included in estate$2,998,419 Distributions duringSusan’s lifetimeIRA splits into separate shares at Susan’s death. Distributions based on life expectancy of each named beneficiary.$6,991,732Remaining distributions$7,596,507Remaining distributionsTotal distributions during lives of Sam, Susan, and each non-spouse beneficiary: $28,630,324
23 Example 1: The Successful Family (Cont.) Purchasing the Insurance CoverageBased on life expectancies, estate will need about $4.5 million in cashThe Successfuls consider survivorship universal life insurance policyFamily Trust is established to purchase life insuranceGifts 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 flexibilityProvides you ability to create legacy with IRA assetsAllows you to stretch out IRA assets without spousal rolloverLets you split large IRA into several smaller “beneficiary IRAs”
25 Example 2: The Successful Family Changing BeneficiariesSam Successful dies and Susan is beneficiary of his IRASons James and Thomas have families of their ownSusan names James and Thomas beneficiaries of her IRALater, Susan decides to change beneficiary from James to trust for grandson William
26 Example 2: The Successful Family (Cont.) Disclaiming the IRAThomas is already well-prepared for retirementSusan names Thomas’s other child, Noelle, as contingent beneficiaryIt is up to Thomas to disclaim his interest in Susan’s IRA after her deathThomas has nine months to disclaimSince Noelle is a minor, Susan may set up trust to manage assets for her
27 Example 2: The Successful Family (Cont.) Estate PlanningThomas sets up a Family TrustSam’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 IRAPurchase enough life insurance to give similar benefit to your loved onesLife insurance proceeds are generally income tax–free at deathCharitable contributions may reduce amount of estate taxes
29 Naming a Trust as Beneficiary Gives maximum control over IRA assets after deathDistributions are paid to trust—with instructions on who receives what money and whenWill use life expectancy of oldest trust beneficiaryAll trust beneficiaries must be individuals
30 SummaryStretch-Out IRAs can create a tax-deferred legacy for your loved onesYou have many options for naming beneficiariesLife 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 SeminarA Look at IRAs Beyond RetirementOLA 968 T 1008
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