Presentation is loading. Please wait.

Presentation is loading. Please wait.

For Producer Use Only IRD, NUA and Life Insurance IRA Tax Fundamentals and Strategies Presenter Title.

Similar presentations


Presentation on theme: "For Producer Use Only IRD, NUA and Life Insurance IRA Tax Fundamentals and Strategies Presenter Title."— Presentation transcript:

1 For Producer Use Only IRD, NUA and Life Insurance IRA Tax Fundamentals and Strategies Presenter Title

2 1 For Producer Use Only RMDs vs. Account Value 6% 8% 10% 12% 14% 3.6%

3 2 For Producer Use Only Projected IRA Values $100,000 IRA; 7% hypothetical annual return

4 3 For Producer Use Only RMD Table Age Uniform Table Divisor Single- Life Table DivisorAge Uniform Table Divisor Single- Life Table DivisorAge Uniform Table Divisor Single- Life Table Divisor

5 4 For Producer Use Only I.R.D. Income in Respect of a Decedent

6 5 For Producer Use Only IRD: The Bad News Is... 1.No step-up in basis at death 2.Beneficiary pays income tax at owner’s death –Taxes are calculated at Beneficiary’s tax rate 3.Deceased IRA owner must include the entire IRA value in his / her estate for estate taxes –Even though the $$ pass directly to the designated beneficiary! This is what’s known as the “Double-Tax”

7 6 For Producer Use Only IRD: The Good News Is... You can overcome these problems The IRS gives you tools to do it! 1.Stretch the inheritance to spread the taxes over many years and continue tax deferral 2.Consider charitable beneficiaries 3.NUA – more about this in a few minutes! 4.Beneficiary receives an income tax deduction for estate taxes paid by owner

8 7 For Producer Use Only Estate Taxes & IRD  IRA values included in decedent’s gross estate –Decedent’s estate pays the estate taxes –Beneficiary pays the income taxes  Unlimited Marital Deduction (since 1982) –Allows first-decedent-spouse to pass IRA to surviving spouse without incurring estate tax  IRD income-tax-deduction for beneficiary’s –For the estate taxes attributable to the IRA  The Problem? ? ? –Decedent’s CPA vs. Beneficiary’s CPA

9 8 For Producer Use Only IRA Value: $1,000,000 Estate Tax (40%): – $400,000 To Be Income Taxed: $600,000 Income Tax (40%): – $240,000 Net Inheritance: $360,000 Total Taxes: $640,000 % Lost to Tax: 64% IRA Estate Tax Example: Theory vs. Reality Net Remaining Income Tax Estate Tax

10 9 For Producer Use Only IRA Estate Tax Example: Theory vs. Reality IRA Value:$1,000,000 Estate Tax (40%):– $400,000 To Be Income Taxed: $600,000 Income Tax (40%):– $240,000 Net Inheritance: $360,000 Total Taxes: $640,000 % Lost to Tax: 64% Net Remaining Income Tax Estate Tax

11 10 For Producer Use Only DecedentBeneficiary IRA Value:$1,000,000 Estate Tax (40%):– $400,000– $0 Net Value: $600,000$1,000,000 Income Tax (40%):– $0– $400,000 Total Taxes: $800,000 % Lost to Tax: 80% IRA Estate Tax Example: Theory vs. Reality

12 11 For Producer Use Only IRA Estate Tax Example: Theory vs. Reality DecedentBeneficiary IRA Value:$1,000,000 Estate Tax (40%):– $400,000– $0 Net Value: $600,000$1,000,000 Income Tax (40%):– $0– $400,000 Total Taxes: $800,000 % Lost to Tax: 80%

13 12 For Producer Use Only IRA Estate Tax Example: Theory vs. Reality Net Remaining Income Tax Estate Tax

14 13 For Producer Use Only Net Remaining Income Tax Estate Tax Net Remaining Income Tax Estate Tax IRA Estate Tax Example: Theory vs. Reality

15 14 For Producer Use Only Estate Tax Exclusion: Then and Now 1997: $600,000 Per Person 2013: $5,250,000 Per Person

16 15 For Producer Use Only Stretching The IRD Deduction  Recall the previous example: –IRA Value = $1,000,000 –Estate Tax (40%) = $400,000  Children inherit $1,000,000 –Stretch = $80,000 per year for 30 years (over-simplified) –Estate Tax Deduction = 40% Calculation: $400,000 Estate Tax / $1,000,000 IRA Value –So 40% of each stretch payment is excused from income tax until the deduction is used up  Each stretch payment is 40% income-tax-free for 12.5 years! –Unlimited deduction carry-forward –Can amend prior 3-years’ tax-returns

17 16 For Producer Use Only Stretching The IRD Deduction

18 17 For Producer Use Only N.U.A. Net Unrealized Appreciation

19 18 For Producer Use Only NUA – What is it?  It’s the appreciation on the “employer stock” in your 401(k)  Upon separation from service, you can distribute your employer stock (in-kind distribution) from your 401(k)  your brokerage account.  When you distribute your NUA, you only pay income tax on the value of the stock when it was originally purchased in your 401(k)  If you then hold the NUA stock for more than one year, you receive Long-Term Capital Gains tax treatment on any appreciation in the shares you sell  You can still roll the balance of your 401(k) into a Rollover IRA

20 19 For Producer Use Only NUA – Benefits  Long-term capital gains tax treatment –All gains in excess of “basis” are taxed as Long- Term Capital Gains –There ARE Step-Up-In-Basis opportunities with NUA!  There is no “RMD” on NUA stock –No requirement to sell it after age 70½ –Defer the growth for the rest of your life! –Pass it on!

21 20 For Producer Use Only NUA – 3 Components Appreciation Outside the Plan Appreciation Inside the Plan Original Stock Price

22 21 For Producer Use Only NUA – 3 Components Any appreciation on your NUA stock that occurs after you’ve removed it from your 401(k) DOES get a step-up in basis at your death NUA appreciation that occurred while the company stock was in your 401(k) does NOT get a step-up in basis at your death, but is taxed at long-term capital gains tax rates when sold The original stock price becomes “cost basis” when withdrawn from the 401(k) and taxed

23 22 For Producer Use Only NUA – 3 Components Appreciation Outside the Plan: $400,000 Appreciation Inside the Plan: $400,000 Basis: $200,000 Long-Term Capital Gains Tax Rates No RMD’s Step-Up in Basis

24 23 For Producer Use Only NUA – Caveats  Be careful about selling the employer stock in your 401(k) and investing it in something else –Even if you later “buy back” some employer stock, the newly purchased stock will have a new “basis” Functionally eliminates the value of the NUA distribution –Continually remind your clients of the importance of NUA: 1.Before they roll their 401(k) into an IRA; and 2.Before they sell employer stock inside of their 401(k)

25 24 For Producer Use Only Story Selling And IRA Wealth Transfer Strategies

26 25 For Producer Use Only 3 Circles 2 Questions 3-Point Value Proposition

27 26 For Producer Use Only Cross out the one you would least like to get your money when you’re done with it. X L.O. CG Your money can go to three places when you’re done with it: 3 Circles

28 27 For Producer Use Only Client Questions & Value Proposition Two questions: 1.Mr. & Mrs. Jones, if things go the way you have planned, what’s going to happen to your IRA? 2.Why don’t you give it to them right now? Three-point value proposition: 1.We’ll keep your IRA in your Care, Custody and Control; 2.Potentially double, triple or quadruple the value to your beneficiaries; and 3.Take no additional investment risk in your portfolio

29 28 For Producer Use Only 2 IRA Wealth Transfer Strategies

30 29 For Producer Use Only Typical IRA Transfer IRA Owner(s) Children Grandchildren

31 30 For Producer Use Only Typical IRA Transfer IRA Owner(s) $500,000 Children $300,000 Grandchildren

32 31 For Producer Use Only 1. IRA Income Tax Offset IRA RMD’s Life Insurance (equal to taxes) Taxes Beneficiaries

33 32 For Producer Use Only 1. IRA Income Tax Offset IRA $500,000 RMD’s Life Insurance $200,000 Taxes Beneficiaries $500,000

34 33 For Producer Use Only 2. IRA Income Tax Elimination IRA RMD’s Life Insurance (equal to IRA) Beneficiaries Charity

35 34 For Producer Use Only 2. IRA Income Tax Elimination IRA $500,000 RMD’s Life Insurance $500,000 Beneficiaries Charity $500,000 Tax-Free Total: $1,000,000

36 35 For Producer Use Only The “Soft” Close “I know you qualify for this program financially, but... I don’t know if you qualify medically.” You have time to think about it.

37 36 For Producer Use Only IRD, NUA and Life Insurance IRA Tax Fundamentals and Strategies

38 37 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 company’s 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. AGLC107161


Download ppt "For Producer Use Only IRD, NUA and Life Insurance IRA Tax Fundamentals and Strategies Presenter Title."

Similar presentations


Ads by Google