1. Roth IRA Planning 0256910-00002-00 Ed. 08/2015 Exp. 02/11/2017 Creating a Legacy for Life [ Presented by: [Joe Sample], [Designations per field stationery guidelines] [Company Approved Title] [FirmName] [The Prudential Insurance Company of America] [1234 Main Street, Suite 1, Floor 10] [Anywhere], [ST] [12345] [in required states] [ Insurance License Number ] [Phone] [123-123-1234] Fax [123-123-1245] [joe.sample@prudential.com]] © 2015 Prudential Financial, Inc. and its related entities.

2. Agenda The basics of Roth IRAs Roth IRA conversions Case study Planning opportunities 2

3. Roth IRA – The Basics Roth IRAs were created through the Taxpayer Relief Act of 1997; the first Roth IRA was created in 1998 Except as specified, all the rules are the same as for traditional IRAs Contributions are made with after-tax dollars “Qualified distributions” from a Roth IRA are received income-tax free No required minimum distributions (RMDs) during the life of the account owner 3 3

4. Qualified Distributions A “qualified distribution” is one that is made after owning a Roth IRA for a five “tax” year* period and in addition is either: Made on or after age 59½ Made after the participant’s death Attributable to the participant being totally disabled A distribution of up to $10,000 (lifetime limit) for certain purchases of a first home 4 4 *“Tax” year means that if a contribution is made on or before April 15 th for the prior year contribution, then it gets credit for a whole year. For example, if a contribution was made January 2015 for 2014, the contribution is effective 1/1/2014. Therefore the 5 year period would be up on 1/1/2019.

5. Roth Limits And Eligibility 2015 contribution limit = $5,500 (combined Roth and Traditional IRA limit) –Plus, an additional “catch up” contribution of $1,000 if you are age 50 or older 2015 income limitations — based on tax filing status –Married Filing Jointly = $193,000 –Single, Head of Household or Married Filing Separately (MFS), if you did not live with your spouse for any time of the year = $131,000 –MFS, if you lived with your spouse during any time of the year = $10,000 5

6. IRA To Roth IRA Conversion Rules Pre – 2010 –Qualified rollover contributions were only allowed if: 1.) Taxpayer’s adjusted gross income (AGI), excluding any RMD amount did not exceed $100,000, and 2.) Taxpayer was not a married taxpayer filing separately Post – 2009 –No income limitation! –No tax filing status requirement! 6

7. Conversions v. Contributions Roth Conversion – No AGI Limitation Roth Contribution – Subject to AGI Limitations Why is this important? Even though you may convert an existing IRA to a Roth IRA you may not be able to make ongoing contributions! 7

8. Why Convert To A Roth IRA? No income tax upon qualified distributions No distributions required during the life of the account owner –(i.e. No RMDs) Upon death of the Roth IRA owner, Roth IRAs can be stretched income-tax free over multiple generations if requirements are met –Beneficiary RMD rules apply 8

9. Case Study Mr. and Mrs. Hart, both age 72 35% income tax rate (owner and beneficiaries) $750,000 IRA with a hypothetical rate of return of 8% $400,000 CD with a hypothetical interest of 2.5% High income to debt ratio Has enough liquidity to manage unforeseen emergencies −Health −Home (HVAC)* They don’t need either of these assets to meet their living expenses 9 * HVAC = Heating, ventilation, and air conditioning

10. Comparison Of Benefits Scenario #1 – No conversion Scenario #2 – Conversion and income tax paid from IRA values Scenario #3 – Conversion and income tax paid using CD money upon maturity 10

11. Hypothetical Scenario #1 – No Conversion Results at age 91 IRA Balance = $1,103,433 –net after tax: $717,231 Lifetime RMDs = $1,236,910 –net after tax: $808,991 CD balance = $552,168 Total net to children (lump sum) = $2,078,390 11

12. Hypothetical Scenario #2 – Convert And Pay Income Tax From IRA Results at age 91 Roth IRA Balance = $2,272,217 Lifetime RMDs = N/A CD balance = $552,168 Total net to heirs (lump sum) = $2,824,385 12

13. Hypothetical Scenario #3 – Convert And Use CD Money To Pay Income Taxes Results at age 91 Roth IRA Balance = $3,495,718 Lifetime RMDs = N/A CD balance = $189,808* Total net to heirs (lump sum) = $3,685,526 13 *After leveraging the CD to pay the taxes on the Roth conversion, the net CD balance is $137,500. Assuming a 2.50% growth rate and 35% income tax annually on that growth, the CD balance will be $189,808 at age 91

14. Comparison Of Net Benefits To Heirs – Lump Sum Scenario #1 – $2,078,390 Scenario #2 – $2,824,385 Scenario #3 – $3,685,526 Values are hypothetical and actual results will vary. 14

15. Life Insurance Provides death benefit protection Life insurance policies contain fees and expenses, including cost of insurance, administrative fees, premium loads, surrender charges and other charges or fees that will impact policy values. The client must be insurable and in need of a death benefit for life insurance to be purchased Additional premiums may be necessary to keep policy in force if policy does not perform as expected Ability to access values in policy will be limited due in part to surrender charges 15

16. Hypothetical Scenario #4 – Use Life Insurance To Replace Tax Dollars Results at age 91 Roth IRA Balance = $3,495,718 Lifetime RMDs = N/A CD Balance = $0 –CD Balance used to pay taxes on Roth IRA conversion and single premium of $137,500 1 on life insurance Life Insurance Death Benefit 2 = $396,944 guaranteed to age 105 Total net to heirs (lump sum) = $3,892,662 1. The $137,500 is the amount left after using the CD as the source of the income tax payment on the Roth Conversion. 2. This policy will become Modified Endowment Contract (MEC) in year 1 and will remain a MEC for the life of the policy. Distributions (including loans) are taxable to the extent of gain in the contract, and an additional 10% federal income tax penalty may apply if taken prior to age 59 ½. 16

17. Comparison Of Net Benefits To Heirs – Lump Sum Results at Age 91 (IRA, CD and/or Insurance) Scenario #1: $2,078,390 Scenario #2: $2,824,385 Scenario #3: $3,685,526 Scenario #4: $3,892,662 17 Results may differ past age 91.

18. But What Does This Mean To The Rest Of The Family? 18

19. Stretch Roth IRA Strategy Assumptions Two children ages 62 and 65 when surviving spouse dies Assume: –IRA is split equally between the two children –They each take distributions based on their own individual life expectancy –Both assume 35% income tax 19

20. Amount Of Total Distributions During Stretch Period Scenario #1 - No Conversion –Inherited Balance: $1,103,433 –Lifetime Amount of Beneficiary RMDs: $3,024,670 –Net amount: $1,966,035 Scenario #2 - Convert to Roth and Pay Tax with IRA Money –Inherited Balance: $2,272,217 –Lifetime Amount of Income Tax-Free Beneficiary RMDs: $6,228,476 Scenario #3 - Convert to Roth and Pay Tax with Outside Funds –Inherited Balance: $3,495,718 –Lifetime Amount of Income Tax-Free Beneficiary RMDs: $9,582,270 Note: Estate taxes are not considered in these scenarios 20

21. Which Scenario Is Best? You have to run the numbers! Issues to consider –Age –Life expectancy –Future income tax rates –Desire or need to use the IRA assets –Source of income tax money Consider a diversified approach –Partial conversions –Life insurance 21

22. Approaching Income Taxes Source of funds Are there any available deductions to offset the income upon the conversion? Partial conversion option –A series of partial conversions spreads the income tax burden out over time with income taxes being due for each tax year. Tradeoff is a reduced long term benefit of conversion –Consider future legislative activities Life insurance as a complement to a Roth IRA Conversion 22

23. The “Roth Conversion” Strategy With Life Insurance Consider delaying the Roth conversion until death and using insurance proceeds to pay the income tax –Surviving spouses can rollover an IRA and then convert it to a Roth IRA –Non-spousal beneficiaries cannot convert an inherited IRA to a Roth IRA –As of 2010 it is mandatory for qualified plans to allow beneficiaries (including non-spousal beneficiaries) to rollover to an inherited traditional IRA or an inherited Roth IRA In other words, while non-spousal beneficiaries cannot convert an inherited IRA to a Roth IRA, they can rollover qualified plan assets to an inherited Roth IRA 23

24. Why Understanding The Rules Is Important By understanding basics, you may: –Reach high net-worth clients who may want to convert to a Roth IRA –Build loyalty with clients by providing them with valuable investor education –Show clients other effective strategies for diversifying their IRA assets 24

25. What To Do Next? Make a list of clients who have a significant IRA balance. –Schedule a meeting to discuss wealth transfer options Work with clients’ CPAs as you are talking to clients about potential conversions. [Contact your Prudential representative or call the Sales Desk at (800) 800-2738 for assistance] 25

26. Important Considerations Before implementing this strategy Any investment purchased during retirement involves the planning and use of income or other assets. Clients should be certain to have sufficient liquid assets other than the asset or income they may be repositioning to support their current and future income and expenses before considering the purchase of a life insurance policy. Equity in the home should not be considered a liquid asset. Clients should consider developing a comprehensive financial plan to take into account current and future income and expenses in conjunction with implementing the strategy discussed here. We recommend that clients consult their tax and legal advisors to discuss their situation before implementing the strategy discussed here. About this concept This concept is only intended to be used for assets that will not be needed for living expenses for the expected lifetime of the insured. It is the client’s responsibility to estimate these needs and expenses and it is recommended that they consider developing a comprehensive financial strategy in conjunction with implementing the strategy being considered. The accuracy of determining future needs and expenses is more critical for clients at older ages who have less opportunity to replace assets used for the strategy. 26

27. Important Considerations If your client’s financial or legacy planning situation changes If clients need to use the assets or income being repositioned for current or future income needs and they can no longer make premium payments, the life insurance death benefit may terminate and the results illustrated may not be achieved. If the asset or income being repositioned becomes fully exhausted, premiums may have to be paid using other assets or income to keep the life insurance policy in force. When this strategy may not be in your client’s best interest Depending on the client’s life span, it is possible that his or her beneficiary may receive more by just inheriting the assets being repositioned, rather than by receiving the death benefit of the life insurance policy that was purchased. Tax and other financial implications There may be tax and other financial implications as a result of liquidating assets within an investment portfolio. If contemplating such a strategy, it is important for clients to understand that life insurance is a long-term strategy to meeting particular needs. The sale or liquidation of any stock, bond, IRA, certificate of deposit, mutual fund, annuity, or other asset to fund the purchase of a life insurance product may have tax consequences, early withdrawal penalties, and/or other costs or penalties as a result of the sale or liquidation. 27

28. Important information About life insurance The death benefit protection offered by a life insurance policy can be a key component of a sound financial plan. It is important for clients to fully understand the terms and conditions of any financial product before purchasing it. Other notes Clients should consider that life insurance policies contain fees and expenses, including cost of insurance, administrative fees, premium loads, surrender charges, and other charges or fees that will impact policy values. If premiums and/or performance are insufficient over time, the policy could lapse, which would require additional out-of-pocket premiums to keep it in force.. 28

29. Important Information Life insurance is issued by The Prudential Insurance Company of America, Pruco Life Insurance Company (except in NY and/or NJ) and Pruco Life Insurance Company of New Jersey (in NY and/or NJ). All are Prudential Financial companies located in Newark, NJ. Prudential, the Prudential logo, and the Rock symbol are service marks of Prudential Financial, Inc. and its related entities. Guarantees are based on the claims-paying ability of the issuer. Broker/dealers, insurance agencies and their affiliates who sell the policy make no representations or guarantees regarding such ability. 29 © 2015 Prudential Financial, Inc. and its related entities.