Wealth Transfer Strategies Using RMDs Copyright © C.O.R.E. GROUP USA, INC. and C.O.R.E. Marketing, Inc. All rights reserved. CORE Group Broker Use Only – Not for use with public.

Getting the BEST Use of an IRA Are you interested in getting the best use of your IRAs? $ Income $ Children $ Charities $ Other If you could do more….would you?

Why Target IRAs? Baby Boomers over the next 20 years will transfer more wealth than this country has ever seen. Much of it, $7 trillion to be exact, is accumulating in tax- deferred accounts like IRAs and 401(k)s. The key word here is tax-deferred, not tax free. No matter what you do, either you or your heirs will have to pay taxes on that money some day.

IRA Legacy Planning While these qualified assets are accumulating tax-deferred during your client’s lifetime, the tax burden they are leaving their children is growing as well. Today we will introduce a simple wealth transfer solutions specifically designed to alleviate the tax burden on qualified accounts like IRAs and 401(k)s.

Offsetting Income Taxes Summary: Your client has a significant amount of money in an IRA. He is taking RMDs, but he doesn't need them for income. He would like to leave the IRA to his beneficiaries, but he's concerned about leaving them a large tax burden as well. In this concept, you take a portion of the unwanted RMDs and use them to fund a life insurance policy that will help offset the income taxes his beneficiaries will owe when the IRA is transferred to them.

Assumptions Married couple Both age 70 $1 million IRA in the husband’s name 6% growth rate on the IRA 28% tax rate for the couple and their heirs No withdrawals other than RMDs

Step #1 Determine the projected value of the IRA at a point in the future when your client expects to transfer the IRA value to his heirs. In this case, let’s say the client’s life expectancy is 80. You will illustrate the IRA value at age 80 (taking into account the 6% growth rate and the RMDs) to be $1,154,424.

Step #2 Estimate the income tax the beneficiary will owe if the IRA is inherited as a lump sum when your client turns 80. If your beneficiary inherits the IRA as a lump sum, income taxes will be assessed on the entire amount. Estimated Value (age 80) Estimated Tax Rate Taxes owed by beneficiary $1,154,424X28%=$323,239

Step #3 Purchase life insurance Use a portion of the client’s unwanted RMDs to fund a life insurance policy with a face amount equal to the beneficiary’s expected tax liability—in this case $323,239. Annual life-pay premium to guarantee $325,000 in a survivorship policy to age 120 is $6,741.

IRR

Results Beneficiary receives $1,154,424 inheritance from the IRA. Beneficiary receives $323,239 life insurance death benefit, which is used to pay the tax liability owed on the IRA. The asset transfers, essentially, with no tax liability for the beneficiary. And the life insurance didn’t cost your client anything “out-of-pocket” because he simply leveraged the RMDS he was taking anyway. Rather than putting them in the bank, he simply committed a portion of them to paying his life insurance premiums.

Other Strategies – Use all of RMD Other Strategies – Use all of RMD Client does not need any of his RMD for lifestyle Take entire net of tax RMD and purchase as much life insurance as it will buy to increase tax-advantaged wealth left to heirs. Use a second-to-die policy to increase leverage. Ideally use an ILIT to keep death benefit out of the estate. Hopefully beneficiary will stretch the IRA to further enhance tax advantages.

Other Strategies - Charitable Planning Other Strategies - Charitable Planning Use RMDs to buy life insurance – ideally death benefit should exceed or equal projected value of IRA at death Name a charity as beneficiary of the IRA. At death, heirs receive the income-tax free death benefit that replaces the IRA, and charity receives IRA. Client’s estate is reduced by charitable gift of IRA.

Other Strategies – Multi-Generational Planning Other Strategies – Multi-Generational Planning Client uses RMDs to purchase life insurance. Client names grandchildren as beneficiaries of IRA so that longest stretch period is achieved. Client names children as beneficiaries of life insurance. At death, children receive death benefit and grandchildren receive IRA.

Other Strategies - Roth Planning IRA Owner withdraws funds annually from IRA to purchase a life insurance policy on himself owned by spouse. Net IRA At owner’s death, insurance proceeds are used to pay income taxes on Roth conversion. At death spouse converts to ROTH At spouse’s death, heirs inherit Roth and receive lifetime tax-free distributions.

What Next? Identify clients with IRAsIdentify clients with IRAs Identify clients who will not spend down their IRAIdentify clients who will not spend down their IRA Identify clients with desire to “do more”Identify clients with desire to “do more” Call us with their information to discuss planning strategiesCall us with their information to discuss planning strategies

By the Way Works for un needed social security incomeWorks for un needed social security income Same wealth maximization to familySame wealth maximization to family Fund a private social security program for familyFund a private social security program for family Multi generational financial security.Multi generational financial security.

C.O.R.E. GROUP USA, INC. Centered on Relationship Enhancement 7373 N. Scottsdale Road Suite A-287 Scottsdale, AZ · Fax: C.O.R.E. Group Case Design