1. Roth IRA
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2. Module Objectives 1997 Taxpayer Relief Act Review Traditional IRA
Roth IRA
Farmers Annuity Overview
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3. The Taxpayer Relief Act of 1997
The Taxpayer Relief Act of 1997 is an extensive piece of Federal legislation consisting of 17 different titles and approximately 1,000 pages.
This training is a not intended to be legal or tax advice and reflects our current understanding of this new law and is for informational purposes only.
Each taxpayer should consult his or her own tax advisor as to the effect of any particular transaction.
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4. The Taxpayer Relief Act of 1997
The Taxpayer Relief Act of (TRA ‘97) is the largest tax cut since The new rules provide many tax benefits for people who want to put away money for their child’s education, for the purchase of a home and for their retirement.
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5. The Taxpayer Relief Act of 1997
Some principle provisions of the law include:
A $500 per child tax credit,
Educational tax incentives,
Enhancements to IRA programs including new tax-favored savings programs and broader eligibility,
Lower capital gains rates, and
Lower estate and gift taxes.
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6. The Taxpayer Relief Act of 1997
For Parents
TRA ‘97 focused on giving relief to families with preschool and school age children. The “middle class” tax cut includes a $500 per-child tax credit and incentives for college education. This represents the largest portion of the tax relief provided by TRA ‘97 in the first five years.
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7. The Taxpayer Relief Act of 1997
For Retirement Savers
TRA ‘97 will allow more flexibility and allow more people to access to IRA tax advantages. The key changes include:
Tax penalty-free withdrawal from IRA’s for qualified higher education expenses and for first-time homeowners.
Extension of tax deductible IRAs to people with higher income levels.
Creation of the Roth IRA to provide earnings potentially free of Federal income tax.
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8. Traditional IRA Enhancements
The Taxpayer Relief Act of 1997
Traditional IRA Enhancements
TRA ‘97 allows more people to qualify for deductible IRA contributions and allows money to be withdrawn penalty free if used for college expenses or first homes.
Withdrawals from IRAs are taxable in the year withdrawn. Withdrawals are subject to a 10% penalty-tax unless withdrawn…
after age 59 1/2, or for one of the reasons listed above.
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9. The Taxpayer Relief Act of 1997
The New Roth IRA
The Roth IRA can accumulate tax-deferred and can be distributed income tax free! These features distinguish the Roth from the Traditional IRA:
Tax-free distribution of earnings
No tax deduction for contributions to the account
Distribution only required at death
Qualified distributions are not included in income
Contributions can be made beyond age 70 1/2
Distribution is not required at 70 1/2
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10. The Taxpayer Relief Act of 1997
The New Roth IRA
Tax-free and penalty-free qualified distribution is possible five years after the first year in which contributions are made, if withdrawn after age 59 1/2, because of death or disability, or for the purchase of a first home.
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11. The Taxpayer Relief Act of 1997
The New Roth IRA
Roth IRAs feature Broader Eligibility. There is no age limit for making contributions. The IRA purchaser must have earned income equal to the amount of your contribution up to $2,000 annually for an individual or $4,000 combined for spouses.
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12. The Taxpayer Relief Act of 1997
The New Roth IRA
There are different limits on contributions to Roth IRAs. If their Adjusted Gross Income (AGI) exceeds $150,000 and they file jointly ($95,000 for single filers) the amount they may contribute is gradually reduced. The combined total of IRA and Roth IRA accounts cannot exceed the maximum annual contribution of $2,000 per individual.
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13. The Taxpayer Relief Act of 1997
The New Roth IRA
TRA ‘97 allows money to be rolled over from Traditional to Roth IRAs. This money will be rolled over without the 10% penalty however, the IRS will treat this as a taxable event.
Should you convert?
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14. The Taxpayer Relief Act of 1997
For Homeowners
First time homeowners can make tax favored withdrawals ( subject to a $10,000 limit) from their IRA’s for their down payment.
In addition, TRA ‘97 will relieve many people who sell their principle residence of capital-gains taxes (profits) as much as $500,000 for married couples filing jointly and $250,000 for single individuals. This exclusion can be used every two years.
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15. For Savers and Investors
The Taxpayer Relief Act of 1997
For Savers and Investors
TRA ‘97 reduces the maximum tax rate on the net individual capital gains from 28% to 20% and from 15% to 10% for sales or exchanges of qualified capital assets after May The law has also decreased the holding period required for long-term capital gain treatment from 18 to 12 months & 1 day.
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16. Estate and Gift Tax Considerations
The Taxpayer Relief Act of 1997
Estate and Gift Tax Considerations
The individual exemptions for the unified credit for estate and gift taxes will gradually increase from $600,000 to $1 Million by the year The gradual phase in of higher tax exemptions will require a careful review of wills, trust and gift giving strategies.
(Let’s review a comparison between the Traditional IRA and the new Roth IRA.)
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17. 11/28/2018

18. TRA ‘97 Review
1. What are the 5 main provisions of the Tax Payer Relief Act of 1997?
A $500 per child tax credit,
Educational tax incentives,
Enhancements to IRA programs including new tax-favored savings programs and broader eligibility,
Lower capital gains rates, and
Lower estate and gift taxes.
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19. TRA ‘97 Review
2. TRA ‘97 will allow more flexibility and allow more people to access to IRA tax advantages. What are 3 key changes to the new IRA’s?
Tax penalty-free withdrawal from IRA’s for qualified higher education expenses and for first-time homeowners.
Extension of tax deductible IRAs to people with higher income levels.
Creation of the Roth IRA to provide earnings potentially free of Federal income tax.
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20. TRA ‘97 Review
3. What features distinguish the Roth from the Traditional IRA?
Tax-free distribution of earnings
No tax deduction for contributions to the account
Distribution only required at death
Qualified distributions are not included in income
Contributions can be made beyond age 70 1/2
Distribution is not required at 70 1/2
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21. A Farmers annuity may be right for you!
Farmers Annuity Plans
More time than money?
A Farmers annuity may be right for you!
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22. Farmers Annuity Plans
An annuity is a legal binding contract that encourages individuals to save a portion of income or compensation for retirement. It guarantees to pay an income for a specified period of time or for a person’s entire life.
An annuity is one of the last remaining tax-advantaged vehicles available to accumulate money for the future. It can be used to supplement your pension or Social Security or to fund your I.R.A.
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23. Farmers Annuity Plans
A deferred annuity is very similar to a bank CD. Like a CD, the consumer’s principle is safe and a return on the money is guaranteed. The life of an annuity has two phases, accumulation and payout. Annuities offer advantages in both phases.
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24. Farmers Annuity Plans In the accumulation phase:
Principal grows and compounds inside an annuity free from federal income tax. As a result, funds accumulate faster and larger than a CD where interest compounded is taxed as ordinary income every year.
Both CD’s and annuities carry penalties for early withdrawals, however the surrender charge for an annuity decreases to zero after a few years. Every time CD funds are rolled over, a new penalty period begins.
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25. Farmers Annuity Plans In the payout (or Annuitization) phase:
Annuities guarantee a payout stream and offer a variety of payout options, including lifetime income.
Although deferred annuities accumulate money free from current income tax, they do not eliminate the tax liability on interest earnings. They do, however allow the annuity owner to pay the taxes at a later date when tax costs could be minimized. Annuitization permits the annuitant to spread the tax liability over the number of years the income is to be received.
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26. Farmers Annuity Plans In the payout (or Annuitization) phase...
Unlike an IRA or other retirement accounts, there is no requirement to begin distributions at age 70 1/2.
For Estate planning purposes, an annuity bypasses probate when left to a designated beneficiary. A spousal beneficiary can maintain the tax-deferred status for up to the lifetime of the beneficiary.
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27. Comparing a Farmers Annuity to a CD
A Farmers Annuity can provide you with:
An optional, flexible retirement program
A secure cash accumulation plan
Competitive interest earnings
Tax savings
A death benefit for your beneficiary.
Certificates of Deposits can be easily rolled into a Farmers Annuity at maturity.
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28. Comparing a Farmers Annuity to a CD
For Cash Accumulation
At your option, a Farmers Annuity can be used as a secure cash accumulation plan.
Payments and withdrawals are flexible.
Interest earnings are competitive, and tax deferred.
There is a guaranteed minimum interest rate.
Your cash accumulation plan can readily be converted to a retirement program, at your option.
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29. Comparing a Farmers Annuity to a CD
Let’s compare with a CD. Assume a $10,000 deposit earning 8% interest and you’re in a 28% tax bracket:
CD ANNUITY
DEPOSIT: $10,000 $10,000
INTEREST:
INCOME TAX:
NET YEAR-END BALANCE: $10,576 $10,800
In effect, your 8% certificate has been reduced to a net of 5.76%. In 10 years, your original $10K CD would be worth $18,344 and your Annuity would have a balance of $21,589.
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30. Farmers Equity Indexed Annuity
(FEIA)
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31. Equity Indexed Annuity
Are you looking for ways to maximize your retirement income while protecting your principal?
To accomplish this , many people diversify their retirement portfolios. Such portfolios typically include not only stocks and bonds, but also safer instruments such as CD’s, Treasury Bills and fixed annuities, which provide a stable return. Farmers Equity Indexed Annuity (FEIA) can be a part of a plan to help you take control of your financial future by providing a potential for higher long-term growth and protect your principal from undue risk.
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32. Equity Indexed Annuity
This annuity links interest earnings to increases in a leading U.S. stock market indicator, the Standard & Poor’s 500 Composite Stock Price Index while providing the safety of a traditional guaranteed minimum return.
SAFETY: Guaranteed return of at least 110% of your original principal when held with no withdrawals for a full seven-year term.
TAX ADVANTAGE: Interest earnings not taxed until withdrawn, which allows for faster accumulation. If held until retirement, you may be in a more favorable tax bracket.
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33. Equity Indexed Annuity
When you purchase a FEIA, you receive interest linked to the change in the S&P The beginning Index value is set at the start of a seven-year term. The ending index value is based on the average of S&P Index values at the end of four quarterly intervals preceding the end of the term.
The percentage change in the S&P Index value is then multiplied by a participation rate to determine the amount of interest to be credited to your annuity. You must hold the annuity for a full 7 years to realize this increase in your policy value.
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34. Equity Indexed Annuity
Why use the S&P 500?
It is a widely recognized performance benchmark for U.S. stock market activity.
It is a U.S. Dept of Commerce leading economic indicator.
The S&P 500 does not contain the 500 largest stocks, but the stocks considered are generally leaders within their industry group.
Important industry groups are identified and allocated a representative sample of stock. The four major groups are industrials, utilities, financial and transportation.
It includes stocks from the NYSE, the American Stock Exchange and the NASDAQ.
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35. Equity Indexed Annuity
PARTICIPATION RATE: This rate is set at the time of issue (60% to over 100%). Without exception, the issue date will be the first business day of the month following receipt of the application and funds. This rate is guaranteed not to change during the term. No matter what happens to the S&P Index, your annuity has a guaranteed minimum value. The value at any time is 90 percent of your initial premium (less withdrawals) accumulated at 3 percent annual interest.
WITHDRAWALS: You may make partial withdrawals after the first policy year (minimum $500, limited to one per year with balance not below $5,000). You may surrender the policy for its guaranteed minimum value; however, a IRS penalty of 10% will apply for withdrawals prior to age 59 1/2.
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36. Equity Indexed Annuity
How the Interest Earnings are Calculated:
A x B x C
A = Premium less withdrawals
B = The percentage change in Index Value =
Avg. Index Value ( last 4 quarters of term) - Issue Date Index Value
Issue Date Index Value
C = The Participation Rate
Or, if the S&P 500 declines, Farmers protects your principle if held for the full 7 year term. If less than 7 years, (premium x .90) + 3% interest
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37. Equity Indexed Annuity
Let’s look at an example:
$100,000 in premium; $0 withdrawals
(End Term IV - Issue Date IV)/Issue Date IV
( )= / 4= %
Participation Rate = 80%
(100,000) x (102.16%) x (80%) = $81,728 index increase
Value at end of term = $181,720
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38. Equity Indexed Annuity
Hypothetical Accumulation of Equity Indexed Annuity:
(Based on 80% participation rate)
12/31/ /31/87
AVERAGE:
91.57%
96.58%
107.06%
81.79%
105.52%
77.64%
70.93%
66.67%
81.73%
86.61%
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39. Equity Indexed Annuity
Start with some general characteristics such as a commitment to long-term obligations and a financial objective of growth and safety rather than liquidity.
ARE YOU?
Non-risk taker
Inflation Fighter
Profit Taker
Conservative
Retirees or Job Changer
Retirement Planner
Without time or interest to follow the market daily
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40. Annuity Distribution
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41. Annuity Distribution
LIFE ONLY: Provides for an income during the lifetime of the annuitant only. The contract terminates with the last regular payment prior to the death of the annuitant. This option provides the largest income payable (if the ann. lives).
LIFE INCOME WITH PERIOD CERTAIN: Provides guaranteed monthly payments for the lifetime of the annuitant. Should annuitant die prior to the end of the guaranteed period, payments to the beneficiary will be made:
1. Any guaranteed annuity payments remaining will be continued to the end of the guaranteed period.
2. If the beneficiary dies while receiving such payments, the remaining payments will be payable to the beneficiary’s estate.
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42. Annuity Distribution
JOINT AND SURVIVOR: Provides for an income during the lifetime of two persons. If this option is desired, an additional election must be made prior to the annuity commencement date to determine the amount of the annuity that will continue during the lifetime of the survivor.
JOINT AND FULL: The annuitants will receive a lifetime income. Upon the death of either, the surviving annuitant will continue to receive a lifetime income with no reduction in the amount.
JOINT AND HALF: Same as Joint and Full; however, the survivor will only receive half of the amount which was being received after death.
*Although an annuity option may be changed prior to commencement date, it cannot be changed after the annuity payments start.
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43. Annuity Application
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44. 11/28/2018

45. Quote of the Day..
“The way to stop financial joyriding is to arrest the chauffeur, not the automobile.” Woodrow Wilson
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