Maximize The Value of Your IRA Using Life Insurance

Transcription

1 Maximize The Value of Your IRA Using Life Insurance A Supplemental Illustration Prepared for Valued Client Prepared by Premier Producer Premier Brokerage 1 Sales Drive Bellevue, WA Life insurance is issued by Symetra Life Insurance Company, th Ave NE, Suite 1200, Bellevue, WA Products are not available in all U.S. states or any U.S. territory. Symetra Life Insurance Company th Avenue NE, Suite 1200 Bellevue, WA Insurance is a flexible premium universal life insurance policy. Symetra is a registered service mark of Symetra Life Insurance Company. LIM /15

2 Client Name: Valued Client Initial Death Benefit: $745,627 Sex/Age/Class: Male/70/Preferred Non-Nicotine First Year Premium: $20,000 Important Information About this Supplemental Illustration This analysis compares the federal income and estate tax impact of passing the IRA value directly to beneficiaries versus using all or a portion of your current IRA's value for the purchase of life insurance. The purpose of this analysis is to offer you an alternative plan that may increase the percentage of your estate that passes to your beneficiaries. It is intended as an estate planning option for an existing IRA and is not a recommendation to use IRA assets to fund the purchase of life insurance. This supplemental illustration is not intended as investment, accounting, legal or tax advice and Symetra Life Insurance Company does not give investment, accounting, legal or tax advice. This supplemental illustration does not attempt to provide more than general U.S. tax information associated with life insurance policies. This information is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code. This information is written to support the promotion or marketing of life insurance issued by Symetra Life Insurance Company. You should seek advice based on your particular circumstances from an independent tax advisor. This analysis assumes the IRA is in the owner's estate and may be subject to estate taxes on the IRA account value at the owner's death. Any estate taxes attributable to that account value are generally deductible under IRC 691 from the income taxes owed by the recipient(s) of the income from the IRA. The 691 deduction is reflected on pages 7 and 9 of this supplemental illustration. Each income payment to beneficiaries reflects the payment net of income taxes and other credits or deductions. The calculations do not take into account any penalties for early withdrawals or special rules for surviving spouses under age 59-1/2. There is no guarantee that the designated beneficiaries will receive an amount from the life insurance policy equal to or greater than the current value of the IRA. Illustrated IRA growth rates are purely hypothetical and do not imply consistency with actual earnings rates and growth rates. Use of Required Minimum Distributions (RMDs) to fund insurance inside an irrevocable life insurance trust (ILIT) may require payment of gift taxes if the transfers exceed annual exclusion amounts and/or applicable lifetime gift tax exclusion. Any gift taxes that may be owed are not reflected in this supplemental illustration as it is assumed annual exclusions are available for RMD amounts transferred to the ILIT. The lifetime gift tax exclusion amount will be applied to estate tax calculations based on year of death. IRA maximization provides an estate planning alternative based on the assumptions and data provided by the client. The accuracy of this data will be enhanced by assumptions that reflect your situation. The estate tax calculations are based on the input of the current net worth and the assumed rate; the calculation of the estate tax is based on federal estate tax law in effect on 1/1/2015. Please refer to the basic illustration for guaranteed elements and other important information Page 2 of 9

3 Client Name: Valued Client Initial Death Benefit: $745,627 Sex/Age/Class: Male/70/Preferred Non-Nicotine First Year Premium: $20,000 Preserving Your IRA for Future Generations If you own a traditional or Roth IRA and won t be using it for your own retirement income needs, you may be planning to pass those assets to your beneficiaries. You may also be considering a stretch IRA an estate planning technique that s t r e t c h e s distributions over your beneficiary s life expectancy in order to minimize taxes and allow remaining assets to continue growing taxdeferred. If the inherited funds are kept in the IRA with only the annual required minimum distributions (RMDs) taken (the stretchout ) the amount of money that can be accumulated and paid to your beneficiaries can be significant. Life insurance can help enhance your stretch IRA strategy by preserving and maximizing your legacy. Get More From Your Stretch IRA A stretch IRA can be a highly effective tool for increasing the wealth that passes to your beneficiaries in some cases, over several generations. But with a life insurance policy held inside an irrevocable life insurance trust (ILIT), your stretch IRA can work even harder for your beneficiaries. That s because the life insurance death benefit is paid to the ILIT free of federal income and estate tax, thus "leveraging the stretch" by providing you with a more efficient and cost effective way to pass on your IRA. Stretch IRA Using Life Insurance 1 Required minimum distributions (RMDs) apply to qualified (retirement) assets only and are based on the IRS Uniform Lifetime Table using the owner's age at the beginning of each year. Upon the owner's death, the beneficiary's age is used at the beginning of each year. 2 The annual gift tax exclusion applies to gifts to each donee. In this scenario, we assume the owner has beneficiaries to whom he or she can gift up to $14,000 per year, per recipient (2015). Source: Frequently Asked Questions on Gift Taxes, IRS, accessed November 2014: Businesses & Self Employed/Whats New Estate and Gift Tax. 3 Although not shown in the above chart, the remaining IRA value may pass to the surviving spouse, if applicable, prior to transferring to beneficiaries. Please refer to the basic illustration for guaranteed elements and other important information Page 3 of 9

4 Client Name: Valued Client Initial Death Benefit: $745,627 Sex/Age/Class: Male/70/Preferred Non-Nicotine First Year Premium: $20,000 How Could You Benefit? Repositioning IRA assets inside a life insurance trust may help: Minimize taxes. Life insurance proceeds bypass probate and are paid to the ILIT, free of both federal estate and income taxes. Maximize your legacy. Using the net after tax distributions from your IRA may allow you to purchase a significant life insurance death benefit for your beneficiaries. Control distributions. Proceeds from an ILIT owned life insurance policy will be distributed by the trustee to your beneficiaries according to your preferences. Transfer assets out of your estate. Making tax free gifts to an ILIT can help reduce the size of your taxable estate. Currently, individuals may gift up to $14,000 annually (per beneficiary) and married couples may gift double the annual amount to $28,000 (per beneficiary). Plus, as long as you stay under the $14,000 limit, these annual gifts do not count against your $5.43 million lifetime cumulative gift tax exemption or your $5.43 million estate tax exemption. 1 Plan Assumptions Client Information Beneficiary Information Current Net Worth Not Including IRA: $2,800,000 Assumed Federal Income Tax Rate: 33% Name: Child 1 Age: 40 Estate Growth Rate: 3% Name: Child 2 Age: 37 IRA Information Name: Child 3 Age: 36 Current Value of IRA: $800,000 Hypothetical IRA Growth Rate: 4% 1 Refer to footnote 2 on page 3 for source information. Page 4 of 9

5 Client Name: Valued Client Specified Face Amount: $745,627 Sex/Age/Class: Male/70/Preferred Non-Nicotine First Year Premium: $20,000 Summary of IRA Options Assumes IRA Owner's Death in Year 17 Assumes IRA Beneficiary Survives for 28 Years After Death of IRA Owner Assumes IRA earns hypothetical growth rate of 4% Lump Sum Stretch IRA Stretch IRA using Life Insurance Estate Tax on the IRA: $0 $0 $0 Income Tax on RMDs to Valued Client: $214,862 $214,862 $214,904 Income Tax on Distributions to the Beneficiary: $211,469 $376,546 $376,226 Total Tax Paid: $426,331 $591,408 $591,130 Net Distribution to Beneficiary: $429,346 $764,502 1 $1,509,480 2 Present Value at 2.7% of Net Distributions to Beneficiary at Time of Valued Client's Death: $429,346 $511,114 3 $1,256,307 4 ¹Net Distribution equals total After-Tax Distributions to the Beneficiary for 28 years. ²Net Distribution equals total After-Tax Distributions to the Beneficiary for 28 years plus Life Insurance Proceeds net Estate Taxes. ³The Present Value represents the current value of the Total After-Tax Distributions to Beneficiary at the time of Valued Client's death in year 17. ⁴The Present Value represents the current value of the Total After-Tax Distributions to Beneficiary at the time of Valued Client's death in year 17 plus Life Insurance Death Benefit net Estate Tax. How much more will beneficiaries receive using life insurance? Net Distributions Net Distributions (Present Value) $1,509,480 $1,256,307 $764,502 $429,346 $429,346 $511,114 Lump Sum Stretch IRA Stretch IRA Using Life Insurance This supplemental illustration compares the federal income and estate tax impact of passing the IRA value directly to beneficiaries versus using all or a portion of your IRA's current value for the purchase of life insurance. This supplemental illustration is hypothetical and is not intended to serve as a projection. Investment fees, including potential redemption charges, are not reflected in this supplemental illustration. Page 5 of 9

6 Client Name: Sex/Age/Class: Valued Client Initial Death Benefit: $745,627 Male/70/Preferred Non-Nicotine First Year Premium: $20,000 Stretch IRA IRA Distributions to Valued Client Beginning Beginning of End Estate Income of Year Required Year After-Tax Annual of Year Tax Taxes (IRD) Life IRA Minimum Actual Distribution Earnings Account on Due on Net to Year Age Exp. 1 Balance Distribution 4% Balance IRA IRA 2 Beneficiaries ,000 29,197 29,197 19,562 30, , , , ,635 30,250 30,250 20,268 30, , , , ,240 31,338 31,338 20,996 30, , , , ,739 32,459 32,459 21,748 30, , , , ,051 33,616 33,616 22,522 30, , , , ,093 34,808 34,808 23,321 30, , , , ,776 36,035 36,035 24,144 30, , , , ,011 37,123 37,123 24,873 29, , , , ,883 38,418 38,418 25,740 29, , , , ,124 39,545 39,545 26,495 29, , , , ,842 40,687 40,687 27,260 28, , , , ,962 41,841 41,841 28,034 28, , , , ,405 43,006 43,006 28,814 27, , , , ,095 44,178 44,178 29,599 27, , , , ,954 45,352 45,352 30,386 26, , , , ,906 46,210 46,210 30,961 25, , , , ,204 47,036 47,036 31,514 24, , , ,346 Assumes death occurs at the end of year 17 Totals 651, , ,235 ¹Life expectancy is based on the IRS Uniform Lifetime Table using the owner's age at the beginning of each year. ²Assumes the use of marital deduction (if married.) Income in Repsect of a Decedent (IRD) refers to those amounts a decedent was entitled to as gross income and were not included in federal taxable income for the year of death. Income tax rate used is 33%. The purpose of this supplemental illustration is to show the IRA value based on a hypothetical growth rate. This supplemental illustration is hypothetical and is not intended to serve as a projection. Investment fees, including potential redemption charges, are not reflected in this supplemental illustration. Page 6 of 9

7 Client Name: Sex/Age/Class: Valued Client Initial Death Benefit: $745,627 Male/70/Preferred Non-Nicotine First Year Premium: $20,000 Carryover Deductible Amount:¹ $0 Stretch IRA IRA Distributions to the Beneficiary over Life Expectancy Beginning Beginning Income End Remaining of Year Required of Year Allowable Tax After Annual of Year Carryover Beneficiary Life IRA Minimum Actual Deductible Taxable Due Tax Earnings Account Deductible Year Age Exp. 2 Balance Distribution Distribution Amount 3 33% 4% Balance Amount ,815 22,968 22, ,968 7,580 15,389 24, , ,561 23,887 23, ,887 7,883 16,004 24, , ,421 24,842 24, ,842 8,198 16,644 24, , ,321 25,836 25, ,836 8,526 17,310 24, , ,185 26,870 26, ,870 8,867 18,003 24, , ,927 27,944 27, ,944 9,222 18,723 24, , ,462 29,062 29, ,062 9,591 19,472 24, , ,696 30,225 30, ,225 9,974 20,251 24, , ,530 31,434 31, ,434 10,373 21,061 23, , ,860 32,691 32, ,691 10,788 21,903 23, , ,576 33,999 33, ,999 11,220 22,779 22, , ,561 35,359 35, ,359 11,668 23,690 22, , ,690 36,773 36, ,773 12,135 24,638 21, , ,834 38,244 38, ,244 12,620 25,623 21, , ,854 39,774 39, ,774 13,125 26,648 20, , ,603 41,365 41, ,365 13,650 27,714 19, , ,928 43,019 43, ,019 14,196 28,823 18, , ,665 44,740 44, ,740 14,764 29,976 17, , ,642 46,530 46, ,530 15,355 31,175 16, , ,677 48,391 48, ,391 15,969 32,422 15, , ,578 50,326 50, ,326 16,608 33,719 13, , ,142 52,339 52, ,339 17,272 35,067 12, , ,155 54,433 54, ,433 17,963 36,470 10, , ,390 56,610 56, ,610 18,681 37,929 8, , ,611 58,875 58, ,875 19,429 39,446 6, , ,566 61,230 61, ,230 20,206 41,024 4, , ,990 63,679 63, ,679 21,014 42,665 2,292 59, ,603 59,603 59, ,603 19,669 39, Totals 1,141,047 1,141, , ,502 ¹The Carryover Deductible Amount is the amount a beneficiary is entitled to deduct against his or her income tax based upon the net federal estate taxes paid on the IRA at the owner's death. ²Life expectancy is based on the IRS RMD Single Life Table using the oldest age beneficiary at the beginning of year one. ³The Allowable Deductible Amount represents a deduction against the income tax for the portion of net federal estate tax applied to the Actual Distribution. The purpose of this supplemental illustration is to show the IRA value based on a hypothetical IRA growth rate. This supplemental illustration is hypothetical and is not intended to serve as a projection. Investment fees, including potential redemption charges, are not reflected in this supplemental illustration. Page 7 of 9

8 Client Name: Sex/Age/Class: Valued Client Initial Death Benefit: $745,627 Male/70/Preferred Non-Nicotine First Year Premium: $20,000 Proposed Plan - Stretch IRA using Life Insurance Estate Tax Funded with Life Insurance IRA ILIT Beginning Beginning After End Estate Income Insurance Life of Year Required of Year Tax Annual of Year Tax Taxes (IRD) Premium Insurance Net Life Account Minimum Actual Distribution Earnings Account on Due on Outlay Death to Year Age Exp. 1 Balance Distribution 4% Balance IRA IRA 2 (Gifts to ILIT) Benefit Beneficiary ,000 29,197 29,851 20,000 30, , ,315 20, ,627 1,282, ,955 30,225 30,225 20,251 30, , ,515 20, ,627 1,282, ,560 31,311 31,311 20,978 30, , ,349 20, ,627 1,282, ,059 32,432 32,432 21,729 30, , ,793 20, ,627 1,281, ,372 33,587 33,587 22,503 30, , ,817 20, ,627 1,279, ,417 34,778 34,778 23,301 30, , ,394 20, ,627 1,276, ,104 36,005 36,005 24,123 30, , ,493 20, ,627 1,272, ,343 37,092 37,092 24,851 29, , ,143 20, ,627 1,267, ,222 38,385 38,385 25,718 29, , ,255 20, ,627 1,261, ,470 39,511 39,511 26,473 29, , ,865 20, ,627 1,254, ,197 40,652 40,652 27, , , ,948 20, ,627 1,247, ,327 41,806 41,806 28,010 28, , ,478 20, ,627 1,237, ,781 42,970 42,970 28,790 27, , ,430 20, ,627 1,227, ,484 44,140 44,140 29,574 27, , ,778 20, ,627 1,216, ,358 45,313 45,313 30,360 26, , ,498 20, ,627 1,203, ,326 46,171 46,171 30,934 25, , ,672 20, ,627 1,189, ,642 46,996 46,996 31,487 24, , ,290 20, ,627 1,174,609 Assumes death occurs at the end of year 17 Totals 650, , , ,000 ¹Life expectancy is based on the IRS Uniform Lifetime Table using the owner's age at the beginning of each year. ²Assumes the use of marital deduction (if married.) Income in Respect of a Decedent (IRD) refers to those amounts a decedent was entitled to as gross income and were not included in federal taxable income for the year of death. Income tax rate used is 33%. ³Net to Beneficiary is equal to the end of year IRA account balance less taxes, plus the life insurance proceeds. The purpose of this supplemental illustration is to show how the systematic use of proceeds from an IRA, net of income taxes, can be used to purchase life insurance. In addition, it shows the amount left to beneficiaries including the life insurance death benefit and any remaining proceeds from the IRA, reduced by estate and income taxes. This supplemental illustration is hypothetical and is not intended to serve as a projection. investment fees, including potential redemption charges, are not reflected in this supplemental illustration. Page 8 of 9

9 Client Name: Sex/Age/Class: Valued Client Initial Death Benefit: $745,627 Male/70/Preferred Non-Nicotine First Year Premium: $20,000 Carryover Deductible Amount:¹ $0 Stretch IRA IRA Distributions to the Beneficiary over Life Expectancy Beginning Beginning Income End Remaining of Year Required of Year Allowable Tax After Annual of Year Carryover Life IRA Minimum Actual Deductible Taxable Due Tax Earnings Account Deductible Year Age Exp. 2 Balance Distribution Distribution Amount 3 33% 4% Balance Amount ,272 22,949 22, ,949 7,573 15,376 24, , ,016 23,867 23, ,867 7,876 15,991 24, , ,875 24,821 24, ,821 8,191 16,630 24, , ,776 25,814 25, ,814 8,519 17,296 24, , ,640 26,847 26, ,847 8,859 17,987 24, , ,385 27,921 27, ,921 9,214 18,707 24, , ,923 29,038 29, ,038 9,582 19,455 24, , ,160 30,199 30, ,199 9,966 20,233 24, , ,000 31,407 31, ,407 10,364 21,043 23, , ,337 32,663 32, ,663 10,779 21,884 23, , ,060 33,970 33, ,970 11,210 22,760 22, , ,054 35,329 35, ,329 11,658 23,670 22, , ,194 36,742 36, ,742 12,125 24,617 21, , ,351 38,211 38, ,211 12,610 25,602 21, , ,385 39,740 39, ,740 13,114 26,626 20, , ,151 41,330 41, ,330 13,639 27,691 19, , ,494 42,983 42, ,983 14,184 28,798 18, , ,252 44,702 44, ,702 14,752 29,950 17, , ,252 46,490 46, ,490 15,342 31,148 16, , ,312 48,350 48, ,350 15,955 32,394 15, , ,241 50,284 50, ,284 16,594 33,690 13, , ,836 52,295 52, ,295 17,257 35,038 12, , ,882 54,387 54, ,387 17,948 36,439 10, , ,155 56,562 56, ,562 18,666 37,897 8, , ,417 58,825 58, ,825 19,412 39,413 6, , ,416 61,178 61, ,178 20,189 40,989 4, , ,887 63,625 63, ,625 20,996 42,629 2,290 59, ,553 59,553 59, ,553 19,652 39, Totals 1,140,079 1,140, , ,853 ¹The Carryover Deductible Amount is the amount a beneficiary is entitled to deduct against his or her income tax based upon the net federal estate taxes paid on the IRA at the owner's death. ²Life expectancy is based on the IRS RMD Single Life Table using the oldest age beneficiary at the beginning of year one. ³The Allowable Deductible Amount represents a deduction against the income tax for the portion of net federal estate tax applied to the Actual Distribution. The purpose of this supplemental illustration is to show the IRA value based on a hypothetical IRA growth rate. This supplemental illustration is hypothetical and is not intended to serve as a projection Investment fees, including potential redemption charges, are not reflected in this supplemental illustration. Page 9 of 9