ira maximization - highlandbrokerage.com · 9 five ira maximization strategies •tax offset •tax...

CAC.1061 (07.12)

IRA Maximization

CLC.1123 (11.15)

Wealth transfer strategies to

enhance your legacy

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Important IRA Tax InformationThis material contains statements regarding the tax treatment of certain financial assets and

transactions. These statements represent only our current understanding of the law in general and are

not to be considered legal or tax advice by purchasers. The tax treatment of life insurance and

Individual Retirement Accounts (IRAs) are subject to change. Income, estate, gift, and generation

skipping tax rules are subject to change at any time. Neither Protective Life nor its representatives offer

legal or tax advice. Purchasers should consult with their legal or tax advisor regarding their individual

situations before making any tax-related decisions.

The income tax on an IRA is not due until each distribution is taken. If the participant made non-

deductible contributions to the IRA, a portion of the IRA proceeds may be an income tax-free return of

basis.

While these strategies may help reduce or eliminate income taxes, they may cause an equal or greater

amount of estate taxes, depending on the client’s individual situation.

Protective and Protective Life refer to Protective Life Insurance Company (PLICO) and its affiliates,

including Protective Life & Annuity Insurance Company (PLAICO). Insurance issued by PLICO in all

states, except New York, and in New York by PLAICO. Both companies are located in Birmingham, AL.

Product availability and features may vary by state. Each company is solely responsible for the financial

obligations accruing under the policies it issues.

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Case studies and benefit values represented in the presentation are based on hypothetical client

age, gender, underwriting classification, premium and interest rate assumptions and are solely

intended to introduce IRA Maximization concepts using life insurance contracts. Life insurance

death benefits and cash values will always vary based on a variety of factors including age, gender,

health, and other underwriting factors. Consumers should consult specific information regarding

the products they are considering.

Taking additional withdrawals from the IRA to pay life insurance premiums may not be the best

alternative. Whenever life insurance premiums exceed RMDs, an individual should consider paying

those premiums from sources other than the IRA.

Estate Planning InformationThis presentation depicts certain estate planning options for IRA accumulation and distribution.

Inclusion of these options does not constitute a recommendation of that option over any other

option.

Property generally passes first by deed, next by contract, and then as directed in the decedent’s

will. Implementing any of these strategies may entail changing asset ownership, altering beneficiary

designations, or revising your will(s). Estate planning intentions may change in the future; you

should compare your actual results to your original objectives, discuss the information with your

advisor(s), and make appropriate adjustments as necessary.

Important Information

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Introduction

Congratulations!

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Introduction• Are you willing to let…

– Your IRA value go away to pay taxes

– Your inheritance benefit no one

– Your legacy vanish before it could begins

Do you have a plan?

Do you have a strategy?

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Agenda• What is IRA Maximization?

• Five IRA Maximization Strategies

• Question & Answers

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What is IRA Maximization• IRA Maximization

– Is a wealth transfer strategy that allows you to transfer

the value of an IRA in a more tax-efficient manner.

– It can help preserve or keep the value of an IRA when

passed to beneficiaries

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• Who can benefit from it

Individuals who don’t need their IRA assets for

their retirement income needs

Individuals more interested in transferring their

assets than generating income

Individuals who want to provide a legacy of

lifetime income for their beneficiaries

What is IRA Maximization

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Five IRA Maximization Strategies

• Tax Offset

• Tax Elimination

• Legacy Enhancement

• Multi-Generational

• Spousal Roth IRA

The income tax on an IRA is not due until each required minimum distribution (RMD) is taken. RMDs must be

withdrawn annually starting with the year that the account holder is age 70 ½. If an individual made non-deductible

contributions to the IRA, a portion of the IRA proceeds may be an income tax-free of basis.

While these strategies may help reduce or eliminate income taxes, they may cause an equal or greater amount of

estate taxes, depending on an individual’s situation.

10Tax Offset

Income, estate, gift, and generation skipping tax rules are subject to change at any time. Neither

Protective Life nor its representatives offer legal or tax advice. Purchasers should consult with

their legal or tax advisor regarding their individual situations before making any tax-related

decisions.

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Tax Offset• How it Works:

1. Determine the projected value of the IRA

2. Estimate the income tax your beneficiary will owe

3. Purchase a life insurance

Results:Beneficiary uses proceeds from death benefit to cover the cost of taxes

on the inherited IRA.

Income, estate, gift, and generation skipping tax rules are subject to change at any time. Neither Protective Life nor its

representatives offer legal or tax advice. Purchasers should consult with their legal or tax advisor regarding their

individual situations before making any tax-related decisions.

Taking additional withdrawals from the IRA to pay life insurance premiums may not be the best alternative. Whenever

life insurance premiums exceed RMDs, an individual should consider paying those premiums from sources other than

the IRA.

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Tax Offset• Hypothetical Example:

1

$577, 208Projected IRA Value

-$161,619Estimated Income Tax

$161,619Life Insurance Policy

JOHN

Age 70 (Survives to Age 80)

JAMES


$500,000 IRA Balance

6% IRA Annual Return

28% Income Tax Rate

$577,208 James’ Inheritance

.

1

2

3

B ResultA BA Tax Off-Set StrategyAssumptions

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Life Insurance

Policy value

estimated to pay

income tax on the

projected IRA valueProjected

IRA value

INCOME TAX(taxes on IRA RMD)

RMD(uses after-tax portion of RMD to puchase llife

insurance policy)

JAMES(receives death benefit from life insurance &

inherits IRA)INCOME TAX

(life insurance proceeds pay

IRA taxes)

$500,000

IRA

$577,208

IRA

Current

IRA value

$161,619Life Insurance

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Tax Elimination

Income, estate, gift, and generation skipping tax rules are subject to change at any time. Neither

Protective Life nor its representatives offer legal or tax advice. Purchasers should consult with their legal

or tax advisor regarding their individual situations before making any tax-related decisions.

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Tax Elimination• How it works:


2. Purchase a life insurance policy

3. Name a charity as beneficiary

Results:At death, the charity receives the IRA tax free and the beneficiary of the

life insurance policy receives the death proceeds tax free.

The term “charity,” as used in this context, means a charitable organization exempt from income tax under the Internal

Revenue Code.



the IRA.

Income, estate, gift, and generation skipping tax rules are subject to change at any time. Neither Protective Life nor its

representatives offer legal or tax advice. Purchasers should consult with their legal or tax advisor regarding their


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Tax Elimination

1



Name a Charity

JOHN


JAMES




28% Income Tax Rate

$577,208James’ Inheritance

$577,208Charity Inheritance

.

1

2

3

B ResultA BA Tax Elimination StrategyAssumptions

• Hypothetical Example:

Income, estate, gift, and generation skipping tax rules are subject to change at any time. Neither Protective

Life nor its representatives offer legal or tax advice. Purchasers should consult with their legal or tax advisor

regarding their individual situations before making any tax-related decisions.

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Life Insurance

Policy purchased

equal to the

projected IRA value

Projected

IRA value

Beneficiaries pay

no income tax


JAMES(receives death benefit

from life insurance)

Charity(receives IRA)

$500,000

IRA


$577,208

IRA


insurance policy)

Current

IRA value

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Legacy Enhancement

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Legacy Enhancement• How it works:

1. Withdraw the annual earnings from the IRA

2. Use the after-tax withdrawal amount to purchase

life insurance

3. Name the individual as beneficiary of the life

insurance policy and IRA

Results:In naming the same beneficiary on the life insurance policy and the IRA it

will enhance the amount of their inheritance for the beneficiary.



the IRA.

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1

$30,000IRA Annual Earnings


Legacy Enhancement• Hypothetical Example:

JOHN


Jill

Age 40



28% Income Tax Rate

$500,000Inherited IRA Balance

$617,492Inherited Death Benefit

$1,117,492Total Inheritance

.

1

2

B ResultA BA Legacy Enhancement StrategyAssumptions

Subject to full medical and financial underwriting. Maximum face amount may be limited.

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Life insurance value

based on $21,600

annual premium

paid annually to age

121, non-tobacco

Beneficiary pays no

income tax on

insurance death

benefit

INCOME TAX(taxes on

annual earnings)

INCOME TAX(taxes on

IRA proceeds)

$500,000

IRA


JILL(receives death benefit From life Insurance &

inherits IRA)

IRA Annual Earnings(uses after-tax portion

to puchase llife insurance policy)

Inherited IRA

value remains

the same due

to earnings

withdrawals

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Multi-Generational

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Multi-Generational• How it works:



3. Name grandchildren as beneficiary of the IRA

Results:

• Children inherit a life insurance amount equal to the projected value of

the IRA.

• Grandchildren inherit the IRA and instead of paying taxes on the entire

amount they are able to continue the tax deferral over rest of their life

expectancies.



the IRA.

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$577, 208Life Insurance Policy

James & GregBeneficiaries

Multi-Generational

JOHNAge 70 (Survives to Age 80)

JAMESAge 45 (Survives to Age 80)

GREGAge 13 (Survives to Age 83)


$19,936Insurance Premium


28% Income Tax Rate

$577,208James’ Inheritied Death Benefit

$6,747,694Greg’s projected inherited

IRA distributions

$7,324,902TOTAL DISTRIBUTIONS

.

1

2

3

B ResultA BA Multi-Generational StrategyAssumptions


Stretch distributions from the IRA will be taxable to the recipient. Distribution amounts shown on this slide do not

reflect the deduction of taxes

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Life Insurance

Policy purchased

equal to the

projected IRA value

Beneficiary pays no

income tax on insurance

death benefit

Forecasted IRA

distributions

stretched over

his lifetime would

be $6,747,694


$500,000

IRA


$577,208

IRA

JAMES(receives death benefit

from life Insurance)

GREG(inherits IRA)


insurance policy)

Current

IRA value

Beneficiary is

able to defer

taxes

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Spousal Roth IRA

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Spousal Roth IRA• How it works:


2. Estimate the income tax your spouse would owe


4. Use death benefit to pay income taxes

Results:• Spouse inherits the IRA and the death benefit. Proceeds from the death

benefit pay the income taxes for Roth IRA conversion.

• Spouse can enjoy: no RMDs, tax-free withdrawals, tax-free transfer to

heirs.

• Heirs pay no income taxes on any distributions from the Roth IRA if

when inherited from the spouse.Taking additional withdrawals from the IRA to pay life insurance premiums may not be the best alternative. Whenever


the IRA.

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1


-$161,619Estimated Income Tax

3-$161,619

Life Insurance Policy

Spousal Roth IRA

JOHN


JANE




28% Income Tax Rate

Jane Inherits

$577,208IRA Inheritance

$161,619Death Benefit from Insurance Policy

.

1

2

3

B ResultSpousal Roth IRA StrategyAssumptions


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Life Insurance Policy

value estimated to

pay income tax on

the projected IRA

value

Projected

IRA value


INCOME TAX(life insurance

proceeds pay conversion

taxes)

$500,000IRA

$161,619Life Insurance$577,208

IRA

JANE(receives death benefit from life Insurance &

Inherits IRA)

HEIRSreceive tax free RMDs for Life

Roth IRAbalance

Roth IRA Conversion

Current

IRA value


insurance policy)

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Conclusion

This presentation depicts certain estate planning options for IRA accumulation and distribution. Inclusion of these

options does not constitute a recommendation of that option over any other option.

Income, estate, gift, and generation skipping tax rules are subject to change at any time. Neither Protective Life nor

its representatives offer legal or tax advice. Purchasers should consult with their legal or tax advisor regarding their


IRA

Maximization

Strategies

IRA BeneficiaryLife Insurance

Beneficiary

Spouse Child Grandchild Charity Spouse Child Grandchild Charity

Tax Offset ✓ ✓ ✓ ✓

Tax Elimination ✓ ✓ ✓

Legacy Enhancement ✓ ✓ ✓ ✓

Multi-Generational ✓ ✓

Spousal Roth IRA ✓ ✓

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Questions and Answers

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