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Section 79 powerpoint v 97

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Tax Free Income Strategy for 2+ person business.

Tax Free Income Strategy for 2+ person business.

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  • 1.  
  • 2. Successful Innovative Experienced CJA is a national employee benefits company
      • CJA specializes in the design and marketing of innovative insurance products and employee benefit plans for the small business and estate planning markets.
    CJA has over thirty years of experience working with leading insurance companies. Our actuarial, marketing, legal and administrative offer expert support and expertise to help you in the field. We help our partners become more successful with complex employee benefit programs. About Us
  • 3. Where are we today?
    • State of economy
      • Concern for retirement and income in a down market
      • Concern with discretionary income
      • Cost of living rising
      • Inflation on the rise
      • Housing market
      • Fuel costs
      • Uncertainty
  • 4. Where are we today?
    • So what does that mean for us as planners?
    • Different motivations for clients
    • Time to re-evaluate
    • Additional tax burden
  • 5.
    • Qualified Retirement Plan
      • Take monthly pension income (taxable)
        • Plan can provide monthly benefit
        • Roll assets to an IRA
    • Tax-leveraged Medical Account for retirement
      • Titanium Plan-Single employer welfare benefit plan
      • Tax deductible and Tax deferred
      • Tax free reimbursements for medical expense at retirement
    • Section 79 –Ultimate 79
        • Tax deductible
        • Addition/alternative to qualified plans
    We have solutions to help your clients
  • 6. Section 79– How it works at a glance
  • 7. Section 79– How it works at a glance Section 79 is not just group insurance Regulation say that plan can provide “permanent benefits” as well What is a permanent benefit: “…an economic value extending beyond one policy year (for example, a paid-up or cash surrender value) that is provided under a life insurance policy.” Simply stated: The plan may use cash value life insurance contracts
  • 8. Section 79-Ultimate planning tool How it works *when using certain products designed for Section 79. Death Benefit and Tax-free withdrawals Pre-tax dollars Offers non-discriminatory benefits to employees Typically only key employees/owners opt for Permanent benefit Indexed Universal Life permanent policy Corporation sets up a Group Section 79 Plan 5 Year commitment*
  • 9. Section 79– How it works at a glance
    • Not another retirement plan
      • Tax deductible contribution for corporation
      • 5 year commitment
      • Tax free income
      • Permanent life insurance
      • Competitive product with guarantees
      • flexibility
    • Not a “new” financial planning tool
  • 10. Section 79– How it works at a glance Can only be adopted by a C Corporation
  • 11. Section 79– How it works at a glance
    • 100% deductible to Employer under §162*
    • Employee excludes value of up to $50,000
    • of pure insurance protection (IRS Table I Term Cost)
    • Employee must include
      • Value of Permanent Benefit
      • Value of Insurance protection > $50,000
    • Bottom line: Employee gets to exclude 35-40% of premium
    • Plan is terminated after 5 years
    Key Planning Points:
  • 12. Section 79 Section 79 Group Life Insurance [Providing Permanent Benefits for Key Employees] PROGRAM CENSUS AND BENEFIT SUMMARY For Program Year 10/18/2008 through 10/17/2009 OWNER INITIAL DEATH BENEFIT FIRST YEAR PREMIUM EMPLOYEE AGE SEX RATING SALARY Valued Client 45 Male Preferred Yes $208,381 $2,083,810 $100,000 Employee 35 Male Preferred No 40,000 400,000 13,554
  • 13. Section 79 Section 79 Group Life Insurance [Providing Permanent Benefits for Key Employees] SUMMARY OF PROGRAM BENEFIT OPTIONS For Program Year 10/18/2008 through 10/17/2009 OPTION A OPTION B OPTION C PERMANENT INSURANCE TERM INSURANCE $50,000 TERM Premium Assumed Taxable Income to Employee* Guaranteed Value Taxable Table I Cost Premium Taxable Table I Cost Premium Taxable Table I Cost EMPLOYEE Valued Client $100,000 $57,453 $50,754 $3,377 $2,236 $3,661 $159 $0 Employee 13,554 7,647 6,995 347 182 378 75 0                
  • 14. Section 79 Section 79 Group Life Insurance [Providing Permanent Benefits for Key Employees] FIRST YEAR SUMMARY OF COST FOR CORPORATION (Assumes employees waive benefits in excess of $50,000 minimum) For Program Year 10/18/2008 through 10/17/2009 Annual Insurance Premium: $100,159 1st. Year Trust Fee: 500 Total Annual Contribution: $100,659   Tax Savings @ 40.00%:* $40,264   1 st YEAR AFTER TAX COSTS:* $60,395
  • 15. Section 79 Total after tax contributions: 301,975 Total tax due from W-2: 135,466 Net cost to owner: 437,441 Total tax free withdrawals: $3,557,380 OPTION A PREPARED FOR: Valued Client Annual Premium: $100,000 Assumed Tax Rate: 40.00% Death Benefit: $2,083,810 Policy Year Age Planned Premium Assumed Employee Taxable Income 1 Employee Net Tax on Income 1 Tax to Employee 1 Cash Surrender Value Policy Loans 2 1 45 100,000 60,831 24,332 24,332 0 0 2 46 100,000 63,823 25,529 49,861 69,547 0 3 47 100,000 67,272 26,909 76,770 157,227 0 4 48 100,000 71,175 28,470 105,240 251,759 0 5 49 100,000 75,566 30,227 135,466 353,779 0 10 55 0 0 0 0 539,703 0 20 65 0 0 0 0 1,257,012 177,869 40 85 0 0 0 0 199,177 3,557,380
  • 16. Section 79 This is the equivalent of 8,893,450* of income from a retirement plan. *Assuming a tax rate of 40%
  • 17. Section 79- practical applications & case studies
    • Business transition
      • Family business
      • Physician Groups
      • Multiple Business Owners
    • Use Section 79 to create segregated funds
    • for buy-out of business
    • Allow tax leverage and flexibility
    • Defined benefit plan too costly
    Business transition Challenges: Cost of the plan design with employees too high for current employer Both owners wanted additional future income Needed to equalize benefits to both owners.
  • 18. Section 79- practical applications & case studies % to Owners Defined Benefit Plan 81.7% Section 79 Plan 97.6% Business transition BENEFITS AT AGE 65 DEATH BENEFIT PREMIUM ANNUAL LOAN TOTAL LOANS REMAINING BENEFIT   AGE SALARY   Wiley 48 $200,000 $2,000,000 $53,058 $157,071 $3,141,420 $498,072 Bird 34 $100,000 $1,000,000 $32,728 $70,519 $1,410,380 $223,272 $85,786 After tax cost at 5 years $257,358 Total tax free loans $4,551,800
  • 19. Section 79- practical applications & case studies
    • Numerous Highly compensated employees
      • Employee cost too high for company
    • Use Section 79 to create plan utilizing class system
    • Provided key employees with benefits at reasonable cost
  • 20. Section 79-practical application & case studies . Class system solution Challenge: Older employees drove the cost of the plan too high for current employer to implement
  • 21. Section 79- practical applications & case studies
    • Implemented Section 79 Program
      • Owners premium $279,000 – 93.6% of benefits
      • Rank and file cost $19,000
      • Total Program cost $298,000
    • Owners each received over $2,000,000 in Death benefits
    • Provided key employees with benefits based on their functions and positions at reasonable cost—allowed important employees to receive greater benefits (bonus for Table I)
    Class system solution
  • 22.
    • Must be adopted by a C Corporation
    • Section 79 is for “employees”
    • The following are not “employees”
      • Self-employed individuals
      • Partners
      • 2% owners of S corporations
    • Owner must have W-2 income from a C corporation to be a participant
    Section 79- Key considerations
  • 23. Who do you know….
    • Owns a small profitable business
    • Complains about paying income tax
    • Incomplete Estate Planning
    • Interested in wealth transfer and flexibility
  • 24. Contacts Regional VP List Tom Bacharach, New England Region 800-256-0164 [email_address]   David Jones, West Coast Region 800-476-7964 [email_address]   Ken Shapero, Mid-Atlantic  and Southeast Region 954-688-4063 [email_address] Mike Seltzer, Mid-West Region 800-685-8317 [email_address]  
  • 25. Resources www.cjamarketing.com www.plangen.com Due diligence materials Brochures Sample Illustrations Q & A’s Webcast replays Websites
  • 26.