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Convert  IRA To  Roth  During Lifetime
 

Convert IRA To Roth During Lifetime

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    Convert  IRA To  Roth  During Lifetime Convert IRA To Roth During Lifetime Presentation Transcript

    • Bob Smith and Mary Smith Presented by: John Q. Smith, CLU For Evaluation Purposes Only 10735 David Taylor Drive Suite 350 Charlotte, North Carolina 28262 Phone: 1.800.438.6017 Mobile Phone: 704.549.1100 Fax: 704.549.5700 Email: johnsmith@email.com
    • Important Notes These pages depict certain wealth preservation strategies concerning possible property, and individual circumstances are unique and subject to change. You methods for taking distributions from your qualified retirement plan. For should discuss all strategies, transfers, and assumptions with your legal and tax purposes of this analysis, several of your qualified retirement plans may be advisors. aggregated and shown as one single plan. This report provides only broad, general guidelines, which may be helpful in shaping your thinking about and To implement a strategy, it may be necessary to restructure the ownership of discussing your wealth preservation needs with your professional advisors. This property, or change designated beneficiaries before specific will or trust report provides estimates based on our general understanding of current tax laws. provisions, prepared by the client’s counsel, become effective. The transfer of a life insurance policy may not result in its removal from the estate of the Each scenario shown illustrates your current situation or an alternative strategy prior owner for three years. and its possible effects on the financial situation you provided. Inclusion of one or more of these strategies does not constitute a recommendation of that strategy Strategies may be proposed to support the purchase of various products such as over any other strategy. insurance and other financial products. When this occurs, additional information about the specific product (including a prospectus, if required, or Calculations contained in this analysis are estimates only based on the an insurer provided policy illustration) will be provided for your review. information you provided, such as the value of your assets today, and the rate at which the assets appreciate. The actual values, rates of growth, and tax rates may IMPORTANT: The projections or other information generated by this be significantly different from those illustrated. These assumptions are only a investment analysis tool (Qualified Plan Distribution Analysis) regarding the “best guess.” No guarantee can be made regarding values, as all rates are the likelihood of various investment outcomes are hypothetical in nature, do not hypothetical rates you provided. These computations are not a guarantee of reflect actual investment results and are not guarantees of future results. future performance of any asset, including insurance or other financial products. IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements No legal or accounting advice is being rendered either by this report or through imposed by the IRS, this notice is to inform you that any U. S. federal tax any other oral or written communications. Nothing contained in this report is advice contained in this presentation is not intended or written to be used, and intended to be used on any tax form or to support any tax deduction. Unless cannot be used, for the purpose of (i) avoiding penalties under the Internal indicated, the tax aspect of the federal Generation-Skipping Transfer Tax Revenue Code or (ii) promoting, marketing or recommending to another party (GSTT) is not reflected. The GSTT is similar to an additional level of estate tax any transaction or matter addressed in this presentation. on certain transfers to grandchildren, or individuals two or more generations removed from the transferor. State laws vary regarding the distribution of This presentation is not a financial plan. Version 2.0.0 c. 6.0.0.0 Presented by: John Q. Smith, CLU July 31, 2009 For Evaluation Purposes Only 2 of 13
    • Converting Your IRA to a Roth IRA Should you pay taxes now so that retirement distributions will be tax-free? for Bob Smith and Mary Smith This presentation is not a financial plan. Presented by: John Q. Smith, CLU July 31, 2009 For Evaluation Purposes Only 3 of 13
    • Understanding IRAs, Roth IRAs, Conversions Key Concepts & Rules Traditional IRAs • Contributions are limited to $5,000 for 2009 ($6,000 if 50 or over) and are generally tax deductible. • If you are covered by a retirement plan at work and your modified adjusted gross income (MAGI) is $89,000 - $109,000 in 2009 (married, filing jointly), deductibility phases out and is eliminated thereafter. If your spouse is covered by a retirement plan at work, but you are not, the phase out is $166,000 - $176,000 for married, filing joint. (The phase out is $55,000 - $65,000 for single taxpayers.) • Funds grow tax-deferred, but are taxed as ordinary income upon distribution. • Minimum distributions are required annually beginning on the Required Beginning Date (RBD1), which is based on your age 70½. • Distributions taken prior to age 59½ are subject to a 10% early distribution penalty tax, with certain exceptions. • Distributions after your death (or your spouse's death) are taxed as ordinary income to the beneficiary as distributions are received. • At your death (or your spouse's death), the entire account value is includible in the gross estate for federal estate tax purposes, and may be subject to estate taxes. Roth IRAs • Contributions are limited to $5,000 for 2009 ($6,000 if 50 or over) and are NOT income tax deductible. • Ability to contribute is phased out if you earn $166,000-$176,000 for married, filing jointly in 2009, and eliminated thereafter. The phase out is $105,000 - $120,000 for single taxpayers. • Funds grow tax deferred and are generally not taxable upon withdrawal. • No minimum distributions are required from Roth IRAs, during your (or your spouse's) lifetime. • Withdrawals of contributions to Roth IRAs, prior to age 59½, are not subject to the 10% early withdrawal penalty tax. Withdrawals of earnings within 5 years of establishing a Roth IRA are taxed as ordinary income. Earnings taken prior to age 59½ are taxed as ordinary income, and may be subject to a 10% early withdrawal penalty tax, with certain exceptions. • Distributions after your death are received by the beneficiary income-tax free. • At your death (or your spouse's death), the entire account value is includible in the gross estate for federal estate tax purposes, and may be subject to estate taxes. Conversions (from a Traditional IRA to a Roth IRA) • A Conversion is a taxable event. The entire (or partial) amount of the Traditional IRA (less any non-deductible contributions) is taxable as ordinary income upon conversion (or distribution). The conversion amount may move you into a higher marginal income tax bracket. Due to a special provision in the tax law, for amounts converted in 2010, half the conversion can be reported as taxable income in 2011 and the other half is reported in 2012. • Prior to 2010, if your MAGI exceeds $100,000, you are not eligible to convert a Traditional IRA to a Roth IRA. After 2009, the income limit is eliminated. • If you pay the taxes out of the Traditional IRA, it will reduce the benefits of the conversion to a Roth IRA, and if you are under age 59½, the amount used to pay income taxes will be subject to the 10% early distribution penalty tax. • Withdrawals of converted amounts within 5 years of each separate conversion to Roth IRAs may be subject to a 10% early distribution penalty tax and withdrawals of earnings may be subject to a 10% early distribution penalty tax and/or taxed as ordinary income. • Distributions from a Traditional IRA must be deposited into a Roth IRA within 60 days (not applicable for trustee-to-trustee transfers). • You do not have to convert your entire Traditional IRA. A partial conversion is allowed, but you must follow the same rules as any other distribution regarding nondeductible contributions. 1 The RBD is no later than April 1st following age 70½ for traditional IRAs, SEPs, SIMPLEs. For qualified retirement plans, the later of April 1 of the year following the year in which the participant reaches age 70½ or retires, if less than a 5% owner. This presentation is not a financial plan. Presented by: John Q. Smith, CLU July 31, 2009 For Evaluation Purposes Only 4 of 13
    • Retirement Savings Options IRA vs. Roth vs. Taxable Accounts Pay Taxes Now or Later? Values at Retirement The deciding factor between choosing an IRA or Roth Working Years - 40% Tax Working Years - 30% Tax Working Years - 20% Tax IRA is whether you prefer paying taxes on your Retirement Years - 20% Tax Retirement Years - 30% Tax Retirement Years - 40% Tax These graphs assume contributions (Roth IRA) or on your distributions $5,000 deposits at (Traditional IRA). So when will your taxes be higher – the beginning of 20 during your working years or during retirement? When $45,107 $69,161 years in an IRA $92,224 comparing, be sure to consider your income level during growing at 8% each phase (both income and withdrawals from assets), annually. Roth IRA in addition to potential legislative changes. $184,429 $138,322 $184,429 $161,375 $163,375 contributions are $138,322 reduced based on the The Flexibility of the Roth IRA Working Years tax A major advantage of the Roth IRA is the flexibility of Traditional IRA Roth IRA Traditional IRA Roth IRA Traditional IRA Roth IRA rate. distributions before and during retirement: High - Working Years Taxes Account Balances at Retirement Low - Working Years Taxes Low - Retirement Years Taxes Taxes High - Retirement Years Taxes • Early Distributions (pre-59 ½) — Traditional IRAs may charge a 10% penalty, with some exceptions Traditional IRA Options are Equal Roth IRA while there is no penalty on withdrawals of contributions from a Roth IRA • Required Distributions (after 70 ½) — Traditional IRAs require minimum distributions each year, while a Roth IRA has no required distributions for the Roth IRA owner The Case Against "Taxable Accounts" (Savings Accounts) $600,000 These graphs compare account $611,729 balances after 30 years of Contributions to taxable accounts are made after-tax (just like a Roth IRA), but unlike a $500,000 Roth IRA, interest and dividends generated are taxable each year, and capital gains $5,000 annual contributions taxes are due when liquidating an investment held for more than a year. This $400,000 (after tax) growing at 8%. All combination of taxes can significantly reduce your ability to accumulate retirement growth in the taxable account is $300,000 $92,224 funds over the long-term, and may affect or limit your investment options and the taxed each year at 35% while frequency of changes to your investments over the long- term. The upside is that there $200,000 the Roth IRA grows tax free. are no penalties or restrictions on withdrawals from taxable accounts before retirement, $100,000 making them perfect for short-term savings. $0 Use taxable accounts for short-term savings. Taxable Roth IRA Use IRAs and Roth IRAs for long-term retirement funding. This presentation is not a financial plan. Presented by: John Q. Smith, CLU July 31, 2009 For Evaluation Purposes Only 5 of 13
    • Comparing IRA with Roth IRA Conversion Should I Convert to a Roth IRA? How Should I Pay the Taxes? Initial Value of IRA: $800,000 Convert in year 2010 to Roth IRA A traditional IRA may be converted to a Roth IRA, but income taxes must be paid on the moneys transferred to the Roth IRA. In exchange distributions from the Roth IRA may be made, although not required, as tax-free income. Traditional IRA Roth IRA Roth IRA No Conversion Taxes Using Other Assets for Taxes1 Using IRA for Taxes1 $4,800,000 4,000,000 3,200,000 2,400,000 1,600,000 800,000 0 65 70 75 80 65 70 75 80 65 70 75 80 Age Age Age Traditional IRA Other Assets Roth IRA Age IRA2 Other Assets Total Roth IRA Other Assets Total Roth IRA Other Assets Total 60 856,000 510,500 1,366,500 856,000 510,500 1,366,500 856,000 510,500 1,366,500 61 915,920 521,221 1,437,141 915,920 521,221 1,437,141 641,144 706,373 1,347,517 65 1,200,584 566,402 1,766,986 1,200,584 296,360 1,496,944 840,409 578,720 1,419,129 75 1,880,049 998,216 2,878,265 2,361,731 364,819 2,726,550 1,653,212 712,403 2,365,615 Total Funds at Age 842 Total Funds at Age 84 Total Funds at Age 84 $4,123,025 $4,781,800 $3,898,292 1 2 Income tax rates are assumed to be 30%. Example assumes the net distributions after taxes are deposited into the Other Assets. IRA balance would be subject to income taxation upon distribution or at death. This presentation is not a financial plan. Presented by: John Q. Smith, CLU July 31, 2009 For Evaluation Purposes Only 6 of 13
    • Lifetime Values—Traditional IRA Keeping Traditional IRA Initial Value of IRA: $800,000 Traditional Income Total of Less Net Qualified & Life Earnings &2 Actual3 IRA Tax Taxes4 Reinvested5 All Other6 Tax4 All Other7 All Other Year Age Exp.1 Contributions Distributions Values Rate Paid Distributions Assets Liability Assets Assets 2009 60 56,000 0 856,000 30% 0 0 510,500 0 510,500 1,366,500 2010 61 59,920 0 915,920 30% 0 0 521,221 0 521,221 1,437,141 2011 62 64,114 0 980,034 30% 0 0 532,166 0 532,166 1,512,201 2012 63 68,602 0 1,048,637 30% 0 0 543,342 0 543,342 1,591,978 2013 64 73,405 0 1,122,041 30% 0 0 554,752 0 554,752 1,676,793 2014 65 78,543 0 1,200,584 30% 0 0 566,402 0 566,402 1,766,986 2015 66 84,041 0 1,284,625 30% 0 0 578,296 0 578,296 1,862,921 2016 67 89,924 0 1,374,549 30% 0 0 590,440 0 590,440 1,964,989 2017 68 96,218 0 1,470,767 30% 0 0 602,839 0 602,839 2,073,607 2018 69 102,954 0 1,573,721 30% 0 0 615,499 0 615,499 2,189,220 2019 70 27.4 110,160 57,435 1,626,446 30% 0 57,435 685,860 17,231 668,629 2,295,076 2020 71 26.5 113,851 61,375 1,678,922 30% 17,231 44,145 744,076 18,413 725,664 2,404,586 2021 72 25.6 117,525 65,583 1,730,864 30% 18,413 47,170 806,518 19,675 786,843 2,517,707 2022 73 24.7 121,160 70,075 1,781,949 30% 19,675 50,401 873,477 21,023 852,454 2,634,403 2023 74 23.8 124,736 74,872 1,831,814 30% 21,023 53,849 945,265 22,462 922,803 2,754,617 2024 75 22.9 128,227 79,992 1,880,049 30% 22,462 57,530 1,022,214 23,998 998,216 2,878,265 2025 76 22.0 131,603 85,457 1,926,195 30% 23,998 61,459 1,104,678 25,637 1,079,041 3,005,236 2026 77 21.2 134,834 90,858 1,970,171 30% 25,637 65,221 1,192,604 27,257 1,165,347 3,135,518 2027 78 20.3 137,912 97,053 2,011,030 30% 27,257 69,795 1,286,920 29,116 1,257,804 3,268,834 2028 79 19.5 140,772 103,130 2,048,672 30% 29,116 74,014 1,387,399 30,939 1,356,460 3,405,133 2029 80 18.7 143,407 109,555 2,082,525 30% 30,939 78,616 1,494,555 32,866 1,461,689 3,544,214 2030 81 17.9 145,777 116,342 2,111,959 30% 32,866 83,476 1,608,785 34,903 1,573,882 3,685,841 2031 82 17.1 147,837 123,506 2,136,290 30% 34,903 88,604 1,730,501 37,052 1,693,450 3,829,740 2032 83 16.3 149,540 131,061 2,154,770 30% 37,052 94,009 1,860,138 39,318 1,820,820 3,975,590 2033 84 15.5 150,834 139,017 2,166,586 30% 39,318 99,699 1,998,144 41,705 1,956,439 4,123,025 1 2 Life expectancy is based on the participant's life only. See the Assumptions page for additional information. 3 Assumes qualified plan earns 7.00% interest. Also includes Employer Contributions and Salary Reductions, if any. 4 Actual Distribution is the greater of the pretax distribution required to generate the Desired Distributions (see Assumptions page) or Required Minimum Distribution. 5 Taxes and any applicable penalties are paid at the start of the calendar year following the tax liability. 6 Actual Distributions less Taxes and Penalties. 7 All Other Assets and Cumulative Reinvested Distributions are assumed to earn 3.00% interest and are taxed at a 30.00% income tax rate. Net of liability for income taxes and any penalties. This presentation is not a financial plan. Presented by: John Q. Smith, CLU July 31, 2009 For Evaluation Purposes Only 7 of 13
    • Lifetime Values—Converting Traditional IRA to Roth IRA Converting Traditional IRA to Roth IRA Using Other Assets for Taxes Initial Value of IRA: $800,000* Convert in year 2010 to Roth IRA Traditional Income Total of Less Net Qualified & Life Earnings &2 Actual3 IRA Tax Taxes4 Reinvested5 All Other6 Tax4 All Other7 All Other Year Age Exp.1 Contributions Distributions Values Rate Paid Distributions Assets Liability Assets Assets 2009 60 56,000 0 856,000 30% 0 0 510,500 0 510,500 1,366,500 Converting to a Roth IRA in 2010 Roth Income Total of Less Net Qualified & Life Earnings &2 Actual3 IRA Tax Taxes4 Reinvested5 All Other6 Tax4 All Other7 All Other Year Age Exp.1 Contributions Distributions Values Rate Paid Distributions Assets Liability Assets Assets 2010 61 915,920 0 915,920 30% 0 0 521,221 0 521,221 1,437,141 2011 62 64,114 0 980,034 30% 0 0 532,166 128,400 403,766 1,383,801 2012 63 68,602 0 1,048,637 30% 128,400 -128,400 412,472 128,400 284,072 1,332,709 2013 64 73,405 0 1,122,041 30% 128,400 -128,400 290,264 0 290,264 1,412,306 2014 65 78,543 0 1,200,584 30% 0 0 296,360 0 296,360 1,496,944 2015 66 84,041 0 1,284,625 30% 0 0 302,584 0 302,584 1,587,209 2016 67 89,924 0 1,374,549 30% 0 0 308,938 0 308,938 1,683,487 2017 68 96,218 0 1,470,767 30% 0 0 315,425 0 315,425 1,786,193 2018 69 102,954 0 1,573,721 30% 0 0 322,049 0 322,049 1,895,771 2019 70 110,160 0 1,683,882 30% 0 0 328,812 0 328,812 2,012,694 2020 71 117,872 0 1,801,753 30% 0 0 335,718 0 335,718 2,137,471 2021 72 126,123 0 1,927,876 30% 0 0 342,768 0 342,768 2,270,644 2022 73 134,951 0 2,062,827 30% 0 0 349,966 0 349,966 2,412,793 2023 74 144,398 0 2,207,225 30% 0 0 357,315 0 357,315 2,564,540 2024 75 154,506 0 2,361,731 30% 0 0 364,819 0 364,819 2,726,550 * Represents the amount of the Traditional IRA(s) to be converted to Roth IRA, as a total or partial Roth IRA conversion. 1 2 Life expectancy is based on the participant's life only. See the Assumptions page for additional information. Assumes qualified plan/Roth IRA earns 7.00% interest. Also includes Employer Contributions and Salary Reductions, if any. After Roth Conversion, also includes amount 3 converted to Roth IRA. Actual Distribution is the greater of the pretax distribution required to generate the Desired Distributions (see Assumptions page) or Required Minimum Distribution. After Roth 4 Conversion, Other Assets are used to the extent possible to pay income taxes on Traditional IRA amounts converted to Roth IRA. Taxes and any applicable penalties are paid at the start of the calendar year following the tax liability. After Roth Conversion, includes the estimated income taxes on the Traditional IRA amount converted to Roth IRA. Conversions in year 2010 only will be reported as taxable income equally in 2011 and 2012; therefore, income taxes due are 5 paid equally in 2012 and 2013. Actual Distributions less Taxes and Penalties. After Roth Conversion, Other Assets are used to the extent possible to pay the income taxes on Traditional IRA amounts 6 converted to Roth IRA. 7 All Other Assets and Cumulative Reinvested Distributions are assumed to earn 3.00% interest and are taxed at a 30.00% income tax rate. Net of liability for income taxes and any penalties. This presentation is not a financial plan. Presented by: John Q. Smith, CLU July 31, 2009 For Evaluation Purposes Only 8 of 13
    • Lifetime Values—Converting Traditional IRA to Roth IRA Converting Traditional IRA to Roth IRA Using Other Assets for Taxes Roth Income Total of Less Net Qualified & Life Earnings &2 Actual3 IRA Tax Taxes4 Reinvested5 All Other6 Tax4 All Other7 All Other Year Age Exp.1 Contributions Distributions Values Rate Paid Distributions Assets Liability Assets Assets 2025 76 165,321 0 2,527,052 30% 0 0 372,480 0 372,480 2,899,532 2026 77 176,894 0 2,703,946 30% 0 0 380,302 0 380,302 3,084,248 2027 78 189,276 0 2,893,222 30% 0 0 388,288 0 388,288 3,281,510 2028 79 202,526 0 3,095,748 30% 0 0 396,442 0 396,442 3,492,190 2029 80 216,702 0 3,312,450 30% 0 0 404,768 0 404,768 3,717,217 2030 81 231,871 0 3,544,321 30% 0 0 413,268 0 413,268 3,957,589 2031 82 248,102 0 3,792,424 30% 0 0 421,946 0 421,946 4,214,370 2032 83 265,470 0 4,057,894 30% 0 0 430,807 0 430,807 4,488,701 2033 84 284,053 0 4,341,946 30% 0 0 439,854 0 439,854 4,781,800 1 2 Life expectancy is based on the participant's life only. See the Assumptions page for additional information. Assumes qualified plan/Roth IRA earns 7.00% interest. Also includes Employer Contributions and Salary Reductions, if any. After Roth Conversion, also includes amount 3 converted to Roth IRA. Actual Distribution is the greater of the pretax distribution required to generate the Desired Distributions (see Assumptions page) or Required Minimum Distribution. After Roth 4 Conversion, Other Assets are used to the extent possible to pay income taxes on Traditional IRA amounts converted to Roth IRA. Taxes and any applicable penalties are paid at the start of the calendar year following the tax liability. After Roth Conversion, includes the estimated income taxes on the Traditional IRA amount converted to Roth IRA. Conversions in year 2010 only will be reported as taxable income equally in 2011 and 2012; therefore, income taxes due are 5 paid equally in 2012 and 2013. Actual Distributions less Taxes and Penalties. After Roth Conversion, Other Assets are used to the extent possible to pay the income taxes on Traditional IRA amounts 6 converted to Roth IRA. 7 All Other Assets and Cumulative Reinvested Distributions are assumed to earn 3.00% interest and are taxed at a 30.00% income tax rate. Net of liability for income taxes and any penalties. This presentation is not a financial plan. Presented by: John Q. Smith, CLU July 31, 2009 For Evaluation Purposes Only 9 of 13
    • Lifetime Values—Converting Traditional IRA to Roth IRA Converting Traditional IRA to Roth IRA Using IRA for Taxes Initial Value of IRA: $800,000* Convert in year 2010 to Roth IRA Traditional Income Total of Less Net Qualified & Life Earnings &2 Actual3 IRA Tax Taxes4 Reinvested5 All Other6 Tax4 All Other7 All Other Year Age Exp.1 Contributions Distributions Values Rate Paid Distributions Assets Liability Assets Assets 2009 60 56,000 0 856,000 30% 0 0 510,500 0 510,500 1,366,500 Converting to a Roth IRA in 2010 Roth Income Total of Less Net Qualified & Life Earnings &2 Actual3 IRA Tax Taxes4 Reinvested5 All Other6 Tax4 All Other7 All Other Year Age Exp.1 Contributions Distributions Values Rate Paid Distributions Assets Liability Assets Assets 2010 61 641,144 256,800 641,144 30% 0 256,800 783,413 77,040 706,373 1,347,517 2011 62 44,880 0 686,024 30% 77,040 -77,040 721,343 89,880 631,463 1,317,487 2012 63 48,022 0 734,046 30% 89,880 -89,880 644,883 89,880 555,003 1,289,049 2013 64 51,383 0 785,429 30% 89,880 -89,880 566,817 0 566,817 1,352,246 2014 65 54,980 0 840,409 30% 0 0 578,720 0 578,720 1,419,129 2015 66 58,829 0 899,238 30% 0 0 590,873 0 590,873 1,490,111 2016 67 62,947 0 962,184 30% 0 0 603,281 0 603,281 1,565,465 2017 68 67,353 0 1,029,537 30% 0 0 615,950 0 615,950 1,645,487 2018 69 72,068 0 1,101,605 30% 0 0 628,885 0 628,885 1,730,490 2019 70 77,112 0 1,178,717 30% 0 0 642,092 0 642,092 1,820,809 2020 71 82,510 0 1,261,227 30% 0 0 655,576 0 655,576 1,916,803 2021 72 88,286 0 1,349,513 30% 0 0 669,343 0 669,343 2,018,856 2022 73 94,466 0 1,443,979 30% 0 0 683,399 0 683,399 2,127,378 2023 74 101,079 0 1,545,058 30% 0 0 697,750 0 697,750 2,242,808 2024 75 108,154 0 1,653,212 30% 0 0 712,403 0 712,403 2,365,615 * Represents the amount of the Traditional IRA(s) to be converted to Roth IRA, as a total or partial Roth IRA conversion. 1 2 Life expectancy is based on the participant's life only. See the Assumptions page for additional information. Assumes qualified plan/Roth IRA earns 7.00% interest. Also includes Employer Contributions and Salary Reductions, if any. After Roth Conversion, also includes amount 3 converted to Roth IRA. Actual Distribution is the greater of the pretax distribution required to generate the Desired Distributions (see Assumptions page) or Required Minimum Distribution. After Roth 4 Conversion also includes the estimated income taxes due on the amount of the Traditional IRA converted to Roth IRA. Taxes and any applicable penalties are paid at the start of the calendar year following the tax liability. After Roth Conversion, includes the estimated income taxes on the Traditional IRA amount converted to Roth IRA. Conversions in year 2010 only will be reported as taxable income equally in 2011 and 2012; therefore, income taxes due are 5 paid equally in 2012 and 2013. 6 Actual Distributions less Taxes and Penalties. After Roth Conversion, includes the estimated income taxes due on the amount of the Traditional IRA converted to Roth IRA. 7 All Other Assets and Cumulative Reinvested Distributions are assumed to earn 3.00% interest and are taxed at a 30.00% income tax rate. Net of liability for income taxes and any penalties. This presentation is not a financial plan. Presented by: John Q. Smith, CLU July 31, 2009 For Evaluation Purposes Only 10 of 13
    • Lifetime Values—Converting Traditional IRA to Roth IRA Converting Traditional IRA to Roth IRA Using IRA for Taxes Roth Income Total of Less Net Qualified & Life Earnings &2 Actual3 IRA Tax Taxes4 Reinvested5 All Other6 Tax4 All Other7 All Other Year Age Exp.1 Contributions Distributions Values Rate Paid Distributions Assets Liability Assets Assets 2025 76 115,725 0 1,768,937 30% 0 0 727,363 0 727,363 2,496,300 2026 77 123,826 0 1,892,762 30% 0 0 742,638 0 742,638 2,635,400 2027 78 132,493 0 2,025,255 30% 0 0 758,233 0 758,233 2,783,489 2028 79 141,768 0 2,167,023 30% 0 0 774,156 0 774,156 2,941,180 2029 80 151,692 0 2,318,715 30% 0 0 790,414 0 790,414 3,109,129 2030 81 162,310 0 2,481,025 30% 0 0 807,012 0 807,012 3,288,037 2031 82 173,672 0 2,654,697 30% 0 0 823,960 0 823,960 3,478,656 2032 83 185,829 0 2,840,525 30% 0 0 841,263 0 841,263 3,681,788 2033 84 198,837 0 3,039,362 30% 0 0 858,929 0 858,929 3,898,292 1 2 Life expectancy is based on the participant's life only. See the Assumptions page for additional information. Assumes qualified plan/Roth IRA earns 7.00% interest. Also includes Employer Contributions and Salary Reductions, if any. After Roth Conversion, also includes amount 3 converted to Roth IRA. Actual Distribution is the greater of the pretax distribution required to generate the Desired Distributions (see Assumptions page) or Required Minimum Distribution. After Roth 4 Conversion also includes the estimated income taxes due on the amount of the Traditional IRA converted to Roth IRA. Taxes and any applicable penalties are paid at the start of the calendar year following the tax liability. After Roth Conversion, includes the estimated income taxes on the Traditional IRA amount converted to Roth IRA. Conversions in year 2010 only will be reported as taxable income equally in 2011 and 2012; therefore, income taxes due are 5 paid equally in 2012 and 2013. 6 Actual Distributions less Taxes and Penalties. After Roth Conversion, includes the estimated income taxes due on the amount of the Traditional IRA converted to Roth IRA. 7 All Other Assets and Cumulative Reinvested Distributions are assumed to earn 3.00% interest and are taxed at a 30.00% income tax rate. Net of liability for income taxes and any penalties. This presentation is not a financial plan. Presented by: John Q. Smith, CLU July 31, 2009 For Evaluation Purposes Only 11 of 13
    • Assumptions Details and Assumptions for Calculations General Assumptions Bob's DOB: January 1, 1949 and Mary's DOB: May 11, 1950 Calculations assume that the value of All Other Assets (excluding life insurance) is equal to $500,000. These assets are assumed to earn 3.00% interest. Hypothetical rates of return illustrated are not associated with any particular investment product. Calculations assume an ordinary income tax rate of 30.00%. Distribution of amounts equal to non-deductible contributions to your qualified plan are not taxable. These illustrations assume all distributions are taxable income. The Account Balance and Other Assets are grown pro-rata based on the date entered. Qualified Plan Assumptions Current qualified plan amount is $800,000, with a growth rate of 7.00%. Hypothetical rates of return illustrated are not associated with any particular investment product. There are no Required Minimum Distributions from Qualified Plans for 2009 only. Elections: Required Minimum Distributions based on the Single Life Expectancy Table. Conversion Occurs: Year 2010 Traditional IRA Contributions may be tax deductible and earnings are tax-deferred, but taxable when withdrawn. Required minimum distributions must begin by age 70½. Deductibility of contributions is based on modified adjusted gross income (MAGI) (for 2009, single $65,000 and married, filing jointly $109,000) and not being a participant in an employer sponsored retirement plan. Roth IRA Contributions are not tax deductible but earnings are tax-deferred and are generally not taxable upon withdrawal. Contributions are limited to $5,000 for 2009 ($6,000 if over 50). The ability to contribute is phased out if your MAGI is $166,000 - $176,000 for married, filing jointly in 2009, and eliminated thereafter. (The phase out is $105,000 - $120,000 for single taxpayers.) Withdrawals of contributions to Roth IRAs are not subject to income tax or the 10% early withdrawal penalty tax. Withdrawals of earnings within 5 years of establishing a Roth IRA are taxed as ordinary income. Earnings taken prior to age 59½ are taxed as ordinary income, and may be subject to a 10% early distribution penalty tax, with certain exceptions. There is no required minimum distributions at any age. Conversion of Traditional IRA to Roth IRA Prior to 2010, a Traditional IRA cannot be converted to a Roth IRA if MAGI exceeds $100,000. Amounts converted from the Traditional IRA are taxable in the year of the conversion. However, amounts converted to Roth IRA in 2010 only will be reported equally in 2011 and 2012; therefore, income taxes are paid equally in 2012 and 2013. Withdrawals of converted amounts within five years of each conversion to Roth IRA may be subject to the 10% early distribution penalty tax, and withdrawals of earnings may be subject to the 10% early distribution penalty tax and/or taxed as ordinary income. This presentation is not a financial plan. Presented by: John Q. Smith, CLU July 31, 2009 For Evaluation Purposes Only 12 of 13
    • Assumptions (Continued) Details and Assumptions for Calculations Tax Relief Act of 2001 Compliant This illustration shows the effect of this law on your estimated estate if you (and your spouse) die in the year shown. The Tax Relief Act of 2001 reduces the maximum rate and increases the applicable exclusion amount each year through 2009 with no estate tax in year 2010. A "sunset provision" voids the new law in 2011 and retroactively restores the law effective in 2001. Distribution Assumptions Early retirement distributions are exempt from the IRC Section 72(t) penalty. Distributions from the Traditional IRA are taxable. Distribution method illustrated is the Safe Harbor Method of IRC Sec. 72(t) with life expectancy method using a reasonable rate of interest of 0.00%. Distribution calculations do not use a joint beneficiary. Required minimum distributions are based on the Single Life Expectancy Table. Final Regulations Required Minimum Distributions are calculated based on the Single Life Expectancy Table. The Uniform Lifetime Table is permitted to be used for lifetime distributions for calendar years beginning on or after January 1, 2002 and must be used for lifetime distributions for calendar years beginning on or after January 1, 2003. If your beneficiary is your spouse (who is more than 10 years younger than you) distributions during your joint lives may be calculated using the Joint and Last Survivor Table. Compliance with Revenue Ruling 2002-62 Section 72(t) distributions are in compliance with the calculation methods stated in Revenue Ruling 2002-62. The following calculation methods may be illustrated under this ruling: 1) Extension of the existing Uniform Lifetime Table for use with the Life Expectancy Method. 2) Addition of annuity factor table for use with the Annuity Method. 3) Addition of interest rate (not more than 120% of the federal mid-term rate) for use with the Amortization and Annuity Methods. This presentation is not a financial plan. Presented by: John Q. Smith, CLU July 31, 2009 For Evaluation Purposes Only 13 of 13