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  • 1. Bob Smith and Mary Smith Presented by: Mr. John Q. Smith, Jr., CLU For Evaluation Purposes Only 10735 David Taylor Drive Suite 350 Charlotte, North Carolina 28262 Email: support@planlab.us
  • 2. Important Notes These pages depict certain wealth preservation strategies concerning possible methods for taking distributions from your qualified retirement plan. For purposes of this analysis, several of your qualified retirement plans may be aggregated and shown as one single plan. This report provides only broad, general guidelines, which may be helpful in shaping your thinking about and discussing your wealth preservation needs with your professional advisors. This report provides estimates based on our general understanding of current tax laws. Each scenario shown illustrates your current situation or an alternative strategy 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 over any other strategy. Calculations contained in this analysis are estimates only based on the 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 be significantly different from those illustrated. These assumptions are only a “best guess.” No guarantee can be made regarding values, as all rates are the hypothetical rates you provided. These computations are not a guarantee of future performance of any asset, including insurance or other financial products. No legal or accounting advice is being rendered either by this report or through any other oral or written communications. Nothing contained in this report is intended to be used on any tax form or to support any tax deduction. Unless indicated, the tax aspect of the federal Generation-Skipping Transfer Tax (GSTT) is not reflected. The GSTT is similar to an additional level of estate tax on certain transfers to grandchildren, or individuals two or more generations removed from the transferor. State laws vary regarding the distribution of property, and individual circumstances are unique and subject to change. You should discuss all strategies, transfers, and assumptions with your legal and tax advisors. To implement a strategy, it may be necessary to restructure the ownership of property, or change designated beneficiaries before specific will or trust 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 prior owner for three years. Strategies may be proposed to support the purchase of various products such as insurance and other financial products. When this occurs, additional information about the specific product (including a prospectus, if required, or an insurer provided policy illustration) will be provided for your review. IMPORTANT: The projections or other information generated by this investment analysis tool (Qualified Plan Distribution Analysis) regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, this notice is to inform you that any U. S. federal tax advice contained in this presentation is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this presentation. This presentation is not a financial plan. Version 2.0.0 c. 6.0.0.0 Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 2 of 29
  • 3. "Split Benefit Roth IRA" A Multi-Generational Approach for Continuing Distributions for Bob Smith and Mary Smith This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 3 of 29
  • 4. 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 owner reaches age 70½ or retires, if less than a 5% owner. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 4 of 29
  • 5. Retirement Savings Options IRA vs. Roth vs. Taxable Accounts Pay Taxes Now or Later? The deciding factor between choosing an IRA or Roth IRA vs. Roth IRA - Values at Retirement IRA is whether you prefer paying taxes on your Taxes Higher Now Taxes Stay Same Taxes Higher in Retirement contributions (Roth IRA) or on your distributions Traditional IRA is Better Options are Equal Roth IRA is Better (Traditional IRA). So when will your taxes be higher – during your working years or during retirement? When comparing, be sure to consider your income level during each phase (both income and withdrawals from assets), in addition to potential legislative changes. The Flexibility of the Roth IRA A major advantage of the Roth IRA is the flexibility of distributions before and during retirement: Traditional IRA Roth IRA Traditional IRA Roth IRA Traditional IRA Roth IRA • Early Distributions (pre-59½) — Traditional IRAs may charge a 10% penalty, with some exceptions Traditional IRA Roth IRA Income Taxes while there is no penalty on withdrawals of contributions from a Roth IRA • Required Distributions (after 70½) — 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 $361,711 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: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 5 of 29
  • 6. Comparing IRA with Roth IRA Conversion Hypothetical Sample Conversion of Traditional IRA to Roth IRA Example: • Currently age 55 • $1,000,000 IRA growing at an assumed 6% • Considering conversion to Roth IRA at age 60 • $500,000 Other Assets earning 6% before taxes • Believes that income tax rates will be higher during retirement Traditional IRA Roth IRA Roth IRA Major Difference-Distributions No Conversion Taxes Using Other Assets for Taxes1 Using IRA for Taxes1 Traditional IRAs 9,000,000 • Must take required minimum 8,000,000 distributions starting at age 70½. (No 7,000,000 distributions required in 2009.) 6,000,000 5,000,000 • Distributions are taxable as ordinary 4,000,000 income. 3,000,000 Roth IRAs 2,000,000 1,000,000 • No required distributions • Distributions are income tax-free. 55 60 65 70 75 80 85 55 60 65 70 75 80 85 55 60 65 70 75 80 85 Traditional IRA Other Assets Roth IRA The Roth IRA provides a source Other Other Other of tax-free income to use or 2 Age IRA Assets Total Roth IRA Assets Total Roth IRA Assets Total leave to heirs. 55 1,000,000 500,000 1,500,000 1,000,000 500,000 1,500,000 1,000,000 500,000 1,500,000 60 1,418,519 651,130 2,069,649 1,418,519 316,574 1,735,093 1,063,889 666,185 1,730,074 65 1,898,299 811,427 2,709,725 1,898,299 396,035 2,294,333 1,423,724 831,714 2,255,438 75 2,700,282 1,593,510 4,293,792 3,399,564 585,518 3,985,082 2,549,673 1,227,897 3,777,569 85 2,825,207 3,360,645 6,185,852 6,088,101 838,001 6,926,101 4,566,075 1,752,932 6,319,007 2 Total Funds at Age 90 Total Funds at Age 90 Total Funds at Age 90 $7,273,841 $9,149,932 $8,205,030 1 For this illustration, income tax rates are assumed to be 25% for 15 years, and 40% thereafter. Example assumes the net distributions after taxes are deposited into the Other 2 Assets. IRA balance would be subject to income taxation upon distribution or at death. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 6 of 29
  • 7. Decisions Regarding Your Account Determining How Long Distributions Can Be Taken Beneficiary Designation—determines who will benefit from your retirement account and for how long. It involves: • Naming the beneficiary(ies) • Giving a spouse the ability to roll the account over to a Roth IRA • Deciding if and when to split the account into multiple Roth IRAs Your choice of beneficiary determines the life expectancy over which distributions can be taken after your death. The longer the life expectancy, the longer the distribution period Proper beneficiary designations "stretch" distributions for a longer period of time Account Distributions—determine when and how much to take from your retirement account. • You may take distributions penalty free starting the later of five years after your first contribution, or attaining age 59½, subject to a few exceptions. • You are not required to take distributions during your lifetime. • Your beneficiaries are required to take distributions from the Roth IRA according to the same rules as Inherited Traditional IRAs. • Your beneficiaries' life expectancies are determined annually using the Single Life Table. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 7 of 29
  • 8. Illustration of Multi-Generational Approaches Total Distributions Compared Beginning Account Balance December 31, 2008: $500,000 Converted Roth IRA Converted Split Benefit Roth IRA Converted Split Benefit Roth IRA Rollover Approach Rollover and Split Approach Non-Spouse Split Approach Owner's Owner's Owner's Converted Converted Converted Roth IRA Roth IRA Roth IRA Distributions to Bob: $63,347 Distributions to Bob: $63,347 Distributions to Bob: $63,347 Spouse's Roth IRA Continues to Spouse's Non-Spouse Beneficiaries Rollover Rollover Roth IRA Roth IRA Distributions to Mary: $0 Distributions to Mary: $0 (No Distributions to Spouse) Decedent's Decedent's Decedent's Decedent's Decedent's Decedent's Decedent's Roth IRA Roth IRA Roth IRA Roth IRA Roth IRA Roth IRA Roth IRA Distributions to Beneficiaries: $6,277,618 Distributions to Beneficiaries: $12,076,168 Distributions to Beneficiaries: $10,931,235 Total Distributions: Total Distributions: Total Distributions: $6,340,966 $12,139,515 $10,994,582 NOTE: See Comparing Multi-Generational Approaches for details. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 8 of 29
  • 9. Comparing Multi-Generational Approaches An Explanation of Different Techniques Converted Roth IRA Converted Split Benefit Roth IRA Converted Split Benefit Roth IRA Rollover Approach Rollover and Split Approach Non-Spouse Split Approach • You convert your Traditional IRA to a Roth • You convert your Traditional IRA to a Roth • You convert your Traditional IRA to a Roth IRA and name Mary as your primary IRA and name Mary as your primary IRA and take distributions of $63,347 during beneficiary for this Roth IRA. You take beneficiary for this Roth IRA. You take your lifetime. distributions of $63,347 during your lifetime distributions of $63,347 during your lifetime • At your death, the Roth IRA is split into and, at your death, Mary rolls over the Roth and, at your death, Mary rolls over the Roth separate Roth IRAs with named beneficiaries. IRA. IRA. Distributions continue to each beneficiary • Mary names beneficiaries for the Roth IRA. • At your death, Mary rolls over the Roth IRA. based on his or her life expectancy. The Mary's lifetime distributions are $0. Mary's lifetime distributions are $0. distributions1 to the beneficiaries are • At Mary's death, if the Roth IRA does not split • At Mary's death, the Roth IRA is split into $10,931,235. into separate shares, distributions continue to separate Roth IRAs with named beneficiaries. each beneficiary based on the oldest Distributions continue to each beneficiary beneficiary's life expectancy. The distributions1 based on his or her life expectancy. The to the beneficiaries are $6,277,618. distributions1 to the beneficiaries are $12,076,168. Total Distributions: Total Distributions: Total Distributions: $6,340,966 $12,139,515 $10,994,582 1 Although the intent is to show the beneficiaries stretching the distributions over as many years as possible, each beneficiary could elect to take his or her share in a lump sum. The estimated lump sum available at the spouse's death in the Converted Roth IRA Rollover Approach would be $1,826,832 to be split among all named beneficiaries. The estimated lump sum available at the spouse's death in the Converted Split Benefit Roth IRA Rollover and Split Approach would be $1,826,832 to be split among all named beneficiaries. The estimated lump sum available at the owner's death in the Converted Split Benefit Roth IRA Non-Spouse Split Approach would be $1,302,506 to be split among all named beneficiaries. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 9 of 29
  • 10. Converted Roth IRA—Roth IRA Rollover Approach A Multi-Generational Approach for Continuing Distributions Bob's IRA IRA Value Now (2008): $500,000 Death Assumed (age 75): $1,302,506 Bob's death assumed in 2024. No $63,347 income or estate tax due on Roth Distributions during IRA at death. Bob's lifetime Mary rolls over the value at Bob's death. Value of Mary's Rollover Roth IRA in 2025: $1,302,506 The estate must have liquidity of $801,369 for federal estate taxes attributable to the Roth Mary dies in 2029. Values $0 IRA to provide the total included in estate. Distributions during distributions shown on Mary's lifetime this page. At Mary's death, minimum distributions continue to each beneficiary based on the life expectancy of the oldest designated beneficiary. Total Distributions to: All Non-Spouse Beneficiaries $6,277,618 Total distributions during lives of Bob, Mary and beneficiaries: $6,340,966 This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 10 of 29
  • 11. Converted Roth IRA—Roth IRA Rollover Approach A Multi-Generational Approach for Continuing Distributions Beginning Account Balance December 31, 2008: $500,000 Allocation of Distributions Income Prem. & Total of Client Spouse Life1 Earnings &2 Actual3 Taxes4 Non-Prem. Reinvested5 All Other6 Account Year Age Age Exp. Contributions Distributions Paid Gifts Spending Distributions Assets Balance 2009 60 59 25.2 33,730 19,841 0 0 0 19,841 3,083,394 513,889 2010 61 60 24.4 34,625 21,061 6,118 0 0 14,943 3,163,504 527,453 2011 62 61 23.5 35,486 22,445 6,443 0 0 16,002 3,246,385 540,494 Bob converts the Traditional IRA to a Roth IRA in 2012. Taxes of $162,148 are due on the conversion and are paid from Other Assets. Allocation of Distributions Income Prem. & Total of Roth Client Spouse Life1 Earnings &2 Actual3 Taxes4 Non-Prem. Reinvested5 All Other6 Account Year Age Age Exp. Contributions Distributions Paid Gifts Spending Distributions Assets Balance 2012 63 62 578,328 0 6,867 0 0 -6,867 3,331,974 578,328 2013 64 63 40,483 0 162,290 0 0 -162,290 3,236,534 618,811 2014 65 64 43,317 0 0 0 0 0 3,304,502 662,128 2015 66 65 46,349 0 0 0 0 0 3,373,896 708,477 2016 67 66 49,593 0 0 0 0 0 3,444,748 758,070 2017 68 67 53,065 0 0 0 0 0 3,517,088 811,135 2018 69 68 56,779 0 0 0 0 0 3,590,947 867,915 2019 70 69 60,754 0 0 0 0 0 3,666,356 928,669 2020 71 70 65,007 0 0 0 0 0 3,743,350 993,675 2021 72 71 69,557 0 0 0 0 0 3,821,960 1,063,233 2022 73 72 74,426 0 0 0 0 0 3,902,221 1,137,659 2023 74 73 79,636 0 0 0 0 0 3,984,168 1,217,295 2024 75 74 85,211 0 0 0 0 0 4,067,836 1,302,506 Bob dies and Mary rolls over the Roth IRA. Total distributions during Bob's lifetime are $63,347. 1 Bob's death is assumed to occur in 2024. Mary is named beneficiary. For Traditional IRA, 403(b) or other Qualified Plans, Bob takes required minimum distributions (RMDs) at 2 age 70½ and calculates life expectancy annually based on the Single Life Expectancy Table. After conversion to Roth IRA, Bob no longer takes RMDs. 3 Assumes qualified plan earns 7.00% interest. Also includes contributions, if any. For Traditional IRA, 403(b) or other Qualified Plans, Actual Distributions is the greater of pretax distribution required to generate the Desired Distribution (see Assumptions 4 page) or RMD. After conversion to Roth IRA, distributions are assumed to be made from Other Assets during the 5 year holding period after Roth conversion. 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 5 Traditional IRA amount converted to Roth IRA. Conversions in year 2010 only will be reported as taxable income Actual Distributions less Taxes and Penalties, Non-Premium Gifts and Spending. After Roth conversion, Other Assets are used to the extent possible to pay the income taxes 6 on Traditional IRA amounts converted to Roth IRA. All Other Assets and Cumulative Reinvested Distributions are assumed to earn 3.00% interest and are taxed at a 30.00% income tax rate. Does not include the death benefit of life insurance. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 11 of 29
  • 12. Converted Roth IRA—Roth IRA Rollover Approach (Continued) A Multi-Generational Approach for Continuing Distributions Allocation of Distributions Income Prem. & Total of Roth Spouse Life1 Earnings &2 Actual3 Taxes4 Non-Prem. Reinvested5 All Other6 Account Year Age Exp. Contributions Distributions Paid Gifts Spending Distributions Assets Balance 2025 75 91,175 0 0 0 0 0 4,153,260 1,393,681 2026 76 97,558 0 0 0 0 0 4,240,479 1,491,239 2027 77 104,387 0 0 0 0 0 4,329,529 1,595,626 2028 78 111,694 0 0 0 0 0 4,420,449 1,707,320 2029 79 119,512 0 0 0 0 0 4,505,468 1,826,832 Total distributions during Mary's lifetime are $0. At Mary's death, the Roth IRA is distributed to the named beneficiaries. Estate taxes of $801,369 will be due on these amounts. 1 2 Bob's death is assumed to occur in 2024. Mary is named beneficiary. 3 Assumes qualified plan earns 7.00% interest. Also includes contributions, if any. For Traditional IRA, 403(b) or other Qualified Plans, Actual Distributions is the greater of pretax distribution required to generate the Desired Distribution (see Assumptions 4 page) or RMD. After conversion to Roth IRA, distributions are assumed to be made from Other Assets during the 5 year holding period after Roth conversion. 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 5 Traditional IRA amount converted to Roth IRA. Conversions in year 2010 only will be reported as taxable income Actual Distributions less Taxes and Penalties, Non-Premium Gifts and Spending. After Roth conversion, Other Assets are used to the extent possible to pay the income taxes 6 on Traditional IRA amounts converted to Roth IRA. All Other Assets and Cumulative Reinvested Distributions are assumed to earn 3.00% interest and are taxed at a 30.00% income tax rate. Does not include the death benefit of life insurance. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 12 of 29
  • 13. Converted Roth IRA—Roth IRA Rollover Approach Next Generation after Mary's Death Account Balance: $1,826,832 Life1 Actual2 Account3 Year Age Exp. Distributions Balance 2030 55 29.6 61,717 1,892,993 2031 56 28.6 66,189 1,959,314 2032 57 27.6 70,990 2,025,476 2033 58 26.6 76,146 2,091,114 2034 59 25.6 81,684 2,155,808 2035 60 24.6 87,634 2,219,080 2036 61 23.6 94,029 2,280,386 2037 62 22.6 100,902 2,339,111 2038 63 21.6 108,292 2,394,557 2039 64 20.6 116,241 2,445,935 2040 65 19.6 124,793 2,492,358 2041 66 18.6 133,998 2,532,826 2042 67 17.6 143,911 2,566,213 2043 68 16.6 154,591 2,591,257 2044 69 15.6 166,106 2,606,538 2045 70 14.6 178,530 2,610,466 2046 71 13.6 191,946 2,601,253 2047 72 12.6 206,449 2,576,892 2048 73 11.6 222,146 2,535,128 2049 74 10.6 239,163 2,473,424 2050 75 9.6 257,648 2,388,915 2051 76 8.6 277,781 2,278,359 2052 77 7.6 299,784 2,138,060 2053 78 6.6 323,948 1,963,775 2054 79 5.6 350,674 1,750,566 2055 80 4.6 380,558 1,492,547 2056 81 3.6 414,597 1,182,429 2057 82 2.6 454,780 810,419 2058 83 1.6 506,512 360,636 2059 84 0.6 385,881 0 Total: $6,277,618 1 2 Calculated on December 31 of the year following death and reduced by one each year thereafter. 3 Distributions from Roth IRA are assumed to be income tax free. Assumes qualified plan earns 7.00% interest. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 13 of 29
  • 14. The Split Benefit Roth IRA—Rollover to Spouse and Split A Multi-Generational Approach for Continuing Distributions Bob's IRA IRA Value Now (2008): $500,000 Death Assumed (age 75): $1,302,506 Bob's death assumed in 2024. No $63,347 income or estate tax due on Roth Distributions during IRA at death. Bob's lifetime Mary rolls over the value at Bob's death. Value of Mary's Roth IRA in 2025: $1,302,506 The estate must have liquidity of $801,369 for federal estate taxes attributable to the Roth Mary dies in 2029. Values $0 IRA to provide the total included in estate. Distributions during distributions shown on Mary's lifetime this page. Roth IRA splits into separate shares at Mary's death. Distributions are based on the life expectancy of each named beneficiary. Total Distributions to: Total Distributions to: Total Distributions to: Johnny Sally Sarah $2,071,614 $2,457,732 $7,546,822 Total distributions during lives of Bob, Mary and beneficiaries: $12,139,515 This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 14 of 29
  • 15. The Split Benefit Roth IRA—Rollover to Spouse and Split A Multi-Generational Approach for Continuing Distributions Beginning Account Balance December 31, 2008: $500,000 Allocation of Distributions Income Prem. & Total of Client Spouse Life1 Earnings &2 Actual3 Taxes4 Non-Prem. Reinvested5 All Other6 Account Year Age Age Exp. Contributions Distributions Paid Gifts Spending Distributions Assets Balance 2009 60 59 25.2 33,730 19,841 0 0 0 19,841 3,083,394 513,889 2010 61 60 24.4 34,625 21,061 6,118 0 0 14,943 3,163,504 527,453 2011 62 61 23.5 35,486 22,445 6,443 0 0 16,002 3,246,385 540,494 Bob converts the Traditional IRA to a Roth IRA in 2012. Taxes of $162,148 are due on the conversion and are paid from Other Assets. Allocation of Distributions Income Prem. & Total of Roth Client Spouse Life1 Earnings &2 Actual3 Taxes4 Non-Prem. Reinvested5 All Other6 Account Year Age Age Exp. Contributions Distributions Paid Gifts Spending Distributions Assets Balance 2012 63 62 578,328 0 6,867 0 0 -6,867 3,331,974 578,328 2013 64 63 40,483 0 162,290 0 0 -162,290 3,236,534 618,811 2014 65 64 43,317 0 0 0 0 0 3,304,502 662,128 2015 66 65 46,349 0 0 0 0 0 3,373,896 708,477 2016 67 66 49,593 0 0 0 0 0 3,444,748 758,070 2017 68 67 53,065 0 0 0 0 0 3,517,088 811,135 2018 69 68 56,779 0 0 0 0 0 3,590,947 867,915 2019 70 69 60,754 0 0 0 0 0 3,666,356 928,669 2020 71 70 65,007 0 0 0 0 0 3,743,350 993,675 2021 72 71 69,557 0 0 0 0 0 3,821,960 1,063,233 2022 73 72 74,426 0 0 0 0 0 3,902,221 1,137,659 2023 74 73 79,636 0 0 0 0 0 3,984,168 1,217,295 2024 75 74 85,211 0 0 0 0 0 4,067,836 1,302,506 Bob dies and Mary rolls over the Roth IRA. Total distributions during Bob's lifetime are $63,347. 1 Bob's death is assumed to occur in 2024. Mary is named beneficiary. For Traditional IRA, 403(b) or other Qualified Plans, Bob takes required minimum distributions (RMDs) at 2 age 70½ and calculates life expectancy annually based on the Single Life Expectancy Table. After conversion to Roth IRA, Bob no longer takes RMDs. 3 Assumes qualified plan earns 7.00% interest. Also includes contributions, if any. For Traditional IRA, 403(b) or other Qualified Plans, Actual Distributions is the greater of pretax distribution required to generate the Desired Distribution (see Assumptions 4 page) or RMD. After conversion to Roth IRA, distributions are assumed to be made from Other Assets during the 5 year holding period after Roth conversion. 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 5 Traditional IRA amount converted to Roth IRA. Conversions in year 2010 only will be reported as taxable income Actual Distributions less Taxes and Penalties, Non-Premium Gifts and Spending. After Roth conversion, Other Assets are used to the extent possible to pay the income taxes 6 on Traditional IRA amounts converted to Roth IRA. All Other Assets and Cumulative Reinvested Distributions are assumed to earn 3.00% interest and are taxed at a 30.00% income tax rate. Does not include the death benefit of life insurance. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 15 of 29
  • 16. The Split Benefit Roth IRA—Rollover to Spouse and Split A Multi-Generational Approach for Continuing Distributions Allocation of Distributions Income Prem. & Total of Roth Spouse Life1 Earnings &2 Actual3 Taxes4 Non-Prem. Reinvested5 All Other6 Account Year Age Exp. Contributions Distributions Paid Gifts Spending Distributions Assets Balance 2025 75 91,175 0 0 0 0 0 4,153,260 1,393,681 2026 76 97,558 0 0 0 0 0 4,240,479 1,491,239 2027 77 104,387 0 0 0 0 0 4,329,529 1,595,626 2028 78 111,694 0 0 0 0 0 4,420,449 1,707,320 2029 79 119,512 0 0 0 0 0 4,505,468 1,826,832 Total distributions during Mary's lifetime are $0. At Mary's death, the Roth IRA is distributed to the named beneficiaries. Estate taxes of $801,369 will be due on these amounts. 1 2 Bob's death is assumed to occur in 2024. Mary is named beneficiary. 3 Assumes qualified plan earns 7.00% interest. Also includes contributions, if any. For Traditional IRA, 403(b) or other Qualified Plans, Actual Distributions is the greater of pretax distribution required to generate the Desired Distribution (see Assumptions 4 page) or RMD. After conversion to Roth IRA, distributions are assumed to be made from Other Assets during the 5 year holding period after Roth conversion. 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 5 Traditional IRA amount converted to Roth IRA. Conversions in year 2010 only will be reported as taxable income Actual Distributions less Taxes and Penalties, Non-Premium Gifts and Spending. After Roth conversion, Other Assets are used to the extent possible to pay the income taxes 6 on Traditional IRA amounts converted to Roth IRA. All Other Assets and Cumulative Reinvested Distributions are assumed to earn 3.00% interest and are taxed at a 30.00% income tax rate. Does not include the death benefit of life insurance. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 16 of 29
  • 17. The Split Benefit Roth IRA—Rollover to Spouse and Split Next Generation after Mary's Death Account Balance: $602,855 Account Balance: $602,855 Account Balance: $621,123 Johnny Sally Sarah Life1 Actual2 Account3 Life1 Actual2 Account3 Life1 Actual2 Account3 Year Age Exp. Distributions Balance Age Exp. Distributions Balance Age Exp. Distributions Balance 2030 55 29.6 20,367 624,688 51 33.3 18,104 626,951 28 55.3 11,232 653,370 2031 56 28.6 21,842 646,574 52 32.3 19,410 651,427 29 54.3 12,033 687,073 2032 57 27.6 23,427 668,407 53 31.3 20,812 676,214 30 53.3 12,891 722,277 2033 58 26.6 25,128 690,068 54 30.3 22,317 701,232 31 52.3 13,810 759,026 2034 59 25.6 26,956 711,416 55 29.3 23,933 726,386 32 51.3 14,796 797,362 2035 60 24.6 28,919 732,296 56 28.3 25,667 751,565 33 50.3 15,852 837,326 2036 61 23.6 31,030 752,528 57 27.3 27,530 776,645 34 49.3 16,984 878,954 2037 62 22.6 33,298 771,907 58 26.3 29,530 801,480 35 48.3 18,198 922,283 2038 63 21.6 35,736 790,204 59 25.3 31,679 825,904 36 47.3 19,499 967,344 2039 64 20.6 38,359 807,159 60 24.3 33,988 849,730 37 46.3 20,893 1,014,166 2040 65 19.6 41,182 822,478 61 23.3 36,469 872,742 38 45.3 22,388 1,062,769 2041 66 18.6 44,219 835,832 62 22.3 39,136 894,697 39 44.3 23,990 1,113,173 2042 67 17.6 47,490 846,850 63 21.3 42,005 915,322 40 43.3 25,708 1,165,387 2043 68 16.6 51,015 855,115 64 20.3 45,090 934,304 41 42.3 27,551 1,219,413 2044 69 15.6 54,815 860,158 65 19.3 48,410 951,296 42 41.3 29,526 1,275,246 2045 70 14.6 58,915 861,454 66 18.3 51,983 965,903 43 40.3 31,644 1,332,870 2046 71 13.6 63,342 858,413 67 17.3 55,833 977,684 44 39.3 33,915 1,392,255 2047 72 12.6 68,128 850,374 68 16.3 59,981 986,141 45 38.3 36,351 1,453,362 2048 73 11.6 73,308 836,592 69 15.3 64,454 990,718 46 37.3 38,964 1,516,133 2049 74 10.6 78,924 816,230 70 14.3 69,281 990,787 47 36.3 41,767 1,580,496 2050 75 9.6 85,024 788,342 71 13.3 74,495 985,647 48 35.3 44,773 1,646,357 2051 76 8.6 91,668 751,858 72 12.3 80,134 974,508 49 34.3 47,999 1,713,603 2052 77 7.6 98,929 705,560 73 11.3 86,240 956,484 50 33.3 51,460 1,782,096 2053 78 6.6 106,903 648,046 74 10.3 92,863 930,575 51 32.3 55,173 1,851,670 2054 79 5.6 115,722 577,687 75 9.3 100,062 895,654 52 31.3 59,159 1,922,128 2055 80 4.6 125,584 492,541 76 8.3 107,910 850,439 53 30.3 63,437 1,993,240 2056 81 3.6 136,817 390,202 77 7.3 116,499 793,472 54 29.3 68,029 2,064,738 2057 82 2.6 150,078 267,438 78 6.3 125,948 723,067 55 28.3 72,959 2,136,311 2058 83 1.6 167,149 119,010 79 5.3 136,428 637,254 56 27.3 78,253 2,207,600 2059 84 0.6 127,341 0 80 4.3 148,199 533,663 57 26.3 83,939 2,278,192 Total: $2,071,614 1 2 Calculated on December 31 of the year following death and reduced by one each year thereafter. 3 Distributions from Roth IRA are assumed to be income tax free. Assumes qualified plan earns 7.00% interest. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 17 of 29
  • 18. The Split Benefit Roth IRA—Rollover to Spouse and Split Next Generation after Mary's Death Sally Sarah Life1 Actual2 Account3 Life1 Actual2 Account3 Age Exp. Distributions Balance Age Exp. Distributions Balance 81 3.3 161,716 409,303 58 25.3 90,047 2,347,619 82 2.3 177,958 259,997 59 24.3 96,610 2,415,342 83 1.3 199,997 78,199 60 23.3 103,663 2,480,753 84 0.3 83,673 0 61 22.3 111,245 2,543,162 Total: $2,457,732 62 21.3 119,397 2,601,786 63 20.3 128,167 2,655,744 64 19.3 137,603 2,704,043 65 18.3 147,762 2,745,564 66 17.3 158,703 2,779,050 67 16.3 170,494 2,803,090 68 15.3 183,208 2,816,097 69 14.3 196,930 2,816,294 70 13.3 211,751 2,801,684 71 12.3 227,779 2,770,022 72 11.3 245,135 2,718,789 73 10.3 263,960 2,645,144 74 9.3 284,424 2,545,880 75 8.3 306,733 2,417,359 76 7.3 331,145 2,255,429 77 6.3 358,005 2,055,305 78 5.3 387,793 1,811,383 79 4.3 421,252 1,516,928 80 3.3 459,675 1,163,438 81 2.3 505,842 739,036 82 1.3 568,489 222,279 83 0.3 237,839 0 Total: $7,546,822 1 2 Calculated on December 31 of the year following death and reduced by one each year thereafter. 3 Distributions from Roth IRA are assumed to be income tax free. Assumes qualified plan earns 7.00% interest. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 18 of 29
  • 19. The Split Benefit Roth IRA—Rollover to Spouse and Split Wealth Transfer Costs Beginning Account Balance December 31, 2008: $500,000 Continuation of this analysis assumes that Mary's estate has Client Spouse Account Other Year Age Age Balance Assets1 sufficient cash liquidity for all transfer costs without using this Roth IRA. 2009 60 59 513,889 3,083,394 2010 61 60 527,453 3,163,504 Bob's Death Occurs in Year 2024 2011 62 61 540,494 3,246,385 Total of Other Assets1 $4,067,836 Bob converts the Traditional IRA to a Roth IRA in 2012. Taxes of Life insurance on Bob inside of estate2 $0 $162,148 are due on the conversion and are paid from Other Estimated Account Balance $1,302,506 Assets. Estimated share of estate taxes3 $0 Roth Liquidity needed to continue this approach $0 Client Spouse Account Other Existing life insurance on Bob outside of estate4 $0 Year Age Age Balance Assets1 Proposed new life insurance outside of estate4 $0 2012 63 62 578,328 3,331,974 Mary's Death Occurs in Year 2029 2013 64 63 618,811 3,236,534 Total of Other Assets1 $4,505,468 2014 65 64 662,128 3,304,502 Life insurance on Mary inside of estate2 $0 2015 66 65 708,477 3,373,896 Estimated Account Balance $1,826,832 2016 67 66 758,070 3,444,748 Estimated share of estate taxes3 $801,369 2017 68 67 811,135 3,517,088 Liquidity needed to continue this approach $801,369 2018 69 68 867,915 3,590,947 Existing life insurance on Mary outside of estate4 $0 2019 70 69 928,669 3,666,356 2020 71 70 993,675 3,743,350 2021 72 71 1,063,233 3,821,960 2022 73 72 1,137,659 3,902,221 2023 74 73 1,217,295 3,984,168 2024 75 74 1,302,506 4,067,836 Mary rolls over the Roth IRA at Bob's death in 2024. Total distributions during Bob's lifetime are $63,347. 1 Other Assets are assumed to be inherited by the surviving spouse and to qualify for the marital deduction. Other Assets are assumed to earn 3.00% interest and are taxed at a 2 30.00% income tax rate. 3 Life insurance included in the deceased's estate is assumed to be added to Other Assets. Estate tax calculations are based on the total of the Account Balance, the Other Assets, and any Life Insurance included in the estate. No probate fees or expenses are 4 considered. Mary's Applicable Credit Amount is considered in estimating taxes. Estimated Share of Estate Taxes is the ratio that the Account Balance bears to the Total Estate. Life insurance outside the deceased's estate is assumed to be paid directly to heirs and will not be in the estate of the surviving spouse. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 19 of 29
  • 20. The Split Benefit Roth IRA—Rollover to Spouse and Split Wealth Transfer Costs Roth Spouse Account Other Year Age Balance Assets1 2025 75 1,393,681 4,153,260 2026 76 1,491,239 4,240,479 2027 77 1,595,626 4,329,529 2028 78 1,707,320 4,420,449 2029 79 1,826,832 4,505,468 At Mary's death, the Roth IRA is distributed to the named beneficiaries. Estate taxes of $801,369 will be due on these amounts. 3 1 Other Assets are assumed to be inherited by the surviving spouse and to qualify for the marital deduction. Other Assets are assumed to earn 3.00% interest and are taxed at a 2 30.00% income tax rate. 3 Life insurance included in the deceased's estate is assumed to be added to Other Assets. Estate tax calculations are based on the total of the Account Balance, the Other Assets, and any Life Insurance included in the estate. No probate fees or expenses are considered. Spouse's Applicable Credit Amount is considered in estimating taxes. Estimated Share of Estate Taxes is the ratio that the Account Balance bears to the Total 4 Estate. Life insurance outside the deceased's estate is assumed to be paid directly to heirs and will not be in the estate of the surviving spouse. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 20 of 29
  • 21. The Split Benefit Roth IRA—Non-Spouse Beneficiary Approach A Multi-Generational Approach for Continuing Distributions (With A Non-Spouse Beneficiary) Bob's IRA IRA Value Now (2008): $500,000 Death Assumed (age 75): $1,302,506 Value of Bob's Roth IRA in 2025: $1,302,506 The estate must have liquidity of $125,078 for federal estate taxes attributable to the Roth Bob dies in 2024. Values $63,347 IRA to provide the total included in estate. Distributions during distributions shown on Bob's lifetime this page. Roth IRA splits into separate shares at Bob's death. Distributions are based on the life expectancy of each named beneficiary. Total Distributions to: Total Distributions to: Total Distributions to: Johnny Sally Sarah $1,827,301 $2,177,520 $6,926,414 Total distributions during lives of Bob and beneficiaries: $10,994,582 This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 21 of 29
  • 22. The Split Benefit Roth IRA—Non-Spouse Beneficiary Approach A Multi-Generational Approach for Continuing Distributions Beginning Account Balance December 31, 2008: $500,000 Allocation of Distributions Income Prem. & Total of Client Life1 Earnings &2 Actual3 Taxes4 Non-Prem. Reinvested5 All Other6 Account Year Age Exp. Contributions Distributions Paid Gifts Spending Distributions Assets Balance 2009 60 25.2 33,730 19,841 0 0 0 19,841 3,083,394 513,889 2010 61 24.4 34,625 21,061 6,118 0 0 14,943 3,163,504 527,453 2011 62 23.5 35,486 22,445 6,443 0 0 16,002 3,246,385 540,494 Bob converts the Traditional IRA to a Roth IRA in 2012. Taxes of $162,148 are due on the conversion and are paid from Other Assets. Allocation of Distributions Income Prem. & Total of Roth Client Life1 Earnings &2 Actual3 Taxes4 Non-Prem. Reinvested5 All Other6 Account Year Age Exp. Contributions Distributions Paid Gifts Spending Distributions Assets Balance 2012 63 578,328 0 6,867 0 0 -6,867 3,331,974 578,328 2013 64 40,483 0 162,290 0 0 -162,290 3,236,534 618,811 2014 65 43,317 0 0 0 0 0 3,304,502 662,128 2015 66 46,349 0 0 0 0 0 3,373,896 708,477 2016 67 49,593 0 0 0 0 0 3,444,748 758,070 2017 68 53,065 0 0 0 0 0 3,517,088 811,135 2018 69 56,779 0 0 0 0 0 3,590,947 867,915 2019 70 60,754 0 0 0 0 0 3,666,356 928,669 2020 71 65,007 0 0 0 0 0 3,743,350 993,675 2021 72 69,557 0 0 0 0 0 3,821,960 1,063,233 2022 73 74,426 0 0 0 0 0 3,902,221 1,137,659 2023 74 79,636 0 0 0 0 0 3,984,168 1,217,295 2024 75 77,888 0 0 0 0 0 4,067,836 1,302,506 At Bob's death, the Roth IRA is distributed to the named beneficiaries. Estate taxes of $125,078 attributable to the account balance will be due at Bob's death. 1 Bob's death is assumed to occur in 2024. Each beneficiary continues to receive a distribution based on his or her life expectancy. For Traditional IRA, 403(b) or other Qualified Plans, Bob takes required minimum distributions (RMDs) at age 70½ and calculates life expectancy annually based on the Single Life Expectancy Table. After conversion to 2 Roth IRA, Bob no longer takes RMDs. 3 Assumes qualified plan earns 7.00% interest. Also includes contributions, if any. For Traditional IRA, 403(b) or other Qualified Plans, Actual Distributions is the greater of pretax distribution required to generate the Desired Distribution (see Assumptions 4 page) or RMD. After conversion to Roth IRA, distributions are assumed to be made from Other Assets during the 5 year holding period after Roth conversion. 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 5 Traditional IRA amount converted to Roth IRA. Conversions in year 2010 only will be reported as taxable income Actual Distributions less Taxes and Penalties, Non-Premium Gifts and Spending. After Roth conversion, Other Assets are used to the extent possible to pay the income taxes 6 on Traditional IRA amounts converted to Roth IRA. All Other Assets and Cumulative Reinvested Distributions are assumed to earn 3.00% interest and are taxed at a 30.00% income tax rate. Does not include the death benefit of life insurance. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 22 of 29
  • 23. The Split Benefit Roth IRA—Non-Spouse Beneficiary Approach Next Generation after Bob's Death Account Balance: $429,827 Account Balance: $429,827 Account Balance: $442,852 Johnny Sally Sarah Life1 Actual2 Account3 Life1 Actual2 Account3 Life1 Actual2 Account3 Year Age Exp. Distributions Balance Age Exp. Distributions Balance Age Exp. Distributions Balance 2025 50 34.2 12,568 447,347 46 37.9 11,341 448,574 23 60.1 7,369 466,483 2026 51 33.2 13,474 465,187 47 36.9 12,156 467,817 24 59.1 7,893 491,244 2027 52 32.2 14,447 483,303 48 35.9 13,031 487,534 25 58.1 8,455 517,176 2028 53 31.2 15,490 501,644 49 34.9 13,969 507,691 26 57.1 9,057 544,321 2029 54 30.2 16,611 520,054 50 33.9 14,976 528,169 27 56.1 9,703 572,665 2030 55 29.2 17,810 538,648 51 32.9 16,054 549,087 28 55.1 10,393 602,359 2031 56 28.2 19,101 557,252 52 31.9 17,213 570,310 29 54.1 11,134 633,390 2032 57 27.2 20,487 575,773 53 30.9 18,457 591,775 30 53.1 11,928 665,799 2033 58 26.2 21,976 594,101 54 29.9 19,792 613,408 31 52.1 12,779 699,626 2034 59 25.2 23,575 612,112 55 28.9 21,225 635,121 32 51.1 13,691 734,908 2035 60 24.2 25,294 629,666 56 27.9 22,764 656,816 33 50.1 14,669 771,683 2036 61 23.2 27,141 646,602 57 26.9 24,417 678,376 34 49.1 15,717 809,984 2037 62 22.2 29,126 662,738 58 25.9 26,192 699,670 35 48.1 16,840 849,843 2038 63 21.2 31,261 677,869 59 24.9 28,099 720,548 36 47.1 18,043 891,289 2039 64 20.2 33,558 691,762 60 23.9 30,148 740,838 37 46.1 19,334 934,345 2040 65 19.2 36,029 704,156 61 22.9 32,351 760,345 38 45.1 20,717 979,032 2041 66 18.2 38,690 714,757 62 21.9 34,719 778,850 39 44.1 22,200 1,025,364 2042 67 17.2 41,556 723,234 63 20.9 37,266 796,104 40 43.1 23,790 1,073,349 2043 68 16.2 44,644 729,216 64 19.9 40,005 811,826 41 42.1 25,495 1,122,989 2044 69 15.2 47,975 732,287 65 18.9 42,954 825,700 42 41.1 27,323 1,174,275 2045 70 14.2 51,569 731,977 66 17.9 46,129 837,371 43 40.1 29,284 1,227,190 2046 71 13.2 55,453 727,763 67 16.9 49,549 846,438 44 39.1 31,386 1,281,708 2047 72 12.2 59,653 719,054 68 15.9 53,235 852,454 45 38.1 33,641 1,337,786 2048 73 11.2 64,201 705,186 69 14.9 57,212 854,914 46 37.1 36,059 1,395,373 2049 74 10.2 69,136 685,413 70 13.9 61,505 853,253 47 36.1 38,653 1,454,396 2050 75 9.2 74,501 658,891 71 12.9 66,144 846,838 48 35.1 41,436 1,514,768 2051 76 8.2 80,353 624,661 72 11.9 71,163 834,953 49 34.1 44,421 1,576,380 2052 77 7.2 86,758 581,628 73 10.9 76,601 816,799 50 33.1 47,625 1,639,102 2053 78 6.2 93,811 528,531 74 9.9 82,505 791,470 51 32.1 51,062 1,702,777 2054 79 5.2 101,641 463,888 75 8.9 88,929 757,944 52 31.1 54,752 1,767,219 1 2 Calculated on December 31 of the year following death and reduced by one each year thereafter. 3 Distributions from Roth IRA are assumed to be income tax free. Assumes qualified plan earns 7.00% interest. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 23 of 29
  • 24. The Split Benefit Roth IRA—Non-Spouse Beneficiary Approach Next Generation after Bob's Death Johnny Sally Sarah Life1 Actual2 Account3 Life1 Actual2 Account3 Life1 Actual2 Account3 Year Age Exp. Distributions Balance Age Exp. Distributions Balance Age Exp. Distributions Balance 2055 80 4.2 110,449 385,911 76 7.9 95,942 715,057 53 30.1 58,712 1,832,213 2056 81 3.2 120,597 292,327 77 6.9 103,631 661,480 54 29.1 62,963 1,897,505 2057 82 2.2 132,876 179,914 78 5.9 112,115 595,668 55 28.1 67,527 1,962,804 2058 83 1.2 149,928 42,580 79 4.9 121,565 515,800 56 27.1 72,428 2,027,772 2059 84 0.2 45,560 0 80 3.9 132,256 419,650 57 26.1 77,692 2,092,023 Total: $1,827,301 81 2.9 144,707 304,318 58 25.1 83,348 2,155,118 82 1.9 160,168 165,453 59 24.1 89,424 2,216,552 83 0.9 177,035 0 60 23.1 95,955 2,275,756 Total: $2,177,520 61 22.1 102,975 2,332,083 62 21.1 110,525 2,384,804 63 20.1 118,647 2,433,093 64 19.1 127,387 2,476,023 65 18.1 136,797 2,512,547 66 17.1 146,933 2,541,493 67 16.1 157,857 2,561,541 68 15.1 169,638 2,571,210 69 14.1 182,355 2,568,840 70 13.1 196,095 2,552,564 71 12.1 210,956 2,520,288 72 11.1 227,053 2,469,655 73 10.1 244,520 2,398,010 74 9.1 263,518 2,302,353 75 8.1 284,241 2,179,277 76 7.1 306,940 2,024,886 77 6.1 331,949 1,834,680 78 5.1 359,741 1,603,366 79 4.1 391,065 1,324,537 80 3.1 427,270 989,984 81 2.1 471,421 587,862 82 1.1 534,420 94,592 1 2 Calculated on December 31 of the year following death and reduced by one each year thereafter. 3 Distributions from Roth IRA are assumed to be income tax free. Assumes qualified plan earns 7.00% interest. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 24 of 29
  • 25. The Split Benefit Roth IRA—Non-Spouse Beneficiary Approach Next Generation after Bob's Death Sarah Life1 Actual2 Account3 Age Exp. Distributions Balance 83 0.1 101,214 0 Total: $6,926,414 1 2 Calculated on December 31 of the year following death and reduced by one each year thereafter. 3 Distributions from Roth IRA are assumed to be income tax free. Assumes qualified plan earns 7.00% interest. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 25 of 29
  • 26. The Split Benefit Roth IRA—Non-Spouse Beneficiary Approach Wealth Transfer Costs Beginning Account Balance December 31, 2008: $500,000 Continuation of this analysis assumes that Bob's estate has sufficient Client Spouse Account Other Year Age Age Balance Assets1 cash liquidity for all transfer costs without using this Roth IRA. Bob's Death Occurs in Year 2024 2009 60 59 513,889 3,083,394 Total of Other Assets1 $4,067,836 2010 61 60 527,453 3,163,504 Life insurance on Bob inside of estate2 $0 2011 62 61 540,494 3,246,385 Estimated Account Balance $1,302,506 Bob converts the Traditional IRA to a Roth IRA in 2012. Taxes of Estimated share of estate taxes3 $125,078 $162,148 are due on the conversion and are paid from Other Assets. Liquidity needed to continue this approach $125,078 Roth Existing life insurance on Bob outside of estate4 $0 Client Spouse Account Other Proposed new life insurance outside of estate4 $0 Year Age Age Balance Assets1 Mary's Death Occurs in Year 2029 2012 63 62 578,328 3,331,974 Total of Other Assets1 $4,505,468 2013 64 63 618,811 3,236,534 Life insurance on Mary inside of estate2 $0 2014 65 64 662,128 3,304,502 Estimated Account Balance $1,620,889 2015 66 65 708,477 3,373,896 Estimated share of estate taxes3 $704,963 2016 67 66 758,070 3,444,748 Liquidity needed to continue this approach $704,963 2017 68 67 811,135 3,517,088 Existing life insurance on Mary outside of estate4 $0 2018 69 68 867,915 3,590,947 2019 70 69 928,669 3,666,356 2020 71 70 993,675 3,743,350 2021 72 71 1,063,233 3,821,960 2022 73 72 1,137,659 3,902,221 2023 74 73 1,217,295 3,984,168 2024 75 74 1,302,506 4,067,836 Bob dies in year 2024. At Bob's death, the Roth IRA is distributed to the named beneficiaries. Estate taxes of $125,078 will be due on these amounts. 1 Other Assets are assumed to be inherited by the surviving spouse and to qualify for the marital deduction. Other Assets are assumed to earn 3.00% interest and are taxed at a 2 30.00% income tax rate. 3 Life insurance included in the deceased's estate is assumed to be added to Other Assets. Estate tax calculations are based on the total of the Account Balance, the Other Assets, and any Life Insurance included in the estate. No probate fees or expenses are 4 considered. Bob's Applicable Credit Amount is considered in estimating taxes. Estimated Share of Estate Taxes is the ratio that the Account Balance bears to the Total Estate. Life insurance outside the deceased's estate is assumed to be paid directly to heirs and will not be in the estate of the surviving spouse. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 26 of 29
  • 27. Assumptions Details and Assumptions for Split Benefit Roth IRA 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 $3,000,000. 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%. There may be instances when a distribution from the Roth IRA could be taxable. Split Benefit Roth IRA Assumptions Current qualified plan amount is $500,000, with a growth rate of 7.00%. Hypothetical rates of return illustrated are not associated with any particular investment product. The account balance is grown pro-rata based on the date entered. Distribution from the Roth IRA are generally not taxable. There are no Required Minimum Distributions from Qualified Plans for 2009 only. Beneficiary Information Beneficiary Name Date of Birth Percentage Split Johnny January 1, 1975 33.00% Sally January 1, 1979 33.00% Sarah January 1, 2002 34.00% These illustrations assume all distributions to non-spouse beneficiaries are income tax free. 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 50 or over). 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. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 27 of 29
  • 28. Assumptions (Continued) Details and Assumptions for Split Benefit Roth IRA Calculations 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. 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. 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. Roth IRA Rollover Assumptions Bob is not required to take distributions. Mary is named beneficiary. Each non-spouse beneficiary takes distributions based on the single life expectancy of the oldest beneficiary, minus one each year, if the beneficiaries failed to split the Roth IRA into separate accounts by December 31 of the year following the year of your death. Split Benefit Roth IRA-Rollover and Split Assumptions Bob is not required to take distributions. Mary is named beneficiary. After your death Mary rolls over the balance and continues distributions based on his/her own life expectancy according to the Uniform Lifetime Table. At Bob's death, the IRA is split into separate IRAs with named beneficiaries. Distributions continue to each beneficiary at Bob's death calculated on the named beneficiary's life expectancy as of 12/31 in the year following Mary's death. Mary's estate is assumed to have cash liquidity to fund estate taxes outside of IRAs for this analysis. Split Benefit Roth IRA-Non-Spouse Beneficiary Assumptions Bob is not required to take distributions. At your death, the roth IRA is split into Roth IRAs with each non-spouse beneficiary. Your death is assumed in year 2024. Your estate is assumed to have enough cash liquidity outside of Roth IRAs in this analysis. Each non-spouse beneficiary continues taking distributions based on his or her life expectancy and is assumed to live to the life expectancy used in the illustration. Distributions continue to each beneficiary at your death calculated on the named beneficiary's life expectancy as of 12/31 following your death. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 28 of 29
  • 29. Assumptions (Continued) Details and Assumptions for Split Benefit Roth IRA Calculations Distribution Assumptions A qualified distribution from a Roth IRA is generally any payment or distribution made after the 5-taxable-year period beginning with the first year for which a contribution was made to a Roth IRA set up for you, and that is made on or after you reach age 59½, along with some other exceptions. Part of any distribution that is not a qualified distribution may be taxable as ordinary income and subject to the additional 10% tax on early distributions. Distributions of conversion contributions within a 5-year period following a conversion may be subject to the 10% early distribution tax, even if the contributions have been included as income in an early year. Distributions from a Roth IRA are generally not taxable. Desired distributions from the qualified plan for premiums, expenses, or gifts are deducted from the Account Balance of the owner and/or spouse. If the Account Balance is not sufficient, the payments will still be assumed made from other assets of the owner or spouse and will be deducted from any "Other Assets" shown. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU August 14, 2009 For Evaluation Purposes Only 29 of 29

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