Introduction To Tax-Efficient Investing (Part 1)

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This "Introduction To Tax-Efficient Investing" webinar was the first of a four-part series with Advisors4Advisors on tax-efficient Investing. Advisors4Advisors members can view the on-demand webinar replay and receive CFP and IMCA CE credit at http://bit.ly/taxefficient1

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  • Bush tax cuts on income tax rates will also expire in 2012. This creates other opportunities.
  • Introduction to 3.8% surtax
  • This slide shows the effect of surtax on taxpayers in different marginal tax brackets
  • Here’s how the surtax is calculated
  • The key to understanding the surtax is understanding the meaning of some key terms.
  • The surtax only applies to net investment income. Here’s what the term means
  • The threshold amounts for applying the surtax vary depending on filing status
  • Introduction To Tax-Efficient Investing (Part 1)

    1. 1. Tax-Efficient Investing Webinar SeriesTax-Aware Investing--It’s The After-Tax Return That Counts! Part 1 of 4 Presented by: Robert S. Keebler, CPA, MST, AEP (Distinguished) Keebler & Associates, LLP 420 S. Washington St. Green Bay, WI 54301 Phone: (920) 593-1701 Robert.Keebler@keeblerandassociates.comCircular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice containedin this communication, including attachments, was not written to be used and cannot be used for the purpose of (i) avoiding tax-related penaltiesunder the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein. If youwould like a written opinion upon which you can rely for the purpose of avoiding penalties, please contact us.
    2. 2. Tax Aware Investing KEY TOPICS • Tax Structure– Determining the “optimum” mix of taxable investments, tax-deferred investments and tax-free investments (i.e. Where should retirement savings be invested?) • Tax-Sensitive Asset Allocation – Understanding the impact that income taxation has on asset allocation and diversification • Asset Location – Identifying which assets to place in certain investment vehicles • Retirement Distribution Strategies to Last a Lifetime – Integrating tax structure, tax-sensitive allocation and asset location to ensure that retirement funds will last a lifetime 2SM Tax Asset Classes is a service mark of Robert S. Keebler, CPA, MST, AEP and Keebler & Associates, LLP
    3. 3. Tax Structure Determining the “Optimum” Mix of Investment Vehicles/Structures 3SM Tax Asset Classes is a service mark of Robert S. Keebler, CPA, MST, AEP and Keebler & Associates, LLP
    4. 4. TAX ASSET CLASSESSM Real Estate, Roth IRA Interest Capital Gain Tax Pension Dividend Oil & Gas and and Income Income Exempt and Income Tax Exempt Insurance Interest IRA Income Bonds - Taxable -Preferential - Tax Free Rate - Tax - Tax Growth/ -Deferral until Deferred Preferences Benefits sale • Money • Equity • Equity • Bonds issued by • Pension plans Real Estate Roth IRA market securities Securities State and local • Profit sharing • Depreciation • Tax-free • Corporate Governmental plans tax shield growth during bonds Attributes Attributes entities • Annuities • 1031 lifetime • US Treasury • Qualified • Deferral exchanges • No 70½ RMD bonds dividends at until sale Attributes Attributes • Deferral on • Tax-free LTCG rate • Reduced • Federal tax • Growth during growth until distributions Attributes • Return of capital gains exempt lifetime sale out to • Annual capital rate • State tax exempt • RMD for IRA beneficiaries income tax dividend • Step-up and qualified Oil & Gas life expectancy on interest • Capital gain basis at plans • Large up • Taxed at dividends death • No step-up front IDC Life Insurance highest deductions • Tax-deferred marginal • Depletion growth rates allowances • Tax-exempt payout at© 2011 Prepared by Robert S. Keebler, CPA, MST, AEP (Distinguished) deathKeebler & Associates, LLPAll Rights Reservedrobert.keebler@keeblerandassociates.comPursuant to the rules of professional conduct set forth in Circular 230, as promulgated by the United States Department of the Treasury, nothing contained in this communication was intended or written to be used by any taxpayer for the purpose of avoidi ngpenalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose. No one, without our express prior written permission, may use or refer to any tax advice in this communication inpromoting, marketing, or recommending a partnership or other entity, investment plan or arrangement to any other party.For discussion purposes only. This work is intended to provide general information about the tax and other laws applicable to retirement benefits. The author, his firm or anyone forwarding or reproducing this work shall have neither liability norresponsibility to any person or entity with respect to any loss or damage caused, or alleged to be caused, directly or indirectly by the information contained in this work. This work does not represent tax, accounting, or legal advice. The individual taxpayeris advised to and should rely on their own advisors. 4 SM Tax Asset Classes is a service mark of Robert S. Keebler, CPA, MST, AEP and Keebler & Associates, LLP
    5. 5. Income Taxation Basics of Retirement Investments Three Main Types of Retirement Investment Accounts • Taxable investment accounts – income generated within the account (i.e. interest, dividends, capital gains, etc.) are taxed each year to the account owner • Tax-deferred investment accounts (e.g. traditional IRAs, traditional qualified retirement plans, non-qualified annuities, deferred compensation) – income generated within the account is not taxeduntil distributions are taken from the account • Tax-free investment accounts (e.g. Roth IRAs, life insurance) – income generated within the accountisnever taxed when distributions are made (provided certain qualifications are met)© 2011 Keebler & Associates, LLPAl Rights Reserved. 5
    6. 6. Income Taxation Basics of Retirement Investments Common Assets in a Client’s Portfolio • IRA Accounts • Roth IRA Accounts • ERISA Plans • Tax-Deferred Annuities • Life Insurance • Stocks, Bonds, Warrants, Options • Employer NSOs and ISOs • Employer Deferred Compensation • Real Estate • Oil & Gas • U.S. Savings Bonds© 2011 Keebler & Associates, LLPAl Rights Reserved. 6
    7. 7. Income Taxation Basics of Retirement Investments • 2011 Ordinary Income Rates Married Qualified Married Filing Head of Single Widow(er) Filing Jointly Separately Household 10% Tax Rate $8,500 $17,000 $17,000 $8,500 $12,150 15% Tax Rate $34,500 $69,000 $69,000 $34,500 $46,250 25% Tax Rate $83,600 $139,350 $139,350 $69,675 $119,400 28% Tax Rate $174,400 $212,300 $212,300 $106,150 $193,350 33% Tax Rate $379,150 $379,150 $379,150 $189,575 $379,150 35% Tax Rate > $379,150 > $379,150 > $379,150 > $189,575 > $379,150 • Capital Gain – 0% rate if you are in the 10% or 15% bracket – 15% rate if you are in the 25%, 28%, 33% or 35% bracket© 2011 Keebler & Associates, LLPAl Rights Reserved. 7
    8. 8. Income Taxation Basics of Retirement Investments Long-Term Ordinary Income Capital Gains 2013 & 2013& 2011 & 2012 Beyond1 2011 & 2012 Beyond* 10% 15% 0% 10% / 8% 15% 15% 15% 20% / 18% 25% 28% *NOTE: In general, the 8% and 18% capital 28% 31% gains rates only apply to long-term capital gains on property that has been held more than five 33% 36% years at the time of sale. 35% 39.6% For the 18% rate, the property must be purchased after December 31, 2000.© 2011 Keebler & Associates, LLPAl Rights Reserved. 8
    9. 9. Income Taxation Basics of Retirement Investments New 3.8% Medicare “Surtax” Beginning with the 2013 tax year, a new 3.8% Medicare “surtax” on net investment income will apply to all taxpayers whose income exceeds a certain “threshold amount”. This new “surtax” will, in essence, raise the marginal income tax rate for affected taxpayers. • Thus, a taxpayer in the 39.6% tax bracket (i.e. the highest marginal income tax rate in 2013) would have a federal marginal rate of 43.4%!© 2011 Keebler & Associates, LLPAl Rights Reserved. 9
    10. 10. Income Taxation Basics of Retirement Investments New 3.8% Medicare “Surtax” Tax Rate in Tax Rate in Tax Rate in 2013+ 2011 & 2012 2013 (w/surtax) 10% 15% 15% 15% 15% 15% 25% 28% 28% 28% 31% 34.8% 33% 36% 39.8% 35% 39.6% 43.4% NOTE: The chart above assumes that the 3.8% Medicare surtax would not begin to apply until a person’s taxable income reaches the 31% tax bracket (based on certain net investment income and itemized deduction assumptions). However, there are times, though unlikely, when the 3.8% could apply to a person in a lower tax bracket (i.e. 15%, 28%) or may not apply to a person in higher tax brackets (31%, 36%, 39.6%).© 2011 Keebler & Associates, LLPAl Rights Reserved. 10
    11. 11. Income Taxation Basics of Retirement Investments New 3.8% Medicare “Surtax” APPLICATION TO INDIVIDUALS – the new Medicare surtax is equal to 3.8% times the lesser of the following: 1. “Net investment income”, OR 2. The excess (if any) of – a. “Modified adjusted gross income” (“MAGI”) for such taxable year, over the b. “Threshold amount”© 2011 Keebler & Associates, LLPAl Rights Reserved. 11
    12. 12. Income Taxation Basics of Retirement Investments New 3.8% Medicare “Surtax” Three critical terms are associated with the 3.8% Medicare surtax: • “Net investment income” • “Threshold amount” • “Modified adjusted gross income” (“MAGI”)© 2011 Keebler & Associates, LLPAl Rights Reserved. 12
    13. 13. Income Taxation Basics of Retirement Investments New 3.8% Medicare “Surtax” • “Net investment income” is defined as interest, dividends, annuities, rents, royalties, income derived from a passive activity, and net capital gain derived from the disposition of property (other than property held in an active trade or business), reduced by deductions properly allocable to such income. • Specifically, this does notinclude the following: 1. Income derived from an active trade or business; 2. Distributions from IRAs or their qualified plans; 3. Any income taken into account for self-employment tax purposes; 4. Gain on the sale of an active interest in a partnership or S corporation; or 5. Items which are otherwise excluded or exempt from income under income tax law, such as interest from tax-exempt bonds, capital gain excluded on the sale of a principal residence under IRC 121, and veteran’s benefits.© 2011 Keebler & Associates, LLPAl Rights Reserved. 13
    14. 14. Income Taxation Basics of Retirement Investments New 3.8% Medicare “Surtax” “Threshold amount”is the key factor in determining the “lesser of” formula for purposes of calculating the surtax. Threshold amounts • Single taxpayers - $200,000 • Married, filing jointly taxpayers - $250,000 • Estates/trusts - $11,350 (i.e. top income tax bracket in 2011)© 2011 Keebler & Associates, LLPAl Rights Reserved. 14
    15. 15. Investment Incentives in the Tax Code • Qualified dividends • Long-term capital gains • Qualified retirement accounts (e.g. 401(k) plan) • Roth IRAs/Roth 401(k) plans • Real estate depreciation • Oil & gas • Life insurance • Non-qualified annuities • Master Limited Partnerships (MLPs) • Index options© 2011 Keebler & Associates, LLPAl Rights Reserved. 15
    16. 16. Deductible IRAs, Pension Plan Incentives and Deferred Compensation • Deductible contributions • Tax deferred growth • Taxable withdrawals • Net Unrealized Appreciation (NUA) • Lump-sum averaging • Aggregation of accounts • Roth IRA conversions© 2011 Keebler & Associates, LLPAl Rights Reserved. 16
    17. 17. Roth IRA and Roth 401(K) Incentives • Non-deductible contributions • Tax-free growth • Non-taxable withdrawals for “qualified distributions” • Five-year rule & Age 59 ½ Rule© 2011 Keebler & Associates, LLPAl Rights Reserved. 17
    18. 18. Qualified Dividend Incentives • Taxation of Interest Income - Ordinary Income • Taxation of Traditional Dividends- Ordinary Income • Taxation of “Qualified Dividends” – Capital Gains Rate of 15%© 2011 Keebler & Associates, LLPAl Rights Reserved. 18
    19. 19. Capital Gains Incentives • Gains Deferred until Property is Sold • Short-term Gains are Taxed at Ordinary Rates • Long-term Gainsare Taxed at Lower Tax Rates • Step-up in Basis at Death • Gifts to Charity or a Charitable Trust that do not Trigger Tax© 2011 Keebler & Associates, LLPAl Rights Reserved. 19
    20. 20. Real Estate Incentives • Interest Deductions • Depreciation Tax Shield • 1031 Tax-free Exchanges • Step-up in Basis at Death© 2011 Keebler & Associates, LLPAl Rights Reserved. 20
    21. 21. Oil and Gas Incentives • Intangible drilling costs (IDCs) provide a large immediate income tax deduction (up to 85% of the initial investment) • Losses, if any, created as a result of IDCs will be ordinary (thus lowering a taxpayer’s AGI) • Must be a general partner in the first year • Possible AMT add-back issues if IDCs exceed 40% of AMTI • Depletion and other depreciation (including Section 179 expensing) provide for additional deductions during the term of the investment • Additional tax credits may be available for certain oil & gas ventures • AMT Issues© 2011 Keebler & Associates, LLPAll Rights Reserved. 21
    22. 22. Life Insurance Incentives • Tax-Deferred Growth • Tax-Free Death Benefit • Tax-Free Basis Distributions First • Tax-Free Loans • All Contracts are Treated Separately • Modified Endowment Restrictions© 2011 Keebler & Associates, LLPAll Rights Reserved. 22
    23. 23. Nonqualified Annuity Incentives • Tax-deferred Growth • Pro-rate Basis Distributions if Annuitized • All Contracts are Treated Separately© 2011 Keebler & Associates, LLPAll Rights Reserved. 23
    24. 24. Retirement Assets How are Distributions Taxed? Basis Tax-Free Earnings Loans IRA(1) Pro rata Method N/A Pro rataMethod ERISA Plan Pro rata Method N/A Pro rataMethod Roth IRA(2) Basis First N/A Earnings Follow Non-qualified Annuity Basis Follows N/A Earnings First Life Insurance(3) Basis First Available Earnings Follow Non-Modified Endowment Contract Life Insurance(4) Earnings First N/A Basis Follows Modified Endowment Contract 1. All IRAs are combined for the distribution computation 2. All Roth IRAs are combined for the distribution computation 3. Loans available, with interest to the extent of cash surrender 4. Each contract is treated separately for distribution purposes© Robert S. Keebler, CPA, MST, AEPKeebler & Associates, LLPAll Rights Reserved 24
    25. 25. Annuities and Modified Endowment Contracts Tax Attributes Attributes Non-qualified Annuity MEC During Life Cash value growth Income tax deferred Same Lifetime distributions Taxable as income to the extent of Same growth, followed by recovery of basis 10% penalty on distribution before 10% penalty on taxable amount Same age 59 ½ unless an exception applies Exceptions to 10% penalty Taxpayer’s age 59 ½ or disability, Same without death owner’s death, series of substantially equal periodic payments Gifts of contract during life Donor pays income tax on any gain No income tax to in the contract donor or donee At Death Death proceeds Amount in excess of basis in the Generally, 100% free from income contract is taxed as ordinary income tax to the beneficiary to the beneficiary© 2011 Keebler & Associates, LLPAl Rights Reserved. 25
    26. 26. Incentives for Master Limited Partnerships • Cash Distributions are often Tax-free • Depreciation Tax-shield • Reduction in Basis • Step-up in Basis at Depth© 2011 Keebler & Associates, LLPAl Rights Reserved. 26
    27. 27. Incentives for Listed Index Options • 60% Long-term Capital Gain • 40% Short-term Capital Gain • Effective Tax Rate of 23% – ((15% X 60%) + (35% X 40%)) • “Marked to Market” Taxation at Year End© 2011 Keebler & Associates, LLPAl Rights Reserved. 27
    28. 28. Blending Tax and Finance • Asset “Allocation” • Tax Incentives • Asset “Location”© 2011 Keebler & Associates, LLPAl Rights Reserved. 28
    29. 29. Common Problems Blending Tax and Finance • Large IRAs and Qualified Plans • Minimal IRAs and Qualified Plans • High Turnover Investments© 2011 Keebler & Associates, LLPAl Rights Reserved. 29
    30. 30. The Mathematics of Wealth Creation© 2011 Keebler & Associates, LLPAl Rights Reserved. 30
    31. 31. Traditional IRA/Roth IRA Key Assumptions • Beginning Age: 30 • Ending Age: 65 (i.e. retirement) • Annual Contribution (Age 30 – 49): $5,000 • Annual Contribution (Age 50 – 65): $6,000 • Ordinary Income Tax Rate (@ contribution): 25% • Ordinary Income Tax Rate (@ distribution): 25% • Long-Term Capital Gains Tax Rate: 15% • Annual Income/Growth Rate: 6%© 2011 Keebler & Associates, LLPAl Rights Reserved. 31
    32. 32. Scenarios 1. Deductible Traditional IRA vs. Taxable Investment Account (Bond Portfolio) 2. Deductible Traditional IRA vs. Taxable Investment Account (Stock Portfolio w/100% Turnover) 3. Deductible Traditional IRA vs. Taxable Investment Account (Stock Portfolio w/10% Turnover) 4. Non-Deductible Traditional IRA vs. Taxable Investment Account (Bond Portfolio) 5. Non-Deductible Traditional IRA vs. Taxable Investment Account (Stock Portfolio w/100% Turnover)© 2011 Keebler & Associates, LLPAl Rights Reserved. 32
    33. 33. Scenarios 6. Non-Deductible Traditional IRA vs. Taxable Investment Account (Stock Portfolio w/10% Turnover) 7. Roth IRA vs. Taxable Investment Account (Bond Portfolio) 8. Roth IRA vs. Taxable Investment Account (Stock Portfolio w/100% Turnover) 9. Roth IRA vs. Taxable Investment Account (Stock Portfolio w/10% Turnover) 10. Deductible Traditional IRA vs. Roth IRA 11. Non-Deductible Traditional IRA vs. Roth IRA© 2011 Keebler & Associates, LLPAl Rights Reserved. 33
    34. 34. Deductible Traditional IRA vs. Taxable Investment Account (Bond Portfolio) Total Investment Balance $700,000 COMMENT: Tax-deferred $600,000 growth over time allows for $500,000 more wealth to accumulate. $400,000 $300,000 $200,000 $100,000 $- 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Deductible Traditional IRA Taxable Investment Account© 2011 Keebler & Associates, LLPAl Rights Reserved. 34
    35. 35. Deductible Traditional IRA vs. Taxable Investment Account (Stock Portfolio w/100% Turnover) Total Investment Balance $700,000 COMMENT: Tax-deferred growth $600,000 over time allows for more wealth $500,000 to accumulate, even with lower capital gains tax rates $400,000 $300,000 $200,000 $100,000 $- 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Deductible Traditional IRA Taxable Investment Account© 2011 Keebler & Associates, LLPAl Rights Reserved. 35
    36. 36. Deductible Traditional IRA vs. Taxable Investment Account (Stock Portfolio w/10% Turnover) Total Investment Balance $700,000 COMMENT: Tax-deferred growth over $600,000 time allows for more wealth to $500,000 accumulate. However, with low turnover and lower capital gains tax rates, the $400,000 taxable investment stays pretty close. $300,000 $200,000 $100,000 $- 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Deductible Traditional IRA Taxable Investment Account© 2011 Keebler & Associates, LLPAl Rights Reserved. 36
    37. 37. Non-Deductible Traditional IRA vs. Taxable Investment Account (Bond Portfolio) Total Investment Balance $600,000 COMMENT: Tax-deferred growth over $500,000 time allows for more wealth to accumulate. However, without any $400,000 income tax deduction, the traditional IRA is not as favorable. $300,000 $200,000 $100,000 $- 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Non-Deductible Traditional IRA Taxable Investment Account© 2011 Keebler & Associates, LLPAl Rights Reserved. 37
    38. 38. Non-Deductible Traditional IRA vs. Taxable Investment Account (Stock Portfolio w/100% Turnover) Total Investment Balance $600,000 COMMENT: Tax-deferred growth over $500,000 time allows for more wealth to accumulate. However, without any $400,000 income tax deduction and lower capital gains tax rates, the IRA barely breaks $300,000 even with a taxable investment. $200,000 $100,000 $- 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Taxable Investment Account Non-Deductible Traditional IRA© 2011 Keebler & Associates, LLPAl Rights Reserved. 38
    39. 39. Non-Deductible Traditional IRA vs. TaxableInvestment Account (Stock Portfolio w/10% Turnover) Total Investment Balance $600,000 COMMENT: Even with tax-deferred $500,000 growth, the taxable investment is better over time because of the $400,000 lower capital gains tax rates. $300,000 $200,000 $100,000 $- 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Taxable Investment Account Non-Deductible Traditional IRA © 2011 Keebler & Associates, LLP Al Rights Reserved. 39
    40. 40. Roth IRA vs. Taxable Investment Account (Bond Portfolio) Total Investment Balance $700,000 COMMENT: Tax-free growth $600,000 over time allows for more $500,000 wealth to accumulate. $400,000 $300,000 $200,000 $100,000 $- 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Roth IRA Taxable Investment Account© 2011 Keebler & Associates, LLPAl Rights Reserved. 40
    41. 41. Roth IRA vs. Taxable Investment Account (Stock Portfolio w/100% Turnover) Total Investment Balance $700,000 COMMENT: Tax-free growth over $600,000 time allows for more wealth to $500,000 accumulate, even with lower capital gains tax rates. $400,000 $300,000 $200,000 $100,000 $- 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Roth IRA Taxable Investment Account© 2011 Keebler & Associates, LLPAl Rights Reserved. 41
    42. 42. Roth IRA vs. Taxable Investment Account (Stock Portfolio w/10% Turnover) Total Investment Balance $700,000 COMMENT: Tax-free growth over time allows $600,000 for more wealth to accumulate, though low $500,000 turnover and lower capital gains tax rates even-up the two investments. $400,000 $300,000 $200,000 $100,000 $- 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Roth IRA Taxable Investment Account© 2011 Keebler & Associates, LLPAl Rights Reserved. 42
    43. 43. Deductible Traditional IRA vs. Roth IRA Total Investment Balance $700,000 COMMENT: Assuming tax rates are the $600,000 same in the contribution years as in $500,000 the withdrawal years, a deductible traditional IRA and Roth IRA will come $400,000 out to be roughly the same. The only slight difference is due to the after-tax $300,000 rate of return in the “side fund”. $200,000 $100,000 $- 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Roth IRA Deductible Traditional IRA© 2011 Keebler & Associates, LLPAl Rights Reserved. 43
    44. 44. Non-Deductible Traditional IRA vs. Roth IRA Total Investment Balance $700,000 COMMENT: Assuming tax rates are the $600,000 same in the contribution years as in $500,000 the withdrawal years, a Roth IRA will come out ahead because there is no $400,000 reinvestment opportunity with a non- deductible traditional IRA. $300,000 $200,000 $100,000 $- 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 Roth IRA Non-Deductible Traditional IRA© 2011 Keebler & Associates, LLPAl Rights Reserved. 44
    45. 45. Traditional IRA/Roth IRA Observations (What Have We Learned?) • Bonds (or other ordinary income producing assets) should be placed in IRAs (traditional/Roth) instead of taxable investment accounts • Lower turnover equity investments (i.e. long-term capital gain assets) should be positioned in taxable investment accounts • Roth IRAs are slightly better than deductible traditional IRAs and taxable investment accounts with low turnover equity investments • Roth IRAs are much better than non-deductible traditional IRAs and taxable investment accounts with ordinary income producing assets)© 2011 Keebler & Associates, LLPAl Rights Reserved. 45
    46. 46. Tax-Deferred Annuity/Life Insurance Key Assumptions • Beginning Age: 30 • Ending Age: 65 (i.e. retirement) • Initial Investment: $50,000 • Ordinary Income Tax Rate: 25% • Long-Term Capital Gains Tax Rate: 15% • Annual Income/Growth Rate: 6% • Annual Yield Rate (Tax-Deferred Annuity): 6% • Annual Yield Rate (Life Insurance): 6%© 2011 Keebler & Associates, LLPAl Rights Reserved. 46

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