A Look at IRAs Beyond Retirement

1. Consumer Seminar A Look at IRAs Beyond Retirement OLA 968 T 1008

2. This material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. This material was written to support the promotion or marketing of the products, services, and/or concepts addressed in this material. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely solely on their own independent advisors regarding their particular situations and the concepts presented here.

3. A Look at IRAs Beyond Retirement • Seminar focus: Stretch-out strategies for Individual Retirement Accounts (IRAs) • Strategies can also pertain to rollovers from employer-sponsored qualified retirement plans such as 401(k), pension, and profit-sharing plans • Your plan’s document may differ in types of strategies it allows versus those highlighted in this seminar • Consult your qualified retirement plan administrator and your tax advisor prior to requesting or making a rollover

4. What Is the Stretch-Out IRA Strategy? • Passes your IRA assets to your beneficiary(ies) • Stretches out income and continues IRA’s tax-deferred growth

5. Is a Stretch-Out IRA for You? • You should consider it if: • You have substantial wealth • You don’t need your IRA assets during retirement • You want to create a legacy for your loved ones

6. Your Stretch-Out IRA Planning Team Your Stretch-Out IRA planning team should consist of your: • Attorney • Accountant/CPA • Insurance Representative

7. Taxation and IRAs • Traditional IRA is tax-deferred, not tax-exempt • Distributions are taxed as ordinary income • Taxable to IRA holder

8. Required Minimum Distribution (RMD) Rules • RMD rules force you to take IRA money • You must take distributions after you turn 70½ or a 50% penalty applies • You then have to take IRA distributions at least annually

9. RMD Rules (Cont.) • Required Minimum Distributions based on simplified life expectancy tables • Distributions may be made as withdrawals or annuity payments • IRA owner can name and change beneficiaries as often as he/she wishes • Beneficiary choices may not change after death

10. Treasury Regulation § 1.401(a)(9) Uniform Lifetime Table • Most IRA owners over age 70½ can now use Uniform Lifetime Table for RMD calculations • Distribution period based on individual’s age and beneficiary 10 years younger • If married to spouse more than 10 years younger, IRA owner can use actual joint life expectancy • Table determines minimum required amount, but larger distributions may be taken

11. Estate Planning for IRAs • What you should consider: • IRA assets are not subject to probate if beneficiary other than estate is named • IRAs cannot be gifted or transferred during IRA owner’s lifetime • IRA’s value is included in IRA owner’s gross estate

12. Estate Planning for IRAs (Cont.) • Increased estate tax exemption of up to $3.5 million per decedent through 2009 • Complete estate tax elimination in 2010 • Estate taxes return in 2011 with $1 million exemption per decedent • Base estate planning on current tax law

13. Estate Planning for IRAs (Cont.) • Without a properly executed estate plan, a substantial amount of IRA assets could be lost at death to federal estate and income taxes, as well as state taxes!

14. Estate Planning for IRAs(Cont.) • Choice of beneficiaries is key to how IRA is stretched out • Legacy can continue for future generations

15. Options for Payment of Estate Taxes • To pay estate taxes and other costs at death, beneficiaries can use: • IRA assets • Other assets • Life insurance proceeds

16. Where Does Life Insurance Fit In? • Beneficiaries may have to deplete your IRA assets or sell other assets to pay estate taxes • Life insurance can help provide needed funds to pay associated taxes • IRA assets can be kept intact to pass on

17. Important Planning Considerations • Starting the Stretch-Out IRA Strategy • Carefully choose IRA custodian • Discuss estate plan with advisors and IRA custodian to make sure it can accommodate your wishes • To stretch out IRA assets, IRA has to remain in name of deceased for nonspouse beneficiaries • Example: Mary Jones, deceased, FBO Joan Smith

18. Life Insurance Planning • Establish Family Trust that purchases fixed or variable universal life insurance • Family Trust will help assure that life insurance proceeds are not included in estate • Helps provide funds needed to offset estate and transfer taxes at death • You gift money to Family Trust each year to pay insurance policy premiums* *Consult your tax advisor regarding whether or not this gift qualifies under annual gift tax exclusion, which is $12,000 in 2008.

19. Naming Beneficiaries • You can name: • Your spouse, if you are married, • Children, grandchildren, or other individuals, • A charity, • A trust, or • A combination of the above

20. Naming Spouse as Beneficiary • Most married couples name each other as primary beneficiary • At death, spouse beneficiary can roll decedent’s IRA assets into his/her own IRA • Spouse will not have to take distributions from new IRA until after reaching age 70½ • Spouse can also disclaim inherited IRA assets if not needed

21. Example 1: The Successful Family • Sam and Susan: Wealthy, married baby boomers • Sam is 60 years old • Susan is 55 years old • Two young adult children, James (25) and Thomas (20) • Sam has $2 million IRA, $4 million in other assets • Assumed annual rate of return on IRA assets of 8% • Neither spouse will need to access IRA during their lifetimes • Susan is primary IRA beneficiary • Both want to stretch out IRA distributions and create lasting family legacy

22. Example 1: The Successful Family (Cont.) • Sam wants to pass on his IRA assets and estate to his sons • Sam and Susan establish a Family Trust

23. Example 1: The Successful Family (Cont.) • The Split-Benefit IRA—Rollover to Spouse and Split Approach Sam's IRA $2,000,000 $4,439,280 $6,040,231 IRA Value Now (2007): Distributions Start (age 70): Death Assumed (age 95): $11,043,666 Distributions during Sam’s lifetime Sam's death assumed in 2043. No income or estate tax due on IRA at death. Susan rolls over the value at Sam's death. Distributions are based on the Uniform Lifetime Table. The estate must have liquidity of $2,160,543 for federal estate taxes attributable to the IRA to provide the total distributions shown here. Value of Susan’s inherited IRA in 2044: $6,040,231 Susan dies in 2048Value included in estate $2,998,419Distributions during Susan’s lifetime IRA splits into separate shares at Susan’s death. Distributions based on life expectancy of each named beneficiary. $6,991,732 Remaining distributions $7,596,507 Remaining distributions Total distributions during lives of Sam, Susan, and each non-spouse beneficiary: $28,630,324

24. Example 1: The Successful Family (Cont.) • Purchasing the Insurance Coverage • Based on life expectancies, estate will need about $4.5 million in cash • The Successfuls consider survivorship universal life insurance policy • Family Trust is established to purchase life insurance • Gifts of cash may be made to Family Trust to pay premiums on life insurance* • Cash may be taken from IRA to make gifts *IRA distributions will be subject to income tax

25. Stretching Out the Legacy • Naming children, grandchildren, or other individuals as beneficiaries: • Gives you greater flexibility • Provides you ability to create legacy with IRA assets • Allows you to stretch out IRA assets without spousal rollover • Lets you split large IRA into several smaller “beneficiary IRAs”

26. Example 2: The Successful Family • Changing Beneficiaries • Sam Successful dies and Susan is beneficiary of his IRA • Sons James and Thomas have families of their own • Susan names James and Thomas beneficiaries of her IRA • Later, Susan decides to change beneficiary from James to trust for grandson William

27. Example 2: The Successful Family (Cont.) • Disclaiming the IRA • Thomas is already well-prepared for retirement • Susan names Thomas’s other child, Noelle, as contingent beneficiary • It is up to Thomas to disclaim his interest in Susan’s IRA after her death • Thomas has nine months to disclaim • Since Noelle is a minor, Susan may set up trust to manage assets for her

28. Example 2: The Successful Family (Cont.) • Estate Planning • Thomas sets up a Family Trust • Sam’s original $2 million IRA grows tax-deferred to provide substantial legacy for his loved ones

29. Naming a Charity as Beneficiary • Name charity(ies) as sole beneficiary(ies) of your IRA • Purchase enough life insurance to give similar benefit to your loved ones • Life insurance proceeds are generally income tax–free at death • Charitable contributions may reduce amount of estate taxes

30. Naming a Trust as Beneficiary • Gives maximum control over IRA assets after death • Distributions are paid to trust—with instructions on who receives what money and when • Will use life expectancy of oldest trust beneficiary • All trust beneficiaries must be individuals

31. Summary • Stretch-Out IRAs can create a tax-deferred legacy for your loved ones • You have many options for naming beneficiaries • Life insurance can play valuable role in Stretch-Out IRA planning

32. Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company (collectively “Transamerica”), and their representatives do not give ERISA, tax, or legal advice. This presentation is provided for informational purposes only and should not be construed as ERISA, tax, or legal advice. Clients and other interested parties must consult with and rely solely upon their own independent advisors regarding their particular situations and the concepts presented here. • Discussions of the various planning strategies and issues are based on our understanding of the applicable federal income, gift, and estate tax laws in effect at the time of this presentation. However, tax laws are subject to interpretation and change, and there is no guarantee that the relevant tax authorities will accept Transamerica’s interpretations. Additionally, this material does not take into consideration the general tax and ERISA provisions applicable to qualified retirement plans or the applicable state laws of clients and prospects. • Although care is taken in preparing this material and presenting it accurately, Transamerica disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it. This information is current as of October 2008.

33. Consumer Seminar A Look at IRAs Beyond Retirement OLA 968 T 1008