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Putting Your IRA to Work Three Strategies for Transferring Wealth

Putting Your IRA to Work Three Strategies for Transferring Wealth. PLBD.1618 ( 02.13). For agent/broker-dealer use only. Not for use with consumers. .

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Putting Your IRA to Work Three Strategies for Transferring Wealth

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  1. Putting Your IRA to WorkThree Strategies for Transferring Wealth PLBD.1618 (02.13) For agent/broker-dealer use only. Not for use with consumers.

  2. Premiums rates listed are for Protective Custom Choice UL ( UL-22), a universal life insurance policy. Protective Survivor UL, policy form UL-19 12-12, is a flexible premium second-to-die universal life insurance policy. All policies issued by Protective Life Insurance Company, Birmingham, AL. Policy form numbers, product features and availability may vary by state. Consult policies for benefits, riders, limitations and exclusions. Subject to underwriting. Up to a two-year contestable and suicide period. Benefits adjusted for misstatements of age or sex. In Montana, unisex rates apply. All payments and all guarantees are subject to the claims-paying ability of Protective Life Insurance Company. For information specific to your client’s situation, please refer to an illustration prepared especially for your client. Taking additional withdrawals from the IRA to pay life insurance premiums may not be the best alternative. Whenever life insurance premiums exceed RMDs, the client should consider paying those premiums from sources other than the IRA. The contents of this presentation are for illustration purposes only. Individual situations will be different based on age, sex, and health status of your clients. For current information, please use our ELI software or contact your Protective Life representative. Important Information

  3. ExtendCare Rider (L630 and ICC12-L630, and state variations thereof) is available only at issue. The ExtendCare Rider is intended as a non-medical supplement to traditional long-term care policies and riders.Actual terms and conditions contained in the product policy and the endorsement govern benefits provided. A portion of periodic payments may be reported as taxable income to the beneficiary. Consumers should consult their attorney or tax advisor regarding their individual situations. Please see the endorsement for more detailed information. May not be available in all states or on all currently-marketed UL products. State variations may apply. Income Provider Option (UL-E35) is issued by Protective Life Insurance Company, Birmingham, AL. All payments and all guarantees are subject to the claims-paying ability of Protective Life Insurance Company

  4. This material contains statements regarding the tax treatment of certain financial assets and transactions. These statements represent only our current understanding of the law in general and are not to be considered legal or tax advice by purchasers. The tax treatment of life insurance and Individual Retirement Accounts (IRAs) are subject to change. Income, estate, gift, and generation skipping tax rules are subject to change at any time. Neither Protective Life nor its representatives offer legal or tax advice. Purchasers should consult with their legal or tax advisor regarding their individual situations before making any tax-related decisions. The income tax on an IRA is not due until each distribution is taken. If the participant made non-deductible contributions to the IRA, a portion of the IRA proceeds may be an income tax-free return of basis. While these strategies may help reduce or eliminate income taxes, they may cause an equal or greater amount of estate taxes, depending on the client’s individual situation. Life insurance is underwritten by Protective Life Insurance Company, 2801 Highway 280 South, Birmingham, AL 35223. Important Information

  5. Are These YOUR Clients? • Retired, under age 70 • Owns an IRA • Isn’t taking any money out of IRA • If not, will they need their RMDs when they reach age 70? • Retired, over age 70 • Don’t need their RMDs • Tend to reinvest their RMDs • If it weren’t for RMDs, they wouldn’t take any money out of their IRA

  6. IRA Reviews How do we tend to look at IRAs for clients that don’t need their RMDs? • Take out an RMD • Rebalance the IRA for appropriate asset allocation (in relation to the rest of their portfolio) • Put it back in the drawer until next year • Next year. . . Repeat the process It’s not really a “long-term strategy”

  7. Consider This: When your client is forced to take an RMD they don’t need, and they ask you to reinvest it. . . You have a good opportunity to make an investment recommendation! Today you will learn about three new recommendations you can consider for those clients.

  8. Case Study • John Smith, widower, age 70 • Normal health • Survives until age 80 • IRA Balance: $500,000 • IRA Hypothetical Annual Return: 6.00% • Tax Rate for John and his heirs: 28% This case study is hypothetical and is for illustrative purposes only. Each individual situation will be different based on the age, sex and health status of your client.

  9. In The Absence Of A Strategy * Some values have been rounded for simplicity. ** Taxes include Federal and State income taxes. For information specific to your client’s situation, please refer to an illustration prepared especially for your client. Taking additional withdrawals from the IRA to pay life insurance premiums may not be the best alternative. Whenever life insurance premiums exceed RMDs, the client should consider paying those premiums from sources other than the IRA.

  10. IRA Legacy Strategies 3 IRA strategies that have the potential to: • Keep your clients’ IRA in their Care, Custody, and Control • For the rest of their life • In case of emergency • Significantly increase the value of their IRA legacy, and • Take no additional market risk in their portfolio

  11. Your money can go to three places when you’re done with it X C G L.O. Cross out the one you would least like to get your money when you’re done with it.

  12. You Have Control Today you’ll learn: • You have control over how much of your client’s money each of these three circles gets, and. . . • How much your decisions about the three circles will affect your client’s IRA legacy

  13. L.O. C G Values have been rounded for simplicity.

  14. Choose From 3 IRA Strategies • Income Tax Offset • Income Tax Elimination • Legacy Enhancement

  15. Income Tax Offset • Daughter’s estimated income taxes when she inherits $577,208* = $161,619 • Assumes taxes at 28% • Purchase a $162,000 Protective Custom ChoiceSM UL policy today on John’s life • Name the daughter as the beneficiary • It’s almost like having someone else pay the IRA income taxes for you! • What does it cost to do that? * Some values have been rounded for simplicity.

  16. Income Tax Offset • What does the life insurance policy cost? • $6,263 per year • Based on male, standard, non-tobacco underwriting class • Protective Custom Choice UL policy • Where do we find $6,263 per year? • From the RMDs that John doesn’t need • $18,249* in year 1 • $23,929* in year 5 • $30,765* in year 10 • The life insurance premium is just a fraction of the total RMD amount * Some values have been rounded for simplicity. For information specific to your client’s situation, please refer to an illustration prepared especially for your client. Taking additional withdrawals from the IRA to pay life insurance premiums may not be the best alternative. Whenever life insurance premiums exceed RMDs, the client should consider paying those premiums from sources other than the IRA.

  17. Results of Income Tax Offset • The IRA remained in John’s C-C-C (Care, Custody, and Control) • The after-tax legacy increased by over 38% • From $415,589 to $577,208* • John took no additional market or investment risk in the portfolio * Some values have been rounded for simplicity.

  18. L.O. C G Values have been rounded for simplicity.

  19. Choose From 3 IRA Strategies • Income Tax Offset • Income Tax Elimination • Legacy Enhancement

  20. Income Tax Elimination • We forecasted the future value of the IRA • Approximately $577,208 at John’s death • Instead of purchasing a $162,000 individual universal life policy, purchase a $577,208 Protective Custom Choice UL policy • Daughter as beneficiary • Daughter inherits $577,208 income-tax-free • That’s over 38% more (net after-tax) than her original $415,589 after-tax inheritance! • John names a Charity* as beneficiary of his $577,208 IRA • No income taxes are due—charities are considered exempt from paying income taxes * The term “charity,” as used in this context, means a charitable organization exempt from income tax under the Internal Revenue Code.

  21. Income Tax Elimination • What does the life insurance policy cost? • $19,936 per year • Where do we find $19,936 per year? • In part, from the RMDs that John doesn’t need • $18,249* in year 1 • $23,929* in year 5 • $30,765* in year 10 * Some values have been rounded for simplicity. For information specific to your client’s situation, please refer to an illustration prepared especially for your client. Taking additional withdrawals from the IRA to pay life insurance premiums may not be the best alternative. Whenever life insurance premiums exceed RMDs, the client should consider paying those premiums from sources other than the IRA.

  22. Results of Income Tax Elimination • IRA remained in John’s C-C-C • More than doubled the total legacy: • Original legacy was $415,589 after-tax • New legacy: • $577,208 income-tax-free to daughter • $577,208 income-tax-free to Charity • $1,154,416 total legacy • John took no additional market risk in the portfolio

  23. L.O. C G Values have been rounded for simplicity.

  24. Choose From 3 IRA Strategies • Income Tax Offset • Income Tax Elimination • Legacy Enhancement

  25. Legacy Enhancement • From a tax perspective, what is one of the worst assets to die with? IRA • If you don’t need the RMDs, then stop the growth! • Withdraw the annual earnings • $500,000 x 6% = $30,000 per year • $30,000 – 28% tax = $21,600 • $21,600 as an annual premium can purchase a $625,365 income-tax-free Protective Custom Choice UL death benefit • Based on M70, non-tobacco, standard underwriting class. • $500,000 IRA donated to Charity

  26. Results of Legacy Enhancement • IRA remained in John’s C-C-C • Increased the total legacy by over 2½ times! • Original legacy was $415,589 after-tax • New legacy: • $625,365 income-tax-free to daughter • $500,000 income-tax-free to Charity* • $1,125,365 total legacy • John took no additional market risk in the portfolio * The term “charity,” as used in this context, means a charitable organization exempt from income tax under the Internal Revenue Code.

  27. L.O. C G Values have been rounded for simplicity.

  28. Flexibility of Legacy Enhancement Clients can change how they divide the inheritance between the Loved Ones and Charity at any time prior to death.

  29. Two Innovative Optional Riders • Income Provider Option (IPO) • Provides guaranteed income payments for a period of 1-30 years • Available at no additional cost and only at policy issue • Option for partial initial lump sum payment too • Great way to create a long lasting legacy • ExtendCare • Accelerates up to 100% of the DB if client becomes chronically ill and qualifies for benefit • Indemnity Payment Method allows Benefit Payments to be made directly to the policy owner

  30. Innovative Optional Riders Can Make A Huge Difference * Based on payments for 20 years of $28,860.40 per year. Total benefit of $577.208.

  31. Make It Happen! • Right now you are probably thinking of several clients that fit these concepts • I can provide you with a hypothetical covering all three scenarios • I’ll review and discuss the hypos with you • Your clients won’t need to be involved during the initial investigative phase • Nothing will be discussed with your clients until you have a good feeling that the strategy is appropriate • I can also assist you at the client presentation The Sharing of client information without prior customer consent must be compliant with the privacy policy of your firm.

  32. Creating Hypotheticals To create the hypos, I’ll need: • Client names • Ages / DOBs • Health “guesstimate” • Do they smoke? • Current IRA value • Projected IRA annual return • Presumed age of death for each spouse The Sharing of client information without prior customer consent must be compliant with the privacy policy of your firm.

  33. Creating Hypotheticals If you have IRA potential future value software in your system, all I need is: • A printout of the IRA potential future value • Ages / DOBs • Health “guesstimate” • Do they smoke? The Sharing of client information without prior customer consent must be compliant with the privacy policy of your firm.

  34. Set Yourself Apart • These concepts can make a significant difference in your client’s portfolios • Set yourself apart from other “financial professionals” with value-added financial concepts • You can’t afford not to test these concepts with a few of your clients • I’ll have examples in your office within 48 hours

  35. Choose From 3 IRA Strategies • Income Tax Offset • Income Tax Elimination • Legacy Enhancement Offer your clients one, two, or all three!

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