The Retirement Minefield

1. The Retirement Minefield An overview of the most common IRA mistakes – and how to avoid them. Brought to you by Transamerica’s Advanced Market team AMTRMPP0712

2. Transamerica Resources, Inc. is an AEGON company and is affiliated with various companies which include, but are not limited to, insurance companies and broker-dealers. Transamerica Resources, Inc. does not offer insurance products or securities. This material is provided for informational purposes only and should not be construed as insurance, securities, ERISA, tax or investment advice. Although care has been taken in preparing this material and presenting it accurately, Transamerica Resources, Inc. disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it. interested parties must consult and rely solely upon their own independent advisors regarding their particular situation and the concepts presented here. Securities may lose value and are not insured by the FDIC or any federal government agency. May lose value.  Not a deposit or guaranteed by any bank, bank affiliate or credit union. Disclosure slide

3. Retirement Planning How things have changed! Between 1982 and 2009, the number of defined benefit (DB) plans decreased 73% (from 174,998 plans to 47,137)1 By 2009, 93% of employer sponsored retirement plans were defined contribution (DC) plans1 46% of plan participants expect their DC plan to be their most important source of retirement income2 Social Security is projected to pay full benefits until 20333 When it comes to retirement – It’s up to you! ¹ Employee Benefits Security Administration “Private Pension Plan Bulletin Historical Tables and Graphs” 2 Blackrock “Shifting Focus: From Retirement Savings to Retirement Income” 3 Social Security Administration. “Social Security Board of Trustees: Projected Trust Fund Exhaustion Three Years Sooner Than Last Year.”

4. Retirement Planning Managing Risks – things we can’t control Inflation – erodes the value of savings and purchasing power Market volatility – unpredictable returns Longevity – outliving your assets Catastrophic events – a significant impact to your income or savings Legislative changes – Social Security, Medicare, taxes Avoiding Mistakes – things we can control • Emotional errors – making investment decisions based on emotion • Failure to plan properly – relying on “rules of thumb” • IRS taxes and penalties – unnecessarily erodes the value of retirement savings

5. Avoiding IRA Mistakes – things we can control • Failure to plan properly – overlooking personal circumstances • IRS taxes and penalties – unnecessarily erodes the value of retirement savings IRA Planning Neither Transamerica nor any of its financial professionals provide tax or legal advice. You may want to talk to a tax/legal advisor before making your final purchase decision.

6. The Retirement Minefield – IRAs Broken Window: Rollover Horror Stories- By making trustee-to-trustee transfers, one can avoid triggering the 60-day requirement- Ed Slott, July 17,2011 Survivors’ Biggest Mistakes- Widows and Widowers often lose money needlessly; the IRA Rollover penalty- Kelly Greene, Wall Street Journal, November 12, 2011 Distribution Nightmare- Make this mistake with an IRA and there’s no second chance.- Gregory Bresiger, Financial Advisor magazine, March 2007 IRA Rules Get Trickier- Uncle Sam is cracking down on common retirementaccounterrors- Kelly Greene, Wall Street Journal, June 23, 2012

7. The IRA “Rule Book” • More than 100 pages • Updated annually The Retirement Minefield – IRAs Penalties Transfers Age 59 ½ Rule Form 8606 10% Additional Tax Conversions 60-Day Period for Rollovers Beneficiaries Partial Rollovers Early Distributions Form 1040 Inherited IRAs Spousal IRA Age 70 ½ Rule 2-Year Rule 20% Withholding Required Beginning Date Form 5329

8. The Retirement Minefield – IRAs IRA Rollovers Pros, cons and what’s right for you Withdrawing Income Understanding the taxes, penalties, and deadlines Beneficiary Planning Important considerations for you and your beneficiaries We’ll address common mistakes that people make in each of these areas

9. IRA Rollovers What is a Rollover? A “Rollover” is the transfer of retirement assets from one retirement plan to another retirement plan To transfer money from an employer sponsored retirement plan(e.g. 401(k) plan) to an IRA, you must be eligible to withdraw assets from the employer sponsored plan1 -Triggering events You can rollover or transfer assets in your own IRA to another IRA at any time without requiring a triggering event* *Only one IRA rollover per 12 months is permitted. 1401(k)(2)(B); 403(b)(11)

10. IRA Rollovers When can you elect a rollover to an IRA? Triggering events for employer sponsored plans1: Separation of Service - You no longer work for the employer You may not have to wait! 72% of employer sponsored plans allow you to roll over your 401(k) assets while you’re still employed2 Request your employer’s Summary Plan Description for additional information Attainment of Age 59 ½ - May be required for “in-service” rollovers Disability - You must qualify as disabled Death This applies to your beneficiary(s) You can rollover or transfer assets in your own IRA to another IRA at any time without requiring a triggering event* *Only one IRA rollover per 12 months is permitted. 1 Treas. Reg. 1.401-1(b), 1.403(b)-6 2 Plan Sponsor Council of America, 54th Annual Survey of Profit Sharing and 401(k) plans, 2010 plan year.

11. IRA Rollovers Why an IRA Rollover Might be Right for You You have more than one retirement account Consolidation of accounts can be easier than managing multiple accounts Your plan has limited investment options You can expand your investment options to include alternative investments or annuities Your plan does not offer a retirement income program IRAs can provide guaranteed lifetime income, bond laddering and bucketing options Your plan has limited beneficiary planning options IRAs can offer customized, pre-selected or “stretch” beneficiary options You may need or want to access your retirement assets prior to 59 ½ IRAs offer additional exceptions to the 10% additional federal tax for health insurance premiums if unemployed, qualified higher education expenses, and first time home buyers¹ Consolidation does not guarantee a profit or guard against a loss. All guarantees are backed by the claims-paying ability of the issuing insurance company. ¹IRC Section 72(t)

12. IRA Rollovers Common Mistakes People Make Electing an Indirect Rollover instead of a Direct Rollover Overlooking personal circumstances before rolling money overto an IRA Paying the 10% additional federal tax on pre-59 ½ withdrawals Failure to manage required minimum distributions at age 70 ½ Overlooking death benefit distribution options They don’t seek professional guidance

13. IRA Rollovers Ensure You do it the Right Way Rollover (Indirect Rollover) The distribution is made payable to you in cash You have 60 days to contribute the proceeds to another retirement plan or IRA Direct Rollover/Transfer The distribution is made directly to your new retirement plan or IRA Employer sponsored retirement plans are required to offer this option¹ ¹ IRC Sec. 401(a)(31), 403(b)(10), 457(d)(1)(C)

14. IRA Rollovers Indirect Rollover 401(k) Plan $100,000 20% Mandatory Withholding¹ IRS - $80,000 in cash $20,000 $20,000 STEP 1 IRA 60 Day Time Limit² $80,000 to IRA Tax Refund STEP 2 $80,000 Rolled Over, $20,000 Taxable Distribution IRA YOU $80,000 + $20,000 $20,000 STEP 3 ¹ IRC Sec. 3405(c)(1) ² IRC Sec. 402(c)(3); Treas. Reg.1.402(c)-2, A-11

15. IRA Rollovers Indirect Rollover Direct Rollover Ensure you do it the Right Way – Important differences ¹ IRC Sec. 402 (c)(3) ² IRC Sec. 3405(c)(1) ³ IRC Sec. 408(d)(3)(b)

16. IRA Rollovers Direct Rollover 401(k) Plan IRS $100,000 20% $20,000 No Withholding Direct, No 60 Day Time Limit No Waiting for Tax Refund IRA YOU $100,000 20% $20,000 No Make-Up

17. IRA Rollovers Ensure you do it the Right Way – Important differences Indirect Rollover Direct Rollover ¹ IRC Sec. 402 (c)(3) ² IRC Sec. 3405(c) ³ IRC Sec. 408(d)(3)(b)

18. IRA Rollovers Common Mistakes People Make Electing an Indirect Rollover instead of a Direct Rollover Overlooking personal circumstances before rolling money overto an IRA Paying the 10% additional federal tax on pre-59 ½ withdrawals Failure to manage required minimum distributions at age 70 ½ Overlooking death benefit distribution options They don’t seek professional guidance

19. IRA Rollovers Is an IRA Rollover Right for You, Right Now? Will you need a loan? Your employer sponsored retirement plan may have a loan feature1 Loans are not permitted from IRAs2 Do you have employer securities in your retirement plan? A special tax treatment can be applied if employer securities are distributed as part of a lump sum distribution from a qualified plan3 The net unrealized appreciation (NUA) amount may be treated as long-term capital gain4 Were the plan assets awarded via a divorce? There is an exception to the 10% additional federal tax for an ex-spouse who received qualified plan assets as an alternate payee under a Qualified Domestic Relations Order (QDRO)5 Are you concerned about bankruptcy or being sued? Employer sponsored plans may offer greater creditor protection – check with your attorney6 5IRC Sec. 72(t)(2)(c) 6TRA ‘86 Sec 1122(h) ¹IRC Sec. 72(p)(2) 2IRC Sec. 4975(c)(1)(B); 408(e)(2)(A). 3IRC Sec. 402(e)(4)(B) 4Treas. Reg. 1.402(a)-1(b)(1)(i).

20. IRA Rollovers Is an IRA Rollover Right for You, Right Now? Do you have a SIMPLE plan? Assets rolled over from a SIMPLE plan to an IRA within the first two years of plan participation may be subject to a 25% additional federal tax¹ Is your employer a city or state government? 457 plans are generally2 not subject to the 10% additional federal tax on pre-59 ½ withdrawals3 Did you separate from service at or after age 55? There is an exception to the 10% additional federal tax for distributions from a qualified plan for employees who separate from service during or after the year in which they attain age 554 Do you plan on working past age 70? If you continue to work past 70 ½ you may be eligible to defer RMD’s on qualified plan assets attributable to the current employer’s plan5 ¹ IRC Sec. 72(t)(6) ² Exception distributions attributable to rollovers from certain types of qualified plans. 3IRC Sec. 72(t)(9) 4 IRC Sec 72(t)(2)(A)(v); 72(t)(3) 5 IRC Sec. 402(a)(9)(c)

21. IRA Withdrawals IRA Withdrawals – Important Milestones 59 ½ - 70 ½ no restrictions, no requirements 10% additional federal tax penalty may apply¹ The timing of withdrawals from IRAs is important Withdrawals prior to 59 ½ may be subject to an additional 10% tax¹ Failure to take a minimum amount after 70 ½ might result in a 50% tax² AGE 20 30 40 50 60 70 80 Attainment of age 59 ½, no10% additional federal tax penalty¹ Required Minimum Distributions begin at age 70 ½² ¹ 72(t)(1) and 72(t)(2)(A)(i) ² IRC Sec. 4974(a)

22. IRA Withdrawals Common Mistakes People Make Electing an Indirect Rollover instead of a Direct Rollover Overlooking personal circumstances before rolling money overto an IRA Paying the 10% additional federal tax on pre-59 ½ withdrawals Failure to manage required minimum distributions at age 70 ½ Overlooking death benefit distribution options They don’t seek professional guidance

23. IRA Withdrawals Withdrawals made prior to 59 ½ • General exceptions to 10% additional federal tax penalty for withdrawals prior to 59 ½¹ • Death • Disability • Medical expenses > 7.5% of AGI • Substantially equal periodic payments Attainment of age 59 ½ exception to 10% additional federal tax penalty AGE 20 30 40 50 60 70 80 • IRA exceptions to 10% additional federal tax penalty² • Higher education expenses • First time home buyer • Health insurance premiums if unemployed • Qualified plan exceptions to 10% additional federal tax penalty³ • Divorce (QDRO) • Separate from service at or after age 55 ¹ IRC Sec. 72(t)(2)(A) ² IRC Sec. 72(t)(2)(D)(E)(F) ³ IRC Sec. 72(t)(3); 72(t)(2)(A)(v); 72(t)(2)(C)

24. IRA Withdrawals Pre-59 ½ Withdrawals The SEPP Exception to the 10% Additional Federal Tax¹ The one exception that is available to anyone at any age CAUTION! – The terms can be onerous The amount that can be withdrawn is limited and must be determined by using one of three IRS approved calculation methods¹ Payments must continue for at least 5 years and the employee must have attained 59 1/2 when the payments cease, if later² No “material modifications” should be made² Failure to abide by the rules could result in retroactive taxes, interest and penalties Seek professional guidance! ¹ IRC Sec. 72(t)(2)(A)(iv); Rev. Ruling 2002-62 ² IRC Sec. 72(t)(4)(A); Rev. Ruling 2002-62

25. IRA Withdrawals Common Mistakes People Make Electing an Indirect Rollover instead of a Direct Rollover Overlooking personal circumstances before rolling money over to an IRA Paying the 10% additional federal tax on pre-59 ½ withdrawals Failure to manage required minimum distributions at age 70 ½ Overlooking death benefit distribution options They don’t seek professional guidance

26. IRA Withdrawals RMD Timeline An RMD for the next distribution year, and each year thereafter, must be taken by 12/31 of that year The year you turn 70 ½ is the first “distribution year” for IRA required minimum distributions (RMD) 4/1 of the year following the first “distribution year” is the “required beginning date” DATE 1/1/12 8/1/12 1/1/13 4/1/13 12/31/13 AGE 70 ½ The RMD for the first “distribution year” can be deferred until 4/1 of the following year The RMD for the first “distribution year” can be taken that year If the first RMD is deferred until the following year (e.g., April 1st), two RMDs must be taken in that tax year Source: IRS Publication 590, 2011

27. IRA Withdrawals Required Minimum Distributions (RMDs) Planning Considerations A 50% tax applies to amounts that should have been withdrawn!1 Automate your RMD payments - Ensures you won’t miss a payment - The percentage that needs to be withdrawn increases each year Eliminate your RMD - Consider a taxable “Roth IRA conversion” Plan for your RMD - If you don’t need it, how will you reinvest it? - Buy life insurance with it - Gift it to a loved one or trust - Donate the RMD you receive to a charity - Understand how it fits into your retirement income and estate plan 1IRC Sec. 4974(a)

28. Beneficiary Planning Common Mistakes People Make Electing an Indirect Rollover instead of a Direct Rollover Overlooking personal circumstances before rolling money overto an IRA Paying the 10% additional federal tax on pre-59 ½ withdrawals Failure to manage required minimum distributions at age 70 ½ Overlooking death benefit distribution options They don’t seek professional guidance

29. Beneficiary Planning Beneficiary Planning IRA Death Benefit Distribution Options Lump sum All out in five years Annuitization* Maintain or rollover to own IRA – spouses only Stretch * Annuitization may be an option provided on annuity contracts Source: IRS Publication 590, 2011

30. Beneficiary Planning Inherited IRA Lump Sum $100,000 $100,000 x 25% Tax Bracket* $75,000 $25,000 IRS Comparing Death Benefit Options Inherited IRA All out in 5 years $100,000 $20,000 $20,000 $20,000 $20,000 $20,000 x 25% Tax Bracket* $15,000 $5,000 IRS * 25% tax bracket is hypothetical, your effective tax rate may be different

31. Beneficiary Planning There is another way! Stretch Required Minimum Distributions for beneficiaries Non-spouse designated beneficiaries can elect a trustee-to-trustee transfer to a properly titled “inherited” or “beneficiary” IRA¹ A spouse designated beneficiary may also elect the inherited or beneficiary IRA option2 Distributions are based on a life expectancy calculation Allows beneficiary to maintain tax deferral of inherited IRA and control the taxation of distributions, to the extent permitted by law Source: IRS Publication 590, 2011 ¹ IRC Sec 402(c)(11) 2Notice 2009-68

32. Beneficiary Planning Stretch Death Benefit Option Non-spouse Beneficiary: AGE 54 IRS Table I: Single Life Table Divisor = 30.5 (Year 1) Inherited IRA $100,000 $3,279 ÷ 30.5 = x 25% Tax Bracket* $2,459 $820 Divisor reduced by 1 each year (e.g. 30.5, 29.5, 28.5, etc.) Can always take a lump sum Allows beneficiary to maintain tax deferral of inherited IRA and control the taxation of distributions, to the extent permitted by law IRS Source: IRS Publication 590, 2011 * 25% tax bracket is hypothetical, your effective tax rate may be different

33. Beneficiary Planning Who are your Beneficiaries? Non-spouse Beneficiaries • Cannot elect to roll inherited IRA assets into their own IRA • Can elect to treat it as an inherited IRA • Can disclaim the IRA via a qualified disclaimer and have it pass to a contingent beneficiary Spouse Beneficiaries Can elect to roll an inherited IRA into their own IRA¹ Can elect to treat it as an inherited IRA2 Can disclaim the IRA via a qualified disclaimer and have it pass to a contingent beneficiary Seek professional guidance! Source: IRS Publication 590, 2011 ¹ Treas. Reg. 1.408-8, A-5. 2 Notice 2009-68

34. Common Mistakes People Make Electing an Indirect Rollover instead of a Direct Rollover Overlooking personal circumstances before rolling money overto an IRA Paying the 10% additional federal tax on pre-59 ½ withdrawals Failure to manage required minimum distributions at age 70 ½ Overlooking death benefit distribution options They don’t seek professional guidance

35. IRA planning – avoiding mistakes • What are your personal circumstances? • What are your personal needs? • What are your personal concerns? Working with a Professional What I would like you to do: • Complete the IRA Rollover questionnaire • Obtain a copy of your employer’s summary plan description • Gather your beneficiary information • Schedule an appointment, so we can start planning today

36. Thank You for Attending!Questions?