Slide 1
Insuring What You LoveCorporate Insurance Group
David [email protected]
#D-4776_1-08Copyright 2008, The Ohio National Life Insurance
Company1Individual Retirement Accounts Wealth Protection
StrategiesMaintain the Value of Your Account for Your
HeirsD-4776_1-08Copyright 2008, The Ohio National Life Insurance
Company#D-4776_1-08Copyright 2008, The Ohio National Life Insurance
Company2Disclosures All specific legal and tax questions should be
referred to your legal and tax advisers. Insurance products issued
by the Ohio National Life Insurance Company and Ohio National Life
Assurance Corporation.Guarantees re based upon the claims-paying
ability of the issuer.Product, product features and rider
availability vary by state.Issuers not licensed to conduct business
and products not distributed in AK, HI or NY.Survivor Life LP is
issued as policy form 96-QL-1/-1U and any state
variations.#D-4776_1-08Copyright 2008, The Ohio National Life
Insurance Company3This discussion addresses estate planning
concepts in general. It is not intended to address your individual
circumstances or the laws of your state. All specific legal and tax
questions should be referred to your legal and tax
advisers.Congratulations!
You saved wisely withindividual retirementaccounts (IRAs) and
tax-qualified plans.Tax-deductible contributionsTax-deferred
growth#D-4776_1-08Copyright 2008, The Ohio National Life Insurance
Company4No doubt about it, individual retirement accounts (IRAs)
are part of a sound retirement savings strategy. With your
qualified IRA (and other tax-qualified retirement savings plans),
you are taking advantage of tax-deductible contributions and
tax-deferred growth. Perhaps you even have sizeable IRAs rolled
over from your previous employers.
Do You Have Multiple Sources of Retirement Income?
IRAsInvestments 401(k)Social SecurityPension
#D-4776_1-08Copyright 2008, The Ohio National Life Insurance
Company5As a successful saver, you probably have multiple sources
of retirement income. In addition to Social Security and your IRAs,
you may have annuities, pension plans, a 401(k) or other accounts
that together may accumulate large sums of money possibly more
money than is needed for a comfortable retirement.Do You Have More
Income Than You Need?
#D-4776_1-08Copyright 2008, The Ohio National Life Insurance
Company6Do you find yourself with more income than you need to
enjoy a comfortable retirement? Are you interested in creating a
financial legacy for your heirs?You Cant Take It With You(IRAs are
taxed at death)
Federal and state income taxes = 35% or more.Federal and state
estate taxes = 55% or more.#D-4776_1-08Copyright 2008, The Ohio
National Life Insurance Company7The government is waiting in the
wings and they want taxes. IRAs are excellent retirement
accumulation vehicles. Unfortunately, at death, your IRA may be
subjected to several layers of taxation, including estate taxes and
income taxes. The federal and state tax bite can shrink the value
of an IRA 60% or more, especially if IRA beneficiaries elect a
lump-sum distribution (an election they most often make). Of
course, the exact amount of taxes depends on a number of income and
estate tax variables (including future estate and income tax
rates), but the fact remains that taxes may be a significant
hindrance to efficiently passing an IRA at death.The Disappearing
IRA
*Our example assumes that an IRA is passed to a non-spouse
beneficiary and is subjected to state and federal estate taxes
totaling 45%. It also assumes that the IRAs beneficiaries take the
remaining IRA in a lump-sum (the option most beneficiaries select)
and are subjected to state and federal income taxes totaling
35%.(Post-death taxes on a $500,000 IRA*)Estate Taxes $225,000Net
To Heirs $178,750Income Taxes
$96,25064%Shrinkage#D-4776_1-08Copyright 2008, The Ohio National
Life Insurance Company8The tax bite can be significant for wealthy
individuals. Heres a simple example. Suppose you owned a $500,000
IRA at the time of your death and left it to your children.
Assuming your estate was taxed at 45% and your children elected a
lump- sum distribution (an option the majority of beneficiaries
elect) with a 35% income tax, the amount your children would
receive would shrink to $178,750. Thats a 64% reduction. IRAs are
excellent for accumulating retirement income, but they are often
inefficient from a tax perspective for passing wealth to heirs.Your
Wealth Protection StrategyPass the value of your IRA,
qualifiedretirement plan, or other savingsaccounts to your
heirs.
If structured properly, the value of your IRA can be
repositioned as tax-free life insurance
proceeds.#D-4776_1-08Copyright 2008, The Ohio National Life
Insurance Company9The IRA wealth protection strategy allows you to
preserve the value of your IRA (or other savings vehicle) and pass
the wealth to your heirs. If properly structured, the wealth is
passed estate tax-free.
How This Wealth Protection Strategy
WorksFivePlanningSteps#D-4776_1-08Copyright 2008, The Ohio National
Life Insurance Company10The IRA wealth protection strategy allows
you to preserve the value of your IRA (or other savings vehicle)
and pass the wealth to your heirs. If properly structured, the
wealth is passed estate tax-free.How This Wealth Protection
Strategy WorksStep One: Take distributions from your IRA.
Distributions are taxable.AgeSubject to specific rules,
penalty-free distributions prior to age 59*Distributions must begin
after age 70***59 70 *Early penalty tax of 10% waived for
distributions in case of death or disability, or if taken as a
series of substantially equal periodic payments. Other restrictions
and exceptions may apply. See a tax specialist for details.**In
some limited cases, distributions after age 59 may still trigger an
early withdrawal penalty. See a tax specialist for
details.***Subject to certain restrictions, individuals who remain
employed after age 70 may delay distributions until April 1 of the
year following the year in which they retire. See a tax specialist
for details. Penalty-free distributions after age 59**
#D-4776_1-08Copyright 2008, The Ohio National Life Insurance
Company11The tax collector does not allow IRAs or qualified plans
to grow tax-deferred forever. After reaching age 70 1/2, in most
cases, you must start taking distributions from your account at
least annually. These distributions are known as required minimum
distributions (RMDs). These annual distributions are taxable and
are included in income.You can begin taking distributions, penalty
free, after reaching age 59 or earlier under certain circumstances
(two typical exceptions: separation from service after reaching age
55 or at any age provided the distributions are taken as part of a
series of substantially equal periodic distributions based on life
expectancy). The exceptions and prohibitions for taking
distributions from IRAs and other tax-qualified accounts are
technical. You are encouraged to consult with a tax specialist to
see how the rules and regulations apply to your situation.How This
Wealth Protection Strategy WorksStep Two: Create an irrevocable
life insurance trust and fund it with gifts from your after-taxIRA
distributions.With assistance from an attorney, you establish a
trust.You name a trustee.You select the trusts beneficiaries.You
can choose to use part, or all, of yourafter-tax distribution to
fund the trust.
#D-4776_1-08Copyright 2008, The Ohio National Life Insurance
Company12With assistance from an estate-planning attorney, you
create the trust, name a trustee and select trust beneficiaries
(such as your children or grandchildren). Life insurance trusts are
common in the estate planning industry and are simple for an expert
to establish. After establishing the trust, you use a portion of
your after-tax IRA distribution to fund the trust. If structured
properly, you can fund the trust with tax-free gifts.
How This Wealth Protection Strategy WorksStep Three: The trustee
purchasesa life insurance policy covering you and/or your
spouse.*
The policy is owned by the trust.The trustee manages the policy
according to your instructions.
*Assuming you and/or your spouse qualify for life insurance
basedon your age and health.
Depending on your age and health, your policy amount may exceed
the value of your IRA.
#D-4776_1-08Copyright 2008, The Ohio National Life Insurance
Company13After establishing and funding the trust, a life insurance
policy is purchased by the trust. The policy can either cover an
individual life or can cover you and your spouses life together
(referred to as a survivorship policy). Assuming you qualify for
insurance based on age and health, the policy is issued to and
owned by the trust. The trust is also the beneficiary of the life
insurance policy.How This Wealth Protection Strategy WorksStep
Four: At death, the trust receives tax-free life insurance
benefits.
Death benefits are income tax-free.Death benefits are estate
tax-free.#D-4776_1-08Copyright 2008, The Ohio National Life
Insurance Company14At death, the trust receives the life insurance
death benefits income and estate tax-free.How This Wealth
ProtectionStrategy WorksStep Five: The trustee distributesthe
policy proceeds to your heirsaccording to your instructions,
estateand income tax free.Your specific instructions are contained
in the life insurance trust and the trustee must adhere to the
trust provisions.
#D-4776_1-08Copyright 2008, The Ohio National Life Insurance
Company15The death benefit is then distributed to your trust
beneficiaries free from estate or income taxes. Alternatively, your
trust could provide for reinvestment of the death benefit within
the trust to allow multiple generations of trust beneficiaries to
receive distributions (a so-called dynasty trust). In many cases,
you can pass the full value of your IRA, or exceed it. Remember,
your age and health may impact the availability and affordability
of life insurance.Summary Planning StepsIRA owner takes IRA
distributions.IRA owner creates a life insurance trust and funds
the trust with gifts.Trust purchases an insurance policy covering
the IRA owners life.At IRA owners death, the trust receives
insurance death benefits estate and income tax free. The trust
distributes tax-free proceeds to IRA owners heirs.42IRA Owner3Life
InsuranceTrust
Life Insurance Policy 5Heirs1IRA#D-4776_1-08Copyright 2008, The
Ohio National Life Insurance Company16(Review steps 1-5)Walter
& CarminaCouple Profile:Both are age 65 Combined, they have a
pension plan, Social Security benefits and investments for
retirementThey have a $250,000 rollover IRATogether, they have a
son and a daughter
#D-4776_1-08Copyright 2008, The Ohio National Life Insurance
Company17To help fully understand an IRA wealth protection
strategy, lets consider the case of Walter and Carmina. Walter and
Carmina are successful savers. They have a pension plan, social
security benefits and other investments. In fact, they find that
they have more than enough savings to provide for a comfortable
retirement. They also have a rollover IRA that they do not intend
to use for retirement income. They have a son and a daughter.What
They Have...and What They Want Both are healthy andare
insurableThey have sufficient retirement incomeThey want to pass
the value of their IRA to their childrenThey want to minimize taxes
paid on their estates
#D-4776_1-08Copyright 2008, The Ohio National Life Insurance
Company18Walter and Carmina have decided that they do not need the
IRA they have for retirement income and that would like to pass the
full value of that account to their children in the most
tax-efficient way. They are both in good health and are
insurable.Option One: Keep The IRADeath of Second Spouse at Age
75Estate TaxIncome TaxAmount To HeirsIRA Balance: $444,217 Side
Fund: $72,481 Total: $516,698($199,898)
($32,616)($232,514)($73,296) ($0)($73,296)$210,888Death of Second
Spouse at Age 85Estate TaxIncome TaxAmount To HeirsIRA Balance:
$563,748 Side Fund: $419,075 Total
$982,823($253,687)($188,584)($442,271) ($93,018) ($0)
($93,018)$447,534$250,000 IRA held until death of second spouse
with required mini-mum distributions starting at age 70 and
reinvested in a side fund growing at 6%, after tax. IRA value is
then passed to heirs at death.The IRA value consists of the IRA
balance at the death of the second spouse, plus the IRA required
minimum distributions taxed to the parents at 30% and reinvested at
6%, after tax. Example assumes a 8% annual rate of return on the
IRA. Example applies a 45% estate tax on IRA value and side fund.
Example also assumes heirs elect to take a lump-sum distribution of
the IRA with income taxes of 30%.#D-4776_1-08Copyright 2008, The
Ohio National Life Insurance Company19Walter and Carmina could
decide to keep the IRA and at their death, pass it to their heirs.
A reasonable assumption is that the IRA is growing at 8% per year
before taxes and they reinvest their IRA required minimum
distributions in a side fund earning 6% after tax. Further assume
that their estate will be taxed at 45% and that their daughters
income is taxed at 30%.If the second spouse lives to age 75, the
IRA will have grown in value to $444,217 and the side fund would
total $72,481. When the IRA passes to their daughter, it will first
be subject to estate taxes of $199,898. If the daughter takes a
lump-sum distribution of the IRA (the most common option chosen by
heirs), she would be hit with income taxes of $73,296 leaving just
$210,888 of the IRA balance. In addition, the side fund would also
be hit by estate taxes of $32,616. When added together, the tax
bite is nearly 60%! The tax consequences are much the same if the
second spouse dies at age 85 (as shown on the slide).Option Two:
Use an IRA Wealth Protection StrategyInsurance Benefits at Age 75
and 85Estate TaxIncome TaxAmount ToHeirs$625,000($0)($0)$625,000The
$250,000 IRA is distributed with after-tax amounts used to fund a
life insurance contract owned by an irrevocable life insurance
trust.*Example depicts Ohio Nationals Lifetime G, a guaranteed
death benefit universal life insurance policy, on a 65-year-old
female, preferred nonsmoker with a single premium of $162,500
(assuming an income tax rate of 35% on the IRA distribution).
Product availability varies by state.#D-4776_1-08Copyright 2008,
The Ohio National Life Insurance Company20If Walter and Carmina
implement an IRA wealth preservation strategy they could distribute
the IRA over a ten year period, pay taxes on the distributions and
use the remaining amount to fund a trust-owned, life insurance
policy covering Carmina to benefit their children. The trust would
use the money gifted by Walter and Carmina to purchase an Ohio
National Lifetime G guaranteed death benefit policy with a death
benefit of $625,000. At the death of the second spouse, the death
benefit of $625,000 would pass tax free to their children. The
example shown above illustrates a single premium but you could
choose to spread premiums over a number of years if you prefer.
Comparison: Net To Heirs (At Age 85)
A difference of $177,466Keep Your IRAUse an IRA Protection
StrategyNet to Heirs $625,000#D-4776_1-08Copyright 2008, The Ohio
National Life Insurance Company21For Walter and Carmina an IRA
wealth protection strategy makes a lot of sense because the
strategy allows them to pass more than the initial value of their
IRA to their beneficiaries estate and income tax-free.Planning
Questions
#D-4776_1-08Copyright 2008, The Ohio National Life Insurance
Company22We should take a few minutes to review some of the common
planning questions that arise when analyzing the IRA wealth
protection strategy..Is This Strategy Right for You?
Examine your retirement income needs and resourcesAnalyze your
estate tax exposureConsider your insurability and the possibility
of additional premiums#D-4776_1-08Copyright 2008, The Ohio National
Life Insurance Company23First and foremost, you should carefully
examine your retirement income needs and compare them to your
current resources. This strategy is not suitable if you will need
all of your savings for retirement income. You should also analyze
your estate to determine if you will be facing an estate tax
problem. Generally speaking, the larger your estate, the larger
your potential estate tax exposure. If properly structured, this
strategy helps reduce the size of your taxable estate. Finally, you
need to consider issues of insurability before implementing the
strategy. This strategy works only if you and/or your spouse are
insurable.When Is the Best Time to Start?The earlier, the
better.Insurance is usually more affordable at younger ages.Health
is a temporary condition.
Be aware of penalties for withdrawals from qualified plans prior
to age 59 . With proper planning, withdrawals are penalty
free.#D-4776_1-08Copyright 2008, The Ohio National Life Insurance
Company24The earlier you can start, the better the result will
typically be. Insurance is usually more affordable at younger ages.
Your premium dollar may purchase more coverage at younger ages.
After all, health is a temporary condition. Withdrawals from
qualified retirement plans prior to age 59 can trigger penalties if
you do not properly plan.Do You Need A Trust?A trust ensures:estate
tax-free death benefits.control of distributions.If you do not want
to use a trust, you can name someone outside your estate (i.e.,
your child, or children) as owner(s) of the insurance policy to
preserve estate tax-free benefits.
#D-4776_1-08Copyright 2008, The Ohio National Life Insurance
Company25A trust ensures that the insurance policy proceeds will
pass outside your taxable estate and be distributed to your heirs
according to your wishes. If you do not want to use a trust,
consider having the policy owned by someone outside your taxable
estates (someone other than your spouse). Some people have their
child serve as owner(s) of the policy to make sure the insurance
benefits avoid estate inclusion.Is This Strategy Limited To
IRAs?Virtually all qualified and non-qualified savings may be
appropriateTraditional IRA457 Plan401(k) PlanMoney Purchase
Plan403(b) Plan Profit Sharing PlanSEP IRASIMPLE IRATax Sheltered
AnnuitySavings & Thrift PlanRoth IRANon-qualified
Annuity#D-4776_1-08Copyright 2008, The Ohio National Life Insurance
Company26This strategy is not limited to IRAs. It may work with any
qualified and nonqualified savings where the objective is to pass
as much of the account as possible to your heirs while eliminating
estate taxes and minimizing the income tax bite.About Ohio
NationalWhen you purchase a policy through Ohio National, you can
feel good about your choice. Since 1909, Ohio National has been
marketing a variety of insurance and financial products in 47
states (all except Alaska, Hawaii and New York), the District of
Columbia and Puerto Rico, with subsidiary operations in Santiago,
Chile. We are committed to building long-term relationships with
our customers and to providing them with solutions as their needs
change over time.#D-4776_1-08Copyright 2008, The Ohio National Life
Insurance CompanyOhio National's Financial RatingsThe financial
strength of our company is backed by the reaffirmation of our
ratings. These ratings include:"A+ (Superior)" from A.M. Best
Company (based on balance sheet strength, operating performance and
business profile), its second-highest ranking out of 16
categories."AA" (Very Strong) from Standard & Poors (for
financial security characteristics), its third-highest ranking on a
21-part scale. "A1" from Moody's (for insurance financial
strength), its fifth-highest ranking on a 21-part
scale.#D-4776_1-08Copyright 2008, The Ohio National Life Insurance
CompanyBenefits Of Permanent InsuranceTax DeferredTax FreeComp Rate
Of ReturnInterest GuaranteedJudgment ProofUnlimited
ContributionsUnlimited Investment OptionsCollateralEstate Tax
FreeLiquidityDisability ProtectionTax Deductable
#D-4776_1-08Copyright 2008, The Ohio National Life Insurance
CompanyInsuring What You LoveCorporate Insurance Group
For More Info Schedule AnAppointment with
David [email protected]#D-4776_1-08Copyright
2008, The Ohio National Life Insurance Company
