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Life Insurance Retirement Planning

A life insurance strategy that helps diversify your taxes during retirement The conversation: “Pay them now, or pay them later!”

PresenterTitle

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Today’s Focus

Today we’ll learn about income-tax diversification for your retirement savings

By discussing retirement plan taxation during contribution, accumulation and distribution

So that you can offer your high-income-earning clients and prospects a powerful supplemental retirement solution

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History of Top Marginal Tax Rates

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30 Years Ago

Pension Social Security Savings

Today

Pension Social Security Savings

Sources of Retirement Cash Flow

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What has been the secret to success?

Pre-tax/Tax-Deductible Tax-Deferral

401(k), 403(b), 457, Traditional IRA

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What makes pre-tax/tax-deductibletax-deferral work?

Contribution Distribution

High Tax Rate Low Tax Rate

Big Tax Deduction/ Reduction Lowest Possible Taxes

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It worked before. . .

Tax rates were high in the 1940’s – 1970’s

Tax rates dropped dramatically in the 1980’s

Lower retirement income meant lowerretirement tax rate

With pensions and Social Security, retireesdidn’t own the assets and, therefore, didn’tpass them on to their children

Contribution

Distribution

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Will it work now?

401(k) contributors had much lower tax rates from 1980’s through today

Pressure for tax rates to increase

Increasing levels of wealth for financially successful retirees

Because of personal savings in 40(k)s, IRAs, etc., retirees now own significant assets that will be passed to their children

Children’s tax rates are rising, creating significant income tax implications

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Contribution, Accumulation, Distribution

Every dollar put towards retirement goes through three phases:

The bad news is:– You must pay taxes on at least one of these three phases

The good news is:– You get to decide which one– It depends on the investments you choose

Contribution Accumulation Distribution

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Successful InvestingIn a successful retirement investment strategy,consistent long-term investment growth means:

– Your assets continue to grow throughout each phase

Assumptions: $10,000 annual contribution for 25 years. $42,800 distributions for the next 25 years. 6.00% growth rate

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Successful InvestingIf the choice was yours,which would you pay taxes on?

Assumptions: $10,000 annual contribution for 25 years. $42,800 distributions for the next 25 years. 6.00% growth rate

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Ask yourself: “Which phase would I rather pay taxes on?”

It’s likely your answer will be:“The lowest dollar figure!”

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Successful InvestingWhere are the bulk of your retirement assets currently invested?

– 401(k), IRA

Which phase will you pay taxes on with those plans?

Assumptions: $10,000 annual contribution for 25 years. $42,800 distributions for the next 25 years. 6.00% growth rate

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What makes pre-tax/tax-deductibletax-deferral work?

Contribution Accumulation Distribution

Traditional Qualified Plan/

IRA Tax Treatment

Non-Taxable / Deductible

Tax-Deferred Taxable

Your Desired Tax Treatment

Taxable / Non-Deductible

Tax-Deferred Tax-Free

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Wouldn’t it make sense to position

a portion of your retirement assets

to add tax diversification to your portfolio?

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Option 1: Roth-IRA

Pros Cons• Accumulates tax deferred

• No tax on qualified distributions

• No RMDs for Roth-IRA owners

• Income-tax-free inheritance to beneficiaries

• Limited amount you can contribute per year

• Cannot make-up missed contributions

• If your income is too high you cannot contribute

• Tax penalty may apply to withdrawals prior to age 59½

• RMDs for Roth-IRA beneficiaries

• No death benefit for “self-completing”

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Is there another way?

Maximum Funded Life Insurance

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* Policy must comply with IRS requirements to qualify as a life insurance contract. Total premiums in the policy cannot exceed funding limitations under IRC 7702. Withdrawals during the first 15 years of the contract may be treated as income first and includible in policyholder’s income. If the policy is classified as a modified endowment contract (see IRC 7702A), withdrawals or loans are subject to regular income tax and an additional 10% tax penalty may apply if taken prior to age 59 ½. Distributions will reduce policy values and may reduce benefits. Availability of policy loans and withdrawals depend on multiple factors including but not limited to policy terms and conditions, performance, and fees or expenses.

Income-tax-free death benefit for beneficiaries* No defined IRS limitation on premiums* No limit on gross income affecting your ability tocontribute premiums Missed premiums may be “made up” at a later time* Tax-deferred accumulation* Distributions using withdrawals and loans areincome-tax-free when structured properly* Access to your values prior to age 59½ Take distributions as needed* No required minimum distributions (RMDs) for owners Self-completing upon death

– Death benefit exceeds account value

Life Insurance The list of benefits is long and powerful!

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Case Study: Darren Johnson

Age: 40, good health

Occupation: Chiropractor

Annual W-2 Income: $400,000

Targeted Retirement Age: 67 (full Social Security benefits)

Targeted Annual Retirement Savings:– 10% of W-2 income = $40,000

Current annual contributions to 401(k): $17,000

Additional annual amount targeted to contribute: $23,000

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Case Study: Darren JohnsonLife Insurance Policy Assumptions (VUL):Minimum death benefit (Initially $600,000)

Underwriting Class: Preferred

Option B increasing death benefit during contribution phase

Option A level death benefit during distribution phase

Assumed average annual growth rate (gross): 7.00%

Weighted annual average fund expense: .76% (76 bps)

Pay premiums to age 67

Withdrawals and loans for 20 years beginning at age 68

Policy endows at age 100 on a “current assumption” basis

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Case Study: Darren Johnson

Life Insurance Policy Non-Guaranteed Values:

Premiums: $23,000 per year for 27 years = $621,000

Illustrated Accumulated Value: At age 67 = $1,334,772

Distributions: $130,000 per year for 20 years = $2,600,000

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Case Study: Darren Johnson

Assumptions: $23,000 annual contribution for 27 years. $130,000 distributions for next 20 years. 7.00% growth rate

Will Darren be glad he paid taxon the $621k and not the $2.6M?

Maximum Funded Life Insurance may bethe only way to achieve these results!

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Now, let’s tell the story…..

Contribution – Accumulation – Distribution

“The Napkin Sale”

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$5$10$20

The Bad News: You must pay tax on one of these threeThe Good News: You get to chooseWhere are the bulk of your retirement assets currently invested?Which of the numbers above is going to get taxed?Wouldn’t it make sense to diversify a portion of your portfolio?

If you had access to a retirement strategy that provided you with the taxtreatment you want, and you could put in as much money as you want,how much would you put into a plan like that every year?

Additional Benefits:

1.Self-Completing at owner’s death

2.No set limit on contributions1

3.Pre age 59 ½ access– No income tax or penalty tax2

4.Catch-up on missed contributions5.No RMDs for owners6.No RMDs for beneficiaries

1. Policy must comply with IRS requirements to qualify as a life insurance contract. Total premiums in the policy cannot exceed funding limitations under IRC 7702.

2. Assumes the policy is not a Modified Endowment Contract Withdrawals during the first 15 years of the contract may be treated as income first and includible in policyholder’s income.

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What is this incredible tool?

It’s a life insurance policy!

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Today’s Focus

Today we’ll learn about income-tax diversification for your retirement savings

By discussing retirement plan taxation during contribution, accumulation and distribution

So that you can offer your high-income earning clients and prospects a powerful supplemental retirement solution

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Target Audiences

Doctors

Dentists

Attorneys

CPAs

Chiropractors

Veterinarians

Funeral Home Directors

Successful business owners

High-income business executives

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Questions or Comments

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A life insurance strategy that helps diversify your taxes during

retirement

The conversation: “Pay them now, or pay them later!”

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Important Information

Policies issued by American General Life Insurance Company (AGL), a member of American International Group, Inc. (AIG)

The underwriting risks, financial and contractual obligations and support functions associated with the products issued by AGL its responsibility. Guarantees are subject to the claims-paying ability of the issuing insurance company. AGL does not solicit business in New York.

Policies and riders not available in all states. Keep in mind that American General Life Insurance Company and their distributors and representatives may not give tax, accounting or legal advice. Any tax statements in this material are not intended to suggest the avoidance of U.S. federal, state or local tax penalties. Such discussions generally are based upon the company’s understanding of current tax rules and interpretations. Tax laws are subject to legislative modification, and while many such modifications will have only a prospective application, it is important to recognize that a change could have retroactive effect as well. Individuals should seek the advice of an independent tax advisor or attorney for more complete information concerning their particular circumstances and any tax statements made in this material.

©2014. All rights reserved.

AGLC1074701

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Appendix

Life Insurance Illustration

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