Carter Roth and Debbie Roth€¦ · 65 342,159 496,112 838,271 Total Funds if Death at Age 73 $1,091,374 Roth IRA Using New Life Insurance for Taxes2 Age IRA/ Roth IRA Other Assets

Carter Roth and Debbie RothPresented by: John Q. Smith | Thrivent Financial

100 N. Main St. | Suite 120 | Minneapolis, Minnesota | 55415Phone: 612-555-1100 | Fax: 612-555-1200 | Email: [email protected]

Important Notes

Maximizing Roth IRA Conversion at Death

Comparing IRA with Roth IRA Conversion

Keep Traditional IRA

Convert IRA to Roth IRA

Convert IRA to Roth IRA Using Life Insurance

Understanding IRAs, Roth IRAs, Conversions

Retirement Savings Options

Should Spouse Convert to Roth IRA?

Assumptions

Table of Contents1

3

4

5

6

7

9

11

13

14

These pages depict certain wealth preservation strategies concerningpossible methods for taking distributions from your qualified retirementplan and may recommend strategies that propose the purchase of anew life insurance policy. For purposes of this analysis, several of yourqualified retirement plans may be aggregated and shown as one singleplan. This report provides only broad, general guidelines, which may behelpful in shaping your thinking about and discussing your wealthpreservation needs with your professional advisors. This report providesestimates based on our general understanding of current tax laws. Thisretirement income distribution analysis may be used as supportingdocumentation in the development of a financial plan offered as anadvisory service by Thrivent Investment Management Inc., subject tothe Investment Advisers Act of 1940. However, the analysis may also beused to support other recommendations outside the context of aninvestment advisory relationship, and does not, in and of itself,constitute a financial plan.

Each scenario shown illustrates your current situation or an alternativestrategy and its possible effects on the financial situation you provided.Inclusion of one or more of these strategies does not constitute arecommendation of that strategy over any other strategy.

Calculations contained in this analysis are estimates only based on theinformation you provided, such as the value of your assets today, andthe rate at which the assets appreciate. The actual values, rates of

growth, and tax rates may be significantly different from thoseillustrated. These assumptions are only a “best guess.” Noguarantee can be made regarding values, as all rates are thehypothetical rates you provided. These computations are not aguarantee of future performance of any asset, including insurance orother financial products.

No legal or accounting advice is being rendered either by this reportor through any other oral or written communications. Nothingcontained in this report is intended to be used on any tax form or tosupport any tax deduction. Unless indicated, the tax aspect of thefederal Generation-Skipping Transfer Tax (GSTT) is not reflected. TheGSTT is similar to an additional level of estate tax on certain transfersto grandchildren, or individuals two or more generations removedfrom the transferor. State laws vary regarding the distribution ofproperty, and individual circumstances are unique and subject tochange. You should discuss all strategies, transfers, andassumptions with your legal and tax advisors.

To implement a strategy, it may be necessary to restructure theownership of property, or change designated beneficiaries beforespecific will or trust provisions, prepared by the client’s counsel,become effective. The transfer of a life insurance policy may notresult in its removal from the estate of the prior owner for three years.

Important Notes

Past performance is not an indication of future results. Projections are based on assumptions that are believed to be reasonable. Actual results may vary, perhaps to a material degree.Version 2.0.0 c. 8.2.0.0

This presentation is not a financial plan, is for evaluation purposes only, and must be accompanied by all pages. See Important Notes and Assumptions pages.Presented by: John Q. SmithThrivent Financial

August 20, 20151 of 17

Strategies may be proposed to support the purchase of variousproducts such as insurance and other financial products. When thisoccurs, additional information about the specific product (including aprospectus, if required, or an insurer provided policy illustration) will beprovided for your review.

These computations do not apply the net unrealized appreciation(NUA) technique to your qualified plan distributions. NUA is atechnique which allows a former employee to pay taxes at the mostfavorable long-term capital gain rate on the appreciation value of anyemployer securities held within the employer's retirement plan. Pleaseconsult with your tax advisor to see if this technique is available to you.

IMPORTANT: The projections or other information generated by thisinvestment analysis tool (Retirement Plan Distribution Analysis)regarding the likelihood of various investment outcomes arehypothetical in nature, do not reflect actual investment results and arenot guarantees of future results.

IRS CIRCULAR 230 NOTICE: To ensure compliance with requirementsimposed by the IRS, this notice is to inform you that any U. S. federaltax advice contained in this presentation is not intended or written tobe used, and cannot be used, for the purpose of (i) avoiding penaltiesunder the Internal Revenue Code or (ii) promoting, marketing orrecommending to another party any transaction or matter addressedin this presentation.

Insurance products issued or offered by Thrivent Financial, themarketing name for Thrivent Financial for Lutherans, Appleton, WI.Not all products are available in all states. Securities andinvestment advisory services are offered through ThriventInvestment Management Inc., 625 Fourth Ave. S., Minneapolis, MN55415, a FINRA and SIPC member and a wholly owned subsidiaryof Thrivent. Thrivent Financial representatives are registeredrepresentatives of Thrivent Investment Management Inc. They arealso licensed insurance agents/producers of Thrivent.

Guarantees are based on the financial strength and claims-payingability of the issuing insurance company.

This material, in and of itself, does not constitute a financial plannor should it be viewed or interpreted as creating an investmentadvisory relationship subject to the Investment Advisers Act of1940. Fee-based financial planning services are available throughqualified investment advisor representatives only.

Thrivent Financial and its respective associates and employeescannot provide legal, accounting, or tax advice or services. Workwith your Thrivent Financial representative, and as appropriate,your attorney and/or tax professional for additional information.

For additional important disclosure information, please visitthrivent.com/disclosures.

Important Notes

Past performance is not an indication of future results. Projections are based on assumptions that are believed to be reasonable. Actual results may vary, perhaps to a material degree.Version 2.0.0 c. 8.2.0.0


August 20, 20152 of 17

Pay Conversion Taxes Out of IRA

Less money is available in Roth IRA to grow tax deferred, and receive income tax-free qualified distributions for retirement needs

If conversion is priorto 59½, a 10% early distribution penalty may be imposed on

IRA funds used to pay taxes on the conversion

Roth IRA

IRA/Qualified Retirement Plan

Taxes Surviving Spouse

Tax FreeDistributions

Pay Conversion Taxes Using Life Insurance

Roth IRA


Insurance

Taxes

Using other assets to pay income taxes due at conversion leaves more funds in the Roth IRA

Surviving Spouse

More Tax FreeDistributions

Premiums for policy may be paid using distributions from the IRA/Qualified Plan1

Life Insurance on the owner’s life can provide the funds to pay taxes on the conversion. Assets held outside the IRA or Qualified Plan could be used in addition to, or in place of, the insurance.

A surviving spouse may convert the owner's IRA or QualifiedRetirement Plan directly to a Roth IRA. A non-spouse beneficiarymay convert the owner's Qualified Retirement Plan directly to aRoth IRA. The Roth IRA grows income tax deferred, and may be asource of income tax-free qualified distributions during retirement.2

When the IRA or Qualified Retirement Plan is converted to RothIRA, income taxes are due on the taxable amount. If these taxesare paid using funds from the IRA or Qualified Retirement Plan, theRoth IRA will be reduced (income tax and 10% early distributionpenalty may apply).

Using other assets to pay income taxes due at

conversion leaves more funds in the Roth IRA:

More funds to accumulate income tax deferred•More funds to provide income tax-free qualified distributionsduring retirement

•

More funds to provide income tax-free qualified distributions toyour heirs

•

Life insurance3 maximizes your Roth IRA!

Maximizing Roth IRA Conversion at DeathMore Income Tax-Free Qualified Distributions for Retirement

1Subject to plan provisions, income tax, and possible 10% early distribution penalty.

2Withdrawals from a Roth IRA are income tax-free if the owner is over age 59½ and the funds have been in the Roth IRA 5 years.

3Life insurance premiums would be an additional cost.

Past performance is not an indication of future results. Projections are based on assumptions that are believed to be reasonable. Actual results may vary, perhaps to a material degree.


August 20, 20153 of 17

Initial Value of IRA: $200,000–Carter's considers conversion in 2016 to Roth IRA

A Traditional IRA may be converted to a Roth IRA, but income taxes are generally paid on the taxable amount of the Traditional IRA converted to RothIRA. In exchange, qualified distributions from the Roth IRA are received income tax-free.

Traditional IRANo Conversion Taxes

Age IRAOther

Assets Total59 255,324 504,348 759,673

60 268,090 514,940 783,030

65 342,159 571,328 913,486

Total Funds if Death at Age 73

$1,036,1801

Roth IRAUsing Other Assets for Taxes2

AgeIRA/

Roth IRAOther

Assets Total59 255,324 504,348 759,673

60 268,090 447,030 715,12165 342,159 496,112 838,271


$1,091,374

Roth IRAUsing New Life Insurance for Taxes2

AgeIRA/

Roth IRAOther

Assets Total59 255,017 504,269 759,286

60 267,659 497,112 764,77165 341,608 551,678 893,286


$1,156,176

Traditional IRA

Other Assets

Roth IRA

Comparing IRA with Roth IRA ConversionShould I Convert to a Roth IRA? How Should I Pay the Taxes?

1For comparison purposes, decedent's income taxes due of $132,278 have been deducted from the Traditional IRA value at death of $468,841. The net to heirs is $1,036,180.

2Income tax rates are assumed to be 30%. Example assumes the net distributions after taxes are deposited into the Other Assets.



August 20, 2015

$1,200,000

1,000,000

800,000

600,000

400,000

200,000

059 64 69

$1,200,000

1,000,000

800,000

600,000

400,000

200,000

059 64 69

$1,200,000

1,000,000

800,000

600,000

400,000

200,000

059 64 69

4 of 17

Initial Value of IRA: $200,000

2015 59 57 12,158 0 255,324 30.0% 0 0 504,348 0 504,348 759,673Year Age

SpouseAge

LifeExp.1

Earnings &Contributions

2

ActualDistri-

butions3

TraditionalIRA

ValuesTaxRate

IncomeTaxes

Paid4

ReinvestedDistri-

butions5

Total ofAll Other

Assets6

LessTax

Liability7

NetAll Other

Assets7

Qualified &All Other

Assets

Carter dies and rolls over the IRA to Debbie.

2016 60 58 12,766 0 268,090 30.0% 0 0 514,940 0 514,940 783,030

2017 61 59 13,405 0 281,495 30.0% 0 0 525,754 0 525,754 807,248

2018 62 60 14,075 0 295,570 30.0% 0 0 536,794 0 536,794 832,364

2019 63 61 14,778 0 310,348 30.0% 0 0 548,067 0 548,067 858,415

2020 64 62 15,517 0 325,866 30.0% 0 0 559,576 0 559,576 885,442

2021 65 63 16,293 0 342,159 30.0% 0 0 571,328 0 571,328 913,486

2022 66 64 17,108 0 359,267 30.0% 0 0 583,325 0 583,325 942,592

2023 67 65 17,963 0 377,230 30.0% 0 0 595,575 0 595,575 972,805

2024 68 66 18,862 0 396,092 30.0% 0 0 608,082 0 608,082 1,004,174

2025 69 67 19,805 0 415,896 30.0% 0 0 620,852 0 620,852 1,036,748

2026 70 68 20,795 0 436,691 30.0% 0 0 633,890 0 633,890 1,070,581

2027 71 69 21,835 0 458,526 30.0% 0 0 647,202 0 647,202 1,105,727

2028 72 70 27.4 22,161 16,735 463,952 30.0% 0 16,735 677,527 4,707 672,820 1,136,772

2029 73 71 26.5 22,397 17,508 468,841 30.0% 4,707 12,801 704,556 4,940 699,617 1,168,458

Year AgeSpouse

AgeLife

Exp.1Earnings &

Contributions2

ActualDistri-

butions3

TraditionalIRA

ValuesTaxRate

IncomeTaxes

Paid4

ReinvestedDistri-

butions5

Total ofAll Other

Assets6

LessTax

Liability8

NetAll Other

Assets7


Assets

Keep Traditional IRANo Conversion to Roth IRA at Death

1Life expectancy is based on the Uniform Lifetime Table. See the Assumptions page for additional information.

2Assumes qualified plan earns 5.000% interest. Also includes Employer Contributions and Salary Reductions, if any.

3Actual Distribution is the greater of the distribution required to generate the Desired Distributions (see Assumptions pages) or Required Minimum Distribution.

4Taxes and any applicable penalties are paid at the start of the calendar year following the tax liability. See the Assumptions pages for information on distributions from a Traditional IRA with an originalafter-tax amount of $30,000.

5Actual Distributions less Taxes and Penalties.

6All Other Assets and Cumulative Reinvested Distributions are assumed to earn 3.000% interest and are taxed at a 30.00% income tax rate.

7Net of liability for income taxes and any penalties.



August 20, 20155 of 17


2015 59 57 12,158 0 255,324 30.0% 0 0 504,348 0 504,348 759,673Year Age

SpouseAge

LifeExp.1


2

ActualDistri-

butions3

TraditionalIRA

ValuesTaxRate

IncomeTaxes

Paid4

ReinvestedDistri-

butions5

Total ofAll Other

Assets6

LessTax

Liability4

NetAll Other

Assets7


Assets

Carter dies in January 2016.Debbie converts $256,364 to a Roth IRA in the following month and pays income taxes using other assets.

2016 60 58 268,090 0 268,090 30.0% 0 0 514,940 67,909 447,030 715,121

2017 61 59 13,405 0 281,495 30.0% 67,909 -67,909 456,538 0 456,538 738,033

2018 62 60 14,075 0 295,570 30.0% 0 0 466,125 0 466,125 761,695

2019 63 61 14,778 0 310,348 30.0% 0 0 475,914 0 475,914 786,262

2020 64 62 15,517 0 325,866 30.0% 0 0 485,908 0 485,908 811,774

2021 65 63 16,293 0 342,159 30.0% 0 0 496,112 0 496,112 838,271

2022 66 64 17,108 0 359,267 30.0% 0 0 506,531 0 506,531 865,797

2023 67 65 17,963 0 377,230 30.0% 0 0 517,168 0 517,168 894,398

2024 68 66 18,862 0 396,092 30.0% 0 0 528,028 0 528,028 924,120

2025 69 67 19,805 0 415,896 30.0% 0 0 539,117 0 539,117 955,013

2026 70 68 20,795 0 436,691 30.0% 0 0 550,438 0 550,438 987,129

2027 71 69 21,835 0 458,526 30.0% 0 0 561,998 0 561,998 1,020,523

2028 72 70 22,926 0 481,452 30.0% 0 0 573,800 0 573,800 1,055,251

2029 73 71 24,073 0 505,524 30.0% 0 0 585,849 0 585,849 1,091,374

Year AgeSpouse

AgeLife

Exp.1Earnings &

Contributions2

ActualDistri-

butions3

RothIRA

ValuesTaxRate

IncomeTaxes

Paid4

ReinvestedDistri-

butions5

Total ofAll Other

Assets6

LessTax

Liability4

NetAll Other

Assets7


Assets

Convert to Roth IRA Using Other Assets for TaxesConvert to Roth IRA at Death


2Assumes qualified plan/Roth IRA earns 5.000% interest. Also includes Employer Contributions and Salary Reductions, if any. After Roth Conversion, also includes amount converted to Roth IRA.

3Actual Distribution is the greater of the distribution required to generate the Desired Distributions (see Assumptions pages) or Required Minimum Distribution. After Roth Conversion, Other Assets are usedto the extent possible to pay income taxes on Traditional IRA taxable amounts converted to Roth IRA.

4Taxes and any applicable penalties are paid at the start of the calendar year following the tax liability. See the Assumptions pages for information on distributions from a Traditional IRA with an originalafter-tax amount of $30,000. After Roth Conversion, includes the estimated income taxes on the Traditional IRA taxable amount converted to Roth IRA, except for any after-tax amount.

5Actual Distributions less Taxes and Penalties. After Roth Conversion, Other Assets are used to the extent possible to pay the income taxes on Traditional IRA taxable amounts converted to Roth IRA.

6All Other Assets and Cumulative Reinvested Distributions are assumed to earn 3.000% interest and are taxed at a 30.00% income tax rate.




August 20, 20156 of 17


2015 59 57 12,151 300 255,017 30.0% 0 0 504,348 79 504,269 759,286Year Age

SpouseAge

LifeExp.1


2

ActualDistri-

butions3

TraditionalIRA

ValuesTaxRate

IncomeTaxes

Paid4

ReinvestedDistri-

butions5

Total ofAll Other

Assets6

LessTax

Liability4

NetAll Other

Assets7


Assets

Carter dies in January 2016.Debbie converts $255,951 to a Roth IRA in the following month and pays income taxes using other assets and new life insurance of $50,000.

2016 60 58 267,659 0 267,659 30.0% 79 0 564,940 67,827 497,112 764,771

2017 61 59 13,383 0 281,042 30.0% 67,827 -67,827 507,672 0 507,672 788,713

2018 62 60 14,052 0 295,094 30.0% 0 0 518,333 0 518,333 813,426

2019 63 61 14,755 0 309,848 30.0% 0 0 529,218 0 529,218 839,066

2020 64 62 15,492 0 325,341 30.0% 0 0 540,331 0 540,331 865,672

2021 65 63 16,267 0 341,608 30.0% 0 0 551,678 0 551,678 893,286

2022 66 64 17,080 0 358,688 30.0% 0 0 563,264 0 563,264 921,952

2023 67 65 17,934 0 376,623 30.0% 0 0 575,092 0 575,092 951,715

2024 68 66 18,831 0 395,454 30.0% 0 0 587,169 0 587,169 982,623

2025 69 67 19,773 0 415,226 30.0% 0 0 599,500 0 599,500 1,014,726

Year AgeSpouse

AgeLife

Exp.1Earnings &

Contributions2

ActualDistri-

butions3

RothIRA

ValuesTaxRate

IncomeTaxes

Paid4

ReinvestedDistri-

butions5

Total ofAll Other

Assets6

LessTax

Liability4

NetAll Other

Assets7


Assets

Convert to Roth IRA Using New Life InsuranceConvert to Roth IRA at Death





5Actual Distributions less Taxes and Penalties. After Roth Conversion, life insurance proceeds are added to Other Assets and used to pay income taxes on Traditional IRA taxable amount converted to RothIRA.

6All Other Assets and Cumulative Reinvested Distributions are assumed to earn 3.000% interest and are taxed at a 30.00% income tax rate. After Roth Conversion, life insurance proceeds are added to OtherAssets and used to pay income taxes on Traditional amount converted to Roth IRA.




August 20, 20157 of 17

2026 70 68 20,761 0 435,988 30.0% 0 0 612,089 0 612,089 1,048,077

2027 71 69 21,799 0 457,787 30.0% 0 0 624,943 0 624,943 1,082,730

2028 72 70 22,889 0 480,676 30.0% 0 0 638,067 0 638,067 1,118,743

2029 73 71 24,034 0 504,710 30.0% 0 0 651,466 0 651,466 1,156,176

Year AgeSpouse

AgeLife

Exp.1Earnings &

Contributions2

ActualDistri-

butions3

RothIRA

ValuesTaxRate

IncomeTaxes

Paid4

ReinvestedDistri-

butions5

Total ofAll Other

Assets6

LessTax

Liability4

NetAll Other

Assets7


Assets

Convert to Roth IRA Using New Life Insurance





5Actual Distributions less Taxes and Penalties. After Roth Conversion, life insurance proceeds are added to Other Assets and used to pay income taxes on Traditional IRA taxable amount converted to RothIRA.

6All Other Assets and Cumulative Reinvested Distributions are assumed to earn 3.000% interest and are taxed at a 30.00% income tax rate. After Roth Conversion, life insurance proceeds are added to OtherAssets and used to pay income taxes on Traditional IRA amount converted to Roth IRA.




August 20, 20158 of 17

Understanding IRAs,Roth IRAs, ConversionsKey Concepts & Rules

Traditional IRAs

Contributions are limited to $5,500 for 2015 ($6,500 if 50 or over) and are generally tax deductible.•If you are eligible for a retirement plan at work and your modified adjusted gross income (MAGI) is$98,000 - $118,000 in 2015 (married, filing jointly), deductibility phases out and is eliminatedthereafter. If your spouse is covered by a retirement plan at work, but you are not, the phase outis $183,000 - $193,000 for married, filing joint. (The phase out is $61,000 - $71,000 for singletaxpayers.)

•

Funds grow tax-deferred, but are taxed as ordinary income upon distribution.•Minimum distributions are required annually beginning on the Required Beginning Date (RBD1).•Distributions taken prior to age 59½ are subject to a 10% early distribution penalty tax, withcertain exceptions.

•

Distributions after your death (or your spouse's death) are taxed as ordinary income to thebeneficiary as distributions are received.

•

At your death (or your spouse's death), the entire account value is includible in the gross estate forfederal estate tax purposes, and may be subject to estate taxes.

•

Roth IRAs

Contributions are limited to $5,500 for 2015 ($6,500 if 50 or over) and are NOT income taxdeductible.

•

Ability to contribute is phased out if you earn $183,000-$193,000 for married, filing jointly in2015, and eliminated thereafter. The phase out is $116,000 - $131,000 for single taxpayers.

•

Withdrawals of contributions to Roth IRAs, prior to age 59½, are not subject to the 10% earlywithdrawal penalty tax. Withdrawals of earnings within 5 years of establishing a Roth IRA aretaxed as ordinary income. Earnings taken prior to age 59½ are taxed as ordinary income, andmay be subject to a 10% early withdrawal penalty tax, with certain exceptions.

•

Funds grow tax deferred and are generally not taxable upon withdrawal.•No minimum distributions are required from Roth IRAs, during your (or your spouse's) lifetime.•

1The RBD is no later than April 1st of the year following the year in which the IRA owner attains age 70½ for Traditional IRAs, SEPs, and SIMPLE IRAs. For qualified retirement plans, the RBD is the later ofApril 1 of the year following the year in which the owner reaches age 70½ or retires, if less than a 5% owner.



August 20, 20159 of 17

Roth IRAs (continued)

Qualified distributions after your death are received by the beneficiary income tax-free, assumingthe 5 year period has been satisfied.

•

At your death (or your spouse's death, if spouse is considered owner of Roth IRA at death), theentire account value is includible in the gross estate for federal estate tax purposes, and may besubject to estate taxes.

•

Conversions (from a Traditional IRA or Qualified Retirement Plan to

a Roth IRA)

A Conversion is a taxable event. The entire (or partial) amount of the Traditional IRA (less anynon-deductible contributions) is taxable as ordinary income upon conversion (or distribution).The conversion amount may move you into a higher marginal income tax bracket.

•

Beginning in 2010 there is no income limit for Roth IRA conversions.•If you pay the taxes out of the Traditional IRA, it will reduce the benefits of the conversion to aRoth IRA, and if you are under age 59½, the amount used to pay income taxes will be subject tothe 10% early distribution penalty tax unless an exception applies.

•

Withdrawals of converted amounts within 5 years of each separate conversion to Roth IRAs maybe subject to a 10% early distribution penalty tax and withdrawals of earnings may be subject toa 10% early distribution penalty tax and/or taxed as ordinary income.

•

Distributions from a Traditional IRA must be deposited into a Roth IRA within 60 days (notapplicable for trustee-to-trustee transfers).

•

You do not have to convert your entire Traditional IRA. A partial conversion is allowed, but youmust follow the same rules as any other distribution regarding nondeductible contributions.

•

Understanding IRAs, Roth IRAs, Conversions



August 20, 201510 of 17

Pay Taxes Now or Later?

The deciding factor between choosing an IRA or Roth IRA is whether you prefer paying taxes on your contributions (Roth IRA) or on your distributions(Traditional IRA). So when will your taxes be higher – during your working years or during retirement? When comparing, be sure to consider yourincome level during each phase (both income and withdrawals from assets), in addition to potential legislative changes.

Taxes Stay the SameBoth are Equal

Taxes Higher in RetirementRoth IRA is Better

Taxes Lower in RetirementTraditional IRA is Better

Traditional IRA Roth IRA

Taxes


Taxes


Taxes

(Conceptual purposes only. See your personalized illustration for information based on your specific circumstances.)

The Flexibility of the Roth IRA

A major advantage of the Roth IRA is the flexibility of distributions before and during retirement:Withdrawals from Traditional IRAs may be subject to an additional 10% penalty tax, with some exceptions, while there is no penalty tax onwithdrawals of contributions from a Roth IRA (assuming distributions are qualified and not from assets converted within 5 years)

•

Required Distributions (after 70½) — Traditional IRAs require minimum distributions each year, while a Roth IRA has no required distributions forthe Roth IRA owner.

•

Retirement Savings OptionsIRA vs. Roth vs. Taxable Accounts



August 20, 201511 of 17

The Case Against "Taxable Accounts" (Savings Accounts)

Contributions to taxable accounts are made after-tax (just like a Roth IRA), but unlike aRoth IRA, interest and dividends generated are taxable each year, and capital gains taxesare due when liquidating an investment held for more than a year.

This combination of taxes can significantly reduce your ability to accumulate retirementfunds over the long-term, and may affect or limit your investment options and thefrequency of changes to your investments over the long-term. The upside is that there areno penalties or restrictions on withdrawals from taxable accounts before retirement,making them perfect for short-term savings.

Use taxable accounts for short-term savings.Use IRAs and Roth IRAs for long-term retirement funding.

Taxable Account vs Roth IRA

Taxable Roth IRA

$361,711

$611,729$600,000

500,000

400,000

300,000

200,000

100,000

0

These graphs compare account balances after30 years of $5,000 annual contributions (aftertax) growing at 8%. All growth in the taxableaccount is taxed each year at 35% while theRoth IRA grows tax free.

Retirement Savings Options



August 20, 201512 of 17

Spousal IRA


Taxes

Pay Later

Spouse takes at least the required minimum

distributions2 during retirement and is taxed on distributions, except

after tax amount, if any3

Surviving spouserolls over plan

to Spousal IRA1

Owner dies, andleaves retirement

plan to spouse

Income Taxes due when Spouse receives taxable distributions

Surviving Spouse

Roth IRA


Taxes

Pay Now

Owner dies, and leaves retirement plan to spouse

Spouse pays income taxes on the taxable amount of the conversion with other assets or IRA/Qualified Plan funds.

Spouse may receive income tax-free distributions for retirement4

Surviving spouse converts to Roth IRA

Income Taxes due when Spouse converts

to Roth IRA

Surviving Spouse

KEEP SPOUSAL IRA CONVERT TO ROTH IRA

When are taxes due? As Distributions are Received At DeathIncome taxes on accumulations? No NoIncome taxes on retirement distributions? Yes - Except after tax amount, if any No - If qualified distributionsBest when income tax rate will... Decrease IncreaseIs spouse required to take distributions? Yes - At age 70½ based on the Uniform Lifetime Table No - Distributions are not requiredMay cause Social Security Benefits to betaxable income?

Yes - Taxable distributions are considered taxableincome

No - Qualified distributions are not considered income

Income taxes paid by Spouse’s heirs? Yes - Income taxes due on taxable distributions to heirs No - Income taxes not due on qualified distributions

Should Surviving Spouse Convert to Roth IRAProviding the Most Income Tax Deferred Accumulations and Income Tax-Free Qualified Distributions

1Spousal IRA is a Traditional IRA of a surviving spouse funded all or in part with the deceased spouse's qualified retirement plan.

2Required Minimum Distributions must start at age 70½ and are based on the Uniform Lifetime Table.

3Distributions received before age 59½ will be subject to the additional 10% early distribution penalty tax, unless an exception applies.

4Spouse must be at least 59½, and the 5 taxable year holding period must be satisfied.



August 20, 201513 of 17

Assumptions General Assumptions

Carter's DOB: February 22, 1956Debbie's DOB: May 19, 1958

Contact Information:3312 Tulip StChicago, Illinois 21508Home Phone: 316-555-6968Business Phone: 3166-555-3789Email Address: [email protected]

Calculations assume that the value of All Other Assets (excluding life insurance) is equalto $500,000. These assets are assumed to earn 3.000% interest. Hypothetical rates ofreturn illustrated are not associated with any particular investment product. In somescenarios, new life insurance proceeds of $50,000 are illustrated after the death of theparticipant.

Calculations assume an ordinary income tax rate of 30.00%.

The Account Balance and Other Assets are grown pro-rata based on the date entered.

Traditional IRA/Qualified Plan Assumptions

Current Traditional IRA/Qualified Plan amount is $200,000, which includes the employeecost basis amount of $30,000, and assumes a growth rate of 5.000%. Calculationsassume all non-deductible and after-tax contributions (also known as basis, investment inthe contract, and non-taxable portion) are included in the original after-tax amount of$30,000. Hypothetical rates of return illustrated are not associated with any particularinvestment product.



August 20, 201514 of 17

A portion of the distributions from the Traditional IRA/Qualified Plan that includes anyafter-tax amount may not be taxable. These illustrations assume there are no otherTraditional IRA/Qualified Plan account balances for calculations that include any after-taxamount.

Elections: Distributions are at least the Required Minimum Distribution using the UniformLifetime Table, if applicable.

Roth IRA Assumptions

Conversion Occurs: Year 2016

Roth IRA is assumed to earn 5.000%. Hypothetical rates of return illustrated are notassociated with any particular investment product.

There are no required minimum distributions during participant's or spouse's lifetime (ifspouse is considered as owner).

Traditional IRA

Contributions may be tax deductible and earnings are tax-deferred. Annual contributionamounts are limited, and deductibility of contributions is based on modified adjustedgross income (MAGI), and not being a participant in an employer-sponsored retirementplan. Consult your tax advisor to determine the maximum tax-deductible contributionamount allowed annually. Contributions may also be non-deductible (after-tax), butearnings are tax deferred. These illustrations assume there are no other TraditionalIRA/Qualified Plan account balances for calculations that include any after-tax amount.Required minimum distributions must begin by age 70½.

Assumptions



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Roth IRA

Contributions are not tax deductible but earnings are tax-deferred. Annual contributionamounts are limited, and the ability to contribute is based on modified adjusted grossincome (MAGI). Consult your tax advisor to determine the maximum contribution amountallowed annually. Withdrawals of contributions to Roth IRAs are not subject to income taxor the 10% early withdrawal penalty tax. Withdrawals of earnings from a Roth IRA areconsidered qualified distributions after the 5-taxable year holding period for which acontribution or conversion was made to any Roth IRA and the owner is age 59½ or older.Withdrawals of earnings within 5 years of establishing a Roth IRA are taxed as ordinaryincome. Earnings taken prior to age 59½ are taxed as ordinary income, and may besubject to a 10% early distribution penalty tax, with certain exceptions.

Conversion of Traditional IRA to Roth IRA

Beginning in 2010, there is no income limit for Roth IRA conversions. Amounts convertedfrom the Traditional IRA (except for any after-tax amount) are taxable in the year of theconversion. These illustrations assume there are no other Traditional IRA/Qualified Planaccount balances for calculations that include any after-tax amount. Withdrawals ofearnings from a Roth IRA are considered qualified distributions after the 5-taxable yearholding period for which a conversion or contribution was made to any Roth IRA and theowner is age 59½ or older. Withdrawals of converted amounts within five years of eachconversion to Roth IRA may be subject to the 10% early distribution penalty tax, andwithdrawals of earnings may be subject to the 10% early distribution penalty tax and/ortaxed as ordinary income.

Assumptions



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Distribution Assumptions

Early retirement distributions are not exempt from the IRC Section 72(t) penalty.

Desired distributions from the Traditional IRA/Qualified Plan include:

Monthly premiums of $25 for new life insurance with a death benefit of $50,000 onCarter. Distributions subject to ordinary income taxes and 10% early distributionpenalty, if applicable.

Distributions from the Traditional IRA/Qualified Plan that does not include any after-taxamount are taxable. A portion of the distributions from the Traditional IRA/Qualified Planthat includes any after tax amount is not taxable. The non-taxable portion is the amountof the distribution that bears the same ratio to the total amount of the distributionreceived as the total remaining after-tax amount bears to the Traditional IRA/QualifiedPlan account balance at the end of the year.

For Traditional IRA/Qualified Plan, distribution calculations do not use a joint beneficiary.For Traditional IRA/Qualified Plan, required minimum distributions are based on theUniform Lifetime Table.

Final Regulations

Required Minimum Distributions are calculated based on the Uniform Lifetime Table. Ifyour beneficiary is your spouse (who is more than 10 years younger than you)distributions during your life may be calculated using the Joint and Last Survivor Table.

Assumptions



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Documents

Carter Roth and Debbie Roth€¦ · 65 342,159 496,112 838,271 Total Funds if Death at Age 73 $1,091,374 Roth IRA Using New Life Insurance for Taxes2 Age IRA/ Roth IRA Other Assets