Putnam IRA

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Turning IRA assets into income. Strategy that can help you meet your income and legacy objectives, by seeking to minimize taxes.

Text of Putnam IRA

  • 1. S h i f t i n g i n t o r e t i r e me n tTu r n i n g I RA as s e t s i n t o i n c o me Not FDIC May LoseNo BankInsuredValue Guarantee EO032 274522 4/12 |1

2. You cant take adistribution before age59 without penaltyCalculating requiredminimumdistributions iscomplicatedTax benefits stop at thedeath of the IRA owner EO032 274522 4/12 |2 3. Dont be slowed by penaltiesbefore age 59 Access your IRA penaltyfree through substantiallyequal periodic paymentsNo penalty AgeforAge 59 distributions 70 Penalty for Must begindistributionsdistributionsWithdrawals are subject to income tax and those made before age 59 may be subject to an additional 10% tax. EO032 274522 4/12 |3 4. Follow Rule 72(t) straight to penalty-free distributions You must take systematic payments for five years oruntil you reach age 59, whichever is longer Avoids the usual 10% additional tax on taxable IRAdistributions made before age 59* * Distributions taken prior to reaching age 59 are normally subject to an additional 10% tax. Distributions of deductible contributions and earnings will be subject to federal income tax. EO032 274522 4/12 |4 5. How does it work?Bob retires at age 50 Sally retires at age 57He must stick to theShe must stick to thedistribution schedule for distribution schedule for9.5 years (until age 59) 5 years (until age 62) EO032 274522 4/12 |5 6. The road you take makesa differenceDistribution methodLife expectancy Amortization AnnuityYear 1$2,924$3,699$3,681Year 23,148 3,699 3,681Year 33,400 3,699 3,681Year 43,661 3,699 3,681Year 53,940 3,699 3,681A one-time switch from either the amortization or the annuity method to the life expectancy method.This hypothetical example assumes a 50-year-old, traditional IRA owner, an account balance of $100,000 with an 8% annualized rate ofreturn, and an interest rate of 1.4% in conjunction with the IRS mortality table. Performance is not indicative of any Putnam fund, which willfluctuate.Not all required years of distribution are shown. EO032 274522 4/12 |6 7. You cant take adistribution before age59 without penaltyCalculating requiredminimumdistributions iscomplicatedTax benefits stop at thedeath of the IRA owner EO032 274522 4/12 |7 8. Mapping your RMD involves careful planning You must start takingdistributions from yourtraditional IRA byNo penaltyApril 1 of the year after Age for Ageyou turn 70* 59distributions70 IRA regulations maketaking distributionsPenalty forMust begineasy and relativelydistributions distributionsfavorable from atax standpoint * Note that these distributions are required of traditional IRA owners. Roth IRA owners are not required to take distributions during their lifetime.EO032 274522 4/12 |8 9. The express route to your RMD has four checkpointsJust keep in mindDateYou must start taking minimumdistributions by April 1 of the year after you turn70Calculation methodThere is one simple calculation method*Beneficiary You may change beneficiaries whenever you wishwithout affecting the amount of your lifetimedistributionsPenalty for failure Equal to 50% of the minimum requiredto withdraw distribution not taken* IRA owners who have a spousal beneficiary who is more than ten years younger than the IRA owner may opt to use the IRS joint life expectancytable.EO032 274522 4/12 |9 10. You cant take adistribution before age59 without penaltyCalculating requiredminimumdistributions iscomplicatedTax benefits stop at thedeath of the IRA owner EO032 274522 4/12 | 10 11. Extend your roadtrip with a Stretch IRA Extend taxdeferral No penalty Increase Age 59 fordistributionsAge70compoundingpotentialPenalty forMust begindistributions distributions IRA incomefor heirsEO032 274522 4/12 | 11 12. Spousal beneficiary Once RMD for the year of death has been made, a spousebeneficiary may take over decedents IRA and treat it as hisor her own (assuming certain requirements are met) Spouse can calculate RMDs, if required, based onthe uniform distribution table Name new beneficiaries Spouse can also transfer funds to a beneficiary IRA If the beneficiary spouse is under age 59, he or she can access the IRAassets immediately without incurring a 10% early withdrawal penalty Spouse beneficiary may still opt to treat the beneficiary IRA as his or herown at any time in the future EO032 274522 4/12 | 12 13. How does it work?Spousal beneficiary example YE AR0 0Bob (age 65) rolls $200K into anIRA and names wife,Sally (age 60), as sole beneficiaryEO032 274522 4/12 | 13 14. How does the spousalbeneficiary work? YE AR0 5Bob dies at age 70. Before commencingRMDs, Sally (age 65) elects to treat theIRA as her own and designates their son,Bruce (age 40), as her IRA beneficiaryRMDs have not startedEO032 274522 4/12 | 14 15. How does the spousalbeneficiary work?Y E A R 1 0 Sally dies in Year 10 at age 70 beforecommencing RMDs. The following year, Bruce (age 45)begins receiving payments based on his(much longer) life expectancy under thenew IRS regulations. He names his wife,Wendy, as his beneficiary. Year 11 distribution$12,019Year 0 Year 10Year 20 Year 30Year 40 Year 50$3.2 million in income based upon an initial investment of $200,000 and cumulative annual distributions of 39 years. This hypothetical illustration assumesan 8% annualized return and that distributions are kept to the required minimum. It does not represent the performance of any Putnam fund or investment.Investors should consider various factors that can affect their decision, such as possible changes to tax laws, the impact of inflation and other risksincluding periods of market volatility when investment return and principal value may fluctuate with market conditions. EO032 274522 4/12 | 15 16. How does the spousalbeneficiary work? Year 49 distribution $270,526 Year 40 distribution$124,329Bruce dies at age 74. Wendy continues the established distribution schedule. No rollover is availableYear 30 distribution $54,566 Year 20 distribution $24,506 Year 11 distribution$12,019Year 0Year 10 Year 20 Year 30 Year 40 Year 50$3.2 million in income based upon an initial investment of $200,000 and cumulative annual distributions of 39 years. This hypothetical illustrationassumes an 8% annualized return and that distributions are kept to the required minimum. It does not represent the performance of any Putnam fund orinvestment. Investors should consider various factors that can affect their decision, such as possible changes to tax laws, the impact of inflation andother risks including periods of market volatility when investment return and principal value may fluctuate with market conditions.EO032 274522 4/12 | 16 17. How does the spousalbeneficiary work?Total of 39 annual distributions$3,200,000 was distributedfrom the accountYear 0 Year 10Year 20 Year 30Year 40 Year 50$3.2 million in income based upon an initial investment of $200,000 and cumulative annual distributions of 39 years. This hypothetical illustration assumesan 8% annualized return and that distributions are kept to the required minimum. It does not represent the performance of any Putnam fund or investment.Investors should consider various factors that can affect their decision, such as possible changes to tax laws, the impact of inflation and other risksincluding periods of market volatility when investment return and principal value may fluctuate with market conditions. EO032 274522 4/12 | 17 18. Non-spousal beneficiaries IRA owner may designate a non-spousalbeneficiary, including a minor Upon reaching age 70, owner begins RMDs When IRA owner dies, the beneficiary mayestablish RMDs based on his/her own lifeexpectancy and name a new beneficiary,*even if RMDs have already started* Special rules may apply if the designated non-spouse beneficiary is a non-person, such as an estate, trust, or charitable organization.EO032 274522 4/12 | 18 19. How does the non-spousalbeneficiary work? YE AR0 0Betty (age 60) rolls $200K into an IRAShe names her sons Max, age 34,and Sam, age 40 as beneficiaries EO032 274522 4/12 | 19 20. How does the non-spousalbeneficiary work? YE AR10 0Betty begins RMDs using the IRSssimple calculation methodYear 10 distribution = $16,480EO032 274522 4/12 | 20 21. How does the non-spousalbeneficiary work? YE AR 1 0 2Betty dies at age 72 after receiving$53,443 in distributions over 3 yearsIRA split evenly between sonsMax and SamEO032 274522 4/12 | 21 22. How does the non-spousalbeneficiary work?YE AR1 0 2Sam (now age 52) decides to liquidatehis portion of the account immediatelySams lump-sum distribution = $243,158 EO032 274522 4/12 | 22 23. How does the non-spousalbeneficiary work? $243,158140,000Y E A R1 2120,000 Sam receives $243,158.100,000 In the year following Bettys death, 80,000year 13, Max (now age 47) begins 60,000taking distributions based on his 40,000single life expectancy 20,000 0 YearYear YearYear1 10 1249Annual distributions:Betty Sam MaxThis hypothetical example assumes an 8% annualized return with distributions on an initial $200,000 investment based initially on the uniform distributiontable. After the owners death, distributions are based on the non-recalculated single life expectancy of a single beneficiary. Distributions are taken at theend of the year and are kept to the required minimum. Performance is not indicative of any Putnam fund.EO032 274522 4/12 | 23 24. How does the non-spousalbeneficiary work? $243,158140,000Y E A R4 9120,000100,000 Maxs IRA is depleted. Total of $1,436,936 received 80,000 in distributions 60,000 40,000 20,000 0 YearYear YearYear1 10 1249Annual distributions:Betty Sam MaxThis hypothetical example assumes an 8% annualized return with distributions on an initial $200,000 investment based initially on the uniform distributiontable. After the owners death, distributions are based on the non-recalculated single life expectancy of a single beneficiary. Distributions are taken at theend of the year and are kept to the required minimum. Perfor