Understanding Distributions 7/ B For broker/dealer use only. Not for use with the public. No bank guarantee Not a deposit May lose value Not FDIC/NCUA insured Not insured by any federal government agency

For broker/dealer use only. Not for use with the public. Presented by: [Name of Financial Professional, Company Name] [Name of Pacific Life Representative, Pacific Life] [Financial Professional Name] and [Company] are not affiliated with Pacific Life or its affiliated companies. Insurance products are issued by Pacific Life Insurance Company in all states except New York and in New York by Pacific Life & Annuity Company. Product availability and features may vary by state.

Agenda For broker/dealer use only. Not for use with the public. Defining the basics Owner issues Beneficiary issues

 The accumulation phase – Contract issue through annuitization – Distributions are called withdrawals  The income phase – Annuitization through the last payout – Distributions are called annuity payouts For broker/dealer use only. Not for use with the public. Two Phases

 During the accumulation phase – Nonqualified—last in, first out (LIFO) – Qualified—all ordinary income  During the income phase – Nonqualified—exclusion ratio – Qualified—all ordinary income  Ordinary income, not capital gains For broker/dealer use only. Not for use with the public. Taxation of Distributions Contributions made to deferred annuities prior to August 14, 1982, are pre-TEFRA and are withdrawn on a last in, first out (LIFO) basis. Pre-TEFRA principal in the contract will be withdrawn first.

Distribution Example For broker/dealer use only. Not for use with the public. Robert deposited $40,000 into a deferred annuity contract. The contract value today is $60,000. NonqualifiedQualified Accumulation Phase Robert takes $25,000 withdrawal $20,000 recognized as ordinary income $5,000 nontaxable return of principal $25,000 recognized as ordinary income Income Phase Robert takes annuity payouts of $7,200/year for a 10-year period certain $3,200/year recognized as ordinary income $4,000/year nontaxable return of principal $7,200/year recognized as ordinary income

Exception to 10% Early Withdrawal Tax For broker/dealer use only. Not for use with the public. Attainment of age 59½, death, disability, substantially equal periodic payments (SEPPs) Separation from service after age 55 Certain medical expenses Qualified domestic relations order (QDRO) To reduce excess contributions and/or deferrals First-time home purchase Higher education expenses Health insurance premiums while unemployed IRAs Qualified Non- qualified

 Also known as 72(t) or 72(q)  IRS Notice  Three SEPP methods of calculation – Required minimum distribution (RMD) – Amortization – Annuitization For broker/dealer use only. Not for use with the public. Substantially Equal Periodic Payments (SEPPs)

 Divide balance by life expectancy factor  Example from IRS Notice 89-25: – Account balance: $100,000 – Owner age: 50 – Single life expectancy factor: 33.1 years $100,000 / 33.1 = $3,021 For broker/dealer use only. Not for use with the public. 72(t)/72(q)—RMD Method

 Divide balance by amortization factor  Example from IRS Notice 89-25: – Account balance: $100,000 – Amortization factor: – Owner age: 50 – Single life expectancy: 33.1 years – Interest rate: 8.0% $100,000 / = $8,679 For broker/dealer use only. Not for use with the public. 72(t)/72(q)—Amortization Method

 Divide balance by annuity factor  Example from IRS Notice 89-25: – Account balance: $100,000 – Annuity factor: – Owner age: 50 – Interest rate: 8.0% $100,000 / = $9,002 For broker/dealer use only. Not for use with the public. 72(t)/72(q)—Annuitization Method

 What is considered a reasonable interest rate?  Do I need to include all my IRAs?  What date do I use in determining the account balance?  What happens if, due to market downturn, the account is depleted before the end date? For broker/dealer use only. Not for use with the public. 72(t)/72(q)—Notice Open Issues

72(t) Revision  Released by the IRS on 10/3/02  Addressed concerns of taxpayers that began distributions during bull market  Modified provisions of Notice  Effective 1/1/03 For broker/dealer use only. Not for use with the public. Revenue Ruling

What did not change?  Calculation still based on life expectancy  Three methods of calculation – RMD – Amortization – Annuitization  Duration of distribution, longer of five years or age 59½ For broker/dealer use only. Not for use with the public. Revenue Ruling

What did change?  New life expectancy tables – Updated by final regulations on RMDs  Allows change of current 72(t) calculation method – One-time, irrevocable change to RMD method not deemed a modification For broker/dealer use only. Not for use with the public. Revenue Ruling

What was clarified?  Date for determining account balance – A reasonable date between prior year end or date of distribution  Reasonable interest rate defined – Not more than 120% of federal mid-term rate for either of two months immediately preceding the month in which distribution begins For broker/dealer use only. Not for use with the public. Revenue Ruling

What was clarified?  No transactions on account – Modification deemed when: ▪ Additional contributions are made ▪ Nontaxable transfer of a portion of account balance to another plan ▪ Rollover received in account For broker/dealer use only. Not for use with the public. Revenue Ruling

What was clarified?  Depletion of account – If assets are exhausted prior to end date, not deemed as modification – Acceptable method must have been used For broker/dealer use only. Not for use with the public. Revenue Ruling

To modify or not? Hypothetical Example:  Prior amount under amortization method – $8,679  One-time change to RMD method – Current account value: $50,000 – Owner age: 55 – Single life expectancy factor: 29.6  New 72(t) amount = $1,689 For broker/dealer use only. Not for use with the public. Revenue Ruling

 IRS Notice – Provides guidance regarding nonqualified annuities ▪ Application of Notice 89-25, as modified by Revenue Ruling , to Section 72(q)(2)(D) For broker/dealer use only. Not for use with the public. Revenue Ruling

Taking Annuity Income Payments For broker/dealer use only. Not for use with the public. Life Only Life with Period Certain Joint and Survivor Life Common Forms of Annuity Payout Options Period Certain Only

 Fixed annuity payout – Periodic income payment is guaranteed – Does not change  Variable annuity payout – Periodic income payment fluctuates – Fluctuates with the performance of the underlying variable annuitization units For broker/dealer use only. Not for use with the public. Fixed or Variable?

 Advantages of fixed payouts – Guaranteed, predictable income – If Life option, cannot outlive income  Disadvantages of fixed payouts – Payments may not keep up with inflation For broker/dealer use only. Not for use with the public. Fixed Annuitization

 Advantages of variable payouts – Upside potential – Payments may help keep pace with inflation  Disadvantages of variable payouts – Uncertainty of income payment amount For broker/dealer use only. Not for use with the public. Variable Annuitization

 Revenue Procedure – Effective October 24, 2011 ▪ Basis is applied pro rata ▪ Annuitize over ▪ 10 years or more ▪ The lives of one or more individuals For broker/dealer use only. Not for use with the public. Partial Annuitization

Required Minimum Distributions (RMDs) For broker/dealer use only. Not for use with the public. Assets are intended for retirement Transfers to beneficiaries should be incidental 50% penalty on distributions not taken

RMDs—Required Beginning Date For broker/dealer use only. Not for use with the public. If the owner has: Then RMDs must begin: Traditional IRA, SEP- IRA, or SIMPLE IRA April 1 of the year following the year in which the owner attains age 70½ TSA/403(b) Post-1986 assets: The later of April 1 of the year following the year in which the owner attains age 70½ or retires Pre-1987 assets: When the owner attains age 75 Qualified plan The later of April 1 of the year following the year in which the participant attains age 70½ or retires (as long as not 5% owner) Nonqualified annuity or Roth IRA No required minimum distributions

 A Qualified Longevity Annuity Contract (QLAC) is a deferred income annuity contract meeting specific IRS requirements  The QLAC value will be excluded from the contract owner’s RMD calculation until the Annuity Start Date (Maximum Start date age 85)  The annuity start date for a deferred income annuity that qualifies as a QLAC can be delayed to age 85 In order for the contract to be eligible as a QLAC, certain requirements under Treasury Regulations must be met, including limits on the total amount of purchase payments that can be made to the contract. Qualified contracts, including traditional IRAs, Roth IRAs, and QLACs are eligible for favorable tax treatment under the Internal Revenue Code (IRC). Certain payout options and certain product features may not comply with various requirements for qualified contracts, which include required minimum distributions and substantially equal periodic payments under IRC Section 72(t). Therefore, certain product features, including the ability to change the annuity payment start date and to exercise withdrawal features, may not be available or may have additional restrictions. For broker/dealer use only. Not for use with the public. QLAC—Maximum Annuity Start Date

 RMD = entire interest ÷ applicable life expectancy  “Entire interest” = contract value + actuarial present value of any “additional benefit”  “Additional benefits” provided under a contract may increase the entire interest, thus increasing the RMD amount For broker/dealer use only. Not for use with the public. RMDs—Actuarial Value IRAs and qualified plans—such as 401(k)s and 403(b)s—are already tax-deferred. Therefore, an annuity should be used only to fund an IRA or qualified plan to benefit from the annuity’s features other than tax deferral. These include lifetime income, death benefit options, and the ability to transfer among investment options without sales or withdrawal charges.

 “Additional benefits” may include IRA annuity contract benefits such as: – Death benefit riders – Living benefit riders  Exceptions: – Guaranteed return of premium (ROP) death benefits – Benefits with pro rata reduction for any withdrawal AND the additional benefit is not more than 20% of the account value For broker/dealer use only. Not for use with the public. RMDs—Actuarial Value Guarantees subject to the financial strength and claims-paying ability of the issuing insurance company.

Assume For broker/dealer use only. Not for use with the public. Actuarial Value—Example RMD is $4,805 $100,000 + $23, * (as $23,000 > $20,000 (or 20%), it is added to contract value when calculating the RMD) RMD is $3,906 $100, * (as $18,000 < $20,000 (or 20%), it is not added to contract value when calculating the RMD) $23,000, then$18,000, then If the issuing financial institution determines that the actuarial value of the additional benefits is… * Applicable life expectancy from IRS Publication 590, Uniform Lifetime Table. –IRA owner age 72 –$100,000 = prior year-end balance –Death benefit provides annual step-up

Required Minimum Distributions (RMDs) For broker/dealer use only. Not for use with the public. Owner will use Uniform Lifetime Table unless the sole primary beneficiary is a spouse who is more than 10 years younger

Predetermined Beneficiary Payout Option  IRA or nonqualified contract owners may elect during their lifetimes  Acts to restrict the manner in which the beneficiary receives the death benefit proceeds  No new contract issued for beneficiary For broker/dealer use only. Not for use with the public. Owner Issues

 Inherited IRA, inherited Roth IRA, and nonqualified stretch restrictions – With future unrestricted access at a specified age  Lump-sum or partial lump-sum restrictions with remainder either: – Annuitized – Distributed over life expectancy For broker/dealer use only. Not for use with the public. Predetermined Beneficiary Payout Options

 Lump sum  Five years (if owner dies pre-RBD)  Life expectancy – Annuitize contract – Life expectancy distributions (inherited IRA)  Spouse – May elect one of the above options, or – Roll to own IRA For broker/dealer use only. Not for use with the public. IRA Beneficiary Options

 Death before required beginning date (RBD) rules  Lump sum  Five-year rule  Life expectancy – Annuitize contract – Life expectancy distributions (inherited Roth IRA)  Spouse – May elect one of the above options, or – Roll to own Roth IRA For broker/dealer use only. Not for use with the public. Roth IRA Beneficiary Options

 Pension Protection Act (PPA) of 2006  Effective for distributions after 12/31/06  Allows non-spousal beneficiaries of qualified retirement plans to roll their shares to their own inherited IRAs, or inherited Roth IRA  Subject to inherited IRA’s distribution rules  Subject to plan limitations For broker/dealer use only. Not for use with the public. Qualified Plans—Inherited IRA Option Available to Non-Spousal Beneficiary

 Also called “Dynasty,” “Multigenerational,” “Stretch-Out”  IRA must be kept in the name of the deceased, e.g., X, beneficiary of Y, deceased IRA  A beneficiary can name a subsequent beneficiary to receive the remaining distributions For broker/dealer use only. Not for use with the public. Inherited IRAs

Trust needs to meet requirements outlined in Regulation Section 1.401(a)(9)-4 as follows: – Valid under state law – Trust was irrevocable or became irrevocable upon death of IRA owner – Have identifiable beneficiaries – Trustee must supply to custodian or carrier by no later than 10/31 of the year following year of IRA owner’s death either ▪ Copy of the trust document, or ▪ Certified list of all beneficiaries including contingent and remaindermen For broker/dealer use only. Not for use with the public. Trust as Beneficiary of IRA

 Distribution options – Lump sum – Five years (if owner dies pre-RBD) – Lifetime distributions based on life expectancy of the oldest named beneficiary of the trust  Spouse as sole beneficiary of trust cannot roll into own IRA  Separate accounting not available to beneficiaries of trust – Regulation Section 1.401(a)(9)-4. Q&A – 5 – PLR For broker/dealer use only. Not for use with the public. Trust as Beneficiary of IRA

 Lump sum  Five years  Life expectancy – Annuitize contract – Life expectancy distributions (nonqualified stretch) – Not available if trust is beneficiary  Spousal continuation (surviving spouse only) – Only available if spouse is the sole designated recipient – Continues at guaranteed minimum death benefit (GMDB) (assuming contract is structured properly) – Contingent deferred sales charge (CDSC) period grandfathered For broker/dealer use only. Not for use with the public. Nonqualified Annuity Beneficiary Options Any payments or benefits due on the annuity are subject to the financial strength and claims-paying ability of the insurance company.

“Nonqualified Stretch” For broker/dealer use only. Not for use with the public. Beneficiary receives lifetime distributions Beneficiary does not annuitize contract New contract is not established May withdraw more than required amount Assets may or may not be transferred via 1035 exchange

 Non-spousal beneficiary permitted tax-free 1035 exchange – Taxpayer received higher payout elsewhere – 1035 exchange ▪ From four variable and one fixed deferred annuity contracts ▪ To one variable deferred annuity contract – Continues payments ▪ Amount determined by new contract – New Contract did not allow taxpayer to ▪ Transfer ownership ▪ Make any new purchase payments For broker/dealer use only. Not for use with the public. Private Letter Ruling Clients should consult their tax advisors and attorneys regarding their specific situations.

Nonqualified Stretch vs. Annuitization For broker/dealer use only. Not for use with the public. LIFO assumes post-TEFRA assets. Nonqualified Stretch AnnuitizationAnnuitization Annuitize over life expectancy or period certain If fixed annuitization, not subject to market fluctuation Exclusion ratio— pro rata distribution of growth and basis Scheduled withdrawals over life expectancy Assets may be subject to market fluctuation Growth is distributed first (LIFO)

In Summary For broker/dealer use only. Not for use with the public. When and how individuals can take distributions How distributions are taxed Flexible beneficiary distribution options

Sales Support Automated Distributions  72(t) and 72(q) SEPPs  Scheduled withdrawals  RMDs  Inherited (traditional and Roth) IRA; spousal, non-spousal, trust beneficiary Illustrations  72(t) and 72(q) SEPPs  RMDs  Annuitization  Inherited IRA  Nonqualified distribution analysis  Roth conversion For broker/dealer use only. Not for use with the public. Clients should consult their tax advisors and attorneys regarding their specific situations.

Advanced Marketing Home-office specialists who can provide you expertise on a range of retirement income planning topics Retirement Strategies Group (RSG) Field specialists who are available for meetings with you and your clients’ tax and legal professionals to discuss complex retirement planning issues For broker/dealer use only. Not for use with the public.

Benefit from Our Services Today For broker/dealer use only. Not for use with the public. For information and support, please contact: Retirement Strategies Group For updates, please contact: Advanced Marketing Group (800) , ext or In New York: (800) , ext. 3939

For broker/dealer use only. Not for use with the public. This material is not intended to be used, nor can it be used by any taxpayer, for the purpose of avoiding U.S. federal, state, or local tax penalties. This material is written to support the promotion or marketing of the transaction(s) or matter(s) addressed by this material. Pacific Life, its affiliates, their distributors, and respective representatives do not provide tax, accounting, or legal advice. Any taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor or attorney.

For broker/dealer use only. Not for use with the public. Investors should carefully consider a variable annuity's risks, charges, limitations, and expenses, as well as the risks, charges, expenses, and investment goals of the underlying investment options. This and other information about Pacific Life are provided in the product and underlying fund prospectuses. These prospectuses should be read carefully before investing.

For broker/dealer use only. Not for use with the public. In New York, Pacific Life & Annuity Company P.O. Box 2829, Omaha, NE (800) Pacific Life Insurance Company P.O. Box 2378, Omaha, NE (800) Variable annuities are long-term investments designed for retirement. The value of the variable investment options will fluctuate and, when redeemed, may be worth more or less than the original cost. Annuity withdrawals and other distributions of taxable amounts, including death benefit payouts, will be subject to ordinary income tax. For nonqualified contracts, an additional 3.8% federal tax may apply on net investment income. If withdrawals and other distributions are taken prior to age 59½, an additional 10% federal tax may apply. A withdrawal charge and a market value adjustment (MVA) also may apply. Withdrawals will reduce the contract value and the value of the death benefits, and also may reduce the value of any optional benefits. IRAs and qualified plans—such as 401(k)s and 403(b)s—are already tax ‑ deferred. Therefore, a deferred annuity should be used only to fund an IRA or qualified plan to benefit from the annuity’s features other than tax deferral. These include lifetime income, death benefit options, and the ability to transfer among investment options without sales or withdrawal charges. The federal and state income tax laws regarding variable annuities are complex and subject to change. Representations made herein are neither complete nor necessarily up-to-date. For example, no attempt is made to describe the tax rules related to IRAs and qualified plans. Contracts owned by entities, such as corporations, partnerships, and certain trusts, are not eligible for tax deferral. Pacific Life does not provide administrative services for qualified plans or impartial investment advice and does not act in a fiduciary capacity for any plan. Pacific Life refers to Pacific Life Insurance Company and its affiliates, including Pacific Life & Annuity Company. Insurance products are issued by Pacific Life Insurance Company in all states except New York and in New York by Pacific Life & Annuity Company. Product availability and features may vary by state. Each insurance company is solely responsible for the financial obligations accruing under the products it issues. Insurance product and rider guarantees, including optional benefits and any fixed subaccount crediting rates or annuity payout rates, are backed by the financial strength and claims-paying ability of the issuing insurance company and do not protect the value of the variable investment options. They are not backed by the broker/dealer from which this annuity is purchased, by the insurance agency from which this annuity is purchased, or any affiliates of those entities, and none makes any representations or guarantees regarding the claims-paying ability of the issuing insurance company. Variable insurance products are distributed by Pacific Select Distributors, LLC (member FINRA & SIPC), a subsidiary of Pacific Life Insurance Company (Newport Beach, CA) and an affiliate of Pacific life & Annuity Company. Variable and fixed annuity products are available through licensed third-party broker/dealers.