National Underwriter Advanced Markets Training Series Making the Most of Clients’ Assets using the NUAM Research System Presented by: The National Underwriter Company & Prof. William H. Byrnes and Prof. Robert Bloink

Welcome Associate Dean William H. Byrnes Thomas Jefferson School of Law Masters Program International Tax & Financial Compliance

Today’s Focus: Making the Most of Your Clients’ Assets: Retirement and Insurance Strategies for 2013 Should your clients take advantage of the American Taxpayer Relief Act’s (“ATRA”) penalty-free 401(k)-to-Roth 401(k) Rollover? Is life insurance a smart investment in light of higher investment taxes post-ATRA? What type of annuity strategy is right for your client?

Case Study 1: Advising Your Clients on Retirement Planning after ATRA The Issue: ATRA now allows clients to convert 401(k) funds into Roth 401(k) funds without penalty. Your clients need to know: is this the best move for them? Which clients should convert to Roths? Which clients should leave their funds in traditional 401(k) accounts? NUAM can help.

What is a Roth 401(k) Feature? Not all clients are even aware what the Roth 401(k) does: http://nationalunderwriteradvancedmarkets.com/tax-facts/document/3632-00-TF1.aspx?search=roth%20401%28k%29&type=and

How to Advise? Your clients need the facts—use NUAM’s cross-platform search function to find all the relevant resources. What are the tax consequences of converting? Answers can be found quickly using Tax Facts Online: http://nationalunderwriteradvancedmarkets.com/tax-facts/document/3633-00-TF1.aspx?search=roth%20401%28k%29&type=exa

How to Advise? Your clients need the facts—use NUAM’s cross-platform search function to find all the relevant resources. Should your clients convert? NUAM provides up to date news coverage so that you know all the current issues required to advise properly: http://nationalunderwriteradvancedmarkets.com/articles/fc010113-b.aspx?action=16

How to Advise? Your clients need the facts—use NUAM’s cross-platform search function to find all the relevant resources. Why is 2013 different? ATRA relaxed the rules relating to 401(k)-to-Roth-401(k) Rollovers. NUAM provides comprehensive coverage of new legislation, and an explanation of why it affects your clients: http://nationalunderwriteradvancedmarkets.com/articles/fc010113-a.aspx?action=16

Why Roll 401(k) Funds into a Roth? Tax-Free distributions if the distribution is “qualified”—i.e., taken after the client reaches 59 ½ or becomes disabled. Even if the distribution is not qualified—only earnings are taxed. ATRA: no penalty for the rollover (pre-ATRA law imposed a penalty if the client was not already eligible to begin taking distributions). Certainty: Taxes are paid in advance, entire amount can grow (and be withdrawn) tax-free when the client retires.

To Convert or Not to Convert? Who Should Convert? Younger Clients (funds have more years to grow tax-free). Clients expecting to move into a higher tax bracket in the future. Clients who want the certainty of knowing that their taxes are paid at today’s rates. Why NOT to convert? Clients in a high tax bracket (all taxes are owed upon conversion) who don’t have liquid assets to pay the taxes. Clients very close to retirement. Their tax rate will be lower in retirement, when they stop earning. Less time for the converted funds to grow tax-free before they’re needed to provide retirement income.

Case Study 2: Life Insurance as a Smart Investment Vehicle? The Issue: ATRA and the Affordable Care Act investment income tax raised taxes on investments for wealthy clients. What about life insurance? Can it provide a tax-preferred alternative? Will your client be able to sell the policy without adverse consequences? NUAM can help.

How to Advise? Your clients need the facts— Start with the homepage, which allows you to search the entire NUAM research database: http://nationalunderwriteradvancedmarkets.com/

How to Advise? How is life insurance taxed? Tax Facts provides a helpful Q & A format: http://nationalunderwriteradvancedmarkets.com/tax-facts/document/0030-00-TF1.aspx?search=30&type=and

How to Advise? Is there any benefit to a life insurance investment while you’re alive? Yes, and NUAM’s Advisor article series provides real-world analysis of what your client needs to know about using life insurance as an investment: http://nationalunderwriteradvancedmarkets.com/articles/fc090112-a.aspx?action=16

How to Advise? What if you change your mind? What’s the transfer for value rule? NUAM provides a comprehensive explanation of the rule and it’s exceptions: http://nationalunderwriteradvancedmarkets.com/articles/default.aspx?filename=f102-1_1_102_1060.htm&search=life%20insurance%20sale&type=and NUAM’s Advisor article series provides coverage of recent IRS rulings that impact your clients: http://nationalunderwriteradvancedmarkets.com/articles/default.aspx?filename=fc090112-c.htm&search=transfer%20for%20value%20rule&type=and

Why can Life Insurance be an Attractive Investment Option? Tax-free loans. Use the right policy—whole life policies allow internal build-up of cash value within the policy. Clients can borrow against this cash value. Some policies even pay dividends—or the dividends can be reinvested in the policy to increase the policy’s cash value. Tax-free death benefit. Outstanding loans will reduce available death benefit. Can still provide a benefit for heirs. BUT—beware the transfer for value trap.

Avoiding the traps: The Transfer for Value Rule The transfer for value rule can erase the tax benefits of a life insurance policy. Basic Rule: If a life insurance policy is transferred for anything of value, exclusion of proceeds from taxation is limited to the sum of (1) the value of the consideration and (2) premiums paid. Know the exceptions to the rule—transfer to the Insured himself. Use a trust vehicle to ensure flexibility—the law treats the grantor and the trust as a single entity for tax purposes, so the client can transfer between grantor trusts. The trusts can benefit the beneficiaries of the client’s choosing What about estate taxes? Ability to transfer between two trusts could create incidents of ownership, so that the policy would be included in the client’s estate. Appoint an independent trustee to ensure exclusion from the client’s estate—trustee makes sure assets transferred are of equal value.

Case Study 3: What annuity strategy is right for your client? The Issue: annuities are complicated—but your client wants a pension-like retirement income stream. How to avoid higher taxes in the process? What’s a deferred income annuity? Is that different from a longevity annuity? What are the risks? NUAM can help.

How to Advise Tax Facts Online outlines the tax treatment of deferred variable annuities: http://nationalunderwriteradvancedmarkets.com/tax-facts/document/0373-00-TF1.aspx?action=72

How to Advise? NUAM’s Advisor Article series discusses the benefits and drawbacks of the IRS’ proposed regulations governing Qualified Longevity Annuity Contracts (QLACs), which allow a client to defer annuity payouts until they reach a very old age (80 or 85). http://nationalunderwriteradvancedmarkets.com/articles/fc040113-a.aspx

How to Advise Some clients might find QLACs too risky, because if the client does not live long enough, the investment can be worthless. Can your client purchase a deferred annuity today that begins payouts when they retire in 5 years (as opposed to 20 years)? Yes, and NUAM’s Advisor Article series explains how (and why they might want to): http://nationalunderwriteradvancedmarkets.com/articles/default.aspx?filename=fc110112-a.htm&search=deferred%20annuity&type=and

Deferred Annuity Strategy Your clients don’t want to run out of money during retirement, but don’t have a traditional pension to rely on. Longevity annuities allow your clients to buy an annuity today that begins payouts far into the future (when they’re 80 or 85). Tax is deferred until payouts begin, so the annuity has time to grow. IRS has blessed longevity annuities with proposed regulations that let the client exclude certain amounts (up to $100,000 or 25% of retirement account assets) in deferred annuities from required minimum distribution requirements. Your clients are worried they won’t live long enough to put substantial assets into “longevity insurance.” Modified version of the longevity annuity allows clients to defer for a shorter period of time—maybe 5 years instead of 20 or 30. Tax-deferred treatment, but less time for growth. Sometimes offer dividends for clients who want some market participation—without as much risk.

Q&A