Enjoy the freedom of tax-free retirement income

Transcription

1 Tax-efficient retirement income Using life insurance Enjoy the freedom of tax-free retirement income A (10/15)

2 Ameriprise Financial Confident Retirement approach The Ameriprise Financial Confident Retirement approach breaks retirement planning down into doable steps to take the uncertainty out of facing your future. Your financial advisor can offer practical advice and solutions to cover your essential expenses, ensure your lifestyle, prepare for the unexpected and leave a legacy. Protecting your loved ones and your assets are both important aspects of financial security and stability. With cash value life insurance, not only can you help financially protect loved ones, but you have the opportunity to grow your assets to meet financial goals, including income in retirement. 2

3 As a successful saver, you may worry about the long-term impact taxes may have on your assets and whether there s anything you can do to control it. For help controlling the impact of taxes on your retirement income, consider the advantages of cash value life insurance: Greater financial security Flexible income source Life insurance gives you the exclusive benefit of leverage. That is, it allows you to create an amount of money often several times the value of an initial asset that can later pass to your heirs income-tax free. When properly structured, cash value life insurance offers the opportunity to fund and withdraw from your policy without limitations related to age and income. Unique tax advantages When properly structured, you have the opportunity to access both your principal and the tax-deferred growth income tax-free. No other retirement income solution can give you this combination of advantages. Before you purchase cash value life insurance, be sure to consider the policy s features, benefits and fees, and whether it is appropriate for you based on your financial situation and objectives.

4 Help control the impact of taxes on your retirement The last thing you want to discover once you ve retired is that you have less income than you d planned, because you didn t consider the impact of taxes. To help avoid an imbalance later, you can adjust how you save now. To adjust appropriately, you need to understand the tax treatment of your retirement savings options and work with your advisor to devise a plan that s best for your situation: Taxable The dollars you contribute to this category have already been taxed (also called, after tax ); you generally incur tax liability when you realize earnings on any growth (ordinary income tax on interest and certain dividends; capital gains tax, etc.). Examples: savings, stocks, bonds, mutual funds Taxable Tax-deferred The dollars you contribute to this category are often tax deductible (or pre-tax ); grow tax-deferred and you generally incur ordinary income tax liability when you make a withdrawal. In certain cases, you may incur penalties if you access these funds prior to age 59½, and you may also be required to take distributions from these assets beginning at age 70½. Examples: 401(k), deferred compensation Taxdeferred Tax-free The dollars you contribute to this category are after-tax; grow tax-deferred, but you can withdraw these assets tax-free, provided certain conditions are met. Examples: Roth IRA, cash value life insurance Tax-free 4

5 Taxation on current-year earnings Taxation on withdrawals Taxable Possible income taxes (INTEREST, DIVIDENDS) Possible income taxes (CAPITAL GAINS) Money for financial goals Taxdeferred Tax-deferred Income taxes Tax-free No income taxes No income taxes This example is hypothetical and for illustrative purposes only; it should not be considered prescriptive or an ideal allocation to follow. 5

6 Answers to questions you might have 6 How is it possible for me to take withdrawals from my insurance policy and use that money for retirement income or other financial goals? Doesn t life insurance offer a benefit only when an insured individual dies? Life insurance is primarily used to provide financial security to beneficiaries when an insured individual passes away; however, the Internal Revenue Code ( The Code ) gives special tax treatment to certain types of life insurance, offering flexibility that is not available in other financial vehicles. This special treatment offers you the opportunity to build equity by accumulating cash value within the policy, which you may later withdraw and use toward your financial goals. The Code: Stipulates that a life insurance death benefit is generally income tax-free IRC 101(a) Defines your ability to access cash value through tax-free withdrawals up to the amount of premium you ve paid into the policy IRC 72(e)(5)(A) and (C) and 7702(f)(7) Allows for income tax-free policy loans IRC 72(e)(5)(A) and (C) Am I limited to how much premium I can put into my policy? Unlike other investments, the IRS does not restrict how much you can contribute to your policy based on your age or income, but they do limit the amount you can put into your policy based on the amount of coverage. Work with your financial advisor to structure the policy to meet your needs, so that you can take full advantage of its potential to build and withdraw cash value in taxefficient ways. If you pay more than a specified premium amount into the policy, you create what is called a Modified Endowment Contract, or MEC, for short. If your policy becomes a MEC, the policy death benefit still generally passes income-tax-free to your heirs; however, withdrawals (including loans) you take from the policy are taxable on an earnings-first basis. In addition, you may incur a 10% federal income tax penalty on any earnings withdrawn prior to age 59½. So, if you plan on taking money out, it s usually best not to exceed the MEC premium limit. How do I access my cash value? When properly funded and managed, you can access your policy s cash value tax-free to help with your longterm financial goals. You can do this in two ways: Take out what you put in You can withdraw the amount that you ve contributed to your policy. This type of withdrawal (known as a partial surrender ) permanently reduces the value of the death benefit that passes to your beneficiaries. Surrenders are generally taxable to the extent they exceed the investment in the policy. Borrow from your cash value You can pull up to 90% of your policy s value as if you were your own bank. In fact, after 10 years, when properly structured, the loan will be zero net-cost because the policy value backing the loan will be credited the same amount of interest you were charged. And, you have the flexibility to choose to pay yourself back or not. If you choose not to, a portion of the death benefit will pay off the loan and the remainder will go to your beneficiaries. If you do pay yourself back, your beneficiaries will get the full death benefit amount. Although loans are generally not taxable, there may be tax consequences if the policy lapses or is surrendered with a loan (even as part of a 1035 exchange), and taxable income could exceed the amount of any cash received. How does accessing the cash value affect my policy? In order to maintain the guarantee you have against your policy lapsing, you must maintain a certain premium level on your policy during the no-lapse guarantee period. When you want to access money, work with your advisor to know how much is available without putting your policy s guarantees in jeopardy. Additionally, if you cancel your policy within a certain year period from its date of issuance you will be assessed charges, called surrender charges. Am I restricted in how or for what reasons I use the cash value withdrawals? You can use your tax-free withdrawals for whatever you choose, for example: to make a payment on a home, fund a child s education, or supplement your retirement income.

7 Get freedom from taxes in retirement. Ask your financial advisor how. 7

8 The RiverSource Story Life has many twists and turns and we understand the importance of balancing the need to protect what is important to you while you invest toward your financial goals. RiverSource creates innovative products designed with you and your life in mind. Through a balance of asset and risk management and built on a heritage of over 120 years, we work with you and your financial advisor to help grow your assets, manage your income and protect what matters most today and tomorrow. The Confident Retirement approach is not a guarantee of future financial results. Ameriprise Financial Services, Inc. Member FINRA and SIPC. Neither RiverSource Life Insurance Company, nor RiverSource Life insurance Co. of New York, nor their affiliates or representatives, offer tax or legal advice. Consult with your tax adviser or attorney regarding your specific situation. Neither RiverSource Life Insurance Company nor RiverSource Life insurance Co. of New York can guarantee future results. Accessing policy cash value through loans and surrenders may cause a reduction of policy cash values and death benefit and negate any guarantees against lapse. The amount that can be borrowed or surrendered will be affected by the surrender charges applicable to the policy. Loans may be subject to interest charges. Although loans are generally not taxable, there may be tax consequences if the policy lapses or is surrendered with a loan (even as part of a 1035 exchange). It is possible that the amount of taxable income generated at the lapse or surrender of a policy with a loan may exceed the actual amount of cash received. Surrenders are generally taxable to the extent they exceed basis in the policy. If the policy is a modified endowment contract (MEC), pre-death distributions, including loans, from the policy are taxed on an income-first basis, and there may also be a 10% federal income tax penalty for distributions prior to age 59½. riversource.com/insurance A (10/15) Issued by RiverSource Life Insurance Company, Minneapolis, Minnesota, and in New York only, by RiverSource Life Insurance Co. of New York, Albany, New York. Affiliated with Ameriprise Financial Services, Inc RiverSource Life Insurance Company. All rights reserved.