Freedom to enjoy tax-free retirement income

Transcription

1 Tax-efficient retirement income Using life insurance Freedom to enjoy tax-free retirement income F (9/13)

2 The Protect. Grow. Give. philosophy With life and disability income insurance, you have access to a lifetime of solutions to help you protect income, grow assets, and give to loved ones or charity. If you are in the grow stage of life, cash value life insurance offers unique tax-efficient benefits to help you meet your retirement income and life insurance protection needs at the same time. 2

3 Are you concerned you may need more retirement income than your 401(k), IRA and/or other savings can provide? Cash value life insurance can help. 1. As a source of financial security With life insurance you gain an exclusive benefit: leverage the ability to create an amount of money for your loved ones that is often several times the value of your initial asset. And this life insurance benefit is income tax-free. 2. As a source of retirement income When properly structured, cash value life insurance offers a unique combination of advantages to help you live more confidently in retirement: Flexibility Freedom to fund and withdraw from your policy without limitations related to age and income. Tax advantages Income tax-free access to principal and tax-deferred growth when the policy is properly structured. Before you purchase cash value life insurance, be sure to ask your financial advisor about the life insurance policy s features, benefits, and fees, and whether the life insurance is appropriate for you, based upon your financial situation and objectives. No other retirement income solution can give you this combination of advantages. 3

4 Flexibility To explore the flexibility and tax advantages, let s look at the example of Gary and Angela using a cash value life insurance policy: Gary and Angela s goals for retirement include: Early retirement for Gary at age 62 Maximizing Social Security income (Gary takes his full benefit at age 67) Maintaining their current lifestyle Minimizing taxes Both ages 45; have twin 15-year old boys Annual combined income: $230,000 Both have contributed the maximum amount allowable to their Roth and traditional IRAs and 401(k)s Financial analysis shows Gary is underinsured 28% marginal income tax bracket At the recommendation of their Ameriprise advisor, Gary purchases a $500,000 cash value life insurance policy and pays the maximum premium until he turns 70. To bridge the gap in income between age 62 and 67 until Gary can access his maximum Social Security benefit, Gary uses his life insurance policy to withdraw $25,000 income tax-free each year instead of incurring additional income taxes on withdrawals from his IRA. At age 78, Gary and Angela decide to pay for their extended family to celebrate their 50th wedding anniversary with them. To cover airfare, lodging and other expenses they take $65,000 from Gary s policy rather than withdraw taxable assets from their IRAs. The difference between accessing life insurance cash value and a taxable income source Age Amount withdrawn using cash value from life insurance $25,000 $25,000 $25,000 Amount needed to net same amount with an IRA * $25,000 $9,750 $25,000 $9,750 $25,000 $9,750 TAXES TAXES TAXES 4 *Traditional IRA ** The values represented are based on withdrawals made from Gary s age 63 to 78, and are based on federa

5 and tax advantages A tax-free alternative when you need one In one solution, cash value life insurance gives you the unique combination of both: Tax-deferred growth & Tax-free withdrawals Had Gary and Angela used, for example, mutual funds or an IRA, as the supplemental income source, they would have owed taxes on any growth and income either capital gains or ordinary income tax. The special tax treatment allowed cash value life insurance by the Internal Revenue Service (IRS) enabled Gary and Angela to benefit from tax-deferred growth of their policy s cash value, which can cause the policy to grow more efficiently. Additional special tax treatment by the IRS allowed them income tax-free access to their cash value for their supplemental income needs. This helped reduce the amount of dollars they needed to access in order to net the same after-tax amount. The example of Gary and Angela is hypothetical and is not meant to be tax advice. Consult with your tax adviser or attorney regarding your specific situation. By accessing income tax-free cash value from Gary s life insurance (versus taking taxable income from their IRA), Gary and Angela $25,000 $65,000 $25,000 $9,750 $65,000 $31,000 TAXES TAXES saved $ 70,000 in taxes. ** Income needed: $165,000 Total withdrawn: $165,000 Income tax: $0 Income needed: $165,000 Withdrawal needed: $235,000 Income tax: $70,000 l marginal rates, two personal exemptions and a standard deduction. 5

6 The bottom line Gary and Angela were able to use their cash value life insurance policy to bridge the gap between Gary s retirement and his full Social Security benefits, as well as to enjoy a special time with their family in late retirement. After all that, they still had not depleted the benefits of the policy for them or for their beneficiaries. For just over $53,000 in net premium, Gary and Angela: Accessed $165,000 in tax-free income Have cash value in excess of $361,000 at age 80 Avoided $70,000 in potential current income taxes, and Can pass on, at age 80, over $383,000 in income tax-free death benefit to their children How cash value life insurance benefits can stack up Net premium paid Benefits Gary and Angela received Benefits their children receive $70,000 $361, $383, $218,175 (Total premiums) - $165,000 (Withdrawals and loans) $53,175 $165,000 0 $53,175 Net premium paid Tax savings Death benefit Cash value Income Assumes 45 year-old male; preferred; $500,000 policy with $8,727 annual premium to age 70 and 6.00% hypothetical interest rate. All values are based on nonguaranteed policy expenses. Values using guaranteed policy expenses would be lower. Your financial advisor will be able to provide additional information in an illustration that includes current and guaranteed expenses, interest rates and charges. Let cash value life insurance be a tax-efficient retirement income solution to help you reach your goals. As you can see with the example of Gary and Angela, these benefits equated to almost 12 times the value of the premiums paid. * 6 *($165,000+$70,000+$383,061=$618,061)/$53,175=11.62

7 Unique features give you more freedom As the table below shows, you can have greater freedom to enjoy the retirement lifestyle you ve envisioned with cash value life insurance, because you aren t paying unwanted income taxes or being constrained by certain limitations that come with other traditional retirement income vehicles. Yes Sometimes No Life insurance Qualified Plans Traditional IRAs Roth IRAs Nonqualified investments Are there contribution limits based on age and income? Can you take a loan? Can you choose to never repay the loan? Does your cash value grow tax-deferred? Are withdrawals income tax-free? Does it pass income tax-free to your heirs? Is there a penalty for distributions before age 59½? Are you required to take minimum distributions? Does it grow tax-deferred? Is your asset protected from creditors? * * ** N/A N/A N/A *Assumes policy is not a modified endowment contract (MEC). ** State laws vary on whether life insurance cash value is protected from creditors; be sure to consult a legal professional regarding the laws in your state. 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 more than 115 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. With life insurance, it is important to note that: It is possible for coverage to terminate when no premiums are paid following the initial premium, or subsequent premiums are insufficient to continue coverage Accessing the policy s cash value through loans and surrenders could cause a permanent reduction of policy cash values and death benefit and negate any guarantees against lapse State laws vary on whether life insurance cash value is protected from creditors; be sure to consult a legal professional regarding the laws in your state With Qualified Plans, Traditional IRAs, and Roth IRAs, it is important to note that: Various rules must be followed to ensure death distributions are taxed correctly With Roth IRAs, various rules must be followed for distributions to remain tax-free RiverSource Life Insurance Company 968 Ameriprise Financial Center Minneapolis, MN RiverSource Life Insurance Co. of New York 20 Madison Ave. Extension P.O. Box 5144 Albany, NY riversource.com/insurance Accessing policy cash value through loans and surrenders will cause a reduction of policy cash values and death benefit and may 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 incomefirst basis, and there may also be a 10% federal income tax penalty for distributions prior to age 59½. 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. Insurance and annuity products are issued by RiverSource Life Insurance Company and in New York, by RiverSource Life Insurance Co. of New York, Albany, New York. These companies are affiliated with Ameriprise Financial Services, Inc. Only RiverSource Life Insurance Co. of New York is authorized to sell insurance and annuities in New York RiverSource Life Insurance Company. All rights reserved F (9/13)