412(i) Fully Insured Plan: Maximum Tax Deductions with Guaranteed Retirement Income - PowerPoint PPT Presentation

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412(i) Fully Insured Plan: Maximum Tax Deductions with Guaranteed Retirement Income

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Title: 412(i) Fully Insured Plan: Maximum Tax Deductions with Guaranteed Retirement Income


1
412(i) Fully Insured PlanMaximum Tax Deductions
with Guaranteed Retirement Income
Transamerica Occidental Life Insurance Company
2
  • This presentation has been prepared solely for
    use by producers of Transamerica Insurance
    Investment Group (Transamerica). Transamerica
    and its representatives do not give ERISA, tax,
    or legal advice. This presentation is for
    informational purposes only and should not be
    construed as ERISA, tax, or legal advice. Clients
    and other interested parties must rely solely on
    independent tax advisors regarding information
    and interpretations contained herein as well as
    other rules and requirements related to qualified
    retirement plans.
  • Discussions of the various planning strategies
    and issues are based on our understanding of the
    current applicable federal income, gift, and
    estate tax laws in effect at the time of
    publication. However, tax laws are subject to
    change and interpretation, and Transamerica
    cannot provide assurance that the relevant tax
    authorities would necessarily accept our
    understanding. Additionally, the information
    presented here does not take into consideration
    the general tax and ERISA provisions applicable
    to defined benefit retirement plans or the
    applicable state laws of clients and prospects.
  • Although care has been taken in preparing this
    material and presenting it accurately,
    Transamerica disclaims any implied or actual
    warranties as to the accuracy of any material
    contained within and any liability with respect
    to it. In particular, calculations attributable
    to The Heritage Group, LLC are presented herein
    solely for their illustrative and comparative
    value. This information is current as of
    September 2003.

3
412(i) Fully Insured Plan
  • Guaranteed retirement benefits
  • Ideal for business owners to build their
    retirement savings
  • Can maximize tax deductions

4
What is a Qualified Plan?
  • Provides retirement, disability and/or death
    benefits
  • Must meet specific IRC requirements
  • Qualifies for tax-favored treatment
  • Deductible contributions
  • Tax-deferred growth
  • Plan cannot discriminate

5
What is a 412(i) Plan?
  • A defined benefit qualified retirement plan
  • Funded exclusively with annuities and life
    insurance products
  • Exempt from minimum funding requirements
  • Contributions based on present value of future
    benefits
  • Life insurance provides family protection

6
Traditional Defined Benefit vs.412(i) Fully
Insured Plan
Traditional plan 412(i) plan
Limited early contributions Larger contributions in early years
May become over/under-funded Always fully funded
Quarterly contribution deadlines Funding extended to tax filing deadline
7
How a 412(i) Plan Works
  • Funded exclusively with insurance contracts
  • Contributions tax-deductible to employer
  • Contributions pay annuity and life insurance
    premiums
  • Plan assets grow tax-deferred
  • Portion of death benefit received tax-free

8
How a 412(i) Plan Works
Business makes tax-deductible contributions to
412(i) plan.
412(i) plan purchasesannuities and insurance
policies.
Retirement distributionsmade/benefits rolled
toanother Qualified Plan.
9
Case Study S CorporationJohn Barrister
10
Case Study Tax Consulting Firm
  • Highly profitable
  • Consistent earnings
  • Owned by husband and wife
  • One salaried employee
  • Large number of independent contractors (not
    eligible to participate in the plan)

11
Case Study Tax Consulting Firm
12
The 412(i) Team
  • Insurance Producer
  • Third-Party Administrator
  • Professional Advisors

13
The Role of YourInsurance Producer
  • Helps you define retirement objectives
  • Gathers employee census
  • Discusses contribution levels
  • Advise on suitability/appropriateness of 412(i)
    plan

14
The Role of the Third-Party Administrator
  • Develops suitable plan proposal
  • Helps prepare plan documents
  • Annual plan administration
  • Calculates plan contributions
  • Prepares required reports
  • Handles distributions

15
The Role of YourProfessional Advisors
  • Help you develop realistic objectives
  • Work up projections and analyses
  • Help draft plan documents
  • Provide tax and legal advice

16
Benefits of a 412(i) Plan
  • Maximize contributions and deductions
  • Limit complexities of traditional defined benefit
    plans
  • Minimize market risk
  • Benefits can increase over timewhich can help
    offset effects of inflation

17
Who Can Benefit from a 412(i) Plan?
  • Highly paid business owners and
  • professionals
  • Small, closely held businesses
  • Depending on employee characteristics, some
    employers with larger employee groups
  • Businesses exhibiting financial stability
  • Owners preferring security over uncertainty

18
412(i) Fully Insured PlanMaximum Tax Deductions
with Guaranteed Retirement Income
OLA 1203 0903
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