• Vice President, CJA and Associates
• Over 25 years experience in the
insurance industry
• Extensive knowledge of employee
benefit planning, especially
advanced planning techniques for
small businesses
• Broad experience with life insurance
products and operations
Factors Impacting
RETIREMENT
•
Longer lifespan
•
Rising cost of living
•
Younger retirement age
•
Taxes
Section 79
BACKGROUND
In 1964, Section 79 was
added
to the
Internal Revenue Code.
IRS Revenue Procedures 2004-16 and
2005-25 provide
safe harbors
to
determine the fair market value of an
insurance policy.
By 2006, several insurance companies
revisited Section 79 and
engineered
specialized
insurance
products
to
correspond to the new IRS guidance.
Today, Section 79 is a
steadily growing
industry with more employers taking
IUL Product
BENEFITS
•
Potential tax deferred
accumulation
•
Policy loans may be tax free
•
Living benefits
•
Market upside
•
Product guarantees
1•
Policy loans
21. Guarantees are dependent upon the claims-paying ability of the issuing company
2. Policy loans and withdrawals reduce the policy’s cash value and death benefits and may result in a taxable event. Surrender charges may reduce the policy’s cash values in early years.
Section 79
BENEFITS
•
Death benefit program
•
Employer pays life insurance
premiums for its employees
and may deduct premiums to
the extent permitted by law
•
Employee pays tax based on
formula in regulations
$50k
TERM
FULL
TERM
7IUL
POLICY
Section 79
HOW IT WORKS
ESTABLISH PROGRAM
Business pays a premium which may
be deductible
BENEFIT IS CHOSEN
Benefits are partially taxable to
employees based on benefit
selected
LIFE INSURANCE POLICY
Employee has all rights associated with
policy & pays tax accordingly
Section 79
SPECIFICS
•
C-Corporation
•
Rule of 10
•
< 10 employees
•
≥
10 employees
•
Plan Eligibility
•
Benefit Formula
•
Option A, B, or C
•
State
•
Policy Loans
•
Face Amount Reduction
•
Indexing Strategy
Employees:
1 Owner, 2 Full-Time Assistants
State:
California
Entity:
C-Corporation
Existing
Insurance:
$50,000 of Group Term
Description:
Business started in 2001 and has steadily grown over
the last 10+ years. The owner takes an annual W-2
salary of approximately $200k. Of the 2 full-time
assistants, one started in 2001 and the other started in
2007. The owner is considering taking on another
Chiropractor in an effort to expand her business.
Salary
200,000
Premium
85,000
Benefit
2,000,000
Salary
50,000
Premium
16,805
Benefit
500,000
Salary
35,000
Premium
7,298
Benefit
350,000
Case Study
Owner
Assistant #1
Assistant #2
Options
Premium
Taxable
Income
(A) Permanent
85,000
50,454
(B) Full Term
3,475
3,510
(C) $50k Term
220
0
(A) Permanent
16,805
8,182
(B) Full Term
650
540
(C) $50k Term
160
0
(A) Permanent
7,298
3,818
(B) Full Term
260
288
(C) $50k Term
100
0
total after tax
employer cost
$256,830
5 year program summary
Total Policy Loans
$2,358,840
Alternative investment equivalent
$3,628,984
Annual Policy Loan
$117,942
Hypothetical example for illustrative purposes only – not representative of any particular policy.
“Total after-tax employer cost" is based on the assumption that premiums are fully deductible. The extent to which premiums are deductible depends upon the facts and circumstances of the employer, and CJA makes no representation in that regard. An employer must consult with its independent tax advisors. if the premiums are not fully-deductible, then the tax savings will not be realized.
Policy loans and withdrawals reduce the policy’s cash value and death benefit and may result in a taxable event. Surrender charges may reduce the policy’s cash value in early years.
total cost for owner
($256,830 + $95,877)
$352,707
total tax due
from employee
$95,877
Case Study
DISCLOSURE
The following illustration represents a life insurance product and does not represent an investment in the stock market. SecurePlus Advantage 79 Indexed Universal Life (IUL), is underwritten by Life Insurance Company of the Southwest, Dallas, TX, which is bound only by the terms of the life insurance contract it issues. This policy is not available in all states. CJA is not responsible for the guarantees of the issuing insurer.
The following life insurance illustration assumes all available funds are invested in Indexed Strategy 2. For more information on Indexed Strategy 2, please refer to Life of the Southwest’s website www.nationallifegroup.com. The maximum illustration rate for Indexed Strategy 2, 8.1% is based on the historical performance, from 1984 through 2013, of the S&P 500® Index with a participation rate of 140% and an index earning cap of 11.5%. The guaranteed minimum participation rate for this strategy is 110.00%, and the guaranteed minimum index earnings cap is 3.10% which would result in a maximum illustrated rate of 2.3%. The application of a lower assumed crediting rate would result in reduced current values on the subsequent pages.
15
Owner’s “A” Policy
BENEFITS
Typical
CLIENT
•
Owns a small profitable business
•
C Corporation exists or can be
integrated
•
Incomplete estate planning
•
Has need for life insurance
Practical
APPLICATIONS
•
Tax leverage and flexibility
•
Other plans may be too
costly
•
Ability to stack plans
Section 79
SERVICES
National and Regional
Sales Support
Point-of-Sale Assistance
Design & Illustrations
Document Preparation
Ongoing Administration
Year-End Reporting
Questions
?
Contact Information
Doug Tashma
Regional Vice President, Midwest
CJA & Associates, Inc.
321 N. Clark Street
Fifth Floor
Chicago, IL 60654
Main: (239) 298-8210 x635
[email protected]
This business strategy is offered and managed by an independent third party who is not affiliated with the companies of National Life Group. No National Life Group company nor anyone acting on its behalf has evaluated the strategy or is authorized to make any representation regarding the suitability, effectiveness, legality or the suitability of using life insurance or annuities in connection with the strategies use. This is not a solicitation of any product or service. Please consult your clients tax and/or legal advisors regarding whether this strategy is appropriate for their situation.
National Life Group® is a trade name of National Life Insurance Company, Montpelier, VT, Life Insurance Company of the Southwest, Addison, TX and their affiliates. Each company of National Life Group is solely responsible for its own financial condition and contractual obligations. Life Insurance Company of the Southwest is not an authorized insurer in New York and does not conduct insurance business in New York.
FOR PRODUCER USE ONLY - NOT FOR USE WITH THE PUBLIC 27
