To answer this question first you have to understand how the FIA are designed. The first step in building a product is figuring out what the bond market can get you in a yield. Once you have a benchmark you can go in and actuarially go in and start tying the product together. If you put a bonus on a product the term, surrender charges, and commission come into play. The higher the bonus the longer the term or lower the commission. If ABC Insurance company puts a 10% premium bonus on a product with a 8% commission then the company has to calculate if the client passes away or surrenders the contract how is the company going to get their front end money back. That is where the surrender charges come into play. With the 10% bonus and 8% commission the surrender charges are going to be over 20%. With a no bonus product the surrender charges will decrease because the company does not have to recoup the bonus only the commission.
Now onto the meat. If ABC insurance company gives the client a 10% premium bonus and pays the agent a 8% commission, they have to spread that out over the term. Let’s say this is a 14 year product. That would mean that 1.29% of the bond yield is taken up in bonus and commission. Then the company has to cover the minimum guarantee. In this example let’s say it is 2.00%. So if you are keeping track we have used up 3.27% of our bond yield. The last part of the process is to find the price of certain options. This is the biggest part of the process. If you have low caps then a FIA does not work that well. If you have high caps then the product tends to work a lot better. An example would be if the market went up two out of three years and you have a cap of 5% with a bonus. Your ave return would be 3.33%, on the other side if you have a no bonus product with a 10% cap it would return an ave of 6.67%. That is an increase of 100%. If you take the 10% bonus and 10 yrs worth of 3.33% your total return would be 43.33%. If you take the high cap product and 6.67% for 10 yrs you get 66.70% over the term.
If you ask me I would say you would have a lot happier client with no bonus.
Dustin J Weaver ACS PCS AAPA
Marketing Director
Capital Care America
I'm sure everyone has used the ol' fund a life policy using a life only spia to build a clients estate. The down fall of this concept is you sacrifice your liquidity and control of your money. Now if you could use the same concept and still maintain control and liquidity of your clients money, we would be talking something very important to anyone’s retirement plan. Let’s use a quick example.
Joe Client is 65 yrs old and has $500,000.00 in retirement assets. He is using $350,000.00 to supplement his retirement income. That leaves Joe Client with $150,000.00 that he wants to leave to his two children. If he grew that money at 3% for 20 yrs his value would be $270,916.69. Now let’s look at taking that same $150,000.00 and putting it into an income rider product. We take and let that grow for one year with a big bonus and his income payment would be $9,984.31 per year guaranteed for the rest of his life. Then we get him approved for a Guaranteed No Lapse UL policy. That would give him $375,000.00 of tax free life insurance to pass on to his kids.
If Joe Client used all of his $350,000.00 during retirement he would still be leaving over $500,000.00 to his kids. That makes for a pretty strong story.
Joe does not have to worry about saving and not enjoying his retirement income because he knows that his kids/grandkids are going to be receiving a really nice inheritance.
Dustin J Weaver ACS PCS AAPA
Marketing Director
Capital Care America
Many people believe it doesn't make sense to convert a traditional IRA to a Roth IRA late in life. In reality, many retirees have a longer life expectancy than you might expect. What's more, a partial or complete conversion can provide significant tax savings even if the owner of the IRA has only a very short life expectancy. The benefits aren't present in all cases, so careful analysis is required to determine whether a rollover makes sense, how much to roll over, and when. As explained below, in most cases the rollover will make sense if all of the following are true:
- You'll take only qualified distributions from your Roth IRA, so that all your withdrawals are free from taxes and penalties.
- You'll be able to pay taxes on the rollover from another source. In other words, you won't use money from the IRA to pay taxes. (Sometimes you can benefit even if this is not true.)
- Most importantly, you won't pay tax on the rollover at a significantly higher rate than the rate that would apply if you left the money in your regular IRA, taking it out when you need it later in life. To avoid this problem you may need to do only a partial rollover.
I will go over this in a later blog how it relates to your estate, your heirs, and also the taxation of your social security. If you have any questions visit www.annuitynews.net or email me at dustin@capitalcareamerica.com Thanks for reading
Dustin J Weaver ACS PCS AAPA
Once again today we will talk about how you can save your social security from taxation with a little preplanning. Lets say that you have a 401k that you plan on using for some type of income. You also have been putting away money over the years into various taxable accounts, such as C.D.'s money market accounts and mutual funds.
What you need to do first is put a plan together. Find out what your social security benefits are, find out how much money a month or year you need to live on. Take a portion of the taxable income from your other investments and buy an immediate annuity. Your advisor can figure out what your monthly payments would be, so you can implement that into your preplanning.
Then take a majority of the rest of your assets from your 401k and other investments and start to ladder them with annuities, I would suggest a 5 year 7 year and 10 year. By doing this you give yourself tax deferral. This means that your money will not be taxed until you withdrawal it. This also would give you access to your money at different times of your life. It also gives you liquidity to move money into better products with higher rates without locking all of your money up for a longer set period of time.
Tomorrow we will get into a couple more examples with some numbers, and I will try not to confuse anyone.
Dustin J Weaver ACS PCS AAPA
visit www.annuitynews.net
In this series of blogs I'm going to attempt to explain how to minimize your social security taxes. Most seniors can avoid paying higher taxes on social security by simply moving money that you are not using and getting taxed on into something tax differed. If you are single and make less than $25,000.00 a year or married and make less than $32,000 you should not have to pay any taxes on your social security. If you make 25k-34k and single you would pay 50% or 32k-44k and married you would pay 50% taxes. There are other levels and we will touch them over the next couple of weeks. If you have questions or want more info just email me at dustin@capitalcareamerica.com or visit www.annuitynews.net.
Dustin J Weaver ACS PCS AAPA
Estate planners often advise individuals to put property into living trusts. Though these trusts have been available for years, they are enjoying renewed popularity because they can save probate costs.
Trusts established during a person's life are called living trusts. They can be revocable or irrevocable. The revocable trust can be amended or discontinued at any time. An irrevocable trust cannot be modified or discontinued.
Individuals who use the revocable living trust transfer title of their property into the trust. They, as grantor, appoint themselves as the trustee (manager of the trust) and the beneficiary (receiver of the income).
To set up a living trust, you transfer the title of your assets into the trust from you, as an individual, to yourself as trustee of the trust. No income taxes are due on this transfer.
Setting up a revocable living trust does not constitute a gift, so there are no gift tax consequences in setting it up. Once established, everything transferred to the trust then belongs to the trust, but as trustee, you maintain control. You can buy and sell trust assets, and even give them away. If you may have questions about trusts you can visit www.annuitynews.net or email me at dustin@capitalcareamerica.com
Dustin J Weaver ACS PCS AAPA
When people hear the term "Estate Planning", they usually associate it with their mortality. Therefore, it is generally an uncomfortable subject to talk about let alone do the necessary planning.
The goal of Estate Planning is to give your assets to who you want, the way you want and when you want, while also saving every tax dollar, attorney fee and court cost possible. An Estate is everything you own - residence(s), car(s), personal property, boat(s), cash, bank accounts, stocks, business, pension plan(s), IRAs, CDs, life insurance policies, etc.
Surprisingly, a Will is not an effective Estate Plan. A Will, by law, must proceed through Probate Court which costs approximately 3% - 10% of the gross value of the estate. If you think about it, you probably have more assets than you realize. For example, if your home is worth $150,000, you have $100,000 for your retirement (pension plan and savings) and personal property valued at $25,000 (which is a low figure considering most families have 2 cars today), your gross estate would be valued at $275,000. Based on the probate cost of only 3%, this would be $8500 and 10% would be $27,500. Why would anyone not want to give this money to their heirs?
There are a couple of ways to avoid probate. One is an annuity or Life Insurance. The other is a living trust. A good estate plan can save you tens of thousands of dollars that you can pass onto your family. If you would like more info visit www.annuitynews.net or email me at dustin@capitalcareamerica.com
Dustin J Weaver ACS PCS AAPA
The rule 72(T) is a pretty simple IRS regulation. Under this rule you are able to avoid the 10% penalty that the IRS implements when you withdrawal out of your IRA. If you take substantially equal periodic payments" (SEPPs). Which is a complicated way to say, if you take out the same amount every year based off your life expectancy for a minimum of 5 years you will not get a 10% penalty for early withdrawal.
You may do this with taxed differed funds within non-qualified annuity too. This is known as a 72(Q). The same rules apply it just uses funds that are not qualified. These two rules that the IRS lets us use can help lead to an early retirement. If you would like more info on the rule of 72(T) go to www.annuitynews.net or http://myselfspace.net/blogs/dustin_weaver/
-Dustin Weaver ACS PCS AAPA
This is going to be the last segment on 412(i) plans this week. This last part I want to focus on why anyone could use a 412(i) plan. Defined benefit plans in general are a good way to put back money for retirement for business owners. Most business owners spend a healthy chunk of their income over their lifetime putting back into the company to make it grow. With the limitations the IRS puts on contributions to traditional qualified plans such as IRA's, Simple IRA's, 401k's and SEP plans it makes it virtually imposable to stock pile enough money to take advantage of your companies tax right offs. This is where Defined benefit plans come into play. Even a traditional DB plan lets you put away more than any other qualified plan. Namely the 412(i) which is what I like to call a DB plan on steroids. You get to write off sums up to in some cases $375k-$400k a year. Now that is some serious write off's.
Not everyone is suited for a 412(i), but it never hurts just to check it out. Who knows maybe your company could save hundreds of thousands of dollars a year in taxes that you put into your own retirement. I know I would rather pay $200k to my qualified plan other than to uncle Sam............ Yeah, I know I closed using rhyme. If you would want someone to give you a quote you can go to www.annuitynews.net and find an advisor in your area or email me at dustin@capitalcareamerica.com and I will help you find an advisor. Thanks for reading.
Dustin Weaver ACS PCS AAPA
This blog was made possible by www.annuitynews.net
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Today we are going to look at the plan I was talking about yesterday in more detail. If you remember we had Joe Businessowner who had a law firm bringing in $800,000.00 a year with a tax bill of $320,000.00 and he also had two employees.
This next part is going to be a little bit math heavy, but I will try and make it as painless as possible. Now before I start, all of you CPA's out there this is using simple numbers without all of the deductions that Joe can take on his taxes. It would be proratta with the deductions BTW.
Joe Businessowner's income for his firm is $800,000.00
Joe Businessowner's tax bill $320,000.00
If Joe set up a 412(i) plan with an annual contribution of $300,000.00 he would take that $300,000.00 and use it to change his adjusted gross income. That would make it look like the business brought in $500,000.00 not $800.000.00. How I came up with Joe's tax bill was by taking the 800k of income and multiplying that by 40%. Now if I do that with his new adjusted gross income it shows a tax bill of only $200,000.00. He would then take the money he saved in taxes and put it towards his annual contribution to his 412i plan. Joe would only need to come up with 180k to fund his 300k annual contribution.
Now out of the 300k contribution that he made, he would see about 80% of that into his own retirement, whereas the other 20% would go into his employees retirement plans. This also does wonders for his benefit package to his employees. This could also eliminate his 401k contribution that he was making for his employees.
I know that this segment might have been a little confusing so If you have any questions just post a comment and I will try and answer them.
Dustin Weaver ACS PCS AAPA
This blog was made possible by www.annuitynews.net and
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