Life and Death Planning for Retirement Benefits

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Life and Death Planning for Retirement Benefits

10.3.01 Purchasing an immediate annuity inside an IRA .......................................................... 438 10.3.02 Exception for “Qualified Longevity Annuities” ........................................................... 439 10.3.03 Definition of a QLAC.................................................................................................... 439 10.3.04 Dollar and percentage limits on QLAC purchases ........................................................ 440 10.3.05 QLAC concept does not apply to Roth IRAs ................................................................ 440 10.3.06 Death benefits under a QLAC ....................................................................................... 441 10.3.07 Planning use for QLACs ............................................................................................... 441 10.4 A NNUITY P AYOUTS FROM P LANS : P UTTING I T A LL T OGETHER .................................... 442 10.4.01 Drawback of nonspouse survivor annuities................................................................... 442 10.4.02 Illustrations: Different choices ...................................................................................... 442 10.4.03 Expert tip: Subsidized plan benefits .............................................................................. 443 10.4.04 More expert tips: How to evaluate choices ................................................................... 444 10.4.05 Problems with the annuity rules .................................................................................... 444 CHAPTER 11: INSURANCE, ANNUITIES, AND RETIREMENT PLANS .................... 446 11.1 M ISCELLANEOUS R ETIREMENT /I NSURANCE R ULES ........................................................ 446 11.1.01 The three valuation rules for annuity contracts ............................................................. 446 11.1.02 RMD extension for insolvent insurance company ........................................................ 448 11.2 P LAN -O WNED L IFE I NSURANCE : I NCOME T AXES ............................................................ 448 11.2.01 Tax consequences to participant: During employment ................................................. 448 11.2.02 Current Insurance Cost: From P.S. 58 to Table 2001 ................................................... 450 11.2.03 Current Insurance Cost: Using insurer’s actual rates .................................................... 450 11.2.04 Current Insurance Cost: Term life insurance ................................................................ 451 11.2.05 Current Insurance Cost: Investment in the contract ...................................................... 451 11.2.06 Income tax consequences to beneficiaries..................................................................... 452 11.3 P LAN -O WNED L IFE I NSURANCE : T HE “R OLLOUT ” AT R ETIREMENT ............................ 452 11.3.01 Options for the policy when the participant retires ....................................................... 452 11.3.02 How to determine policy’s FMV: Rev. Proc. 2005-25 ................................................. 453 11.3.03 Tax code effects of sale below market value ................................................................ 454 11.3.04 Plan sells the policy to the participant ........................................................................... 455 11.3.05 Sale to participant: Prohibited transaction issue............................................................ 455 11.3.06 Plan sells policy to the beneficiary(ies)......................................................................... 456 11.3.07 Sale to beneficiary: Prohibited transaction aspects ....................................................... 457 11.4 P LAN -O WNED L IFE I NSURANCE : O THER A SPECTS .......................................................... 457 11.4.01 Estate tax avoidance: The life insurance subtrust ......................................................... 457 11.4.02 Avoiding estate tax inclusion and “transfer for value” ................................................. 459 11.4.03 Second-to-die insurance ................................................................................................ 459 11.4.04 Reasons to buy life insurance inside the plan................................................................ 460 11.4.05 Life insurance and IRAs and 403(b)s ............................................................................ 461 11.4.06 Planning principles with plan-owned life insurance ..................................................... 462 11.4.07 Plan-owned insurance and the tax on UBTI.................................................................. 463 11.4.08 Plan-owned life insurance subject to spousal ERISA rights ......................................... 463 11.5 P LANNING I DEAS WITH L IFE I NSURANCE AND R ETIREMENT B ENEFITS ......................... 463