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Pension & Roth IRA Analyzer v. 2003.10 User Manual

1. Aspen Publishers 7201 McKinney Circle Fredrick MD 21704 1 800 638 8437 Roth IRA Book An Investor s Guide By Gobind Daryanani Ph D 34 95 plus 5 shipping add SC sales tax if applicable Pensworth 415 Gallatin Circle Irmo SC 29063 1 800 694 7624 FAX 803 781 7868 135 Chapter 27 Useful Resources For more useful information about these and other areas visit the Brentmark Software website at www brentmark com the Roth IRA website at www rothira com or the Roth 401 k website at www roth401k com These websites are weighted heavily with pension and tax planning information 136 License Agreement This software is protected by both United States copyright law and international treaty provisions You must treat this software just like a book except that you may copy it onto a computer to be used and you may make archival copies of the software for the sole purpose of backing up our software and protecting your investment from loss You must also agree not to reverse engineer the software By saying just like a book Brentmark means for example that this software may be used by any number of people and may be freely moved from one computer location to another so long as there is no possibility of it being used at one location or on one computer while it is being used at another Just as a book cannot be read by two different people in two different places at the same time neither can the softw
2. Use the Help menu on the Menu bar to access the Help system learn how to use Help or view information about this product and other Brentmark products Help System The program provides a complete Help system so you can get help whenever you need it Just click the question mark that appears in the top right corner of every data entry section Use the Help system s table of contents to view Help topics by category or search the Help index for specific terms Technical Support Technical Support is available by telephone Fax e mail or postal mail If you have questions concerning program calculations please have a list of your exact data entry values available when contacting us Telephone Assistance by telephone is available Monday through Friday between 9 00 AM and 6 00PM Eastern Standard Time at 407 306 6160 Fax For assistance by fax send your fax to 407 306 6107 E mail For assistance via e mail send your remarks to support brentmark com Postal Mail For assistance by postal mail write to 127 Chapter 23 Descriptions of Available Values Brentmark Software Inc 3505 Lake Lynda Drive Suite 212 Orlando FL 32817 8327 In your correspondence please include the following information The name of the person who registered the program A contact phone number The program name and version number Your system configuration A sample printout or description of the problem A list of any error me
3. Clear the Recalculate Owner s Life Exp check box The program uses Table V to determine the owner s life expectancy in for the Required Beginning Date first year that distributions are required Thereafter the program subtracts one from the life expectancy each year e Recalculation method Click the Recalculate Owner s Life Exp check box The program uses Table V to determine the life expectancy each year e Ifthe plan owner has named a beneficiary e Plan owners and beneficiaries have the ability to recalculate their life expectancies annually see Note If the plan owner has named a beneficiary then there are actually four methods of recalculating life expectancies each year Use the Recalculate Owner s Life Exp and the Recalculate Beneficiary s Life Exp check boxes to determine the method e Joint Recalculation method Click both check boxes Both life expectancies are recalculated The program uses Table VI to determine the minimum distribution from the life expectancies e Joint Term Certain method Clear both check boxes Neither life expectancy is recalculated Both the owner and the beneficiary use the term certain method Both life expectancies decrease by annually 79 Chapter 20 Frequently Asked Questions e Hybrid method Only click Recalculate Owner s Life Exp The owner s life expectancy is recalculated and the beneficiary uses the term certain method Using the beneficiary s deemed age d
4. e Why are the Unpaid Roth IRA Taxes so high e Why did the Other Assets balance appear change e What are the best reports to show my clients How do the New Rules for Minimum Distributions Work Required Minimum Distributions Calculations under the Final Regulations After more than a decade of proposed regulations final minimum distribution regulations were published on April 17 2002 These new rules are based primarily on the proposed regulations of 2001 but they do add some new calculation wrinkles to consider As with the 2001 proposed regulations the final regulations keep the basic calculation intact Each year the distribution is calculated by dividing the previous year s ending balance by a life expectancy number The calculation complexity lies in determining the life expectancy number Here s how the new rules work Situation I Owner still alive If the owner is still alive the life expectancy is taken straight from the Uniform Lifetime Table Simply find the owner s age on the table it covers ages 70 through 115 and use the life expectancy listed For this situation the only change caused by the 2002 final regulations was to update the numbers in the Uniform Lifetime Table 75 Chapter 20 Frequently Asked Questions Prior to 2001 the Uniform Lifetime Table was known as the MDIB table and was used only for nonspousal beneficiaries Now it is used whenever the owner is alive making the distributio
5. s death the distributions become term certain with the term set to the spouse s life expectancy in the year of death This works the same as the old term certain method with the life expectancy being reduced by one for each year that passes after the spouse s death As with situation 3 the 2002 final regulations add more complexity For cases where the client dies on or after the required beginning date the life expectancy used is the greater of the one calculated using the no beneficiary case situation 2 and the one resulting from the calculation described in the previous paragraph When do these apply In 2002 there is the option of using either the pre 2001 proposed regulations with all their calculation and recalculation options the 2001 proposed regulations and the 2002 final regulations After 2002 only the 2002 final regulations may be used The 2002 final regulations added more than just a new mortality table to these calculations They also added complexity When all the different situations listed above are taken together they represent a fairly complicated set of calculations that have to be correctly performed to make sure you calculate the correct distribution for your clients 2002 Brentmark Software Inc All Rights Reserved Calculating Required Minimum Distributions using the 2001 Proposed Regulations The regulations released on 1 11 2001 radically changed the way minimum distributions have to be
6. IRA distribution in each year The annual amount of the insurance premiums The total amount of 2nd to die life insurance proceeds which would be payable annually The annual joint life expectancy of the owner and beneficiary This value is set to 0 after a spousal rollover to indicate that it is no longer used The life expectancy used to calculate minimum distributions each year 118 Chapter 23 Descriptions of Available Values Minimum Distributions Money Lost to Taxes Net After Tax Assets Net Amount From Taxable Annuity Net Cumulative Pension Distributions Net Proceeds Other Assets Begin Value Other Assets Contribution Other Assets Ending Value Other Assets Net Growth Owner Age Owner L E The minimum required Pension Fund distribution in each year The total amount of taxes paid annually The value of the assets to the family assuming the 2nd to die of the owner and spouse has died by the end of each year If maximum deferral is indicated it includes the present value of the future distributions the heirs can take The annual net value of the Taxable Annuity This amount is reinvested in the Other Assets The total net amount of money distributed from the Pension Fund through each year The net amount of money taken from all the funds in each year The balance of the Other Assets at the beginning of each year The annual amount of money contributed to the Other Assets
7. Right click for a menu of report viewing options Display a Different Alternative in the Current Report Right click in the Current Report A short cut menu appears Click the Alternative for which to display results The Current Report title displays the selected Alternative number Or e Click to move through the Alternatives in a descending order e Click to move through the Alternatives in an ascending order Expanded Report The expanded report appears in a new full sized window The title of the report and the Alternative for which the results are displayed appear below the Menu bar If you have included more than one Alternative tabs for each Alternative appear at the bottom of the window Click each tab to view expanded reports for each Alternative 61 Chapter 16 Viewing Results Expand Current Report A report always appears at the bottom of the window You can expand this report to fit your entire screen Right click in the Current Report A short cut menu appears Click Expand to Full Screen The Pension amp Roth IRA Analyzer Reports window appears Or e On the Reports menu click Expand Current Report Or e Click the Expand Report button in the Reports section Select a Report in Expanded View While in Expanded View click the Reports menu or Graphs menu A submenu appears Point to Analysis to see list of analysis reports Point to Comparisons to see a list of comparison reports Cl
8. The balance of the Other Assets at the end of each year The annual net growth of Other Assets The IRA owner s age in each year The owner s life expectancy in each year 119 Chapter 23 Descriptions of Available Values P V of Future After Tax Distributions Penalty on Pension Distributions Penalty on Roth IRA Distribution Penalty on Total Distributions Pension Contribution Pension Deferral Term Pension Fund Begin Value Pension Fund Distributions to Gift Fund Pension Fund Distributions to Income Pension Fund Distributions to Insurance Pension Fund Distributions to Other Assets Pension Fund Distributions The total distributions deferred over survivor s life expectancy starting in each year The 10 penalty on Pension Fund distribution in each year The 10 penalty charged on Roth IRA distribution in each year The total 10 penalty on Pension Fund and Roth IRA distributions in each year The amount of money contributed to the Pension Fund in each year The deferral period available to survivors for taking money out of Pension Fund in each year The balance of the Pension Fund at the beginning of each year The amount taken from the Pension Fund for Donee Exclusion Gifting in each year The amount taken from the Pension Fund to pay Living Expenses in each year The amount taken from the Pension Fund for insurance premiums in each year The amount taken from the P
9. The results of this report or graph appear in the Constructed Report list box in the Report Designer window In the Analysis Report Title box enter a name for the new report or graph Add or clear results from the report or graph Click the Save Graph or Save Report button A prompt appears Click OK Clear the Constructed Reports Box In the Constructed Report box click the results that you do not want in the report or graph You can only click one at a time Click the arrow pointing left The values no longer appear in the Constructed Report box 66 Chapter 17 Designing a Report Note To clear all results from the Constructed Reports box click the Clear button below the box When clearing results from the Constructed Reports box the results are not deleted They are transferred back to the Available Values Delete a Report 1 In the Report Designer window click the Select Report button The Analysis Report Selection window appears 2 From the list click the report or graph you want to delete You cannot delete the program s default reports and graphs 3 Click the Select Report button The results of the selected report appear in the Constructed Reports list box in the Report Designer window 4 Click the Erase Report button A prompt appears 5 Click Yes Note You cannot delete the program s default reports and graphs 67 Chapter 17 Designing a Report 68 Chapter 18 Applying R
10. This is the only situation where the owner s required beginning date is relevant If the owner dies before the required beginning date and there is no beneficiary alive as of 12 31 of the year following the owner s death the five year rule applies all the money has to be distributed within the next five years If the owner dies after the required beginning date and there is no beneficiary alive as of 12 31 of the year following the owner s death the distributions are taken out over a term based on the owner s life expectancy in the year of death Once again this works the same as the old term certain method with the life expectancy being reduced by one for each year that passes after the owner s death Situation 4 Owner dies with spousal beneficiary When the owner dies with a spousal beneficiary the spouse gets special treatment In this case required distributions are generally based on the spouse s single life expectancy in each year after the owner s death If the owner dies prior to the calendar year in which he would have reached age 70 the spouse does not have to start taking distributions until that year However if the owner dies before 12 31 of the calendar year in which he would have reached age 70 and the spouse also dies before 12 31 of the calendar year in which the original owner would have reached age 704 then the second to die spouse is treated as the new owner with the rules of Situation 2 being applied
11. plan participant s gross income pursuant to section 72 m 3 A 11 No Section 72 m 3 provides generally that employer contributions and trust income that are treated under regulations as having been applied to the purchase of life insurance protection for a plan participant must be included in the participant s gross income However such an amount is not treated as a distribution for purposes of section 72 t Q 12 In the case of an IRA or individual account plan what constitutes a series of substantially equal periodic payments for purposes of section 72 t 2 A iv A 12 Section 72 t 1 imposes an additional tax of 10 percent on the portion of early distributions from qualified retirement plans including IRAs includable in gross income However section 72 t 2 A iv provides that this tax shall not apply to distributions which are part of a series of substantially equal periodic payments not less frequently than annually made for the life or life expectancy of the employee or the joint lives or joint life expectancies of the employee and beneficiary Section 72 t 4 provides that if the series of periodic payments is subsequently modified within five years of the date of the first payment or if later age 59 1 2 the exception to the 10 percent tax under section 72 t 2 A iv does not apply and the taxpayer s tax for the year of modification shall be increased by an amount determined under regulations which but fo
12. toward donee exclusion gifts The report also lists the annual value of the gift fund Report Values Year Gift Fund Begin Value Gift Fund Contribution Pension Fund Distributions to Gift Fund Roth IRA Distributions to Gift Fund Taxes at Death Paid from Gift Fund Gift Fund Ending Value 103 Chapter 22 Report Listing Estate Analysis Report The Estate Analysis report illustrates the calculation of the Net After Tax Assets The report assumes that the owner and spouse if there is one die by the end of each year The report also shows the effects of estate taxes and income taxes on the Other Assets If you have not clicked Estate Analysis Max Deferral in the Main Inputs section the report will not include a P V of Future After Tax Distributions column In such a case the heir withdraws the entire balance of the plan after the death of both the plan owner and the beneficiary Report Values e Year e State Death Tax e Roth IRA Ending Value e Income Tax on Pension Fund e Pension Fund Ending Value e Pension Deferral Term e Other Assets Ending Value e Roth Deferral Term e Gift Fund Ending Value e P V of Future After Tax e Unpaid Roth IRA Taxes Distributions o Federal Estate Tax e Insurance Proceeds e Net After Tax Assets Insurance Analysis Report The Insurance Analysis report displays the amount of money distributed for payment of premiums and shows the benefit of the proceeds to the Net After Tax Assets
13. 100 Dal 25 57 0 63 21 6 101 2 5 26 56 0 64 20 8 102 23 27 55 1 65 20 0 103 2 1 28 54 1 66 19 2 104 1 9 29 53 1 67 18 4 105 1 8 30 52 2 68 17 6 106 1 6 31 51 2 69 16 8 107 1 4 32 50 2 70 16 0 108 1 3 33 49 3 71 15 3 109 1 1 34 48 3 72 14 6 110 1 0 35 47 3 73 13 9 111 9 36 46 4 74 13 2 112 8 37 45 4 75 12 5 113 a 38 44 4 76 11 9 114 6 39 43 5 77 11 2 115 5 40 42 5 78 10 6 41 41 5 79 10 0 42 40 6 80 9 5 Mortality Table The program offers the 90CM Table the 1 72 1983 table listed in IRS Regulations 1 72 7 0 1 G11 the UP 1984 Table the UP 84 Table is only used in single life expectancy cases and the 830CNSMT 1980 table from IRS publication 1457 The example in IRS Notice 89 25 1989 1 C B 662 uses the UP 1984 Mortality Table As of May 1 1999 the IRS released the 90CM mortality table This table replaces the older 80CNSMT Between May 1 1999 and June 30 1999 you can use either the 30CNSMT or the 90CM After June 30 1999 do not use the 801CNSMT REG 103851 99 100 Chapter 21 Reference Material Note Brentmark has permission to use the UP 1984 Table Copyright c 1976 Conference of Consulting Actuaries All Rights Reserved Net After Tax Assets The Net After Tax Assets is the sum of the Pension Roth IRA and Other Assets funds plus Insurance Proceeds if any less income and estate taxes Since income and estate taxes are generally payable only after the death of the surviving spouse the Net After Tax
14. 2003 life expectancy minus one The new life expectancy tables used by the 2002 final regulations add some complexity to cases where the owner has already died If distributions are being taken under this scenario the length of the term has to be recalculated using the 2002 single life expectancy table For example if a plan owner died in 1995 the 2003 distribution would be based on the owner s life expectancy using the new table in 1995 reduced by 8 Under the 2001 proposed regulations the beneficiary had to be alive as of 12 31 of the year following the owner s death to be considered valid Under the 2002 regulations the beneficiary only has to be alive when the owner dies to be considered Situation 3 Owner dies with nonspousal beneficiary In the year of death the minimum distribution is still calculated according to Situation 1 above It s only in the years after the owner s death that this situation applies When the owner dies with a nonspousal beneficiary a term certain distribution period is established based on the designated beneficiary s single life expectancy in the year after the owner s death Unlike Situation 2 in this case the term is based on a life expectancy calculated in the year after the owner s death rather than the year of death For example if the owner died in 2003 the life expectancy used as the divisor in 2004 would be the beneficiary s single life expectancy in 2004 In 2005 the divisor use
15. Custom Insurance Premiums In general you ll be planning future Proceed so you ll probably want to adjust for inflation By default the program applies the growth rate on the Proceed from the first year of analysis instead of from the first year that the plan owner needs the Proceed This ensures that when the Proceed occurs the program has adjusted it for inflation Click this button to enter Proceeds on a year by year basis instead of over a span of years For more information on Custom Data Entry see Chapter 15 Custom Data Entry 55 Gift Fund Section Chapter 14 Modeling Donee Exclusion Gifting Gift Fund Section Table of Inputs Input Description Gift Fund Options Description Contribution Growth Rate From To Boxes Apply to Alternative Enter a separate Growth Rate for the Gift Fund Each Alternative can have a different Growth Rate Click a box and select the fund from which contributions will be made Enter a short description for each Contribution The description is optional Enter the amount of each Contribution in this box Enter the annual percent increase of the Contribution Use these boxes to enter the span of years for which the Contribution is needed These numbers represent the Alternatives Selected check boxes indicate which Alternatives will include the Contribution 57 Chapter 11 Quick Conversion amp the Roth IRA Conversion Optimizer Money that plan owners
16. Death Paid from Other Assets Taxes at Death Paid from Pension Fund The amount of tax on the growth of Other Assets in each year The income tax rate charged to Pension Fund if owner has died by end of each year The income tax rate on Pension Fund distributions in each year The income tax rate used on growth of Other Assets in each year The amount of tax savings generated by Pension Fund contributions in each year The total amount of the taxable annuity in each year The taxable estate if there were no Pension Fund in each year The total taxable estate in each year The death taxes paid from gift fund in each year The death taxes paid from insurance proceeds in each year The total death taxes needed from Personal Fund in each year The total death taxes needed from Pension Fund in each year 123 Chapter 23 Descriptions of Available Values Taxes at Death Paid from Roth IRA Total Conversion Tax Paid Total Funds Begin Value Total Funds Ending Value Total Tax on Distributions Total Taxes At Death Unpaid Roth IRA Taxes Unrealized Growth Value of Funds Available at Death Year Yearly After Tax Distributions The total death taxes needed from Roth IRA in each year The amount of money spent to pay Roth IRA conversion taxes in each year The total amount of funds at the beginning of each year The total amount of funds at the end of each year The total income tax on
17. Follow the three steps on the screen After completing Quick Conversion the Comparison of Net After Tax Assets report appears Partial Conversions or Roth IRA Conversions in Different Years If you want to see the effects of multiple partial conversions or you want to see the effects of conversions that occur in different years you can use the following procedure eae eee ee Enter the Input Assumptions Enter data in the top portion of the Main Inputs section Create your Alternatives Click the Roth IRA button The Roth IRA section appears Click the Conversions tab and enter the conversion data Click the Taxes button The Taxes section appears Select the method of calculating income tax In the Taxes section click the Conversion Tax tab For each Alternative select the fund from which conversion taxes will be paid Click the Reports button The Reports section appears You ll see four tabs at the top of the section The Recommended tab will be highlighted Click Comparison of Net After Tax Assets Note Using this procedure you can certainly add data using other input sections of the program 126 Chapter 25 Getting Help If you need help it s easy to find Click the question mark wherever it appears in the program and a Help topic appears for the window in which you are working Also use the Help menu and the program s Help system If you still need help Brentmark provides technical support Help Menu
18. Fund Distributions Yearly After Tax Distributions 64 Report Designer Chapter 17 Designing a Report You may find that our pre designed reports just don t provide you with the results that you need The Report Designer allows you to create your own reports using all of the program s calculated results Report Designer Window Description Object Input Description Analysis Report Title Select Report Button Available Values Constructed Report Clear Button Save Graph Button Save Report Button Type the name of the report that you are constructing If you are modifying a report the report s name appears here Click Select Report to modify an existing report The Report Designer lists all of the program s results in the Available Values box When an Available Value is highlighted a description of the value appears below the box Use the Available Values to create your own report by clicking each value and dragging it into the Constructed Report box Click Save Report Save Graph or Save Comparison to save your Constructed Report Note The program can only compare one value at a time To create a Comparison Report you can only have one value in the Constructed Report box The Constructed Report box lists all of the Available Values that you select Click Save Report Save Graph or Save Comparison the list as a report Click Clear to clear the Constructed Report box This button clears th
19. Pension Fund and Roth IRA distributions in each year The total federal and state death taxes due if plan owner dies at end of each year If there is no deferral this value includes the income tax on the Pension Fund The amount of income taxes due on the Roth IRA if the Roth IRA were liquidated at the end of each year The total amount of Other Assets growth that is still not realized at the end of each year The total amount of cash given to heirs assuming owner dies at end of each year The year The net distribution from the Pension Fund and Roth IRA in each year 124 Chapter 24 Sample Cases Minimum Distributions Analysis If you re looking to create a simple analysis that calculates required minimum distributions this is the easiest way to do it In this simple analysis you will not enter any additional contributions distributions living expenses conversions or insurance premiums and proceeds If you only want to see required minimum distributions this other information is not required Review the Input Assumptions On the Edit menu click Input Assumptions Enter data in the top portion of the Main Inputs section Then enter data for Alternative 1 Now from the buttons on the left side of the window click Reports the bottom button The Reports section appears You ll see four tabs at the top of the section The Recommended tab will be highlighted Click Minimum Distributions Pre 59 Distribut
20. Report Values e Year e Taxes at Death Paid from s Insurance e Insurance Premium e Distributions to Insurance oy He Hise Needle e Net After Tax Assets e Insurance Proceeds Life Expectancies Analysis Report The Life Expectancies report simply lists all the life expectancies that are calculated for each year 104 Chapter 22 Report Listing Report Values e Year e 2nd Joint L E e Owner L E e Life Exp e Spouse L E e Roth IRA Benef Life Exp e Joint L E e Pension Deferral Term e 2nd Benef L E e Roth Deferral Term Minimum Distributions Life Expectancy Analysis Report This report shows the different minimum distribution multiples that could be used in each year It helps illustrate what would happen to the distributions if death were to occur Report Values e Year e Multiple if Both Alive e Owner Age e Multiple if Only Client Alive e Benef Age e Multiple if Only Spouse Alive e Benef Deemed Age e Multiple if Neither Alive Minimum Distributions Report The Minimum Distributions Report lists the following information Year This column lists each year that the program calculates a distribution By default the program displays years of death for the owner and beneficiary in red You can change the color using the Age This column lists the owner s age in each year Plan Balance This column lists the total amount of money in the owner s pension plan in each year To calculate the Plan Balance for each year th
21. The program adds these contributions to the contributions that you enter in the Contributions section 52 Chapter 13 Modeling Insurance Insurance Section Use the Insurance section to enter Life Insurance Premiums and 2 to Die Life Insurance Proceeds You can enter premiums and proceeds over a number of years or for specific years The program ignores any proceeds or premiums that occur after the year in which second to die becomes deceased Insurance Outside Estate This question appears at the top of the insurance section For each alternative you select if the insurance is part of the estate Premiums If a dollar amount is entered for the desired distribution the program increases the distribution enough to pay the Insurance Premium without decreasing the after tax amount of money received from the entered distribution In all other cases the program will distribute the greater of the desired distribution and the amount necessary to pay for the Insurance Premium Life insurance premiums are paid first out of income Premiums Tab Table of Inputs Input Description Pay Premiums From Select a fund as the primary source for paying the premiums If there is not enough money in the fund you select the program takes the payments first from the Other Assets fund then from the Pension Fund and finally from Roth IRA Money used for premiums is considered consumed it is not transferred to Other Assets It is complet
22. ai 10 A 27 IU A 60 First Year of Analysis oooooconiccnicccccnco 15 Five Year Rule canada 42 FOntS Seas antiiei fh aie 69 Frequently Asked Questions 75 Front Loaded Method o o 27 Function Keys nia of G Gift Fund Section cece 58 Growth Rates occcnnonocononocicnnncnnnne 5 17 H HDi dota iina 133 Help MCN e cs pith iS 133 Help Sy Sti ads Cotes anesccteeee a 133 Hint LAG tinas 5 A A ee ener eee 6 I Income in Respect of a Decedent 21 26 Income Tax 21 22 45 51 101 on CONVETSIONS ooooocccnnononccononincninnnos 21 on Growth of Other Assets 23 on Pension Fund Distributions 21 Income Tax Rate Calculator 22 45 Income Testorn anunn 41 Inflation Adjusted Dollars 11 Inflation Rate ooooocccccnnnnonconnnanicinnnanan 15 Input Assumptions 13 14 49 Mputa n etanannes aceon tates 4 13 Installing the Program ceeeeeee 2 TNSUTAN CE ni 53 TRAS a a s 5 A r a 21 J Joint Single Life Exp 0 0 cece 38 L Life PX e A haa seese 87 Life SUT ANCE dd 53 Living Expenses Section 31 Lump Sum Distribution 35 36 M Main Inputs Section ocooonconicnnncinnnconcs 15 Marginal Tax Rate n se 22 Marital Trust ooooococoncccnnnnnanannnonanininnnns 26 MPIB incas cdo 83 93 Menu Bari it 3 Minimum Distribution Incidental Bencina blancas 93 Minimum Distributions 5 14 32 35 41
23. and there is no beneficiary alive as of 12 31 of the year following the owner s death the five year rule applies all the money has to be distributed within the next five years If the owner dies after the required beginning date and there is no beneficiary alive as of 12 31 of the year following the owner s death the distributions are taken out over a term based on the owner s life expectancy in the year of death Once again this works the same as the old term certain method with the life expectancy being reduced by one for each year that passes after the owner s death Situation 4 Owner dies with spousal beneficiary When the owner dies with a spousal beneficiary the spouse gets special treatment In this case required distributions are generally based on the spouse s single life expectancy in each year after the owner s death If the owner dies prior to the calendar year in which he would have reached age 70 the spouse does not have to start taking distributions until that year However if the owner dies before 12 31 of the calendar year in which he would have reached age 70 and the spouse also dies before 12 31 of the calendar year in which the original owner would have reached age 70 then the second to die spouse is treated as the new owner with the rules of Situation 2 being applied if the second to die spouse has a designated beneficiary or Situation 3 if there is no designated beneficiary If the spouse dies after t
24. be removed after the death of the owner if the plan owner previously made a written election to that effect before the Required Beginning Date The program assumes that this election has been made The program handles the MDIB calculation automatically substituting the MDIB Table divisor for the Life Expectancy when appropriate Minimum distribution requirements may be changed by the death of the plan owner In the case of non spousal beneficiaries this may be caused by the possible removal of 83 Chapter 20 Frequently Asked Questions MDIB requirements For spousal beneficiary cases a switch to single life expectancy is sometimes possible after the death of the plan owner or spousal beneficiary A surviving spousal beneficiary also has the option of electing to treat the plan as hers or his after the death of the plan owner The program assumes a spousal rollover at the time of the client s death Minimum distributions for a Roth IRA do not start until after the death of the plan owner They are based solely on the life expectancy of the beneficiary For non spousal beneficiaries this life expectancy is calculated as of the year after death and reduced by one for each year after that How Do Convert Existing Pre 59 Y Distributions Revenue Ruling 2002 62 allows for a one time switch to the Minimum Distributions method of calculating pre 59 distributions The software allows you to illustrate this switch Enter the date the
25. calculation works Report Values e Year e Tax on Fund Growth e Other Assets Begin Value e Unrealized Growth e Pre Tax Fund Growth e Other Assets Net Growth e Realized Growth 106 Chapter 22 Report Listing Pension Fund Analysis Report This report shows all the activity contributions distributions growth etc that affects the Pension Fund in each year Report Values Year Pension Fund Begin Value Pension Contribution Pension Fund Distributions Roth IRA Conversion Conversion Tax Paid From Pension Fund Pension Fund Growth Pension Fund Ending Value Taxes at Death Paid from Pension Fund 107 Chapter 22 Report Listing Pre 59 Distributions Analysis Report When you use the Pre 59 Distributions the results of these calculations appear in every report however the report that appears in the Main window displays results with growth that has been compounded annually Therefore results that appear in the Pre 59 Distributions window may have different balances Pre 59 distributions have to last for 5 years and must be paid until the plan owner reaches age 59 4 Usually this results in distributions being made for a portion of the year that the owner reaches age 59 For example if distributions are being taken quarterly and the plan owner turns age 59 in February 2010 only the first distribution has to be in 2010 If distributions occur at the end of each quarter no distributions would hav
26. contribute to the Gift Fund is only taxed if it is coming from the Pension Fund The Gift Fund grows at the rate you specify and it is not subject to estate taxes upon the owner s death When the plan owner dies the program adds the value of the Gift Fund to the Net After Tax Assets Apply Growth from first Tn general you ll be planning future Contributions so you ll year of analysis instead probably want to adjust for inflation By default the program om yea applies the growth rate on the Contribution from the first year of analysis instead of from the first year that the plan owner needs the Contribution This ensures that when the Contribution occurs the program has adjusted it for inflation Custom Insurance Click this button to enter Contribution on a year by year basis Premiums instead of over a span of years For more information on Custom Data Entry see Chapter 15 Custom Data Entry 58 Chapter 15 Custom Data Entry Custom Data Entry Window Use the Custom Data Entry window to make additional data entries to various input sections of the program Using the Custom Data Entry window you can enter values for specific years instead of over a span of years Also you can quickly copy or clear columns of data from one Alternative to others by using the Fill button the Copy Col button and the Clear button Enter Data in the Custom Data Entry Window Click El wherever you see it in the program A Custom Data Entry
27. each income or expense The description is optional Enter the net amount of money that your client has as income annually Select the fund in which the income will be invested Enter the amount the income will increase annually Use these boxes to enter the span of years that the income will be received To enter income on a year by year basis click the Year by Year Income button Click this button to enter income for specific years instead of entering income that covers a span of years In general you ll be planning future income so you ll probably want to adjust income for inflation By default the program applies the growth rate on the income from the first year of analysis instead of from the first year that the plan owner needs the income This ensures that when the income is distributed it has been adjusted for inflation 31 Chapter 5 Entering Tax Information Expenses Descriptions of living expenses appear in top portion of this section A description of a living expense appears by default For example the entry may read 0 from 1999 to 2057 This description changes as you enter data in the boxes below the description box The numbers on the right side of the box 1 2 3 4 represent the Alternatives that include the expense Expenses can now be specified to be not grossed up for income taxes Uncheck the box labeled Amount Needed After Taxes to indicate that the amount needed for a given living
28. expense should be decreased by the taxed paid on that living expense Living expenses are now paid first out of income Input Description Add Income button Remove button Description Amount Needed Pay Expenses From Growth Rate Click the Add Income button to add to enter a new income Click the Remove button to delete the highlighted income Enter a short description for each income The description is optional Enter the net amount of money that your client needs for living expenses annually The program distributes the gross amount and applies the appropriate taxes to each expense Do not add the minimum distribution to the Amount Needed If the Amount Needed is less than the minimum distribution the program adds the remainder of the minimum distribution to Other Assets unless you specify otherwise in the Input Assumptions Select the fund from which living expenses will be paid Be sure that the fund has enough money to pay the expense s If the expense uses the entire fund and you ve specified that the expense is needed for a longer time period than the fund will last the program begins paying the expense from the other funds Since you indicate the fund from which expenses are paid some good reports that reflect living expenses are the Distributions Breakdown the Pension Fund Analysis the Roth IRA Analysis the Other Assets Analysis the Roth IRA Distributions report or the Total Pension and IRA Dis
29. if the second to die spouse has a designated beneficiary or Situation 3 if there is no designated beneficiary If the spouse dies after the year in which the original owner would have turned 70 the distributions become term certain with the term set to the spouse s life expectancy in the year of death Again this works the same as the old term certain method with the life expectancy being reduced by one for each year that passes after the spouse s death 97 Chapter 21 Reference Material Situation 5 Owner dies and a spousal rollover When the owner dies with a spousal beneficiary the spouse has the option of doing a spousal rollover with the spouse becoming the new owner In such a case the rules of Situation apply after the spouse becomes the new owner Situation 6 The Exception to Situation 1 The exception to situation 1 is when there is a spousal beneficiary who is more than 10 years younger than the owner In this case the life expectancy used while the owner is alive is the joint life expectancy of the owner and spouse recalculated in each year Once the owner dies the exception no longer applies and the distribution is handled according to the situations described above 1987 Proposed Regulations Pre 2001 Rules If the plan owner has not named a beneficiary If the plan owner has not named a beneficiary then there are two methods for determining the plan owner s life expectancy each year Term Certain met
30. interest rate and the resulting annual payment are determined once for the first distribution year and the annual payment is the same amount in each succeeding year 02 Other rules The following rules apply for purposes of this section a Life expectancy tables The life expectancy tables that can be used to determine distribution periods are 1 the uniform lifetime table in Appendix A or 2 the single life expectancy table in 1 401 a 9 9 Q amp A 1 of the Income Tax Regulations or 3 the joint and last survivor table in 1 401 a 9 9 Q amp A 3 The number that is used for a distribution year is the number shown from the table for the employee s or IRA owner s age on his or her birthday in that year If the joint and survivor table is being used the age of the beneficiary on the beneficiary s birthday in the year is also used In the case of the required minimum distribution method the same life expectancy table that is used for the first distribution year must be used in each following year Thus if the taxpayer uses the single life expectancy table for the required minimum distribution method in the first distribution year the same table must be used in subsequent distribution years b Beneficiary under joint tables If the joint life and last survivor table in 1 401 a 9 9 Q amp A 3 is used the survivor must be the actual beneficiary of the employee with respect to the account for the year of the distribution I
31. joint life expectancy Enter the owner s birth date and the beneficiary s birth date in month day year format The beneficiary s birth date is used to determine joint life expectancy factors Rev Rul 2002 62 defines the maximum reasonable interest rate to be the highest applicable federal midterm rate of the two months prior to the first distribution Answering yes to this question causes the program to fill in 38 Chapter 8 Modeling Pre 591 2 Distributions Reasonable Interest Rate Use Uniform Life Table Annuity Factor Table the reasonable interest rate automatically disabling that input field If no federal midterm rate has been entered the program displays a message and the Use Maximum Interest Rate input is set to No If the Distribution Method is Annuitization or Amortization enter a Reasonable Interest Rate see Chapter 21 Reference Material To create a Comparison Report you need to enter a Reasonable Interest Rate If the owner is still alive the life expectancy is taken straight from the Uniform Lifetime Table Simply find the owner s age on the table it covers ages 70 through 115 and use the life expectancy listed For this situation the only change caused by the 2002 final regulations was to update the numbers in the Uniform Lifetime Table If the Distribution Method is Annuitization select the Mortality Table or details see Chapter 21 Reference Mate
32. larger balance is being left in the Roth IRA to grow tax free The value of this additional tax free growth has no counterpart in an ordinary IRA You have effectively grossed up your IRA balance by changing the balance from a tax deferred value to a tax free value The value of the additional tax free growth this generates in the Roth IRA will generally substantially outweigh the opportunity costs Opportunity costs refer to how the other assets would have grown if not used to pay the conversion tax Such growth on those other assets would generally be taxable By using other assets to pay the conversion taxes you are essentially converting assets with taxable growth to assets with tax free growth Another potential deferral advantage from a Roth IRA is due to the four year spreadout of additional taxable income when you do a conversion in 1998 However that deferral may be offset in whole or part due to a higher income tax rate from being pushed into higher brackets during those four years Then again a conversion in a year after 1998 might result in still higher average tax rates and would not get a four year spreadout Avoid Distributions as Long as Possible Of course all or part of the tax deferral is for naught if the IRA owner or his beneficiary needs to take out the money earlier The key is when will distributions be needed If distributions from the Roth IRA can be avoided for as long as possible you and your beneficiaries will come out mu
33. no upfront tax deduction but you do get tax free withdrawals after a five year period If this were the only distinction the analysis of the advantage if any of the Roth IRA would hinge largely on income tax rates If income tax rates at the time of withdrawal were to be lower than at the time of contribution or conversion then the Roth IRA would generally be less attractive than an ordinary IRA would The word generally is used because there are exceptions even to that premise especially when the federal estate tax is factored in No Minimum Distributions at Age 70 What makes the Roth IRA so powerful is that minimum distribution rules do not kick in for the participant s age 70 year There are no required minimum distributions until after the death of the participant If he lives until age 85 there will have been an additional 15 years of tax deferral to that point And there is potentially 15 more years of continuing contributions as well if there was earned income during that period Ignoring the possibility of a spousal beneficiary or a spousal rollover for the moment let s 130 Chapter 26 Articles assume that required minimum distributions now start the year following the participant s year of death Those distributions will be payable to the participant s beneficiary using a single life term certain method Let s assume that the beneficiary is a child 25 years younger than the participant is The beneficia
34. present valued back to the date of death using the Inflation Rate that you entered in the Main Inputs section In turn the program calculates the Net After Tax Assets using the following formula Net After Tax Assets P V of Future After Tax Distributions Distributions to Other Assets Federal Estate Tax State Death Tax If you have not clicked Estate Analysis Max Deferral in the Main Inputs section the report will not include a P V of Future After Tax Distributions column In such a case the heir withdraws the entire balance of the plan after the death of both the plan owner and the beneficiary Why are the Unpaid Roth IRA Taxes so High The Unpaid Roth IRA Taxes column lists all the income taxes that the Roth IRA generates in the event that the owner and spousal beneficiary die by the end of each year The values in the column consist of any income tax on the Roth IRA Conversion that has not been paid Since the program assumes that death occurs at the end of the year the Unpaid Roth IRA Taxes value does not include that year s conversion tax because it has already been paid If you click Estate Analysis Max Deferral in the Main Inputs section the program assumes that the heir will withdraw the balance of the plan over his or her term certain life expectancy after the death of the owner and spouse if there is one If both the owner and the spouse die within five years of a conversion this any withdrawal may cause incom
35. t want to adjust the taxable estate for a bypass trust for each alternative click No Section 691 c Deduction Upon the death of a plan owner the balance remaining in retirement plans may be subject to federal estate tax and it may also be subject to state inheritance or estate taxes However the Section 691 c Deduction allows heirs to limit the amount of tax on distributions from inherited plans If you include estate tax calculations in an analysis or if there is deferred income tax you need to apply the Section 691 c Deduction Benefits left to charity may be exempt from estate taxes You can apply the Section 691 c Deduction using the Annuity method or the Front Loaded method To see how the program applies the Section 691 c Deduction go to the Reports section click the Analysis tab and view the Taxable Amount of Pension Fund report Using the Annuity Method The Annuity method is the program s default method of applying the Section 691 c Deduction Using the estate tax that is attributable to the Pension Fund the program calculates the value of the Section 691 c Deduction Next it divides the Section 691 c Deduction by the Pension Fund Ending Value to arrive at a deduction ratio By multiplying the annual distribution by the deduction ratio the program calculates an annual deduction Each year the program subtracts the annual deduction from the heir s distribution and the heir pays tax on the remaining amount of his or h
36. the normal case As the owner of the IRA she does not have to make any minimum distributions during her life She can use this period from the original participant s death to her death as another period of additional tax free growth If she lives to age 90 then we have another 10 years of potential tax deferral tacked on to the original participant s Two Components of Tax Deferral The extra deferral offered by a Roth IRA has two major components The first is the post 70 deferral period that generally lasts until the death of the second to die of the husband and wife Any evaluation of the Roth IRA should rightfully focus on this deferral Of course this deferral ends at death As such it is not guaranteed and would not be achieved in cases of early death The second component of tax deferral offered by the Roth IRA is the tax free growth of the Roth IRA assets during the single life expectancy period of the beneficiary often a child For there to be significant advantage to this second component it is important that income taxes due to the conversion be paid from other assets than those in the IRAs Even if conversion taxes are paid from an IRA the first component of tax deferral will still make the Roth IRA conversion the better alternative in many cases Tax Free Growth May Continue After Death The after death tax free growth component can be an important issue in a Roth IRA analysis In some cases this future tax free growth argu
37. the top of your printed report Include the Heading on a Printed Report e Under the Printing Options heading in the Report Options window click the Print Heading check box Limit the Number of Years to Include in a Report e Under the Printing Options heading in the Report Options window enter the number of years that you want to include in your reports in the Years to Include in Report box By default the program includes 60 years of results 70 Print Window Chapter 19 Printing Reports and Graphs Use the Print window to select the reports and graphs you want to print You can print the program s default Report Groups or its individual Analysis and Comparison reports You can create and print your own Report Groups or a combination of your Report Groups and the program s Object Input Description Available Reports Report Groups Tab Analyses Tab Comparisons Tab Selected Reports Clear Selected Button Create Report Group Button This section contains all of the reports that you can print including your custom reports The Available Reports box displays three tabs Report Groups Analyses and Comparisons Click these tabs to select the different types of reports Click a report to select it Then drag it into the Selected Reports box A Report Group is any number of Selected Reports that has been combined or grouped For example the default Report Group Analysis Graphs contains the progra
38. to adjust for inflation By default the program applies the growth rate on the Taxable Estate amounts from the first year of analysis instead of from the From year This ensures that the program has adjusted the Taxable Estate Amount for inflation Click this button to enter Taxable Estate Amounts on a year by year basis instead of over a span of years When you enter Custom Taxable Estate Amounts the program replaces the initial amounts with the custom amounts For more information on Custom Data Entry see Chapter 16 Custom Data Entry 25 Chapter 5 Entering Tax Information Bypass Trust Tab Adjust Taxable Estate for By default if the plan owner has a spousal beneficiary the Bypass Trust Bypass program automatically adjusts the taxable estate for a bypass Trust Growth Rate trust This means that the plan owner will combine a bypass trust with a marital deduction trust Such a combination is sometimes referred to as an A B Trust In an A B Trust the estate owner places an amount of money equal to the equivalent exemption based on the unified credit in a bypass trust therefore excluding it from the estate of the second to die Of course this results in a lower federal estate tax The equivalent exemptions based on the unified credits are scaled according to the Taxpayer Relief Act of 1997 Although the program automatically adjusts the estate in this manner you must enter the growth rate of the trust If you don
39. to enter separate growth rates for each fund Beneficiary Select Spouse Child or None For more information about selecting a beneficiary or how the program handles beneficiaries see Chapter 21 Reference Material Year Owner Dies You may choose to calculate the analysis assuming that the owner survives the calculation that the owner dies in the year based on the plan owner s life expectancy or that the owner dies during a year you specify Year Benef Dies You may choose to calculate the analysis assuming that the beneficiary survives the calculation that the beneficiary dies in the year based on the beneficiary s life expectancy or that the beneficiary dies during a year you specify Spousal Rollover Click the button next to this heading to specify the conditions of a 17 Chapter 4 Entering General Data for All Alternatives spousal rollover Choose from the following options e Spouse rolls over the IRA at the owner s death e Spouse does not roll over the IRA e Spouse rolls over the IRA in the year you specify Distribution Options Tn some circumstances plan owners may begin making minimum distributions at times other than the required beginning date A worksheet will pop up when you click on the Required Year button Choose from the following options e Minimum distributions begin when the owner turns 70 Y e Owner defers minimum distributions one year e Owner retires after age 70 Y e Owner makes TEFRA
40. year by the number from the chosen life expectancy table for that year Under this method the account balance the number from the chosen life expectancy table and the resulting annual payments are redetermined for each year If this method is chosen there will not be deemed to be a modification in the series of substantially equal periodic payments even if the amount of payments changes from year to year provided there is not a change to another method of determining the payments b The fixed amortization method The annual payment for each year is determined by amortizing in level amounts the account balance over a specified number of years determined using the chosen life expectancy table and the chosen interest rate Under this method the account balance the number from the chosen life expectancy table and the resulting annual payment are determined once for the first distribution year and the annual payment is the same amount in each succeeding year c The fixed annuitization method The annual payment for each year is determined by dividing the account balance by an annuity factor that is the present value of an annuity of 1 per year beginning at the taxpayer s age and continuing for the life of the taxpayer or the joint lives of the individual and beneficiary The annuity factor is derived using the mortality table in Appendix B and using the chosen interest rate Under this method the account balance the annuity factor the chosen
41. 103 Estate Analysis Repo uds ia 104 Insurance Analysis Report usais 104 Life Expectancies Analysis REpOrt 1 cc 5 ccascecssssvateseccesesneccnusseevencasssedsasdsteansesaasenueies 104 Minimum Distributions Life Expectancy Analysis RepOTt ooococcnnccinoconococonacinnconnnon 105 Minimum Distributions Report 1 13 s s edcseessseseststeccsaacesncvectedeassasicvistaseccsaccsstacasaetacees 105 Other Assets Analysis Rep rr is 106 Other Assets Growth Analysis Report ui ds 106 Pension Fund Analysis Report c ssccassssecosesseeeecasseessanseseanecssaccesnss cocesacsesdnanazsountes 107 Pre 59 4 Distributions Analysis Report ccccccceeesceesseceeceeeceeeeeeseeceaecneeeeeeeseeeensees 108 Roth IRA Analysis Reports A ia 108 Roth IRA Distributions Reports is a ee data aaa 108 Roth IRA Taxes amp Penalties Reports eee aee cde edenuess 109 Summary Report ssc ecnin ai ER R EE E R a neus 110 Taxable Amount of Pension Fund Report iii di i n 110 Taxable Estate Analysis REPO a 111 Total Funds Ending Value REPO di di atlas 111 Total Pension amp IRA Distributions RepolTt ooooonoccnoccniconnonoconncconoconnconnnconccconocnnncnnnnoos 112 Cumulative After Tax Distributions Report oooooconoccnicnnnonnconncconcconncnancconccconocnnncnnonos 112 Cumulative Net Proceeds Repott ad do dana 112 Net Arter ax Assets Reportin anen p eei laa rnin hate ieee EE e 112 Other Assets Ending Value Reportan innata data 112 Pension Fund Distributions Report uni ai
42. 242 selection The TEFRA 242 designation allows a plan owner to delay commencement of benefits until actual retirement even if it occurs after age 70 It assumes a catch up distribution for the years that were deferred after the age 70 year 18 Chapter 4 Entering General Data for All Alternatives Estate Analysis Max Deferral Whenever the term certain method is applied the heir has the opportunity to defer the withdrawal of the plan balance after the plan owner has died or after both parents have died in spousal beneficiary cases The Estate Analysis Max Deferral check box only affects one value throughout the program the Net After Tax Assets If this check box is selected the program will include in the Net After Tax Assets the Present Value of Future After Tax Distributions that the heir can make over his or her term certain life expectancy If you clear this check box the program will not include the Present Value of Future After Tax Distributions in the Net After Tax Assets and it will assume that the heir takes a lump sum distribution from the Pension Fund upon the death of the second to die By default the program taxes the distribution and reinvests it in the Other Assets You can adjust the after tax assets for growth after death using the After Death Discount Rate Tip A good way to visualize the effects of Estate Analysis Max Deferral is to view the Estate Analysis Report Create one Alternative in whi
43. 49 93 131 139 Chapter 27 Useful Resources A 13 Required Beginning Date 83 Rule viii 82 Minimum Distributions Options 94 Monitor Display ccccceeseeeeeeereeeees 11 Mortality Table ee eeeeeeeeeee 39 100 Multiple Beneficiaries and Separate Accounts Rule iit idas 106 N Net After Tax Assets 19 45 46 58 80 101 Non Deductible Balance 35 Non Liquid Balance 49 Non Spousal Beneficiary 14 16 O Oldest Child cua as 14 16 ONE ASS di 5 Non Liquid Balance oonoooninccconc 49 Other Assets SectiOM ooooconoccccconconons 49 P Page Margins ad diia 70 Page Numbers sismo llosa 69 Partial Conversions ooooooccnnoononccnonnnno 42 Pension Fund cccccecccccceessececeesseeees 5 Pension Fund Balance 0008 15 Pension DECION rd 35 Plan Balance occcnnonnnonnncnonnononnnnanononos 38 Pis a a 5 Pre 59 Distributions 14 21 27 35 37 42 131 PRM tise nan iais 53 Present Value of Future After Tax Distributions ocooocccnnccccnnnnnnnn 80 101 Printeren auna naaa 72 RS A 11 PI ts 11 69 70 71 Printing Options 69 70 72 IPIOCCCOS artis 53 Q Qualified Domestic Relations Order 15 Qualified Plains tech sass Maem een 5 QUA estad las 38 Quick Conversion ccoocononnnononnnonnncnon 45 R Realized Croma 50 Reasonable Interest Rate 40 102 Report Designer eceeee 65 121
44. 6 7 3 74 22 97 6 9 75 21 8 98 6 5 76 20 9 99 6 1 77 20 1 100 Sil 78 19 2 101 5 3 79 18 4 102 5 0 80 17 6 103 4 7 81 16 8 104 4 4 82 16 0 105 4 1 83 15 3 106 3 8 84 14 5 107 3 6 85 13 8 108 3 3 86 13 1 109 3 1 87 12 4 110 2 8 88 11 8 111 2 6 89 11 1 112 2 4 90 10 5 113 22 91 9 9 114 2 0 92 9 4 115 1 8 Minimum Distributions Options Required Minimum Distributions Calculations under the Final Regulations After more than a decade of proposed regulations final minimum distribution regulations were published on April 17 2002 These new rules are based primarily on the proposed regulations of 2001 but they do add some new calculation wrinkles to consider As with the 2001 proposed regulations the final regulations keep the basic calculation intact Each year the distribution is calculated by dividing the previous year s ending balance by a life expectancy number The calculation complexity lies in determining the life expectancy number Here s how the new rules work Situation I Owner still alive If the owner is still alive the life expectancy is taken straight from the Uniform Lifetime Table Simply find the owner s age on the table it covers ages 70 through 115 and use the life expectancy listed For this situation the only change caused by the 2002 final regulations was to update the numbers in the Uniform Lifetime Table Prior to 2001 the Uniform Lifetime Table was known as the MDIB table and was u
45. 72 t provides for an additional income tax on early withdrawals from qualified retirement plans as defined in 4974 c Section 4974 c provides in part that the term qualified retirement plan means 1 a plan described in 401 including a trust exempt from tax under 501 a 2 an annuity plan described in 403 a 3 a tax sheltered annuity arrangement described in 403 b 4 an individual retirement account described in 408 a or 5 an individual retirement annuity described in 408 b 02 a Section 72 t 1 provides that if an employee or IRA owner receives any amount from a qualified retirement plan before attaining age 59 2 the employee s or IRA owner s income tax is increased by an amount equal to 10 percent of the amount that is includible in the gross income unless one of the exceptions in 72 t 2 applies b Section 72 t 2 A iv provides in part that if distributions are part of a series of substantially equal periodic payments not less frequently than annually made for the life or life expectancy of the employee or the joint lives or joint life expectancy of the employee and beneficiary the tax described in 72 t 1 will not be applicable Pursuant to 72 t 5 in the case of distributions from an IRA the IRA owner is substituted for the employee for purposes of applying this exception c Section 72 t 4 provides that if the series of substantially equal periodic payments th
46. A e a tila cat a a 6 Roth IRA Conversions ar id ed did 6 o O 6 Other Program Tis Aisa 7 dl AN 7 Create Desktop CE T WG Color Display reraton AA AAA a a ai asd tc ES y COI Za 9 Working With Files viisisscccccctacescensssscscsccnssenndssssnosencsseentcsssnsscvesseesdcsawnscensecsontssssnsdsensdesvessocansseasesvas 9 Frequently ISSO POC CUUIFSSS sci sccactcus cuss oidos 9 Create a De 9 Open an Existing Ple AA 9 Savea PINS cht A A O O II 9 Saveran Existing File Save AG cacao ellas 9 BLS Ds ON se ca heh os ce cos acse A E ees aso eo eas Sad inci a Beams ae ea 9 Savea Pile as the Default Files soi tos 10 Load the Default Files si 6 cciicich jeoadiniinut ated sacra Hatem ERE sata waa eae 10 A O A a 10 A Y 10 Exit the PAI A AA A AR 10 Opera Previous y Created Pill a ais 11 Converting Older Version Piles us a 11 MN E a O A A A E E 11 Table of Contents Display Results in Actual Doll ES 11 Display Results in Inflation Adjusted DollarS oooonoconiccnncninonocononconanoncnrnconcnoncnnnonncns 11 View the Program in 16 Colors ani id eiii 11 Limit the Number of Years to Display in a RepOtt ooonoocnnncciococoncconcconnnconccnonaccnnocnnos 11 CHAPTER dinar 13 Overview Of Data EMtry assscccsccistcssasss eveassaseocensssvesesdbacecossscossessossecasscsvesoscbeoosesdscessosesboosensseceseccves 13 Data Entry Sections amp the Reports Section ooooooccnnnccnococonccconoconnconncconccconocano nono cconccinns 13 Input ASSUMP ONS oe
47. Amount box enter the rate at which the Annual Amount will increase each year Enter the span of years that the Annual Amount includes In the Select the Alternatives to Change group box click the Alternatives that the Annual Amount will affect Skip this step if you are working with Living Expenses Click one of the following items Replace The program overwrites the existing values with the Annual Amount Add tThe program combines the data in the Fill window with the existing values Subtract The program decreases the existing values by the Annual Amount 60 Chapter 16 Viewing Results Current Report The Current Report appears at the bottom of the window It shows a brief view of the results for the Current Report and Alternative Above the Current Report you can see the title of the report and the Alternative for which the results are shown For example when you open the program the Summary Report for Alternative 1 appears You can display different reports and Alternatives in the Current Report The Current Report title displays the report name and the Alternative for which the results apply When you open the program the Summary Report displays the results for Alternative 1 Pension Fund Annual Other Assets Net After Tax Year Begin Value Distributions Ending Value Assets 2000 1 500 000 68 182 1 124 182 4 795 877 2001 1 575 000 75 000 1 262 716 4 839 936 2002 1 650 000 82 500 1 417 194 4 908 414
48. Assets value assumes the death of the owner and the spouse each year with estate taxes being paid from the Other Assets not the Pension Fund if possible In most cases the surviving heir does not have to withdraw the entire balance from the Pension Fund or Roth IRA at the time of death Instead he or she can let the money grow tax free or tax deferred and withdraw the money according to minimum distribution rules Often this growth is over a long period of time because it is based on the heir s term certain life expectancy To reflect the effects of such deferral on the Net After Tax Assets select Estate Analysis Max Deferral in the Main Inputs section When select Estate Analysis Max Deferral the program calculates the Net After Tax Assets using the following formula Net After Tax Assets P V of Future After Tax Distributions Distributions to Other Assets Federal Estate Tax State Death Tax If you clear Estate Analysis Max Deferral the program does not include the Present Value of Future After Tax Distributions because there is no deferral term To see how the program calculates the Net After Tax Assets view the Estate Analysis Report Present Value of Future After Tax Distributions This is the present value of all future distributions after income tax that the heir will take from the Pension Fund and or the Roth IRA over the heir s term certain life expectancy or deferral term The program uses the after death Dis
49. Bar The title bar is the blue bar that appears in the top of the window It contains the following information e Program title e Program version number e File name if the file has been saved Menu Bar The Menu bar appears below the title bar Use the Menu bar to select program commands a sa HS Quick Conversion _ El View Reports 8 Graphs Toolbar The toolbar located below the Menu bar contains graphics as commands You can click these graphics instead of using the related Menu bar commands Open Quick Conversion Open Files Get Help Save Files Print Files View Reports Chapter 1 Introducing the Program OK now onto looking at the window File Edit Reports Quick Cales Help e H pg Quick Conversion E View Reports amp Graphs Exa First Year 2003 Starting Balances Birth Dates i 300 Pension Fund 1 500 000 Owner 1 1 1932 o Client Info Inflation 3 00 z NO Roth IRA Spouse 1 1 1935 Other Assets 0 Oldest Child 1 1 1960 Taxes son eee Inc amp Exp include 1 Buttons to Pension crowth Rates 8 00 Alternative Alternative Alternative display A e aaea e a Roth IRA TaN nclude nclude Include different Year Owner hs Cale 2018 Click ane a Other Assets Year Benef Dies Calc 2024 Here Here Hare y data entry Spousal Rollover to Calculate to Calculate to Calculate Multiple Benef sections gt Dist
50. Display Your monitor will display the program in 16 colors instead of the default 256 colors Note When you click this 16 Color Display a check mark appears beside the option Limit the Number of Years to Display in a Report Under the Printing Options heading in the Report Options window click the Years to Include in Report box Enter the number of years you want the printed report to include 11 Chapter 2 Working with Files 12 Chapter 3 Overview of Data Entry Data Entry Sections amp the Reports Section The Pension and Roth IRA Analyzer is divided into a number of data entry sections We have developed the data entry sections according to the different areas involved in the distribution planning process Client Info Taxes For example you will enter general information in the Main Inputs section tax information in the Taxes section contributions to funds in the Living Exp Contributions section and so on You don t need to enter data in every Pension section the amount of your data entry depends on the depth of your AAA analysis Roth IRA Other Assets aa When you re finished entering your data click the Reports button on the Contributions left side of the screen The Reports section appears The Reports section Insurance contains a number of Recommended Analysis Comparison and Custom Gift Fund Teports Reports Next ask yourself what exactly it is
51. IRA Conversions Conversions to a Roth IRA from either an Ordinary IRA or another Roth IRA are allowed only if they are qualified according to Code Sec 408 d 3 requirements 60 day rollover rules There is an income test that determines whether or not a plan owner is eligible to convert Plan owners cannot convert an IRA to a Roth IRA during any year in which their AGIs exceed 100 000 or during any year in which they are married and filing separate tax returns If plan owners pass the income test they can convert an unlimited amount of money from the ordinary IRA to the Roth IRA If plan owners made conversions in 1998 they had the opportunity to pay the conversion taxes over a four year period by adding 25 of the conversion amount to their gross incomes for each of the four years Note If you re using Quick Conversion you do not use the Roth IRA section to enter conversions Enter a 100 Conversion Click the Conversions tab When active the tab is highlighted yellow 41 Chapter 9 Modeling Roth IRA Conversions Enter 100 in the Alternative column Enter the year of the conversion in the Year column In the Taxes section click the Conversion Tax tab and select the fund from which conversion taxes will be paid Enter Partial Conversions When entering conversion amounts you can enter dollar amounts or percentages to convert The program treats values less than 100 as percentages Due to growth rates contributions li
52. IRA Distributions to Gift Fund Roth IRA Distributions to Income Roth IRA Distributions to Insurance Roth IRA Distributions to Other Assets Roth IRA Distributions Roth IRA Ending Value Roth IRA Growth Secondary Benef Age Spouse L E State Death Tax The amount of money contributed to the Roth IRA in each year The amount of money converted to a Roth IRA in each year The amount of income taxes and penalties caused by the Roth IRA distribution in each year The amount taken from the Roth IRA for Donee Exclusion Gifting in each year The amount taken from the Roth IRA to pay Living Expenses in each year The amount taken from the Roth IRA for insurance premiums in each year The amount taken from the Roth IRA for the Other Assets in each year The annual distribution from the Roth IRA The balance of the Roth IRA at the end of each year The amount of Roth IRA growth in each year The age of the spouse s beneficiary in each year The beneficiary s life expectancy in each year The state death tax catch up tax due if plan owner dies at end of each year 122 Chapter 23 Descriptions of Available Values Tax on Fund Growth Tax Rate At Death Tax Rate On Distributions Tax Rate On Growth Tax Saved by Pension Contribution Taxable Annuity Taxable Estate Without Pension Taxable Estate Taxes at Death Paid from Gift Fund Taxes at Death Paid from Insurance Taxes at
53. Net After Tax Assets Enter the year The program converts the fund in 1 2 5 or 10 percent increments until it finds the optimum percent to convert 47 Chapter 10 Quick Conversion amp the Roth IRA Conversion Optimizer 48 Chapter 11 Modeling Adjustments to Other Assets Other Assets Section The Other Assets fund represents all assets that are not part of the Pension Fund or Roth IRA In many cases an Other Assets fund contains a liquid and a non liquid balance The program allows you to separately enter these balances their growth rates and the tax rates on the growth The liquid balance of the Other Assets fund grows at the rate you specify in the Main Inputs section and the growth is taxed at the rate you specify in the Taxes section The non liquid balance grows at the rate that you specify in the Other Assets section The program does not tax the growth of the non liquid balance By default the program reinvests minimum distributions in the Other Assets fund You can choose to consume or spend the minimum distribution by using the Input Assumptions window You can also enter positive or negative adjustments that reflect any additional contributions to or withdrawals from the Other Assets fund Money withdrawn from the Other Assets is considered consumed it leaves the analysis completely Other Assets Section Table of Inputs Input Description Description top In this box enter a short descript
54. Pension amp Roth IRA Analyzer Software and User Manual version 2003 10 Copyright 1989 2003 Brentmark Software Inc All Rights Reserved ISBN 1 888390 00 X June 12 2003 Brentmark Software Inc 3505 Lake Lynda Drive Suite 212 Orlando FL 32817 8327 Sales 1 800 879 6665 Technical Assistance 407 306 6160 FAX 407 306 6107 www brentmark com sales brentmark com support brentmark com Table of Contents Chapter duties 1 Introducing the PrograM ooocoooncononenoncconnnononnnnnnnononccononnononncnocnccooo conoce nononncnocnncono conoce nooo cncooc conos 1 A eed waste sels aad ingeadda gases shad batan a sas aE aR taal bteaaeeatanussepvaudeeedeta 2 What Do You See on the Sereen i 2 IBUI BLI R A E A A E E E 3 INT STU Be n E E E A E o a 3 Toolbar ii A A ae ede AT 3 Right Side of the Window Data Entry Sections ooooonccnnncoconncconoconn cono cconccconocnncconnno 4 Left Side of the Window Buttons to Get to Different Data Entry Sections 4 Bottom Portion of the Window Current Report ccccecceeeseceseceeeceeseeceaeeeeeeeeeeennees 4 Below the Current Report Hint mesi hoes ceca bts ined Secale alin RR date oa 4 Default Values Loaded for the Program cccceccccecceesceesseceeceeeeeeeeeeseeeaeeneeeeeeeeeseees 5 Default AA SSOMAB LIONS ei A EA E E A a des 5 Types of Plans amp Growth Rates iscsi A aaa 5 DiStbUOS sniken a a aa ea a a a E E A 6 COTTE ONS en dae ac cabanas E A A A e e LE NA 6
55. Report Groups ocoocoocccconcccnonccinanonos 71 72 Report Heading odio 70 Report Listing ase ctuedal a sbedeeeabenee 109 Report Op Said 69 Reports a itins 6 13 61 71 82 Creatine norane ari aR 65 Reports Section ooooococinccnoococoncconncnnnoos 62 Required Beginning Date 5 82 83 87 93 Rev Rul 2002 62 ed ds 102 Rev Rul 2002 62 FAQ eee 91 Rev Rul 2002 62 2002 42 IRB 1 3 OCC AA A 87 Roth IRA ifin 5 51 81 87 Roth IRA Balance c eee 15 Roth IRA Contributions 066 43 Roth IRA Conversion Optimizer 46 Roth IRA Conversions 41 42 45 46 Roth IRA Distributions 41 Roth IRA Secti0M oooonconincnicnciocccnnnoos 41 Roth IRA Distributions o 42 S Section 691 c Deduction 26 27 Selected Reports monica 71 A sesers seesee 38 Separate Accounts Rule 106 Social Security ooooocononocinanononocnnncinnn incos 6 SpreadshestHleiciiia 12 Starting Date cococccononononnnononocnonannns 37 Substantially Equal Periodic Payments ati pina 37 92 93 T Table Vis eshte nanne 100 TARA MS ias 51 Taxable Annuities ooonnnnnncnnncccnnnnn 22 35 Taxable Estate coca iii 54 Taxes Section ars 21 Pin GS tats cduc dacs unsteady 27 Taxpayer Relief Act of 1997 26 Technical Support ceeeseeeee 133 140 Chapter 27 Useful Resources Term Certain occccccnnnnnininnnaninnnn nnnns 6 93 Text Filed adv
56. ULAR PURPOSE Specifically Brentmark makes no representation or warranty that the software is fit for any particular purpose and any implied warranty of merchantability is limited to the 60 day duration of the Limited Warranty covering the physical diskette s and physical documentation only and not the software and is otherwise expressly and specifically disclaimed The limited warranty gives you specific legal rights you may have others that may vary from state to state Some states do not allow the exclusion of incidental or consequential damages or the limitation on how long an implied warranty lasts so some of the above may not apply to you Governing Law and General Provisions The License Statement and Limited Warranty shall be construed interpreted and governed by the laws of the State of Florida and any action hereunder shall be brought only in Florida If any provision is found void invalid or unenforceable it will not affect the validity of the balance of this License and Limited Warranty that shall remain valid and enforceable according to its terms If any remedy hereunder is determined to have failed of its essential purpose all limitations of liability and exclusion of damages set forth herein shall remain in full force and effect This License and Limited Warranty may only be modified in writing signed by you and a specifically authorized representative of Brentmark All rights not specifically granted in this statement are reserve
57. Window appears For each Alternative enter an amount or percentage depending on your purpose for each year For appropriate sections values under 100 will be entered as percents Clear Button Use the Clear button to delete data from Alternatives While in the Custom Data Entry window click the Clear button or press F7 The Clear Inputs window appears Click the Alternatives from which you want to delete data Click the Clear Inputs button Note Clicking the Clear button in the Custom Data Entry Window does not have the same effect as clicking the Clear Inputs command on the Edit menu Clicking the Clear button in the Custom Data Entry window only affects data in the Custom Data Entry window Copy Col Button Use the Copy Col button to transfer data from one Alternative to another within the Custom Data Entry window Click the Copy Col button or press F4 The Copy Inputs window appears In the Copy From box click the Alternative you want to copy In the Copy To box click the Alternative s you want to copy data to Click the Copy Inputs button 59 Chapter 11 Quick Conversion amp the Roth IRA Conversion Optimizer Fill Button You can use the Fill button to Replace Add or Subtract data from one Alternative or all of the Alternatives within the Custom Data Entry window Click the Fill button In the Annual Amount box enter the amount that you want to enter into the entire column In the Annual Increase in
58. ably makes the Roth IRA more 131 Chapter 26 Articles valuable than the ordinary IRA even the day after you convert For example let s assume a death at age 50 with a child as the beneficiary who is 25 years younger That 25 year old would have a life expectancy of 57 0 years If he were not to withdraw the Roth IRA any faster than required he would withdraw 1 56 of the balance when 26 years old 1 55 of the balance when 27 years old etc During all that time the IRA balance would grow tax free and distributions would be tax free to the child If the funds had been left in an ordinary IRA the same deferral period would still apply However all the growth would be taxable as distributions are made from an ordinary IRA If both IRAs have the same starting balances the value of the after death growth in the Roth IRA will be much higher than in an ordinary IRA How can the ordinary IRA and Roth IRA have the same starting balance if conversion taxes must be paid Clearly if the conversion taxes reduce the value of the Roth IRA either if paid directly from the Roth IRA or if some amounts are left in the ordinary IRA to pay the taxes and income tax rates stay the same there would be little difference due to the effect of the tax free growth Either way the taxes would be equivalent However if the conversion taxes are paid from other assets there can be a substantial difference By paying the Roth conversion taxes from other assets a
59. ady died If distributions are being taken under this scenario the length of the term has to be recalculated using the 2002 single life expectancy table For example if a plan owner died in 1995 the 2003 distribution would be based on the owner s life expectancy using the new table in 1995 reduced by 8 Under the 2001 proposed regulations the beneficiary had to be alive as of 12 31 of the year following the owner s death to be considered valid Under the 2002 regulations the beneficiary only has to be alive when the owner dies to be considered Situation 3 Owner dies with nonspousal beneficiary In the year of death the minimum distribution is still calculated according to Situation 1 above It s only in the years after the owner s death that this situation applies When the owner dies with a nonspousal beneficiary a term certain distribution period is established based on the designated beneficiary s single life expectancy in the year after the owner s death Unlike Situation 2 in this case the term is based on a life expectancy calculated in the year after the owner s death rather than the year of death For example if the owner died in 2003 the life expectancy used as the divisor in 2004 would be the beneficiary s single life expectancy in 2004 In 2005 the divisor used would be 2004 s number minus 1 The life expectancy in the year after death is of course calculated using the new single life expectancy table and
60. aking distributions before age 59 2 The program can automatically calculate all possible life expectancies of the plan owner the spouse and the beneficiary including the hybrid method and term certain method Also you can enter insurance premiums and proceeds and you can select the fund from which they are paid Contributions You can enter contributions to the Pension Fund traditional IRA Roth IRA and the Other Assets fund Contributing to a pension fund may cause tax savings and you can add this savings to the Other Assets fund Also you can add defined benefit annuities to an analysis such as social security benefit Taxes You can calculate estate tax using taxable estate values and the program can calculate this taxable estate automatically You can calculate income tax on a yearly basis using separate rates for lifetime distributions distributions after death and growth on the Other Assets 1 e after tax distributions that are invested Or you can calculate income taxes using adjusted gross income values Other Assets growth may even be modeled as realized or unrealized capital gains Roth IRA Conversions The program handles 100 conversions and multiple partial conversions for each of the four alternatives For partial conversions you can use the Roth IRA Conversion Optimizer to find the best percentage of an ordinary IRA to convert To quickly generate three conversion scenarios you can use Quick Roth IRA Conversion Y
61. al Long Term Rate which is slightly different However the difference may be seen as de minimus If you judge this rate to be appropriate it may be used in the Pension Distributions Calculator Note Letter Rulings cannot be used as binding authority for IRS positions Since the IRS has not issued any rulings other than Letter Rulings on the topic of reasonable interest rates for pre 597 distributions there is no binding authority on this topic The IRS has accepted use of the Annual Long Term 120 Applicable Federal Rate These rates are posted on Brentmark s web site http www brentmark com 102 Distributions Breakdown Report Chapter 22 Report Listing The Distributions Breakdown report helps you see how much of each distribution is going to income taxes insurance premiums gift fund contributions income and finally how much is left for the Other Assets Report Values Donee Exclusion Gifting Analysis Report Year Annual Distributions Distribution From Other Assets Income Tax on Pension Distributions Income Tax on Other Assets Distributions Income Tax on Roth IRA Distribution Penalty on Pension Distributions Penalty on Roth IRA Distribution FET Deduction Used by Distributions Total Conversion Tax Paid Distributions to Gift Fund Distributions to Insurance Distributions to Income Distributions to Other Assets The Donee Exclusion Gifting Analysis report shows how much money each fund pays
62. are be used by two different people in two different places at the same time unless of course Brentmark s copyright is being violated Limited Warranty Brentmark Software Inc warrants the physical diskette s and physical documentation enclosed herein to be free of defects in materials and workmanship for a period of 60 days from the purchase date If Brentmark receives notification within the warranty period of defects in materials or workmanship and such notification is determined by Brentmark to be correct Brentmark will replace the defective diskette s or documentation The entire and exclusive liability and remedy for breach of this Limited Warranty shall be limited to replacement of defective diskette s or documentation and shall not include or extend to any claim for or right to recover any other damages including but not limited to loss of profit data or use of the software or special incidental or consequential damages or other similar claims even if Brentmark has been specifically advised of the possibility of such damages In no event will Brentmark s liability for any damages to you or any other person ever exceed the lower of suggested list price or actual price paid for the license to use the software regardless of any form of the claim BRENTMARK SOFTWARE INC SPECIFICALLY DISCLAIMS ALL OTHER WARRANTIES EXPRESS OR IMPLIED INCLUDING BUT NOT LIMITED TO ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTIC
63. as with Situation 2 an existing term certain would have to be recalculated using the new table The 2002 final regulations add another wrinkle to those situations when the owner died on or after the required beginning date In these situations the life expectancy used is the 76 Chapter 20 Frequently Asked Questions greater of the one calculated using the no beneficiary case situation 2 and the one resulting from the calculation described in the previous paragraph This can get a little confusing because the no beneficiary case starts with a term calculated in the year of death while the nonspousal beneficiary s term certain starts the year after the owner s death Situation 4 Owner dies with spousal beneficiary In the year of death the minimum distribution is still calculated according to Situation 1 above It s only in the years after the owner s death that this situation applies When the owner dies with a spousal beneficiary the spouse gets special treatment In this case the distributions are based on the spouse s single life expectancy recalculated each year after the owner s death If the owner dies prior to the calendar year in which he would have reached age 70 the spouse does not have to start taking distributions until that year Upon the spouse s death the distributions become term certain with the term set to the spouse s life expectancy in the year of death This works the same as
64. at is otherwise excepted from the 10 percent tax is subsequently modified other than by reason of death or disability within a 5 year period beginning on the date of the first payment or if later age 59 the exception to the 10 percent tax does not apply and the taxpayer s tax for the year of modification shall be increased by an amount which but for the exception would have been imposed plus interest for the deferral period d Q amp A 12 of Notice 89 25 sets forth three methods for determining whether payments to individuals from their IRAs or if they have separated from service from their qualified retirement plans constitute a series of substantially equal periodic payments for purposes of 72 t 2 A iv e Final Income Tax Regulations that were published in the April 17 2002 issue of the Federal Register under 401 a 9 provide new life expectancy tables for determining required minimum distributions SECTION 2 METHODS 01 General rule Payments are considered to be substantially equal periodic payments within the meaning of 72 t 2 A iv if they are made in accordance with one of the three calculations described in paragraphs a c of this subsection which is comprised of the three methods described in Q amp A 12 of Notice 89 25 88 Chapter 21 Reference Material a The required minimum distribution method The annual payment for each year is determined by dividing the account balance for that
65. bias J2 Title Bat a a n 3 Toolbar iii ds a 3 Traditional IRA ooooonncccccccccccccnnncnonon 5 U Unpaid Roth IRA Taxes eee 81 Unrealized Growth 50 UP 1984 Table eee 100 101 Use Maximum Interest Rate 38 Use Uniform Life Table 39 W Windows 3 1 oococcncnonononononononononininnnnns 2 Windows 95 ocococononononononononononinnnnnnonnnos 2 Y Years to Print o oo 11 70 141
66. bute the total Pension Fund balance to the Other Assets fund The 10 Year Averaging option is available for plan owners who were at least age 50 on January 1 1986 The program calculates income tax using 1986 tax rates see IRS Announcement 87 105 1987 48 I R B 32 36 Chapter 8 Modeling Pre 591 2 Distributions Chapter 8 Modeling Pre 59 Distributions The Pre 59 Distributions Calculator Use the Pre 59 Distributions Calculator to calculate the substantially equal periodic payments that plan owners need to make in order to avoid the 10 penalty for early distributions We ve divided this process into three steps To access the Pre 59 4 Distributions Calculator click Pre 59 on the toolbar The Pre 59 distributions screen shows only those inputs that are relevant to the current case If the input is irrelevant to the case the input field will disappear Enter information in order from top to bottom Input Starting Date Distribution Year Distribution Method Calculation Method Description Enter the first year that the plan owner needs the Pre 591 2 Distribution When the Distribution Frequency is Semiannual Quarterly or Monthly the Starting Date determines the date of the pre 50 distribution For most cases this input should be the same as the year of the Starting Date However if your client started taking Pre 59 Distributions in a previous year you can use this input to calculate the dist
67. butions 2 0 0 0 eeeeeeseeseeereeeeeeeeeeeeeneeeeees 84 Chapter 2 iii a 87 Reference Material ocooonooononnnconoconncnnncnoncnoncnoncoon coca conaconn nono nconaconnccnncconccon ccoo ncon crono coc conc conc ronn conos 87 Benicio a had 87 Rev Rul 2002 62 2002 42 IRB 1 3 Oct 2001 sede chtesteelaapecd teamecs 87 REV OR UE 200262 AD A O rta 91 IRS Notice 89 25 Pre 591 Distributions ooooooccooonccononoconanoconnnonononononononnonononcnnnnss 92 Minimum Distributions Incidental Benefit o ooonoccnnccionccooccconoconononnnconncnono conc cono cconncns 93 Minimum Distributions Options oooooocnnoccnoccconncconocona nono nonnnononoconncnnnnron nc cono cnnn cnn ccanncinss 94 Calculating Required Minimum Distributions using the 2001 Proposed Regulations 96 1987 Proposed Regulations Pre 2001 Rules oooonoccinccniococonononcconancnnnoconocnnc conc ccnnncnos 98 Mortality Table siii cn ns 100 Net Aer ASSets AAA 101 Table of Contents Present Value of Future After Tax Distributions cococonononononononononononononononononononoss 101 Reasonable Interest Rate ciccccccccictetecscsdescesccccheadesdaccacscasseddecevecdencacseccecsvecdecdaseestaccveaces 102 Chapter 22 oracion aorta oc elos 103 NAAA Sosvesseensacevess svessesnsecseasedetssoossescaceseeass 103 Distributions Breakdown Reports 25 3305 teas ath ia iaa 103 Donee Exclusion Gifting Analysis Report cccecccecsceesseceseceeeceeeeeeseeceseceeeeeeeeeaeees
68. calculated They eliminated a lot of complexity reduced the number of decisions made by a plan owner These regulations eliminated the old recalculation options There is no hybrid method or joint term certain method However the new methodology does still have some similarities to the old For example the distribution is still calculated by dividing the previous year s balance by a life expectancy number Here s how it works Situation 1 Owner still alive If the owner is still alive the distributions are based on the divisor found in the MDIB table for owner s age The MDIB table is a published table of joint life expectancies for an owner and a beneficiary who is ten years younger than the owner It simplifies the 96 Chapter 21 Reference Material calculation to only using the owner s age No beneficiary information is needed and no recalculation options are available There is only one exception to this rule for cases involving spousal beneficiaries that are more than ten years younger than the owner Situation 2 Owner dies with nonspousal beneficiary When the owner dies with a nonspousal beneficiary a term certain distribution period is established based on the designated beneficiary s single life expectancy in the year after the owner s death As with the old term certain method this life expectancy is simply reduced by one for each year after it is calculated Situation 3 Owner dies with no beneficiary
69. ccesssccesscccescccssscesssseessesssccssesceesssserssesseses 75 How do the New Rules for Minimum Distributions Work ssssessessesessssseesesseseseese 75 Required Minimum Distributions Calculations under the Final Regulations 75 Calculating Required Minimum Distributions using the 2001 Proposed Regulations 77 1987 Proposed Regulations Pre 2001 Rules ooooooocinocnnococonoconccononcnnncconocancconncconccinos 79 If the plan owner has not named a beneficiary ee eeseeseeseeeteeeeeeeecesecneeeeeeeeeenees 79 How Dol Create am Analysis ninrin naaa in 80 Can I Choose any Method of Calculating Life Expectancies oooooccnoncniccncncnconncconacnnos 80 Why is the Net After Tax Assets Larger than the Total Funds Ending Value 80 Why are the Unpaid Roth IRA Taxes so High ee eeeesceseeseeeneeeeeeeeceaecnaecaeeeneeeees 81 Why did the Other Assets Balance Appear Change ccccccceesseesteceeeeeeeeeeeeenseens 81 What are the Best Reports to Show My Clients cccceccceseeeseeeneeeeteceeeeeeeeeeeeenaeenes 82 How Do I Include Additional Streams of Income eee ceeeeseeseeeeeeeeeeeeceeeeeeeneeenees 82 What are the Lifetime Required Minimum Distributions Rules 0 0 0 0 ce eeeeeseereeeeees 82 What is the Significance of the Age 70 Year ninia lsiisr riscos 82 What is the Significance of the Required Beginning Date oooconnccnnccioccconoconnnonnnc nnc ns 83 How Do I Convert Existing Pre 59 Y Distri
70. ch further ahead What a Roth IRA offers is additional decades of possible tax deferral beyond that offered by an ordinary IRA Paying the conversion taxes from other assets also offers the ability to effectively convert taxable assets to nontaxable assets as well Those benefits are what make the Roth IRA so powerful The Roth IRA with its potential long period of tax free growth and tax free distributions may be thought of as the ultimate wealth accumulation device It should be the last place from which you take distributions Live on your taxable income and other assets The 132 Chapter 26 Articles Roth IRA offers extra decades of tax free growth followed by tax free distributions There is no better tax shelter than the Roth IRA 133 Chapter 27 Useful Resources Often we are asked about books and publications that might be useful in the areas of pension and Roth IRA planning We find the following sources particularly helpful Life and Death Planning for Retirement Benefits 4 edition 2002 By Natalie Choate 89 95 plus 7 shipping add SC sales tax if applicable Pensworth 415 Gallatin Circle Irmo SC 29229 1 800 694 7624 FAX 803 781 7868 Sy Goldberg s Planning Analysis Working with the 2002 IRS Final Distribution Rules 49 PDF file or 59 printed copy Available at www brentmark com sy htm The Pension Answer Book 2003 edition By Stephan J Krass 199 plus tax and shipping Stock 14739
71. ch you select Estate Analysis Max Deferral and one in which you don t Then compare the Estate Analysis Reports for both Alternatives Multiple Alternatives Click Copy Alternative to copy data from one Alternative to other Alternatives This is a good way to create Alternatives with nearly the same data For instance after you copy an Alternative you can then change only the specific items that make the Alternatives different such as Year Owner Dies or Growth Rates On the Edit menu click Copy Alternative The Copy Inputs window appears In Copy From box click the Alternative from which you want to copy data In the Copy To box click the Alternative s that will receive the copied data Click the Copy Inputs button Note You do not have to be working in the Main Inputs section to perform this procedure However to avoid confusion you may want to use Copy Alternative to set up the basis for your Alternatives before you enter data in the rest of the program 19 Chapter 5 Entering Tax Information Taxes Section Use the Taxes section to enter income taxes and estate tax information to an analysis The program calculates income taxes using one of the following methods e Income Tax Rates method If you use entered rates the program provides a calculator to help you pick the proper rates e AGI method By default the program uses the AGI method Income Tax Rates Method When calculating income tax using ente
72. client started taking distributions as the Starting Date and the year of the switch as the Distribution Year Select Minimum Distributions as the Distribution Method The illustration will start in Distribution Year illustrating the Minimum Distributions method from that year through the end of the calculations 84 Chapter 20 Frequently Asked Questions 85 Chapter 21 Reference Material To keep procedures short and free of lengthy discussions this manual refers to the following material The material is listed alphabetically Beneficiary If you have entered names in the Client Info section click the name of the beneficiary If not click Spouse Child or None If plan owners designate a beneficiary the minimum distribution rules allow plan owners to withdraw retirement plan funds over the joint life expectancies of the plan owner and the beneficiary When you include a beneficiary in your analyses the program uses joint life expectancy factors based on the ages of the plan owner and beneficiary Generally the term beneficiary refers to an individual If the beneficiary is the spouse of a Roth IRA owner the annual election to recalculate the beneficiary s single life expectancy after the required beginning date is available For non spousal beneficiaries the life expectancy is calculated once and it is reduced by one for each year after the required beginning date Non spousal beneficiaries have additional limitati
73. count Rate to calculate the present value of future after tax distributions Then the program uses the present value of future after tax distributions to calculate the Net After Tax Assets In most cases the surviving heir does not have to withdraw the entire balance from the Pension Fund or Roth IRA after the death of the plan owner or the second to die Instead he or she can let the money grow tax deferred or tax free and withdraw the money according to minimum distribution rules Often this growth is over a long period of time because it is based on the heir s term certain life expectancy When you click Estate Analysis Max Deferral in the Main Inputs section the program assumes that the heir takes advantage of the deferral 101 Chapter 21 Reference Material To see how the program uses the Present Value of Future After Tax Distributions to calculate the Net After Tax Assets view the Estate Analysis Report Reasonable Interest Rate A so called reasonable interest rate is required when using the Amortization or Annuitization methods to compute a pre 59 pension plan distribution that avoids the 10 penalty for early distributions see IRS Notice 89 25 1989 1 C B 662 Q amp A 11 and 12 In various letter rulings the IRS has accepted use of the 120 Annual Long Term Applicable Federal Rate for the month in which distributions start Some commentators read some of the rulings as saying that you should use 120 of the Annu
74. d by Brentmark 137 Chapter 27 Useful Resources of Growth to Realize 50 Reasonable Interest Rate 39 1 10 Penalty 6 14 21 27 37 92 131 AA htetneiss 14 10 Year AveragiOB ocoocnnnccconcnionnc nnonns 36 16 Color Display isos 7 1987 Proposed Regulations Pre 2001 A AA es aac eases eee 79 98 1998 Conversion sur cos 41 2 2001 Proposed Regulations 77 96 5 50 Penalty da 5 6 60 Day Rollover Rules 41 7 A OR Oy Per E AEST 92 8 SOCNSMT secisciass seistazsthectausttascene 100 9 OCI e eile soictenes 100 A A B VAIS terete tite ess eaea 26 Actual Dollars 2d 11 After Death Discount Rate 15 19 AGP rrene aseiduats 5 21 22 45 46 AlternatiyeS said 19 Copying ae 19 E A O O 17 Index A A ioe 14 Annual Long Term 120 Applicable Federal Rates aioiitic 102 O O a a 38 ADMU TIOS ccccccccnnononnnononccinnnanananoness 22 35 Annuity Method ooonooonnccninccinnciconcconnos 26 PTOI OS oalah decaiuets dae raai 135 ASSUMPTIONS ci oece eas siaeaen 5 13 14 Available ReportS oooonoconncnnnnnnicccnnnos 71 Available Values 65 66 121 Average Tax Rae is 22 B A ssa eeica tics ieii 87 Birth Dates ii 38 Brentmark Software InC 134 PSY PASS US n 5 26 C Calculations O aaa 26 27 MDIB adios 93 Net After Tax Assets cceee 101 Present Value of Fut
75. d would be 2004 s number minus 1 The life expectancy in the year after death is of course calculated using the new single life expectancy table and as with Situation 2 an existing term certain would have to be recalculated using the new table The 2002 final regulations add another wrinkle to those situations when the owner died on or after the required beginning date In these situations the life expectancy used is the greater of the one calculated using the no beneficiary case situation 2 and the one resulting from the calculation described in the previous paragraph This can get a little confusing because the no beneficiary case starts with a term calculated in the year of 95 Chapter 21 Reference Material death while the nonspousal beneficiary s term certain starts the year after the owner s death Situation 4 Owner dies with spousal beneficiary In the year of death the minimum distribution is still calculated according to Situation 1 above It s only in the years after the owner s death that this situation applies When the owner dies with a spousal beneficiary the spouse gets special treatment In this case the distributions are based on the spouse s single life expectancy recalculated each year after the owner s death If the owner dies prior to the calendar year in which he would have reached age 70 the spouse does not have to start taking distributions until that year Upon the spouse
76. da 112 Pension Fund Ending Value Reporta A dieticians 113 Roth IRA Ending Value Reports cissetccuserc cl op evenlecesseddbasionsodatediieaeah es eatecataestemeeeentays 113 Yearly After Fax Distributions Report tl cdta 113 Chapter Zarra 115 Descriptions of the Available Values ccscccssssssccecsssecssccesccssssccecssseesscssescessscessssssessesees 115 Chapter ZA vato iio alcoi 125 AAA ETET A EE AE AEE 125 Minimum Distributions dal SIS id 125 Pre 397 Distributions Ad dad 125 Roth IRA Conversions in the Current Year ooooocccnnonoccconononcnononanonccnonnnnoconanancnonnnanonoos 125 Partial Conversions or Roth IRA Conversions in Different Years ccceeseeeee 126 vi Table of Contents GMAT A sess Saxaccadito eves sen cuens seesc een ieneuas eeeses encuenimonas 127 Getting A sov isst atos vess tbv so toive sitoo v tist soou vesia Sov Vosne povest spv oo stovo bES 127 HEM A a e a Ria 127 Hd O 127 in 127 Chapter Zine da 129 ATUClOS vives scasiccasentdeciocccsccsncenthecsdeniesteeccecctecosucsuanecedeotsedeceseneteseseuadsacsenossdeseuessonasetuisesssedecesssesseeess 129 Five Financial Features that make Conversion to a Roth IRA So Desirable 129 Post 0 Di o o e ool sce 129 2 After Death Tax Free O ie 129 3 Gross up of IRA Value by Paying Conversion Taxes from Other Assets 129 4 Four Year Spreadout of Conversion Taxes for 1998 Conversions 00e0 130 5 Prepa
77. dds these distributions to any distributions that you enter on the Distributions tab 43 Chapter 9 Modeling Roth IRA Conversions 44 Chapter 10 Quick Conversion amp the Roth IRA Conversion Optimizer Quick Roth IRA Conversion Use Quick Conversion to determine if the plan owner should make a 100 conversion to a Roth IRA in the current year The program creates three conversion scenarios allowing you to analyze and compare the effect of each scenario on the Net After Tax Assets To access Quick Conversion click Quick Conversion on the toolbar Note One of the scenarios that Quick Conversion creates pays conversion taxes from the Other Assets To create an accurate analysis your client should have enough money in the Other Assets to pay the conversion taxes If not the program will create an Other Assets balance large enough to pay the taxes Also you do not need to use Quick Conversion for Roth IRA scenarios You can use the Roth IRA section if you d like See Chapter 9 Modeling Roth IRAs Step 1 Get Ready Quick Conversion creates three conversion scenarios allowing you to analyze and compare the effect of each scenario on the Net After Tax Assets If you want the program to create these scenarios before you begin using Quick Conversion enter all Main Inputs section data including data for Alternative 1 Any data in Alternatives 2 and 3 will be replaced with new data Step 2 Entering Tax Information You can ca
78. decedent Funds left to charity however may be free of 21 Chapter 5 Entering Tax Information income tax Also funds left to a spouse may be rolled over on a tax deferred basis to an IRA Custom button To enter different tax rates for each year click the Custom button For more information on Custom Data Entry see Chapter 15 Custom Data Entry Income Tax Rate Calculator If you re calculating income tax using entered rates the Income Tax Rate Calculator can calculate the rates for you If you need help figuring tax rates click the computer graphic that s next to each field The Income Tax Rate Calculator will help you find the appropriate rate Using the Income Tax Rate Calculator Click appears next to the tax rate you want to calculate The Income Tax Rate Calculator In the Filing Status group box click Single Married Filing Jointly or Head of Household Enter the plan owner s Adjusted Gross Income Enter the Number of Exemptions that the plan owner claims Take note of the Income Tax Click Average Tax Rate or Marginal Tax Rate for calculating income tax AGI Method By default the program uses the AGI method The program only uses the income that you enter in the AGI section to calculate income taxes Other parts of the program cannot see or use the income that you enter here For example let s say you enter an AGI of 60 000 and you also enter a 20 000 living expense paid
79. distributing 8 679 annually derived by amortizing 100 000 over 33 1 years at 8 percent interest Finally payments will be treated as substantially equal periodic payments if the amount to be distributed annually is determined by dividing the taxpayer s account balance by an annuity factor the present value of an annuity of 1 per year beginning at the taxpayer s age attained in the first distribution year and continuing for the life of the taxpayer with such annuity factor derived using a reasonable mortality table and using a interest rate that does not exceed a reasonable interest rate on the date payments commence If substantially equal monthly payments are being determined the taxpayer s account balance would be divided by an annuity factor equal to the present value of an annuity of 1 per month beginning at the taxpayer s age attained in the first distribution year and continuing for the life of the taxpayer For example if the annuity factor for a 1 per year annuity for an individual who is 50 years old is 11 109 assuming an interest rate of 8 percent and using the UP 1984 Mortality Table an individual with a 100 000 account balance would receive an annual distribution of 9 002 100 000 11 109 9 002 Minimum Distributions Incidental Benefit Non spousal distributions will be subjected to the Minimum Distribution Incidental Benefit MDIB requirement see IRC Proposed Treas Reg 1 401 A 9 2 The MDIB requirement stat
80. dividual s assets in an individual account plan or an IRA are exhausted the individual will not be subject to additional income tax under 72 t 1 as a result of not receiving substantially equal periodic payments and the resulting cessation of payments will not be treated as a modification of the series of payments b One time change to required minimum distribution method An individual who begins distributions in a year using either the fixed amortization method or the fixed annuitization method may in any subsequent year switch to the required minimum distribution method to determine the payment for the year of the switch and all subsequent years and the change in method will not be treated as a modification within the meaning of 72 t 4 Once a change is made under this paragraph the required 90 Chapter 21 Reference Material minimum distribution method must be followed in all subsequent years Any subsequent change will be a modification for purposes of 72 t 4 SECTION 3 EFFECTIVE DATE AND TRANSITIONAL RULES The guidance in this revenue ruling replaces the guidance in Q amp A 12 of Notice 89 25 for any series of payments commencing on or after January 1 2003 and may be used for distributions commencing in 2002 Ifa series of payments commenced in a year prior to 2003 that satisfied 72 t 2 A iv the method of calculating the payments in the series is permitted to be changed at any time to the required minimu
81. e Constructed Report box Clicking Clear does not delete the report To delete a report click Erase Report Click this button to save the Constructed Report as a graph Click this button to save the Constructed Report 65 Chapter 17 Designing a Report Create Comparison Click this button to create a Comparison Report You can only Button create a comparison of one Available Value If you have multiple values in the Constructed Report box you cannot create a comparison Erase Report Button Click this button to erase the selected report Construct a Report l On the Reports menu click Report Designer The Report Designer window opens In the Analysis Report Title box type a name for the new report or graph 3 Inthe Available Values list box click the results to include in the report or graph You can only click one result at a time A description of each value appears at the bottom of the window Click the arrow pointing right The values you clicked appear in the Constructed Report list box Click the Save Report Save Graph or Create Comparison Report button A prompt appears Modify an Existing Report 1 T oF NN In the Report section click the Customize button Or on the Reports menu click Report Designer In the Report Designer window click the Select Report button The Analysis Report Selection window appears Click the report or graph to modify Click the Select Report button
82. e program uses the following formula Current Plan Balance 1 Expected Plan Growth Calculated Distribution Contributions 105 Chapter 22 Report Listing Life Expectancy Factor This column lists the life expectancy factors that are used to calculate the minimum distribution To calculate the life expectancy factors the program uses the ages of the Owner and or the Beneficiary and applies them to the minimum distribution rules Minimum Distribution Amount This column lists the minimum distribution in each year To calculate the minimum distribution amount the program amortizes the Plan Balance over the Life Expectancy factor Other Assets Analysis Report This report shows all the activity contributions distributions growth etc that affects the Other Assets each year Report Values e Year e Adjustment to Other Assets e Other Assets Begin Value e Distribution From Other Assets e Distributions to Other Assets e Income Tax on Other Assets e Net Amount From Taxable istb Annuity e Tax Saved by Pension Contribution e Other Assets Contribution e Other Assets Ending Value gt SS eee Other Assets Growth Analysis Report The Other Assets Growth Analysis report illustrates how the Other Assets growth is taxed in each year When you enter a Percent of Growth Realized that is less than 100 the calculation of the tax on that growth depends on how much is realized in each year This report shows you how that
83. e tax The program includes this income tax in the Unpaid Roth IRA Taxes column Why did the Other Assets Balance Appear Change By default the program reinvests minimum distributions in the Other Assets fund If you want to model a case in which minimum distributions are spent see Input Assumptions Also you may have instructed the program to pay Roth IRA conversion taxes from the Other Assets If the Other Assets fund did not have enough money to pay the taxes the program created a balance large enough to do so 81 Chapter 20 Frequently Asked Questions What are the Best Reports to Show My Clients We ve been asked this question so many times that we ve included what we call our Recommended Reports e Summary Report e Minimum Distributions Report e Estate Analysis Report e Comparison of Cumulative Net Proceeds Report e Comparison of Net After Tax Assets Report How Do Include Additional Streams of Income The Pension amp Roth IRA Analyzer allows you to include taxable income such as an AGI or social security benefits to an analysis If you want to include an AGI as income you need to enter the AGI as a Taxable Annuity However if you re using an AGI method for calculating income taxes you do not want to enter the AGI in two places What are the Lifetime Required Minimum Distributions Rules The Required minimum distributions rules generally apply when the owner of the plan reaches what is known as t
84. e these values and save them as your own default case In other words if you find a set of values works well for many of your clients you can have the program load the values whenever you open the program or create a new file e Open an existing file or create a new file e On the File menu click Save Defaults The Save File of Default Inputs dialog box appears e In the File name box enter a name for the file The program automatically adds a pen extension to the file name e Select the drive and folder in which to save the file When you run the program this file will open Load the Default File e On the File menu click Load Defaults The Default file is loaded Note Be sure to save the open file before loading the Default file Also first you must save a file as the Default file Delete a File On the File menu click Erase File The Erase Inputs File dialog box appears In the File name box enter the name of the file you want to delete erase Clear Inputs Click the Clear Inputs command to delete data from one Alternative or all Alternatives Using the Clear Inputs command is different from excluding an Alternative from an analysis When you exclude an Alternative the program does not delete the data from the file When you use the Clear Inputs command the program does delete the data On the Edit menu click Clear Inputs In the Clear Inputs window click the Alternatives from which you want to delete data To del
85. e to be made in 2010 assuming that five years worth of distributions have already been taken Report Values e Year e Life Exp e Pension Fund e Distributions e Owner s Age Roth IRA Analysis Report This report shows all the activity contributions distributions growth etc that affects the Roth IRA in each year Report Values e Year e Conversion Tax Paid From Roth IRA e Roth IRA Begin Value e Roth IRA Growth e Roth IRA Conversion e Roth IRA Ending Value e Roth IRA Contribution e Taxes at Death Paid from Roth IRA e Roth IRA Distributions Roth IRA Distributions Report Once the owner of a Roth IRA dies there is a minimum distribution to the surviving beneficiary The Roth IRA Distributions report shows you the distribution and the life expectancy that the program uses to calculate the distribution 108 Chapter 22 Report Listing Report Values Year Benef Age Roth IRA Begin Value Roth IRA Taxes amp Penalties Report The Roth IRA Taxes and Penalties report shows the taxes generated both by the Roth IRA conversion and by any distributions taken from the Roth IRA within five years of that conversion Report Values Year Roth IRA Distributions Roth IRA Conversion Conversion Tax Paid From Other Assets Roth IRA Benef Life Exp Roth IRA Distributions Cumulative Roth IRA Distributions Conversion Tax Paid From Roth IRA Conversion Tax Paid From Pension Fund Income Tax on Roth IRA Distribut
86. ed some rather unusual assumptions for doing the calculations For the Amortization method the article illustrates a distribution that is taken at the end of each year This is an easy enough calculation to do except that Rev Rul 2002 62 limits the reasonable interest rate by the mid term rates from the two months prior to the first distribution Based on this discrepancy the IRS must be expecting you to guess at the interest rate or they are allowing an end of period methodology for a distribution that starts immediately 91 Chapter 21 Reference Material For the Annuitization method the article shows an annuity factor that uses the curtate approach to valuing annuities This approach is not frequently seen in IRS calculations In the past the IRS has used the complete method for valuing annuities IRS Publication 1457 for example when using government tables The distribution calculations in the FAQ result in higher distribution amounts The software allows you to use the FAQ s methodology ust select Rev Rul 2002 62 FAQ When you have made this selection the annuitization method will use the curtate method of valuing annuities and the amortization method will use the end of period method even though the distribution is assumed to start immediately IRS Notice 89 25 Pre 59 Distributions Q 11 Does the 10 percent tax under section 72 t apply to amounts that are included in a
87. ely taken out of the analysis Description Enter a short description for each premium The description is optional Premiums Enter the amount of each Premium in this box Growth Rate Enter the annual percent increase of the Premium From To Boxes Use these boxes to enter the span of years for which the Premium is needed Apply to Alternative These numbers represent the Alternatives Selected check boxes indicate which Alternatives will include the Premium 53 Chapter 13 Modeling Insurance Apply Growth from first year of analysis instead of From Year Custom Insurance Premiums Proceeds In general you ll be planning future Premiums so you ll probably want to adjust for inflation By default the program applies the growth rate on the Premium from the first year of analysis instead of from the first year that the plan owner needs the Premium This ensures that when the Premium occurs the program has adjusted it for inflation Click this button to enter Premiums on a year by year basis instead of over a span of years For more information on Custom Data Entry see Chapter 15 Custom Data Entry For each Alternative you can choose to include Insurance Proceeds in the taxable estate or keep them outside of the estate In either case the program adds the Proceeds to the Other Assets using the following model If proceeds are outside of the estate the program adds them to the Other Assets on 12 31 in the
88. ension Fund for the Other Assets in each year The distribution from the Pension Fund in each year 120 Chapter 23 Descriptions of Available Values Pension Fund Ending Value Pension Fund Growth Pension Fund Non Deductible Balance Pension Fund Subject to Income Tax Pension Funds Begin Value Pension Funds Ending Value Pre Insurance Net Assets Pre Tax Fund Growth Realized Growth Roth Deferral Term Roth IRA Begin Value Roth IRA Benef Life Exp The balance of the Pension Fund at the end of each year The amount of Pension Fund growth in each year Non deductible balance at the end of each year The amount of the Pension Fund subject to income tax in each year The total qualified plan balance at the beginning of each year The total qualified plan balance at the end of each year The net value of assets to heirs if there was no life insurance assuming owner is dead at end of each year The pre tax growth of Other Assets in each year The total amount of Other Assets growth realized in each year The deferral period available to survivors for taking money out of Roth IRA in each year The balance of the Roth IRA at the beginning of each year The life expectancy used to calculate Roth IRA minimum distributions in each year 121 Chapter 23 Descriptions of Available Values Roth IRA Contribution Roth IRA Conversion Roth IRA Distribution Tax amp Penalty Roth
89. ent value of the future after tax distributions that the heir can take Other Assets Ending Value Report This report compares the balances of the Other Assets at the end of each year Pension Fund Distributions Report This report compares the distributions from the Pension Fund in each year 112 Chapter 22 Report Listing Pension Fund Ending Value Report This report compares the balances of the Pension Fund at the end of each year Roth IRA Ending Value Report This report compares the balances of the Roth IRA at the end of each year Yearly After Tax Distributions Report This report compares the net distribution from the Pension Fund and Roth IRA in each year 113 Chapter 22 Report Listing 114 Chapter 23 Descriptions of the Available Values Following is a complete list of every value that appears in the program s reports These values appear in the Available Values box in the Report Designer You can use the Report Designer to create custom reports For more information about the Report Designer see Chapter 17 Designing a Report Value Description 2nd Benef L E 2nd Joint L E Adjustment to Other Assets After Tax Pension Fund Distributions AGI Amount Needed For Gift Fund Amount Needed For Income Amount Needed For Ins Premium Annual Distributions Benef Age The spousal beneficiary s life expectancy in each year The joint life expectancy of the secondar
90. eport Options Report Options Window The Report Options window allows you to format your reports for printing You can access the Report Options window via the Reports menu or from within the Print window Print the Date and Time e Under the Printing Options heading in the Report Options window click the Print Date Prepared and the Print Time check boxes To print the date prepared you must enter the date in the Client Info section Print in Black and White e Under the Printing Options heading in the Report Options window click the Print in Black and White check box Print for Windows NT e Under the Printing Options heading in the Report Options window click the Windows NT Printing check box Number Pages e Under the Printing Options heading in the Report Options window click the Number Pages check box Format the Text of a Report Under the Fonts heading in the Report Options window click the text you want to format The Font dialog box appears Click the Font Style Size and Effects to apply to the text and click OK Notice the description of the text in the Report Options window has changed 69 Chapter 17 Designing a Report Format Page Margins e Under the Page Margins heading in the Report Options window enter the Top Left Bottom and Right margin settings in inches Create a Heading for a Report In the Report Options window click the Heading box Type the text that you want to display at
91. eports and Graphs Save a File as a Text or Spreadsheet File l On the File menu click Print Or on the toolbar click the Print graphic The Print Report window opens 2 Click the Print to File button The Print to File window opens 3 Select from one of four file types which you can edit or send as e mail attachments a Text file saves the file with a txt extension which can be opened in any word processor b Spreadsheet file saves the file with a WK1 extension which can be opened in Excel Lotus or Quattro Pro c HTML saves the file with an html extension which is used most commonly on the Internet but can be read by most word processors d DOC if you have Microsoft Word 97 or later saves the file with a doc extension which can be opened in Word 4 Click the Create File button The Save As window opens Enter a file name and specify a directory to which the file should be saved 73 Chapter 19 Printing Reports and Graphs 74 Chapter 20 Frequently Asked Questions We ve been taking notes from our tech support calls and we ve developed a list of frequently asked questions Here they are e How do the New Rules for minimum distributions work e How do I create an analysis e How do I model a spousal rollover e Can I choose any method of calculating life expectancies e How does the program handle the MDIB requirements e Why are the Net After Tax Assets larger than the Total Funds Ending Value
92. er distribution The annual deduction reduces the remainder of the Section 691 c Deduction each year until it is totally consumed Here s another way to look at the Annuity Method Section 691 c Deduction Estate Tax on Pension Fund Deduction Ratio Section 691 c Deduction Pension Fund Ending Value Annual Deduction Annual Distribution Deduction Ratio 26 Chapter 5 Entering Tax Information Taxable Amount of Annual Distribution Annual Distribution Annual Deduction Remainder of Section 691 c Deduction Section 691 c Deduction Annual Deduction Using the Front Loaded Method Using the estate tax that is attributable to the Pension Fund the program first calculates the value of the Section 691 c Deduction By applying the Front Loaded method the program subtracts each distribution that the heir makes from the calculated Section 691 c Deduction until the deduction is entirely consumed These distributions are essentially tax free Once the Section 691 c Deduction is used the distributions start generating income tax Filing Status When calculating income tax from adjusted gross incomes you need to enter the Filing Status of the Owner Spouse and Oldest Child spouse s beneficiary If you ve entered names for the Owner Spouse and Oldest Child in the Client Info section the names appear in the Filing Status section Enter Filing Status Click the Filing Status tab When clicked the tab is highlig
93. ersion you are effectively prepaying the income tax In the short run this has the effect of lowering the federal estate tax This effect ameliorates the hit of the income tax Of course in the long run the federal estate hit will go up since the Roth IRA will usually increase in value so much faster than an ordinary IRA that you will eventually have more assets that are taxable for estate tax purposes But having more assets for you or your beneficiary is the goal here Of course this feature is only important to those who are subject to federal estate tax Evaluating the Roth IRA How much Deferral Can You Handle By Gregory Kolojeski 1997 1998 Gregory Kolojeski The Name of the Game is Deferral For the Roth IRA the name of the game is deferral When all is said and done what makes the Roth IRA such a wonderful wealth accumulation device is not just the tax free nature of distributions The power of this concept is the potential of additional decades of tax deferral beyond what is offered by an ordinary IRA Even with a Roth IRA the tax free growth will eventually end as required distributions convert the IRA assets back to property that generates taxable income An ordinary IRA also offers considerable tax deferral Ordinary IRAs also give you an upfront tax deduction as well The price you pay is taxation at ordinary income rates when you are forced to start taking withdrawals starting in your age 70 year With a Roth IRA you get
94. es that any distribution occurring after the Required Beginning Date must be less than the distribution that was calculated by dividing the balance of the plan by the MDIB Table divisor found in IRC Proposed Treas Reg 1 401 a 9 2 Q 4 Generally when the non spousal beneficiary is more than ten years younger than the plan owner the MDIB is triggered and results in a joint life expectancy factor regardless of the actual age of the non spousal beneficiary Thus during the lifetime of the plan owner but after the plan owner reaches age 70 there is no difference in the minimum distribution payout amount regardless of whether the non spousal beneficiary is 15 or 30 years younger than the plan owner is The program always removes the MDIB limitation after the plan owner s death Authority for Removal of MDIB after the death of the plan owner is found in IRS Publication 590 and IRC Proposed Treas Reg 1 401 a 9 2 Q amp A Q 3 If the owner made an appropriate election before the required beginning date a joint term certain method will be used after the plan owner s death rather than just a single life term certain for the beneficiary in cases where the owner was using a recalculation method 93 Chapter 21 Reference Material MDIB Table for Determining Applicable Divisor Age Divisor Age Divisor 70 26 2 93 8 8 71 253 94 8 3 72 24 4 95 7 8 73 UI 9
95. ete the data from all of the Alternatives click Clear All Alternatives Click the Clear Inputs button Exit the Program e On the File menu click Exit The program closes Note Be sure to save the open file before clicking the Exit command 10 Chapter 2 Working with Files Open a Previously Created File e On the File menu click Reopen Files This allows you to access up to five previously created files Converting Older Version Files The new file format using extension pen uses XML to store information Version 5 files are converted automatically Older files may be converted by using a program called PenConv included with the software PenConv does not overwrite any data files it just creates new ones Use short file names with PenConv It cannot handle long file names correctly Set Up a Printer e On the File menu click Printer Setup Display Results in Actual Dollars e On the Options menu click Actual Dollars The program displays results that have not been adjusted for inflation Note When you click this Actual Dollars a check mark appears beside the option Display Results in Inflation Adjusted Dollars e On the Options menu click Inflation Adjusted Dollars The program displays results that have been adjusted for inflation Note When you click this Inflation Adjusted Dollars a check mark appears beside the option View the Program in 16 Colors e On the Options menu click 16 Color
96. etermined using single life Table V and the owner s actual age the program uses joint life Table VI to determine the minimum distribution Many planners recommend this method when the plan owner is older than the beneficiary e Hybrid method Only click Recalculate Beneficiary s Life Exp The beneficiary s life expectancy is recalculated and the owner uses the term certain method Using the owner s deemed age determined using single life Table V and the beneficiary s actual age the program uses joint life Table VI to determine the minimum distribution Planners recommend this variant when the beneficiary is older than the plan owner How Do Create an Analysis The answer to this question depends on what type of analysis you want to create Generally you want to enter data in the Main Inputs section and create your Alternatives first The program contains a number of other sections that allow you to enter personal names of your clients and titles for each Alternative taxes living expenses pension fund distributions Roth IRA conversions and distributions adjustments to the Other Assets fund contributions insurance premiums and proceeds donee exclusion gifting and more We ve received calls concerning a few common types of analyses We ve listed these in Chapter 24 Sample Cases Can Choose any Method of Calculating Life Expectancies The answer to this question is yes For a description of how the program calculates li
97. f there is more than one beneficiary the identity and age of the beneficiary used for purposes of each of the methods described in section 2 01 are determined under the rules for determining the designated beneficiary for purposes of 401 a 9 The beneficiary is determined for a year as of January 1 of the year without regard to changes in the beneficiary in that year or beneficiary determinations in prior years For example if a taxpayer starts distributions 89 Chapter 21 Reference Material from an IRA in 2003 at age 50 and a 25 year old and 55 year old are beneficiaries on January 1 the 55 year old is the designated beneficiary and the number for the taxpayer from the joint and last survivor tables age 50 and age 55 would be 38 3 even though later in 2003 the 55 year old is eliminated as a beneficiary However if that beneficiary is eliminated or dies in 2003 under the required minimum distribution method that individual would not be taken into account in future years If in any year there is no beneficiary the single life expectancy table is used for that year c Interest rates The interest rate that may be used is any interest rate that is not more than 120 percent of the federal mid term rate determined in accordance with 1274 d for either of the two months immediately preceding the month in which the distribution begins The revenue rulings that contain the 1274 d federal mid term rates may be found at www i
98. f you enter a distribution in dollars and a distribution in percent Custom Data Entry window for the same year the program calculates and applies the dollar amount first Growth Rate Enter the annual percent increase of the distribution From To Boxes Use these boxes to enter the span of years for which the distribution is needed 35 Chapter 8 Modeling Pre 591 2 Distributions Apply to Alternative Apply Growth Rate from current year instead of entered From year Custom Pension Fund Distributions These numbers represent the Alternatives Selected check boxes indicate which Alternatives will include the distribution In general you ll be planning future distributions so you ll probably want to adjust distributions for inflation By default the program applies the growth rate on the distribution from the first year of analysis instead of from the first year that the plan owner needs the distribution This ensures that when the distribution occurs the program has adjusted it for inflation Click this button to enter distributions on a year by year basis instead of over a span of years The program adds these distributions to any distributions you add in the Pension section Pre 59 Distributions Button Click this button to enter Pre 59 Distributions to an analysis Lump Sum Distributions Button Click this button to enter Lump Sum Distributions to an analysis Use the Lump Sum Distribution Window to distri
99. fe expectancies see Minimum Distributions Options Why is the Net After Tax Assets Larger than the Total Funds Ending Value The Net After Tax Assets value is larger than the Total Funds Ending Value only when you have selected Estate Analysis Max Deferral in the Main Inputs section When you select Estate Analysis Max Deferral the program includes the Present Value of Future After Tax Distributions in the Net After Tax Assets When calculating the Net After Tax Assets the program assumes that both the owner and the spousal beneficiary if there is one have died by the end of each year In most cases the surviving heir does not have to withdraw the entire balance from the Pension Fund or Roth IRA at the time of death Instead he or she can let the money grow tax free or tax deferred and withdraw the money according to minimum distribution rules Often this 80 Chapter 20 Frequently Asked Questions growth is over a long period of time because it is based on the heir s term certain life expectancy When you select Estate Analysis Max Deferral in the Main Inputs section the program includes the value of the deferred growth in the Net After Tax Assets value Look at the P V of Future After Tax Distributions column in the Estate Analysis report This column lists the present value of all future distributions that will be withdrawn from the Pension Fund and or the Roth IRA Each of these distributions is net of income tax and
100. formation Estate Tax Tab Table of Inputs Input Description Include Estate Tax Calculations Taxable Estate Other Assets Pension Fund Roth IRA Taxable Estate Growth From To Boxes 1 2 3 4 Grow Estate From year instead of entered From Year Override with Custom Taxable Estate Values By default the program includes estate tax calculations Clear this check box to exclude estate tax calculations Normally the program calculates estate taxes based upon the Pension Fund Other Assets and Roth IRA However you can enter your own taxable estate values if you prefer For example you can enter different amounts for different years with each amount growing at its own rate see Taxable Estate below If you have cleared the check box labeled Taxable Estate Other Assets Pension Fund Roth IRA the Taxable Estate Amount area appears This allows you to enter your own values for the taxable estate Enter the annual percent increase of the Taxable Estate Amount Use these boxes to enter the span of years for which the Taxable Estate Amount applies To enter Taxable Estate Amounts for specific years click Override with Custom Taxable Estate Values For override procedures see Chapter 15 Custom Data Entry These numbers represent the Alternatives Select the Alternatives for which the Taxable Estate Amount applies In general you ll be planning for the future so you ll probably want
101. from Other Assets The program cannot pay the living expense using the 60 000 unless you ve included the 60 000 in the Other Assets To pay the living expense you could enter 40 000 in the AGI section Then you could enter a 20 000 Taxable Annuity using the Pension section The program adds Taxable Annuities to the Other Assets 22 Chapter 5 Entering Tax Information AGI Tab Table of Inputs Input Description Owner s AGI Growth From To Boxes 1 2 3 4 Estate Analysis AGI Tax on Growth of Other Assets Override Custom Buttons Estate Taxes Enter the Owner s AGI This is the total amount of taxable income that you haven t already entered into the program For example if you entered any Taxable Annuities do not include them in the Owner s AGI box Taxable Annuities are considered income so you don t want to enter the same income in different portions of the program or the program taxes the income multiple times Enter the annual percent increase of the Owner s AGI Use these boxes to enter the span of years for which the AGI applies To enter AGIs for specific years click Override with Custom AGI Values For override procedures see Chapter 15 Custom Data Entry The numbers in the Adjusted Goss Income section represent the Alternatives Select the Alternatives for which the AGI applies This is the Heir s AGI By default the program includes the Heir s AGI in all Alternat
102. g income taxes e Inclusion of estate taxes e Adjustment for a Bypass Trust Types of Plans amp Growth Rates You can enter data for a Pension Fund traditional IRA a Roth IRA and an Other Assets fund By default these funds grow at the same rate but you can also enter separate growth rates for each fund You can also enter data for multiple gift funds that grow at different rates When entering data for the Pension Fund the program considers a Pension Fund or traditional IRA as one of the following types of plans e Corporate and self employed pension profit sharing and stock bonus plans qualified under IRC 401 a includes Keogh or H R 10 plans 401 k plans and employee stock ownership plans ESOPs e Individual Retirement Accounts IRAs under IRC 408 a e Simplified Employee Plans SEPs under IRC 408 k e Tax sheltered annuities except for account balances existing on 12 31 86 if kept separate for accounting purposes under IRC 403 B Chapter 1 Introducing the Program Distributions You can enter distributions as living expenses that are consumed or taken out of an analysis From both the ordinary and the Roth IRA you can enter distributions that are transferred to the Other Assets fund including the Lump Sum ten year averaging distribution method The program also contains a Pre 59 Distributions Calculator that will prevent your clients from being subjected to the 10 penalty that results from m
103. growth and compounding that occurs after the point at which required minimum distributions would have been required under an ordinary IRA This feature is tremendously important If either the husband or wife survive past age 70 the additional growth offered by withdrawing little or nothing for as long as possible adds tremendous value 2 After Death Tax Free Growth After the husband and wife die the beneficiary will often be a child or even a grandchild It will not be unusual for such a beneficiary to have a 30 to 60 year life expectancy for required distributions The beneficiary takes such distributions tax free with the balance of the plan growing tax free in the meantime This feature is tremendously valuable if one takes advantage of it 3 Gross up of IRA Value by Paying Conversion Taxes from Other Assets If one has the financial ability to pay the conversion taxes i e the income taxes from other assets rather than from the IRA itself you are effectively grossing up the value of the Roth IRA You are effectively converting taxable assets to tax free assets 129 Chapter 26 Articles 4 Four Year Spreadout of Conversion Taxes for 1998 Conversions The value of this feature is generally overrated Nonetheless it is another piece with significant value even if it much less important than the previous three features 5 Prepayment of Income Tax Temporarily Lowers Federal Estate Tax When you pay the income tax on the conv
104. h IRAs This includes plan owners who ve attained age 70 Contributions to Roth IRAs won t be available to higher income taxpayers however Contributions Section Table of Inputs Input Description Contributions Options Click each Alternative for which tax savings will be added to the Other Assets fund due to Pension Fund contributions Target Fund Click in this box and select the fund that will receive the contribution Annual Contribution Enter the annual amount of each contribution Growth Rate Enter the annual percent increase of the contribution From Year To Year Use these boxes to enter the span of years for which the contribution is needed Apply to Alternative These numbers represent the Alternatives Selected check boxes indicate which Alternatives will include the contribution Apply Growth from first In general you ll be planning future contributions so you ll year of analysis instead probably want to adjust for inflation By default the program P From eai applies the growth rate on the contribution from the first year of analysis instead of from the first year that the plan owner needs the contribution This ensures that when the contribution occurs the program has adjusted it for inflation 51 Chapter 11 Modeling Adjustments to Other Assets Custom Adjustments Click to Other Assets to Roth IRA or to Pension Fund to enter contributions on a year by year basis instead of over a span of years
105. he age 70 year You reach 70 on the date that is six months after your 70 birthday If you reach age 70 in January through June that same calendar year will be your age 70 year If you reach age 70 in July through December your age 70 year will be the year AFTER your 70 birthday Only the IRS could come up with rules like this What is the Significance of the Age 707 Year Generally which means there are some exceptions you must make a Required Minimum Distribution for the year in which you turn age 70 The Required Minimum Distribution is the result of a simple calculation you divide the IRA balance from December 31 of the preceding year by a Life Expectancy This determined life expectancy is what makes the required minimum distributions rules so complex The IRA distribution rules also depend on whether the owner of the traditional IRA has reached what is known as the Required Beginning Date The Required Beginning Date is April 1 of the calendar year following the year in which the owner reaches age 70 If the owner dies before the Required Beginning Date the distribution rules are different than if he or she dies on or after the Required Beginning Date 82 Chapter 20 Frequently Asked Questions What is the Significance of the Required Beginning Date If the IRA owner dies on or after his Required Beginning Date distributions from the traditional IRA will be determined by elections he did or did not make Requi
106. he year in which the original owner would have turned 70 the distributions become term certain with the term set to the spouse s life expectancy in the year of death Again this works the same as the old term certain method with the life expectancy being reduced by one for each year that passes after the spouse s death 78 Chapter 20 Frequently Asked Questions Situation 5 Owner dies and a spousal rollover When the owner dies with a spousal beneficiary the spouse has the option of doing a spousal rollover with the spouse becoming the new owner In such a case the rules of Situation apply after the spouse becomes the new owner Situation 6 The Exception to Situation 1 The exception to situation 1 is when there is a spousal beneficiary who is more than 10 years younger than the owner In this case the life expectancy used while the owner is alive is the joint life expectancy of the owner and spouse recalculated in each year Once the owner dies the exception no longer applies and the distribution is handled according to the situations described above 1987 Proposed Regulations Pre 2001 Rules If the plan owner has not named a beneficiary If the plan owner has not named a beneficiary then there are two methods for determining the plan owner s life expectancy each year Term Certain method or Recalculation method Use the Recalculate Owner s Life Exp check box to determine the method Term Certain method
107. hod or Recalculation method Use the Recalculate Owner s Life Exp check box to determine the method Term Certain method Clear the Recalculate Owner s Life Exp check box The program uses Table V to determine the owner s life expectancy in for the Required Beginning Date first year that distributions are required Thereafter the program subtracts one from the life expectancy each year Recalculation method Click the Recalculate Owner s Life Exp check box The program uses Table V to determine the life expectancy each year If the plan owner has named a beneficiary Plan owners and beneficiaries have the ability to recalculate their life expectancies annually see Note If the plan owner has named a beneficiary then there are actually four methods of recalculating life expectancies each year Use the Recalculate Owner s Life Exp and the Recalculate Beneficiary s Life Exp check boxes to determine the method Joint Recalculation method Click both check boxes Both life expectancies are recalculated The program uses Table VI to determine the minimum distribution from the life expectancies Joint Term Certain method Clear both check boxes Neither life expectancy is recalculated Both the owner and the beneficiary use the term certain method Both life expectancies decrease by 1 annually Hybrid method Only click Recalculate Owner s Life Exp The owner s life expectancy is recalculated and the beneficiary u
108. hted in yellow In the Number of Exemptions column enter the number of exemptions for each Taxpayer In the Itemized Deductions column enter the dollar amount of itemized deductions for each Taxpayer In the Filing Status column click each box In the list that appears click the filing status for each Taxpayer Conversion Taxes Conversions to a Roth IRA from either an Ordinary IRA or another Roth IRA are allowed only if they are qualified according to Code Sec 408 d 3 requirements 60 day rollover rules A qualified conversion from one Roth IRA to another Roth IRA is tax free regardless of the taxpayer s AGI However qualified conversions from Ordinary IRAs to Roth IRAs are considered taxable distributions and they are taxed accordingly However they are not subject to the 10 penalty tax on Pre 59 Distributions Note Plan owners cannot convert an ordinary IRA to a Roth IRA if their AGIs for the year exceed 100 000 or they are married filing a separate return for the year Taxpayers who made qualified conversions before Jan 1 1999 had the ability to spread out conversion tax over 4 years beginning with the year that the distribution took place 302 27 Chapter 5 Entering Tax Information Select the Fund from which to Pay Conversion Taxes In the Taxes section click the Conversion Tax tab When clicked the tab is highlighted in yellow Click or clear Spread Out Payment of 1998 Conversion Tax Click
109. ice The program includes disclaimer language on all reports that use the method of the Private Letter Rulings These Letter Rulings deal with cases involving the start of new qualifying distributions They do not deal with cases involving distributions that have already commenced Enter the value of all assets in the plan The Minimum Distributions rules require that you enter the balance of the plan as of December 31 of the year preceding the first year of analysis After the first year the Private Letter Rulings also use the 12 31 plan balance to calculate distributions This input is enabled only when it is relevant to the calculations When Rev Rule 2002 62 applies the minimum distributions method is calculated using the balance as of the first distribution in each year Enter the expected annual growth of the plan This rate is not used to calculate the distributions but is just used for projections Select a Distribution Frequency Plan owners can make pre 59 distributions Annually Semiannual Quarterly or Monthly Depending on the Distribution Frequency the Plan Balance is calculated differently For example if the Distribution Frequency is Annual the growth is compounded only once each year If it is Semiannual compounding occurs twice If it is Quarterly compounding occurs four times each year If it is Monthly then compounding occurs every month Select whether to base the calculation of distributions on a single or a
110. ick the report or graph to view Options Menu in Expanded View The expanded report window has its own Options menu that allows you the following e To view the results in Actual or Inflation Adjusted Dollars e To view the graphs in three dimensions e To print graphs and reports from expanded view e To exit the expanded view Reports Section Use the Reports section to select the reports that you want to view The Reports section uses tabs to list the Recommended Analysis Comparison and Custom reports When selected tabs are highlighted in yellow Selecting a report in the Reports section displays a brief description of the Report at the bottom of the window Double click the report to expand it Selecting a Report When you re finished entering your data click the Reports button on the left side of the screen The Reports section appears The Reports section contains a number of Recommended Analysis Comparison and Custom reports Next ask yourself what 62 Chapter 16 Viewing Results exactly it is that you want to see For example you may want to see the effects of a distribution from the Pension Fund to the Other Assets With that in mind click the Analysis tab in the Reports section Scroll through the list until you find a report that you think might answer your question Possibly the Pension Fund Analysis or the Other Assets Growth Analysis can answer your question Analysis Reports If an entire column di
111. install it on your computer using the instructions that follow Installation Before you install the program be sure that you re running a Windows 95 or later operating system The Pension amp Roth IRA Analyzer does not run on Windows 3 1 or earlier operating systems Installing the Program Insert the disk into the disk drive On the Windows Taskbar click the Start button On the Start menu click Run The Run dialog box appears In the Open box A setup EXE should appear If it doesn t type A setup EXE Click OK The setup program begins Follow the instructions in the setup program Uninstalling the Program On the Windows Taskbar click the Start button Point to Settings and click Control Panel The Control Panel window appears Click Add Remove Programs The Add Remove Program Properties dialog box appears Use the scrollbar to find the Minimum Distributions Calculator When you find it click the program title Notice that the Add Remove button is now functional Click the Add Remove button The uninstall program begins Follow the instruction in the uninstall program What Do You See on the Screen When you run the program the Pension amp Roth IRA Analyzer window opens The rest of this chapter will be devoted to the interface what you see on the screen and how to go through the program step by step Chapter 1 Introducing the Program These are the things you ll see on the screen Title
112. ion Penalty on Roth IRA Distribution 109 Chapter 22 Report Listing Summary Report The Summary report provides you with an overview of the analysis It shows how money is moving between funds and how this movement affects the Net After Tax Assets This report does not read left to right adding from left to right will not produce the Net After Tax Assets This report simply displays columns of numbers that are important to summarizing an analysis Report Values e Year e Annual Distributions e Pension Fund Begin Value e Other Assets Ending Value e Roth IRA begin Value e Net After Tax Assets Taxable Amount of Pension Fund Report This report shows how the Federal Estate Tax Deduction is calculated in each year Report Values e Year e Estate Tax without Pension Fund Federal Estate Tax Deduction which equals the amount of estate tax attributed to the Pension Fund e Taxable Estate e Estate Tax charged on the entire taxable estate e Taxable Estate without Pension Fund e Pension Fund subject to income tax 110 Chapter 22 Report Listing Taxable Estate Analysis Report This analysis shows how the Taxable Estate is calculated each year Report Values e Year e Total Funds Ending Value e Roth IRA Ending Value e Equivalent Exemption e Pension Fund Ending Value e Unpaid Roth IRA Taxes e Other Assets Ending Value e Taxable Estate Total Funds Ending Value Report This analysis shows the tota
113. ion of the Pension Fund The description is optional Total 12 31 previous Enter the total balance of the Other Assets fund This includes year Balance the non liquid portion If you ve entered Non Liquid Portion Enter the non liquid portion of the Other Assets balance in this Balance box The program does not tax the Non Liquid portion You can also enter a growth rate for the Non Liquid portion Growth Enter the annual percent increase of the Non Liquid Portion of the Other Assets Balance Description Enter a short description for each distribution The description is optional Adjustment Enter the amount of each Adjustment in this box Growth Rate Enter the annual percent increase of the Adjustment From To Boxes Use these boxes to enter the span of years for which the distribution is needed Apply to Alternative These numbers represent the Alternatives Selected check boxes indicate which Alternatives will include the distribution 49 Chapter 11 Modeling Adjustments to Other Assets Apply Growth from first Tn general you ll be planning future adjustments so you ll year of analysis instead probably want to adjust for inflation By default the program Manion teat applies the growth rate on the adjustment from the first year of analysis instead of from the first year that the plan owner needs the adjustment This ensures that when the adjustment occurs the program has adjusted it for inflation Custom Adjust
114. ion rules of Code Sec 401 a 9 A or the incidental death benefit rules of Code Sec 401 a Roth IRA Distributions Tab Table of Inputs Input Description Description top Starting Balance Description Distribution Growth Rates From To Boxes Apply to Alternative Apply Growth from first year of analysis instead of From Year Custom Roth IRA Distributions Enter a short description for each distribution The description is optional Enter the balance of the Roth IRA If you ve entered a balance in the Main Inputs section it should appear in this box Enter a description for the Roth IRA This is optional Enter the annual amount of each Roth IRA distribution Enter the annual percent increase of the distribution Use these boxes to enter the span of years for which the distribution is needed These numbers represent the Alternatives Selected check boxes indicate which Alternatives will include the distribution In general you ll be planning future distributions so you ll probably want to adjust distributions for inflation By default the program applies the growth rate on the distribution from the first year of analysis instead of from the first year that the plan owner needs the distribution This ensures that when the distribution occurs the program has adjusted it for inflation Click this button to enter distributions on a year by year basis instead of over a span of years The program a
115. ions Analysis If you re looking to create a simple analysis that calculates Pre 59 Distributions this is the easiest way to do it In this simple analysis you will not enter any additional contributions distributions living expenses conversions insurance premiums or proceeds or tax information If you re only looking to see the Pre 59 Distributions that plan owners need to avoid the 10 penalty this other information is not required From Quick Calcs menu click Pre 59 Distributions The Pre 59 Y Distributions Calculator appears Next enter the appropriate data in the Pre 59 Distributions Calculator As you enter data the report below the calculator reflects the data changes When you ve completed your data entry just view the report If you d like you can print the report directly from the Pre 59 Distributions Calculator To include the Pre 59 Distributions in the rest of the analysis click Use Distrib Roth IRA Conversions in the Current Year If you re looking for a quick way to model three common Roth IRA scenarios use Quick Conversion Quick Conversion creates the three following scenarios 125 Chapter 23 Descriptions of Available Values No Conversion to a Roth IRA 100 Conversion to a Roth IRA in the current year Taxes paid from the Other Assets fund 100 Conversion to a Roth IRA in the current year Taxes paid from the Roth IRA On the Quick Calc menu click Quick Roth IRA Conversion
116. ive amount of money spent from all the funds to pay living expenses make gift fund contributions and pay insurance premiums This value is only useful if you have indicated that some of these costs apply The total amount of money distributed from the Pension Fund annually The total amount of money distributed from the Roth IRA annually The annual distribution taken from the Other Assets The total amount distributed for Donee Exclusion Gifting in each year The total annual distribution for Living Expenses The total annual distribution for amount for insurance premiums 116 Chapter 23 Descriptions of Available Values Distributions to Other Assets Earnings Balance of Roth IRA Entered AGI Equivalent Exemption Estate Tax Whole Estate Estate Tax Without Pension Federal Estate Tax Deduction Federal Estate Tax FET Deduction Used by Distributions Gift Fund Begin Value Gift Fund Contribution Gift Fund Ending Value Growth Rate of Other Assets The amount taken from the Pension Fund and the Roth IRA for the Other Assets in each year The earnings portion of the Roth IRA beginning balance in each year The annual base adjusted gross income that is used to calculate income taxes The equivalent exemption for federal estate taxes in each year The annual federal estate tax on the total taxable estate The annual federal estate tax on the taxable estate if there were no Pensio
117. ives To exclude the Heir s AGI from an Alternative enter a zero value Enter a growth rate Growth of Other Assets is taxable Enter the tax rate for the growth of the Other Assets fund This does not represent the tax rate on the growth of the Heir s Other Assets For more information on Custom Data Entry see Chapter 15 Custom Data Entry Recent changes in estate tax law have resulted in higher exemption amounts and other changes affecting estate tax calculations Pension and Roth IRA Analyzer allows you to select between three potential scenarios e 2011 Sunset e 2010 Repeal in 2010 e 2009 Rates in 2009 program default 23 Chapter 5 Entering Tax Information These choices will affect program computations for 2010 and later years only Explanation 2011 Sunset current law with sunset Assumes repeal occurs in 2010 and prior law returns in 2011 with a 55 top rate and 1 million exemption This is way the tax law is currently written This may be a reasonable assumption if one believes that no changes to the current law are likely and that the sunset provisions will prevail One of the other two choices may be a better assumption if one believes that the sunset provisions will not be implemented due to future law changes 2010 Repeal in 2010 current law modified to remove sunset and make repeal permanent Assumes repeal becomes effective in 2010 and stays effective thereafter This is what was originally in
118. l pre tax funds at the end of each year Report Values e Year e Other Assets Ending Value e Roth IRA Ending Value e Total Funds Ending Value e Pension Fund Ending Value e Gift Fund Ending Value 111 Chapter 22 Report Listing Total Pension amp IRA Distributions Report The Total Distributions report illustrates the total value of all distributions from the Pension Fund and the Roth IRA This report includes the income tax charged on the Pension Fund Distribution The report effectively illustrates the calculation of the Cumulative Combined Distribution number Report Values e Year e Roth IRA Distributions e Pension Fund Distributions e Yearly After Tax Distributions e Income Tax on Pension e Cumulative After Tax Distributions Distributions Cumulative After Tax Distributions Report This report compares the total amount of money distributed from the Pension Fund and Roth IRA through each year Cumulative Net Proceeds Report This report compares the net cumulative amount of money spent from all the funds to pay living expenses make gift fund contributions and pay insurance premiums This value is only useful if you have indicted that some of these costs apply Net After Tax Assets Report This report compares the value of the assets to the family assuming the 2nd to die of the plan owner and spouse has died by the end of each year If Estate Analysis Max Deferral is selected the Net After Tax Assets includes the pres
119. lculate income taxes using the plan owner s adjusted gross income or by entering tax rates e Ifyou click Calculate taxes from an AGI enter the plan owner s adjusted gross income If the plan owner is already making required minimum distributions do not include the minimum distributions in the AGI The program will do this automatically e Ifyou click Use Rates to calculate taxes enter the tax rate that the owner normally uses in the Normal Tax Rate box Then enter a tax rate for the conversion period in the During Conversion box If you want the program to calculate these rates for you click the Calculate button next to each of the boxes to open the Income Tax Rate Calculator Step 3 Select How Much to Convert Quick Conversion will convert 100 of the ordinary IRA or you can use the Roth IRA Optimizer to find the best percentage of the IRA to convert 45 Chapter 10 Quick Conversion amp the Roth IRA Conversion Optimizer e Ifyou want the program to convert 100 of the IRA click Convert 100 of the Ordinary IRA e Ifyou want to use the Roth IRA Optimizer click Calculate the optimum percentage to convert Then when you click Use Scenarios the Roth IRA Conversion Optimizer appears Step 4 Using the Calculations Quick Conversion creates three conversion scenarios e No Conversion to the Roth IRA e 100 conversion in current year pay taxes from the Other Assets e 100 conversion in current year pay taxes fr
120. m s three analysis graphs Selecting a Report Group saves you from scrolling through the Available Reports and selecting individual reports to print By default the program lists six Report Groups The Analyses tab lists all of the program s analysis reports and graphs The Comparisons tab lists all of the program s comparison reports and graphs The Selected Reports box displays all of the reports that you have selected to print If you are including all four Alternatives in your analysis four numbered check boxes representing the Alternatives will be selected when you open the Print window You can read this as The Inputs Report for Alternatives I 2 3 and 4 are selected to print To remove a report from the Selected Reports box drag the report into the Available Reports box Click this button to clear all Selected Reports Click this button to create a group of reports that you frequently print 71 Chapter 19 Printing Reports and Graphs Printing Options This section allows you to include a number of Printing Options Click the check boxes to include the options You can include additional Printing Options in the Report Options window Print Report Button Click this button to print all Selected Reports Print to File Button The program allows you to save files as text or spreadsheet files so you can edit your files in any word processor or spreadsheet program Printer Setup Button Click this butto
121. m distribution method described in section 2 01 a of this guidance including use of a different life expectancy table SECTION 4 EFFECT ON OTHER DOCUMENTS Q amp A 12 of Notice 89 25 is modified SECTION 5 REQUEST FOR COMMENTS The Service and Treasury invite comments with respect to the guidance provided in this revenue ruling Comments should reference Rev Rul 2002 62 Comments may be submitted to CC ITA RU Rev Rul 2002 62 room 5226 Internal Revenue Service POB 7604 Ben Franklin Station Washington DC 20044 Comments may be hand delivered between the hours of 8 30 a m and 5 p m Monday to Friday to CC ITA RU Rev Rul 2002 62 Courier s Desk Internal Revenue Service 1111 Constitution Avenue NW Washington D C Alternatively comments may be submitted via the Internet at Notice Comments irscounsel treas gov All comments will be available for public inspection and copying Drafting Information The principal author of this revenue ruling is Michael Rubin of the Employee Plans Tax Exempt and Government Entities Division For further information regarding this revenue ruling please contact Mr Rubin at 1 202 283 9888 not a toll free number Rev Rul 2002 62 FAQ The IRS published an article on its web site entitled FAQs regarding Revenue Ruling 2002 62 see http www 1irs gov retirement article 0 id 103045 00 html that includes examples of how to do the pre 59 distribution calculations Unfortunately they us
122. ments Click this button to enter adjustments on a year by year basis instead of over a span of years The program adds these adjustments to any adjustments that you enter in the Other Assets section For more information on Custom Data Entry see Chapter 15 Custom Data Entry of Growth to Realize You can model your cases to display the effect of unrealized capital gains For example if you want to model a case with gains realized only every five years enter 0 for four years followed by 100 in the fifth year This applies the Other Assets income tax growth rate to the realized growth balance in the fifth year When the Percent of Other Assets Growth Realized value is other than 100 the Other Assets report is changed to show the Realized and Unrealized Growth balances 50 Chapter 12 Modeling Contributions Contributions Section Use the Contributions section to add contributions to a Pension Fund Roth IRA or Other Assets Contributing to a deductible IRA causes tax savings In order to compare the traditional and Roth IRAs the program can add this tax savings to the plan owner s Other Assets The program will calculate the tax savings of each contribution by multiplying the contribution amount by the income tax rate and adding that amount to the Pension Fund Plan owners filing single whose AGIs are under 95 000 and joint filers whose AGIs are under 150 000 can make nondeductible contributions of up to 2000 annually to Rot
123. n Existing REPO SA AAN A 66 Clear the Constructed Reports Br o fs 66 Deletea A a actacastech sects seer ve eats weeasudiecee te 67 O 69 Applying Report Options scccsssscscssscecccscesccssssceesscseessessesccesescesssesssscccsesceesessesssessesceees 69 Report Options Win dOW vesscissassssesssesteasecoscdatatsssasssvasiaatacaedaansterccaiansstacsree iassaatadaaeaesaease 69 Print the Date and das 69 Print in Black and Wi iS 69 Pratt fOr Windows NT reseni sesh ass aK aa 69 Number Pages way scence nar T E a a Aa oe 69 Format the Text of a Report ta dE A a A ae 69 Format Page Mar eins ss Sacsereiatensyasavehce uma E RRE a E E E 70 Create a Heading for a Report 70 Table of Contents Include the Heading on a Printed RepOft ooooonoccninconococococoncnconcconnncono cono nonn ccoo ncconcnnnnos 70 Limit the Number of Years to Include in a RepOTt oooooccnncciococonocinononancnancconcccnnocnnos 70 Chapter A eaneseustensseosiwnetentivedzenecmnsteocanednacstaanseas 71 Printing Reports and Graphs ccccscsscsecsssscccccsesccecssccecssccesccsssccsssssesssessescesssceesesserssesseses 71 BPTI e br te a ea A A Das Saas aa 71 A E EATR 72 Create a REPO sisadstat ease deesecepaeseues seven ds 72 Deleted Report Ori a eaves 72 Save a File as a Text or Spreadsheet File 0 0 0 ceececccecsseceteceseceeeeeeseeceaeeeeeseeeenseees 73 Chapter Zin nani a 75 Frequently Asked Questions csscccscssssscsssscccccces
124. n Fund The annual federal estate tax attributable to the Pension Fund The federal estate tax due if plan owner dies at end of each year The annual amount of federal estate tax deduction used by the Pension Fund distribution The balance of the Gift Fund at the beginning of each year The amount of money contributed to the gift fund in each year The balance of the Gift Fund at the end of each year The annual percent increase of Other Assets 117 Chapter 23 Descriptions of Available Values Growth Rate of Pension Fund Growth Rate of Roth IRA Heir s AGI Income Tax on All Distributions Income Tax on Conversion Income Tax on Other Assets Distributions Income Tax on Pension Distributions Income Tax on Pension Fund Income Tax on Roth IRA Distribution Insurance Premium Insurance Proceeds Joint L E Life Exp The annual percent increase of a Pension Fund The annual percent increase of a Roth IRA The heir s annual adjusted gross income used to calculate income taxes The total income tax generated by all distributions annually The income tax due on the Roth IRA Conversion annually The annual income tax generated by distributing unrealized growth from the Other Assets throughout each year The annual income tax on Pension Fund distributions The annual income tax on the Pension Fund if owner dies at end of each year The amount of income taxes generated by the Roth
125. n calculation very straightforward There is only one exception to this rule cases involving spousal beneficiaries who are more than ten years younger than the owner In that case the joint life expectancy of the owner and spouse is used Once the owner dies this exception no longer applies and Situation 4 see below applies Situation 2 Owner dies with no beneficiary In the year of death the minimum distribution is still calculated according to Situation 1 above It s only in the years after the owner s death that this situation applies If the owner dies before the required beginning date and there is no beneficiary alive as of the owner s death the five year rule applies all the money has to be distributed within five years of the year the owner died If the owner dies on or after the required beginning date and there is no beneficiary alive as of the date of death distributions after the owner s death are taken over a term based on the owner s life expectancy in the year of death This calculation is easier than it sounds For the year after death subtract one from the owner s single life expectancy in the year of death As each year passes reduce the life expectancy by one For example if the owner died in 2003 the distribution in 2004 would be based on the owner s 2003 life expectancy minus one The new life expectancy tables used by the 2002 final regulations add some complexity to cases when the owner has alre
126. n iiri n EEA deine nee ETE 13 CHI da 14 Chapter Aaa ado 15 Entering General Data for All Alternatives ooooooomommssssssssms 15 MA O e a 15 Alternative OOO Als 17 Multiple Alsacia ies 19 Chapter inca orillas 21 Entering Tax Information ccccsccscsssccecsssecscccesccesesccecssccescscssccesessescseccescesssscessscssesccseese 21 LARES ECOS 260 it cohen a aeeucc een nae AR aes ae 21 Income Tax Rates VIGO ad a 21 Income Tax Rate Calc tati ada 22 PGT Method a eine ta te rete aa 22 FState Pax CSA sabes see A A da IE 23 Bypass ill Tarn iD 26 Section 6916 Deduction nnann hac Maks csatastasecod a a ce atari 26 A a a a Sarees wha aE top asseatecean neue 27 CONVERSION TAE A A a E a A a 27 Chapter Gorsca i ad 31 Modeling Income and Expenses ssessoessoessosssoessoessssesosssoessoessocesocsssesssesssesssesssesssesssoessosssossossso 31 Income and Expenses Section A A A A a cd 31 A cosh Acree ae tele cantata Me eens te OE EE 31 EXpens eS aaaea angst eee eee eG ce cot eee heated sca dee alee ee 32 Chapter Tiana dai 35 Modeling Pension Fund Activity csccssscssssscccscesccsssssscscsccscccsssccssssceesssssescessescessscssescessess 35 Pension Section 35 Pre 59 Distributions BUttON ococcccnnnonononononononononononononononononononononononononenoninininnnnns 36 Table of Contents Lump Sum Distributions Button csccsccscdescciassndaseunscd rei da aiii 36 Chapt r D siscrsretesscaiescdocats
127. n to change printers or to setup another printer Report Options Button Click this button to open the Report Options window in which you can format your reports Close Button To exit the Print window after you print your reports click Close Help Button Click this button if you need help using the Print window Report Groups A Report Group is any number of Selected Reports that has been combined or grouped in the Print window For example the default Report Group Analysis Graphs contains the program s three analysis graphs Selecting a Report Group saves you from scrolling through the Available Reports and selecting individual reports to print By default the program lists six Report Groups If you find that you often print the same group of reports you can create your own report group Create a Report Group In the same manner that you select reports to print use the Analyses and Comparisons tabs in the Print window to add reports to the Selected Reports box Click the Create Report Group button In the New Report Group dialog box enter a name for your Report Group and click OK The name of your Report Group now appears on the Report Groups tab in the Available Reports box Delete a Report Group On the Report Groups tab in the Available Reports box click the Report Group you want to delete Press the Delete key on your keyboard A warning appears To delete the Report Group click OK 72 Chapter 19 Printing R
128. nt 2003 and later rules and all recalculation options for the old rules The program also includes income tax and estate tax calculations for you You can model spousal rollovers and account for the 691 c deduction for estate tax It will also show you the value of the stretchout in the hands of the beneficiary Roth IRA Conversion Analysis If you re looking to do Roth IRA conversion analysis Pension amp Roth IRA Analyzer is the most comprehensive program available It handles partial and multiple year conversions It also performs optimization conversion calculations based on Net After Tax Assets and handles estate tax and income tax Distribution Planning You can see the effect of all three methods under IRS Rev Rul 2002 62 2002 and later and IRS Notice 89 25 2002 and earlier that may be used to avoid the 10 penalty on early plan distributions You can select different life expectancy tables and reasonable interest rates Other Program Features You can e Toggle inflation adjustment on or off e Enter distributions pre tax or after tax e Handle income tax by entering rates or entering AGI e Send to your printer a text file a spreadsheet file or the clipboard e Use the report designer for custom reports Chapter 1 Introducing the Program The program also includes donee exclusion gifting 2nd to die insurance proceeds and premiums and presentation style graphs The first step to using the software is to
129. o not deal with cases involving distributions that have already commenced Enter the value of all assets in the plan The Minimum Distributions rules require that you enter the balance of the plan as of December 31 of the year preceding the first year of analysis After the first year the Private Letter Rulings also use the 12 31 plan balance to calculate distributions This input is enabled only when it is relevant to the calculations 40 Chapter 9 Modeling Roth IRAs Roth IRA Section Use the Roth IRA section to enter Roth IRA Conversions and Roth IRA Distributions to an analysis Roth IRA Conversions take place at the same time as Pension Fund Distributions However when contributions pension fund distributions and conversions all occur in the same year the program makes them in the following order e Contributions e Distributions e Conversions The program uses this method because minimum distributions are subject to different tax rules than conversions The program calculates minimum distributions regardless of the conversion amount Also plan owner s can make contributions and convert them without any problem Furthermore distributions can reduce conversions For example if a 100 000 fund has a minimum distribution of 50 000 and a conversion amount of 70 000 the conversion amount will be reduced to 50 000 Note If you re using Quick Conversion you do not use the Roth IRA section to enter conversions Roth
130. om the Roth IRA If you want these three scenarios as Alternatives 1 2 and 3 then click the Use Scenarios button The Roth IRA Conversion Optimizer The Roth IRA Conversion Optimizer helps you and your clients visualize the effects of partial conversions This feature calculates the best percentage of the Ordinary IRA that plan owners should convert to a Roth IRA Using the optimized percentage to convert gives the highest Net After Tax Assets for the target year of the analysis The Roth IRA Conversion Optimizer works best when calculating income tax from adjusted growth incomes instead of calculating income tax using entered rates Access the Roth IRA Conversion Optimizer On the Quick Cales menu click Roth IRA Conversion Optimizer The Select Alternative dialog box appears Click the Alternative for which you want to find the best percentage to convert The Roth IRA Conversion Optimizer appears 46 Chapter 10 Quick Conversion amp the Roth IRA Conversion Optimizer Roth IRA Conversion Optimizer Tab Table of Inputs Input Description Assumptions Conversion Year Year for Maximum Net After Tax Assets Optimization Precision Based upon the Birth Dates that you enter in the Main Inputs the program calculates the assumed years of death for the owner and the beneficiary Enter the year that the conversion will occur The amount to convert is based on the year in which the owner wants to have the maximum
131. ons placed on their calculated distributions e A non spousal beneficiary is not permitted to recalculate his or her life expectancy in each year e For minimum distributions nonspousal distribution calculations are subject to the MDIB requirements The program automatically handles both of these additional limitations for you If there is more than one person named as the beneficiary for example children of the plan owner the age of the beneficiary with the shortest life expectancy must be used to calculate the joint life expectancy If a charity or the plan owner s estate is named as the beneficiary there is no designated beneficiary and funds must be withdrawn over the plan owner s life expectancy A trust can also be named as the beneficiary Generally in such cases the life expectancy of the trust s beneficiary can be used to calculate the joint life expectancy Rev Rul 2002 62 2002 42 IRB 1 3 Oct 2002 Part I Section 72 Annuities Certain Proceeds of Endowment and Life Insurance Contracts SECTION 1 PURPOSE AND BACKGROUND 87 Chapter 21 Reference Material 01 The purpose of this revenue ruling is to modify the provisions of Q amp A 12 of Notice 89 25 1989 1 C B 662 which provides guidance on what constitutes a series of substantially equal periodic payments within the meaning of 72 t 2 A iv of the Internal Revenue Code from an individual account under a qualified retirement plan Section
132. ou can select the fund from which conversion taxes are paid Reports The Pension amp Roth IRA Analyzer generates numerous reports and graphs that illustrate up to 200 years of results for analysis and comparison You can use a Report Designer to create or modify reports Also in the Print Report window you can group similar reports or reports that you will frequently print You can send all results to a printer text file or a spreadsheet file Chapter 1 Introducing the Program Other Program Tips Shortcut Keys Use the Function Keys as shortcuts for frequently used program commands F1 Access the Help system F2 Save data to a file F3 Open files F4 Open the Copy Inputs window F5 Copy column values in the Custom Data Entry Window and the Living Expenses window F6 Access the Print window F7 Open the Clear Inputs window F8 Switch the results between Actual and Inflation Adjusted dollars F9 Recalculate data F10 Access the Reports section F11 Expand the Current Report F12 Expand the most recently viewed report Create Desktop Icon To create an icon that you can click on to enter the program choose Create Desktop Icon on the file menu The program will place an icon for you to use from your desktop 16 Color Display To see the program in 16 colors rather than 256 go to the Edit menu and choose 16 Color Display Chapter 2 Working with Files Frequently Used Procedures Refer to this cha
133. pter to view instructions for procedures that you ll frequently use when working with files Create a New File e On the File menu click New The program clears all previous data entry and resets the program s default values Open an Existing File On the File menu click Open The Open Inputs dialog box appears In the File name box enter the name of the file to open Be sure you have selected the proper drive and folder of your file Save a File On the File menu click Save The Save Inputs File dialog box appears In the File name box type a name for the file The program automatically adds a pen extension to the file name Select the drive and folder in which to save the file Save an Existing File Save As Open an existing file or create a new file On the File menu click Save As The Save Inputs File dialog box appears In the File name box enter a name for the new file The program automatically adds a pen extension to the file name Select the drive and folder in which you want to save the file File Location On the File menu click File Location The File Location dialog box appears Enter a directory name to which files names should be saved Chapter 2 Working with Files Save a File as the Default File When you open the Pension amp Roth IRA Analyzer or create a new file the program automatically loads a set of default values creating a simple analysis case From the File menu you can chang
134. r the 72 t 2 A iv exception would have been imposed plus interest Payments will be considered to be substantially equal periodic payments within the meaning of section 72 t 2 A iv if they are made according to one of the methods set forth below Payments shall be treated as satisfying section 72 t 2 A iv if the annual payment is determined using a method that would be acceptable for purposes of calculating the minimum distribution required under section 401 a 9 For this purpose the payment may be determined based on the life expectancy of the employee or the joint life and last survivor expectancy of the employee and beneficiary Payments will also be treated as substantially equal periodic payments within the meaning of section 72 t 2 A iv if the amount to be distributed annually is determined 92 Chapter 21 Reference Material by amortizing the taxpayer s account balance over a number of years equal to the life expectancy of the account owner or the joint life and last survivor expectancy of the account owner and beneficiary with life expectancies determined in accordance with proposed section 1 401 a 9 1 of the regulations at an interest rate that does not exceed a reasonable interest rate on the date payments commence For example a 50 year old individual with a life expectancy of 33 1 having an account balance of 100 000 and assuming an interest rate of 8 percent could satisfy section 72 t 2 A iv by
135. red minimum distributions will be locked in and will only change due to certain other events such as the death of the owner or beneficiary or a rollover by a surviving spouse It is very important that one s distribution options be carefully considered before one reaches the Required Beginning Date Many IRA owners will need to consult with a professional advisor in order to make the best choice The Required Beginning Date locks in one s distributions based on the beneficiary selections Circumstances such as death may result in different beneficiaries later on but the selections in effect on the Requirement Beginning Date will control the amount of those distributions Once you have reached the Age 70 year you must make a distribution each year 1 e no later than the end of the year based on the traditional IRA balance as of December 31 of the preceding year The rule that allows you to distribute by April 1 of the following year is a one time exception that only applies to the first year The best way to understand this rule is through an example Let s assume that an IRA owner was born on February 15 1928 He would be age 70 on 2 15 98 He would be age 70 on 8 15 98 His age 70 year is 1998 He must make a Required Minimum Distribution for 1998 by 4 1 99 based on the IRA balance as of 12 31 97 He must also make a Required Minimum Distribution for 1999 by 12 31 99 based on his IRA balance as of 12 31 98 In 2000 he must make a Req
136. red rates the income tax rate should include state and federal tax rates It should include a possible state income tax deductions b the possible loss of a full deduction because of the rule reducing itemized deductions by 3 of the AGI for certain high income taxpayers and c the impact of the alternative minimum tax Tax Rates Tab Table of Inputs Input Description Tax on Pension Fund Distributions from retirement plans are generally subject to Distributions federal income taxes and in most cases state and local income taxes The program can calculate income tax on lump sum distributions with ten year averaging Tax Rate During A qualified conversion from one Roth IRA to another Roth Conversion IRA is tax free regardless of the taxpayer s AGI However qualified conversions from Ordinary IRAs to Roth IRAs are considered taxable distributions and they are taxed accordingly However if conversions occur before age 59 4 the conversion amounts are not subject to the 10 penalty tax on Pre 59 distributions Tax on Growth of Other The program calculates income tax on the liquid portion of the Assets Other Assets fund each year You can enter a non liquid balance to reduce taxes Also the program allows you to use a capital gains tax rate for growth of Other Assets Tax on Pension Fund at Even after a plan owner s death beneficiaries receiving Death distribution benefits must pay income tax as income in respect of a
137. rial that the program will use to calculate annuity factor To create a Comparison Report you need to choose an Annuity Factor Table 39 Chapter 8 Modeling Pre 591 2 Distributions Step 2 Choose a Distribution Method Input Description Distribution Method Reasonable Interest Rate Calculation Method 12 31 year Plan Balance There are three methods for calculating early distributions Minimum Distributions Amortization and Annuitization Method see the IRS Notice 89 25 in Chapter 11 Reference Material If the Distribution Method is Annuitization Method or Amortization enter a Reasonable Interest Rate see Chapter 11 Reference Material To create a Comparison Report you need to enter a Reasonable Interest Rate For most cases select IRS Notice 89 25 Private Letter Rulings among them 9531039 9010075 and 9241063 illustrate an annual recalculation of distributions for the Annuitization Method and amortization methods More specifically in years after the first year the distributions are recalculated using the balance as of the beginning of each year If you wish to see the distributions calculated using the methodology of the Letter Rulings select Private Letter Rulings for the choice The program includes disclaimer language on all reports that use the method of the Private Letter Rulings These Letter Rulings deal with cases involving the start of new qualifying distributions They d
138. ribution Options Data Entry Sections Start in Req d Yr Reports i Estate Analysis Max Deferral Summary Report Alternative 1 Ve ee Pension Fund Annual Other Assets Net After Tax a Year Begin Value Distributions Ending Value Assets 2003 1 500 000 56 604 44 399 3 448 880 2004 1 558 868 60 893 95 572 3 682 676 2005 1 617 813 65 499 154 149 3 756 685 Y Enter the balance of the Other Assets as of 12 31 2003 AN Hint Line Current Report Right Side of the Window Data Entry Sections The right side of the window displays the program s data entry sections Left Side of the Window Buttons to Get to Different Data Entry Sections Click the buttons on the left side of the window to display different data entry sections When you click a button the button title appears red For example when you open the program or create a new file the title of the first button in the column Main Inputs is highlighted in red Bottom Portion of the Window Current Report The bottom portion of the window displays report results Throughout this manual file this section is referred to as the Current Report The title of the report and the Alternative for which results are displayed appear above the Current Report For example when you open the program the Summary Report for Alternative 1 appears Below the Current Report Hint Line Below the Current Report is the Hint Line The Hin
139. ributions for the current year Set the Starting Date to be when Distributions started and enter the current year as the Distribution Year There are three methods for calculating early distributions Minimum Distributions Amortization and Annuitization Method see the IRS Notice 89 25 in Chapter 21 Reference Materials Switch Min Distrib should be used for clients who are already taking distributions and want to switch to the new minimum distribution method It causes the distribution calculation to be based on the balance in the plan as of the point that the distributions begin rather than the balance at the end of the previous year See Revenue Rule 2002 62 in Chapter 21 Reference Materials for more information about this ruling Pre 2002 for most cases select IRS Notice 89 25 Private Letter Rulings among them 9531039 9010075 and 9241063 illustrate an annual recalculation of distributions for the 37 Chapter 8 Modeling Pre 591 2 Distributions Plan Balance Expected Plan Growth Distribution Frequency Joint Single Life Exp Birth Dates Use Maximum Interest Rate Annuitization Method and amortization methods More specifically in years after the first year the distributions are recalculated using the balance as of the beginning of each year If you wish to see the distributions calculated using the methodology of the Letter Rulings select Private Letter Rulings for the cho
140. ributions that you enter here are not consumed only transferred The program applies taxes to Pension Fund distributions You can also use the Pension section to access the Pre 59 Distributions Calculator or the Lump Sum Distribution window Also the Pension section enables you to add Taxable Annuities via the Custom Data Entry window Input Description Description top In this box enter a short description of the Pension Fund The description is optional 12 31 year Pension Enter the 12 31 balance of the Pension Fund for the preceding Fund Balance year The program requires a 12 31 balance for required minimum distribution calculations If you entered a Pension Fund balance in the Main Inputs section the balance should appear in this box 12 31 year Non Enter the Non Deductible portion of the Pension Fund balance Deductible Balance The program will not tax the Non Deductible Balance Non Deductible Balances occur when plan owners do not qualify for deductions on Pension Fund contributions Description bottom Enter a short description for each distribution The description is optional Distribution Enter the annual amount of each Pension Fund distribution Note The program always distributes at least the required minimum distribution from the Pension Fund so don t worry if a distribution is too small If you enter a distribution that is larger than the Pension Fund balance the program distributes the balance Also i
141. rs gov tax_regs fedrates html d Account balance The account balance that is used to determine payments must be determined in a reasonable manner based on the facts and circumstances For example for an IRA with daily valuations that made its first distribution on July 15 2003 it would be reasonable to determine the yearly account balance when using the required minimum distribution method based on the value of the IRA from December 31 2002 to July 15 2003 For subsequent years under the required minimum distribution method it would be reasonable to use the value either on the December 31 of the prior year or on a date within a reasonable period before that year s distribution e Changes to account balance Under all three methods substantially equal periodic payments are calculated with respect to an account balance as of the first valuation date selected in paragraph d above Thus a modification to the series of payments will occur if after such date there is 1 any addition to the account balance other than gains or losses ii any nontaxable transfer of a portion of the account balance to another retirement plan or 111 a rollover by the taxpayer of the amount received resulting in such amount not being taxable 03 Special rules The special rules described below may be applicable a Complete depletion of assets If as a result of following an acceptable method of determining substantially equal periodic payments an in
142. rth dates for the Owner the Spouse and the Oldest Child spouse s beneficiary in month day year format The program uses the birth dates to calculate life expectancies for the plan owner the spouse and the spouse s beneficiary The Oldest Child can be any non Spousal beneficiary If a Spouse or Oldest Child is not part of the analysis clear these check boxes 16 Chapter 4 Entering General Data for All Alternatives Alternative Scenarios After you ve entered data in the top portion of the Main Inputs section begin creating your Alternative Scenarios You will always enter data for Alternative 1 To create other Alternatives click the word Here in each column and make the appropriate changes to each Alternative If you want to create identical or nearly identical Alternatives use the Copy Alternative command on the Edit menu An image of Alternative 1 appears below Explanations of each input follow Zinclude 1 Growth Rates E 10 00 mha Beneficiary Year Owner Dies Calc 2016 com Year Benef Dies Cale 2022 2022 Spousal Rollover Yes Distribution Options I Start in Req d Yr Use 2002 Regs Estate Analysis Max Deferral MO ee eee Le ee Alternative Scenario Table of Inputs Input Description Growth Rates Enter the annual percent increase for all of the funds Pension Fund Roth IRA and Other Assets If these funds are growing at different rates click HE
143. ry would now receive tax free distributions over a 24 year period based on a single life expectancy of 23 3 being decreased by 1 each year Even if the beneficiary died during that period the distributions need not be accelerated but could continue tax free to the recipient for the full 24 years From an economic viewpoint what is happening when the participant s beneficiary is forced to take minimum distributions as in the preceding example for 24 years You can look at that distribution period as being the period in which tax free growth is eventually converted to taxable growth Each required minimum distribution is itself tax free of course If that required distribution is itself invested that ensuing growth will then usually be taxable Thus distributions over 24 years could create a new fund whose growth is taxable Yet there is a lot of tax deferral being accomplished during the 24 year period This is on top of the tax deferral that occurred during the participant s life Spousal Rollover Increases Deferral Period Now let s assume that the participant dies at 85 with a surviving spouse as the designated beneficiary Let s assume she is age 80 at the time and now treats the IRA as hers a spousal rollover of an inherited IRA Under the spousal rollover rules she now treats the Roth IRA as if it were originally hers Not only does the IRS Model Agreement clearly allow for spousal rollovers it makes the spousal rollover
144. s 2001 and earlier See How do the New Rules Work in the Frequently Asked Questions page 69 for a complete discussion Main Inputs Section Table of Inputs Input Description First Year of Analysis This year is the starting year for reports The earliest year that you may enter is 1989 However the program does not include the excess distributions or excess accumulation taxes that applied to years prior to 1997 Pension Fund Balance Enter the value of the Pension Fund as of the beginning of the First Year of Analysis Do not include amounts that have been allocated for a former spouse pursuant to a Qualified Domestic Relations Order Roth IRA Balance Enter the value of all assets that are in the Roth IRA Other Assets Balance Enter the total value of the Other Assets fund You can enter a non liquid balance for the Other Assets fund in the Pension Section Inflation Discount Rate By default the program uses the inflation rate for the after death discount rate The program uses the After Death Discount Rate to adjust after tax assets for growth after death and to calculate the present value of future after tax distributions To enter different rates click next to the Inflation Rate box 15 Chapter 4 Entering General Data for All Alternatives Birth Dates If you have entered names for the Owner Spouse and Oldest Child in the Client Info section these names appear in the Birth Dates box Enter bi
145. sed only for nonspousal beneficiaries Now it is used whenever the owner is alive making the distribution calculation very straightforward There is only one exception to this rule cases involving spousal beneficiaries who are more than ten years younger than the 94 Chapter 21 Reference Material owner In that case the joint life expectancy of the owner and spouse is used Once the owner dies this exception no longer applies and Situation 4 see below applies Situation 2 Owner dies with no beneficiary In the year of death the minimum distribution is still calculated according to Situation 1 above It s only in the years after the owner s death that this situation applies If the owner dies before the required beginning date and there is no beneficiary alive as of the owner s death the five year rule applies all the money has to be distributed within five years of the year the owner died If the owner dies on or after the required beginning date and there is no beneficiary alive as of the date of death distributions after the owner s death are taken over a term based on the owner s life expectancy in the year of death This calculation is easier than it sounds For the year after death subtract one from the owner s single life expectancy in the year of death As each year passes reduce the life expectancy by one For example if the owner died in 2003 the distribution in 2004 would be based on the owner s
146. ses the term certain method Using the beneficiary s deemed age determined using single life Table V and the owner s actual age the program uses joint life Table VI to determine the minimum distribution Many planners recommend this method when the plan owner is older than the beneficiary 98 Chapter 21 Reference Material Hybrid method Only click Recalculate Beneficiary s Life Exp The beneficiary s life expectancy is recalculated and the owner uses the term certain method Using the owner s deemed age determined using single life Table V and the beneficiary s actual age the program uses joint life Table VI to determine the minimum distribution Planners recommend this variant when the beneficiary is older than the plan owner 99 Chapter 21 Reference Material Table V from Reg Sec 1 72 9 Age Multiple Age Multiple Age Multiple 5 76 6 43 39 6 81 8 9 6 75 6 44 38 7 82 8 4 7 74 7 45 SSI 83 7 9 8 73 7 46 36 8 84 7 4 9 I2 47 35 9 85 6 9 10 71 7 48 34 9 86 6 5 11 70 7 49 34 0 87 6 1 12 69 7 50 33 1 88 Soil 13 68 8 51 32 2 89 5 3 14 67 8 52 31 3 90 5 0 15 66 8 53 30 4 91 4 7 16 65 8 54 29 5 92 4 4 17 64 8 55 28 6 93 4 1 18 63 9 56 LIRA 94 3 9 19 62 9 57 26 8 95 Bu 20 61 9 58 25 9 96 3 4 21 60 9 59 25 0 97 3 2 22 59 9 60 24 2 98 3 0 23 59 0 61 23 3 99 2 8 24 58 0 62 22 5
147. splays all zeroes in an Analysis report then the column and its header do not appear in the report A description of the selected report appears below the box For details of each report see Chapter 22 Report Listing Distributions Breakdown Report Donee Exclusion Gifting Analysis Report Estate Analysis Report Insurance Analysis Report Life Expectancies Analysis Report Minimum Distributions Life Expectancy Analysis Report Minimum Distributions Report Other Assets Analysis Report Other Assets Growth Analysis Report Pre 59 Distributions Analysis Report Roth IRA Analysis Report Roth IRA Distributions Report Roth IRA Taxes and Penalties Summary Report Taxable Amount of Pension Fund Report Taxable Estate Analysis Report Total Funds Ending Value Report Total Pension amp IRA Distributions Report e Pension Fund Analysis Report Comparison Reports The Comparison reports and graphs compare values for the Alternatives and show the percentage difference between them If an entire column displays all zeroes then the column and its header do not appear in the report For a printed list of the report values and their descriptions see the User Manual e Cumulative After Tax Distributions e Pension Fund Ending Value e Cumulative Net Proceeds e Roth IRA Distributions e Net After Tax Assets e Roth IRA Ending Value e Other Assets Ending Value e Total Funds Ending Value 63 Chapter 16 Viewing Results Pension
148. ssages that have appeared Brentmark on the Web On the toolbar click the globe graphic to access Brentmark s website 128 Chapter 26 Articles The following copyrighted articles are available exclusively on the Roth IRA Web Site www rothira com Reprint rights to the articles are freely granted However you must contact Brentmark first to receive an acknowledgement that will grant you reprint permission We also need to know where you would like to republish the article Five Financial Features that make Conversion to a Roth IRA So Desirable By Gregory Kolojeski There are five financial or economic features of a Roth IRA conversion that make it so attractive The first three are the most important If you can take full advantage of the first three a conversion to a Roth IRA is usually a dunk shot If you take significant advantage of the first two features you will usually be ahead of the game in many cases this will be true even if you pay the conversion taxes from the IRA itself If you take advantage of only one of the first three you sometimes still come out ahead but not always In many cases the presence of two of the first three features will even outweigh unfavorable income tax bracket situations Despite what many articles suggest income tax bracket considerations are usually of little importance if you can take advantage of the most favorable aspects of the Roth IRA 1 Post 70 4 Deferral This is the tax free
149. ssesccsssssesssescesceesescessssssesoessese 51 Contributions Section Ii a Sided ds ie a Bios os elds clad dade ai 51 A S m terior ae mancaraar eine 53 Modeling InSUTANCE sisisscccccccasesssssssscscscnnssennsssvensseecscventssusnossvescosadseevassoscecsoodsseunsdsessscssessoeendcvensess 53 Ins rance Section dirt a ached ai 53 Insurance Outside Estate at A As 53 o A Aen nana 53 O A IO 54 iii Table of Contents Chapter Ao ao 57 Modeling Donee Exclusion Gifting cccscscsscscssccecsscccsscccesccesescersseccesccesscceseseessscsseseessess 57 Gift Fund Sections re ee sa ee sos au oc sta aes eit s spans os e a das Whee geen Nae eae 57 Chapter netas 59 Custom Data Entry a E E T A A 59 Custom Data Entry WINdOW vestida lid 59 Clear BUON A A ER E 59 Copy Col Bi ean a E o EAT 59 FI BUON an a a a a E i 60 Chapter Toiminnan aan 61 VIEWING RESUIES A O 61 Current Ri taceke Me puats aR narod ead e AE 61 Expanded Report o 61 Options Menu in Expanded View asada Ae 62 A SOC CHOI Sere e a educa eateoentee a e a E E eee 62 Selecting a Reporti renour aid 62 Analysis Reports arenaria e chalets a a a a e a eee 63 COMPAS IRC OS E AEE E E E eos 63 Chapter Ian atan 65 Designing a Report cscscsscssssscccsscscccsssccesssscesccssesccesssceessccsescccsesccsssscesscecsesccessscesssessesccseess 65 Report DES as eu ation y aun O A RER ncaa EE 65 Constructa RE POIE sca piedan aa a a n a a eh jess cgehabactes 66 Modify a
150. stributions Options If you do not click an Alternative the program reinvests the minimum distributions in the Other Assets fund By reinvesting minimum distributions in Other Assets you can use the Other Assets fund for such things as paying Living Expenses Under Apply Pre 59 Penalties to Distributions click the Alternatives that will be subject to the 10 Pre 59 Distributions penalties Client Information Click Personal Information on the Edit menu to enter the names of the Planner Plan Owner Spouse and Oldest Child into the Client Info section The Oldest Child can be any non spousal beneficiary Also enter a one or two line name for each Alternative you create If a Spouse or Oldest Child is not involved in the case clear these check boxes The names you enter here appear throughout the program and on the printed reports Also if you want to print the date on your reports you must enter the Date Prepared 14 Chapter 4 Entering General Data for All Alternatives Main Inputs Section Enter data that applies to all Alternatives in the Main Inputs section Begin entering data in the portion of the window that is pictured below For help creating Alternatives see Alternative Scenarios Before entering data in the Main Inputs section you may want to enter the Input Assumptions Chapter 3 and complete the Client Info section Chapter 3 Note Most discussions of minimum distributions in the help manual refer to the old rule
151. t Line displays short commands to help you with data entry As you move the pointer across buttons boxes and other areas of the window the Hint Line displays different commands Chapter 1 Introducing the Program Default Values Loaded for the Program When you open the Pension amp Roth IRA Analyzer or create a new file the program automatically loads a set of default values creating a simple analysis case You can change these values and save them as your own default file For example if you find a set of values works well for many of your clients you can have the program load the values whenever you open the program or create a new file Default Assumptions The Pension amp Roth IRA Analyzer allows you to evaluate various strategies of taking distributions from IRAs and qualified pension plans The program can simultaneously calculate up to four scenarios that involve different types of distributions letting you decide which one is best for your clients The program assumes that all distributions begin on the required beginning date and that distributions are subject to minimum distributions rules under IRC 401 a 9 The program also assumes that no one will be paying the 50 penalty for making distributions that are less than the minimum distributions the program always makes minimum distributions To modify the assumptions see Input Assumptions Other assumptions include e Spousal rollover e AGI method of calculatin
152. t cineiecaendranaioncnensivn neta stauciatvoune eas 37 Modeling Pre 59 Distributions ccsccccsscccccscesccecssccecscccesccesssccessscescsescescessescessscssesccssess 37 The Pre 59 Distributions Calculator ooccccncnnnnnnnnnnnnonononononononononononononononononononoss 37 Chapter iia niisanndeadevetaunaver 41 Modeling Roth IRAS ccccccciccccsscssccssocosssesusttcssscsosssesaseesasdenes sosessenasseadassovensossesceessesesssoonsncsscessedanses 41 Roth IRA SEMI 41 ROtHIRACONVETSIONS ceee e a a n e a a A 41 C st m Roth IRA CONVErSIO S it tias 42 Roth IRA Distrib tonsi 0 ii 42 Chapter 10 ainia ha 45 Quick Conversion amp the Roth IRA Conversion Optimizer sseessoesooesooessossooessossoosssosssesssee 45 Quick Roth IRA COn veria 45 Step 1 Get RAY A alan ecard R O E E deeds i A 45 Step 2 Entering Tax Information A 45 Step 3 Select How Much to Convert scsccccccsccasessacesssesacsessascacassanecasseudaesstsonactesceecacase 45 Step 4 Usted as eel 46 The Roth IRA Conversion Optimizer ccccccsccceseceseceeeceeseecueceeeeeeeeeeeeenaeecsaeeneenaes 46 Chapter lso an 49 Modeling Adjustments to Other Assets sscccsscscsscsscsccsscesccssssccesssseessessesceesscessssseesseseeses 49 Other ASSets SECA id li AN AA A chine ea Naked A di 49 OG Of GOWtN 1O Reali Ze a A diia 50 Chapter 12 usaras 51 Modeling Contributions csscccssssccscssssecscssecscccesccesesceecscssescc
153. tended by the tax writers but ultimate repeal remains uncertain due to the inclusion of sunset provisions This may be a reasonable assumption if one believes that the sunset provisions will not be implemented and repeal will ultimately prevail 2009 Rates in 2009 current law modified to continue estate tax with no repeal Assumes repeal never occurs and last scheduled rates are used in future years This may be a reasonable assumption if one believes that repeal is unlikely to occur By default the program includes estate taxes in each analysis The taxable estate is the total gross estate of a plan owner after deducting debts applicable taxes charitable or religious deductions benefits to a surviving spouse losses and any specific exemptions This includes the balances of the Pension Fund Roth IRA and Other Assets You can however calculate the taxable estate by entering its total value based on after tax assets The program applies the federal estate death tax credit to the combined balance of the Pension Roth IRA and Other Assets This tax rate ranges from 37 to 55 depending on the size of the estate If a particular state has a higher tax than the credit the program still uses the amount of the credit Note By default the middle check box above is checked To calculate the Taxable Estate based on after tax assets clear the middle check box Then the Taxable Estate Amount section appears 24 Chapter 5 Entering Tax In
154. th IRA contribution For distributions caused by rollovers from a non Roth IRA the five year period begins with the tax year in which the rollover occurred In the case of Pre 59 distributions the taxable portion of Pre 59 distributions will be penalized subject to the 10 penalty exceptions applicable to premature distributions from non Roth IRAs If plan owners make nonqualified distributions contributions to the Roth IRA will be recovered tax free before earnings are taxed 42 Chapter 9 Modeling Roth IRA Conversions However if plan owners make distributions within the five year period the distributions could still be tax free This is because Roth IRA distributions are paid from any contributions that plan owners may have made that year Since plan owners pay taxes when they contribute money to a Roth IRA they do not have to pay taxes on this same money when they withdraw it from the Roth But if plan owners make distributions within the five year period that exceed the amount of the contributions then the plan owners must pay taxes on the excessive distributions After the five year period a Roth IRA distribution is tax free if it meets the following criteria e The distribution occurs on or after age 59 2 or death e The distribution occurs on account of disability e The distribution pays expenses for qualifying first time homebuyers Distributions from a Roth IRA will not be subject to the required distribut
155. that you want to see For example you may want to see the effects of a distribution from the Pension Fund to the Other Assets With that in mind click the Analysis tab in the Reports section Scroll through the list until you find a report that you think might answer your question Possibly the Pension Fund Analysis or the Other Assets Growth Analysis can answer your question For more information on the types of reports see Chapter 16 Viewing Results Use the Edit menu or the buttons pictured above to access the data entry sections Input Assumptions It s a good idea to begin each analysis by entering data in the Input Assumptions window Why e You can select when distributions conversions contributions and adjustments occur e You can select the Alternatives that will spend the minimum distributions By default the program reinvests minimum distributions in the Other Assets e You can select the Alternatives that will reinvest the minimum distributions in the Other Assets fund 13 Chapter 2 Working with Files e You can select the Alternatives that will include the 10 penalty for making Pre 59 Distributions Enter Input Assumptions On the Edit menu click Input Assumptions Select Begin or End to determine the time of year that Distributions Contributions and Adjustments occur If you want to create an Alternative in which the minimum distributions are totally spent click the Alternative under Minimum Di
156. the Alternative 1 box In the list that appears click the fund from which conversion taxes will be paid Repeat Steps 3 4 for the other Alternatives Note If you re using Quick Conversion you do not need to enter conversion taxes in the Taxes section Quick Conversion automatically enters conversion taxes Spread Out Payment of 1998 Conversion Tax e Ifa Conversion was made in 1998 the plan owner had the option of paying conversion taxes over a four year period This option is not available to conversions made after 1998 28 Chapter 5 Entering Tax Information 29 Chapter 6 Modeling Income and Expenses Income and Expenses Section Use the Income and Expenses section to enter distributions that are consumed and those that are received as income Expenses are not transferred to the Other Assets fund Income Income money coming in to the client is used to pay expenses and is then reinvested in the Other Assets category Income shows up on the Distributions report as Net Amount from Income Input Description Add Expense button Remove button Description Annual Income Invest Income In Annual Increase Receive Income From Year by Year Income Apply Growth Rate from first year of analysis instead of first year expense applies Click the Add Expense button to enter a new expense Click the Remove button to delete the highlighted expense Enter a short description for
157. the old term certain method with the life expectancy being reduced by one for each year that passes after the spouse s death As with situation 3 the 2002 final regulations add more complexity For cases where the client dies on or after the required beginning date the life expectancy used is the greater of the one calculated using the no beneficiary case situation 2 and the one resulting from the calculation described in the previous paragraph When do these apply In 2002 there is the option of using either the pre 2001 proposed regulations with all their calculation and recalculation options the 2001 proposed regulations and the 2002 final regulations After 2002 only the 2002 final regulations may be used The 2002 final regulations added more than just a new mortality table to these calculations They also added complexity When all the different situations listed above are taken together they represent a fairly complicated set of calculations that have to be correctly performed to make sure you calculate the correct distribution for your clients 2002 Brentmark Software Inc All Rights Reserved Calculating Required Minimum Distributions using the 2001 Proposed Regulations The regulations released on 1 11 2001 radically changed the way minimum distributions have to be calculated They eliminated a lot of complexity reduced the number of decisions made by a plan owner These regulations eliminated the old recalcula
158. tion options There is no hybrid method or joint term certain method However the new methodology does still have some similarities to the old For example the distribution is still calculated by dividing the previous year s balance by a life expectancy number Here s how it works 77 Chapter 20 Frequently Asked Questions Situation 1 Owner still alive If the owner is still alive the distributions are based on the divisor found in the MDIB table for owner s age The MDIB table is a published table of joint life expectancies for an owner and a beneficiary who is ten years younger than the owner It simplifies the calculation to only using the owner s age No beneficiary information is needed and no recalculation options are available There is only one exception to this rule for cases involving spousal beneficiaries that are more than ten years younger than the owner Situation 2 Owner dies with nonspousal beneficiary When the owner dies with a nonspousal beneficiary a term certain distribution period is established based on the designated beneficiary s single life expectancy in the year after the owner s death As with the old term certain method this life expectancy is simply reduced by one for each year after it is calculated Situation 3 Owner dies with no beneficiary This is the only situation where the owner s required beginning date is relevant If the owner dies before the required beginning date
159. tributions report Enter the annual percent increase of the living expense 32 Chapter 5 Entering Tax Information Make Payments From Year by Year Expenses Apply Growth Rate from first year of analysis instead of first year expense applies Use these boxes to enter the span of years that the living expense is needed To enter living expenses on a year by year basis click the Year by Year Expenses button Be sure that the fund from which the expense s will be paid has enough money to cover the time span that you indicate in the From To boxes If the expense uses the entire fund and you ve specified that the expense is needed for a longer time period than the fund will last the program begins paying the expense from the other funds Click this button to enter living expenses for specific years instead of entering living expenses that cover a span of years In general you ll be planning future living expenses so you ll probably want to adjust living expenses for inflation By default the program applies the growth rate on the expense from the first year of analysis instead of from the first year that the plan owner needs the expense This ensures that when the living expense is distributed it has been adjusted for inflation 33 Chapter 7 Modeling Pension Fund Activity Pension Section Use the Pension section to transfer distributions from the plan owner s Pension Fund to the Other Assets The dist
160. uired Minimum Distribution by 12 31 00 based on his IRA balance as of 12 31 99 and so on In this example the IRA owner has the option of making his 1998 Required Minimum Distribution by 4 1 99 instead of by 12 31 98 The disadvantage of making the 1998 distribution in 1999 is that he must also make a 1999 distribution by 12 31 99 So if he delays the first Required Minimum Distribution until 1999 he will be making two Required minimum distributions in 1999 and possibly pushing himself into a higher tax bracket In many cases he would have been better off making the 1998 Required Minimum Distribution in 1998 and the 1999 Required Minimum Distribution in 1999 Remember it is only the first Required Minimum Distribution that may be delayed until April 1 of the following year For non spousal beneficiaries distributions are subject to the MDIB requirements see IRC Proposed Treas Reg Sec 1 401 a 9 2 MDIB requires that no non spousal distribution that occurs after the Required Beginning Date be less than the one calculated by dividing the Plan Balance by the factor from the MDIB Table divisor from IRC Proposed Treas Reg Sec 1 401 a 9 2 Q 4 Effectively this requirement is triggered when the non spousal beneficiary is more than ten years younger than the plan owner is and will result in a joint life expectancy factor for a person who is ten years younger than the owner regardless of the actual age of the beneficiary The MDIB limitation may
161. ure After Tax Distributions 0ooooocccnococonccconcconos 101 Roth IRA ria 41 Clear piscis 10 Client InformatiON oooocnnccnnncnnnnncinnocnss 14 Comparison Report A 66 Constructed Report o ooocicc 65 66 CONTADOS ios 6 Timing A ni 13 Contributions Section c eee 51 Conversion Tax 21 27 42 CONVersIONS oooconcccccnnnannnos 41 42 45 46 A ren ia 13 Copy Alternative ooooooninconiccnoncnconnonn 19 Copy Cod ao 59 Create Desktop COM oooooonccnincononncon 7 138 Chapter 27 Useful Resources Current Report iia 4 61 Custom Data Entry 59 D Data Entry Sections ee 4 13 Date Prepara cada 14 69 DETaulCElle erre ii 10 Default Values ud 5 Deferral ai i e e ei 21 81 101 Defined Benefit Annuities 6 Discount Rate ccccnnnnnnnnnonono 15 101 Distribution Frequency ccee 38 Distribution Method 0000000 37 40 Distribution Year c 3 2c cbeccsseccincesscsss 37 DIStDUCONS essa lira 6 Planning Process sic 13 A ecas 13 E Equivalent Exemption eeeeeees 26 Estate Analysis Report o 110 Estate Analysis Max Deferral 19 81 101 Estate Taxi ii 5 21 23 A AN 10 Expanded Repo nidannis 61 Expected Plan Growth 0c00ccceee 38 F Files Create NG Wisin 9 Load Dolls dis 10 Load Last Opened iniciadas 11 Open Exists 13 sete ee atts eats 9 DAVE ct eswra A aioe Mates 9 Dave TT 9 Save Defaults
162. ving expenses and the source of conversion tax payments it is difficult to model a year by year conversion scenario with equal conversion amounts However we ve provided the following example to demonstrate a simple conversion over four years Let s assume the Pension Fund balance is 100 000 Click the Conversions tab When active the tab is highlighted yellow In the Year column enter the years in which the conversions occur Enter one quarter of the Pension Fund balance 25 000 for years one two and three Enter 100 for the fourth year In the Taxes section click the Conversion Tax tab and select the fund from which conversion taxes will be paid Depending on growth rates living expenses contributions and the source of conversion tax payments the fourth year conversion amount may be higher or lower than years one two and three Note If you want to convert the plan over a four period do not enter 25 for four years This would only convert 25 of the total fund each year Custom Roth IRA Conversions Click this button to enter conversions over a greater number of years than is possible from the Conversions tab The program adds these conversions to any conversions that you enter on the Conversions tab Roth IRA Distributions Qualified distributions from a Roth IRA are not included as income and are tax free Non qualified Roth IRA distributions are taxable including distributions within five years of the first Ro
163. y beneficiary and either the owner or the owner s spouse each year The amount of adjustment to Other Assets in each year The net distribution from the Pension Fund in each year The annual adjusted gross income used to calculate annual income taxes The total amount of money needed annually for Donee Exclusion Gifting The total amount of money needed annually for living expenses The total amount of money needed annually to pay life insurance premiums The annual distribution from the Pension Fund and Roth IRA The IRA beneficiary s age in each year 115 Chapter 23 Descriptions of Available Values Conversion Tax Paid From Other Assets Conversion Tax Paid From Pension Fund Conversion Tax Paid From Roth IRA Converted Balance of Roth IRA Cumulative After Tax Distributions Cumulative Net Proceeds Cumulative Pension Distributions Cumulative Roth IRA Distributions Distribution From Other Assets Distributions to Gift Fund Distributions to Income Distributions to Insurance The annual amount of Roth IRA conversion taxes paid from the Other Assets The annual amount of Roth IRA conversion taxes paid from the Pension Fund The annual amount of Roth IRA conversion taxes paid from the Roth IRA The taxable conversion portion of the Roth IRA beginning balance in each year The total amount of money distributed from the Pension Fund and Roth IRA through annually The net cumulat
164. year of second to die If the proceeds are inside of the estate the program adds them to the Other Assets on 1 1 of the year after the second to die In both cases the program pays the estate taxes from the Other Assets on 1 2 of the year after the second to die Proceeds Tab Table of Inputs Input Description Primary Source for Life Insurance Premiums Description Proceed Growth Rate From To Boxes Apply to Alternative Select a fund as the primary source for paying the premiums If there is not enough money in the fund you select the program takes the payments first from the Other Assets fund then from the Pension Fund and finally from Roth IRA Money used for premiums is considered consumed it is not transferred to Other Assets It is completely taken out of the analysis Enter a short description for each Proceed The description is optional Enter the amount of each Proceed in this box The program adds insurance Proceeds to the Net After Tax Assets every year up to and including the year of the second to die in an owner spouse case Enter the annual percent increase of the Proceed Use these boxes to enter the span of years for which the Proceed is needed These numbers represent the Alternatives Selected check boxes indicate which Alternatives will include the Proceed 54 Chapter 13 Modeling Insurance Apply Growth from first year of analysis instead of From Year
165. yment of Income Tax Temporarily Lowers Federal Estate Tax 130 Evaluating the Roth IRA How much Deferral Can You Handle 0 0 eee eeeeeeeee 130 The Name of the Game is Defeat 130 No Minimum Distributions at Age 70 2 cccceccccceseceseceseceeseeceeceeeseeeesseecsseeneenees 130 Spousal Rollover Increases Deferral PeriOd oooooonnccnnccincccnoccconncconoconc nono non ncnonocnnos 131 Two Components of Tax Deferral sii diia fas 131 Tax Free Growth May Continue After Death 00 0 eieeceeecesecesecneeeneeeneseeeeseenaes 131 Avoid Distributions as Long as PossSIble onooonnocnnnccinocanococonaconcnonancnanoconocannconnnno 132 Chapter Pinos Add 135 Useful ResoUrCOS scc ccccscssccccsassceceestecccecatecucascccoscasscccecneaescesesesesnaneassoosasaveonseenessosessteosenbeedoesesseeoese 135 vii Chapter 1 Introducing the Program One of Brentmark s most popular programs Pension and Roth IRA Analyzer is used and recommended by pension distribution planning experts Pension Distribution Planning While the program is the most comprehensive available for pension distribution planning you will find running the program straightforward and simple The key is to think of the main window as divided into parts The program evaluates various strategies of taking distributions from qualified plans traditional IRAs and Roth IRAs It calculates up to four alternatives simultaneously It s designed to handle both the curre

Pension & Roth IRA Analyzer v. 2003.10 User Manual

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Pension &amp; Roth IRA Analyzer v. 2003.10 User Manual

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Pension & Roth IRA Analyzer v. 2003.10 User Manual