The Roth IRA in 2010 America’s New Tax Break

1. The Roth IRA in 2010America’s New Tax Break Presented by: Edgar L. McLean First Financial Education Centers, LLC 1845 Town Center Blvd Suite 130 Fleming Island, Florida 32003 VPPCLIRA0809 Please see disclosures on slide 2 and slide 43: FINRA Reviewed through Transamerica 09-5214A

2. Important Disclosure • To comply with IRS Regulations, we are informing you of the following: Any discussion or advice regarding tax issues contained in this document was not intended or written to be used, and cannot be used, to avoid taxpayer penalties. Such discussion or advice was written to support the promotion or marketing of the transaction(s) or matter(s) contained in this document. Anyone reading this document or contemplating a transaction discussed in this material should seek advice based on the client's particular circumstances from an independent tax advisor. • There is no additional tax deferral benefit derived from placing IRA or other tax-qualified funds into an annuity. Features other than tax deferral should be considered in the purchase of a qualified annuity. • Variable annuities are long-term financial vehicles designed for retirement purposes. They contain underlying investment portfolios that are subject to market risk, including possible loss of principal. They offer three main features: tax-deferred treatment of earnings, a death benefit prior to annuitization, and guaranteed lifetime payment options. • All guarantees, including optional benefits, are based on the claims-paying ability of the issuing insurance company. • Before investing, consider the variable annuity's investment objectives, risks, charges, and expenses. Call 1-800-525-6205 for a contract and prospectus containing this and other information. Please read it carefully. • Transamerica variable annuities’ fees and charges include M&E&A, surrender charges, annual fee, and subaccount management fees. A fund facilitation fee may apply for certain subaccounts. Living benefit riders are available as an option for an additional fee. • Transamerica Financial Life Insurance Company is licensed in New York.

3. What the Experts Are Saying… “The Roth IRA is the single best gift Congress has ever presented to the American taxpayer.”

4. What the Experts Are Saying… “By allowing Roth IRAs, they also created the single most powerful estate building and wealth transfer vehicle available today.” “…By not imposing RMDs on the owner, they gave the American taxpayer one of the greatest income tax ‘loop-holes’ in existence today.”

5. What the Experts Are Saying… “The advantage of a Roth IRA over a regularly-taxed account is obvious. Either way you pay income tax up front. But with Roth, you’re then done paying taxes; with a regular account you’re just getting started.” www.moneychimp.com

6. What the Experts Are Saying… “The essence of a Roth IRA is that you pay tax on the seed, but reap the harvest tax-free.”

7. What the Experts Are Saying… “One of the smartest money moves a young person can make is to invest in a Roth IRA. Follow the rules and any money you put into one of these retirement-savings accounts grows absolutely tax free...Plus, an IRA is more flexible than a 401(k) and other retirement plans because you can invest it in almost whatever you want, from stocks and mutual funds to bonds and real estate.” Why you need a Roth IRA – NOW! by Erin Burt, Kiplinger’s Personal Finance 3-17-06

8. What the Experts Are Saying…

9. IRA Basics * Principal is subject to market fluctuation and may lose value

10. Traditional IRA Deductibility Rules

11. The Parity Principle

12. The Parity Principle

13. The Parity Principle

14. Tax Rates at Historic Lows Source:http://www.ntu.org/main/page.php?PageID=19 Source: www.taxfoundation.org

15. Current Tax Rates are Low “The current income tax rates are the lowest they’ve been since World War II …Under current policy, federal spending will rise to 32% of GDP by 2050, compared with a current level of 19%. There is no way to fund that spending without significant increases in tax rates.” • David WyssChief Economist at Standard & Poor’s Source: Pioneer Investments, “Worth the Wait: New Roth 401(k) Reshapes the Retirement Plan Landscape”

16. The Roth IRA Versus a Traditional IRA Do you expect that your personal tax rates will be higher or lower in the future? How Much Is a $100,000 Roth IRA Worth?

17. The Roth IRA Versus Traditional IRA A Roth IRA worth $100,000 is equal to a Traditional IRA worth…? Where else does a Roth IRA win?

18. Unique Benefits: No RMDs • Unlike Traditional IRAs, no Required Minimum Distributions

19. Unique Benefits: Estate Planning • No RMDs gives Roth IRAs distinct advantage in estate planning • Tax on conversion is “pre-paying” taxes … a gift for heirs (without owing any gift taxes) • “Pre-paying” taxes by converting also reduces the size of your taxable estate • Withdrawals will be tax-free for heirs • Minimum withdrawal rules will apply to heirs

20. Unique Benefits: No Age Limits Unlike Traditional IRAs, no age limits • 8 or 85: start at any age, as long as income is being earned

21. Unique Benefits: Access to Withdrawals Roth IRA • Contributions can be withdrawn at any time without penalty tax or income tax • Have income tax-free and penalty-tax-free withdrawals of earnings after five years if you are age 59½ or in the following circumstances: death, disability, or for a first-time home purchase up to $10,000 • One of the penalty-tax-free, but not income-tax-free withdrawals before age 59½ can be for higher education expenses

22. Unique Benefits: Social Security Taxation • Roth IRA distributions DO NOT affect SS taxation • Tax-exempt income that is included: • Tax-exempt interest • Series EE bond income • Exclude income earned abroad • Traditional IRA distributions can increase the amount of Social Security benefits that are taxed Kaye Thomas. Guide to Roth IRA: Tax on Social Security. Fairmark Press Tax Guide for Investors. http://www.fairmark.com/rothira/socsec.htm

23. Unique Benefits: Access to Withdrawals How Much of Your Social Security Income is Taxable? What’s included in the calculation? • All wages • Any taxable or tax-free interest • Distributions from pensions and traditional plans like IRAs and 401(k)s • Half of your Social Security income • And other taxable income How much of your Social Security is taxable? • If married filing jointly and AGI is: • Under $32,000 0% taxable • $32,000 - $43,999 50% taxable • Greater than $44,000 85% taxable

24. Roth IRA Advantages • Qualifying distributions are tax-free • Account value is effectively bigger – especially if tax rates go up • No Required Minimum Distributions during life • No age limit on contributions with earned income • Greater flexibility • Access contributions at any time tax-free • Access earnings for first-time home purchases after five-year holding period • Social Security Taxation • Tax-free bonds are included • Qualifying Roth IRA distributions are excluded • Diversify tax risk

25. Roth IRA Disadvantages • All contributions are non-deductible • The perceived tax benefit may never be realized, i.e., one might not live to retirement or much beyond, in which case, the tax structure of a Roth only serves to reduce an estate that may not have been subject to tax. • If contributions are made while in a higher tax bracket than when withdrawals are made, a Traditional IRA may result in lower taxes. • If converting to a Roth IRA, you may lose growth potential of the money paid in taxes

26. Who Qualifies?

27. Roth IRA Income Limits for 2009 Contributions

28. Roth IRA Annual Contribution Limits

29. Current Roth IRA Conversion Limits

30. What the Experts Are Saying… “The May 17, 2006 tax act, the Tax Increase Prevention and Reconciliation Act (TIPRA), presents wealthy Americans with an outstanding lifetime-and-beyond tax break… In 2010, wealthy Americans will be granted a wonderful, new opportunity. They will, for the first time, qualify for a Roth IRA conversion, regardless of their income.”

31. Convert in 2010 • No income limits for conversions of a Traditional IRA to a Roth IRA in 2010 • Limits on income levels for contributionsand annual contribution amounts remain in place • Beneficiary IRAs or inherited IRAs from a person other than your spouse cannot be converted • If you’re otherwise eligible, you can convert part of a Traditional IRA to a Roth IRA. But you can’t convert only the nontaxable part.

32. Tax Implications • Upon conversion, Traditional IRA assets are taxed as ordinary income. • But for 2010 conversions, these taxes can be paid over two years (2011 and 2012). • Please note: Pre-tax contributions vs. nondeductible Traditional IRA contributions. • Converting an Annuity? The Fair Market Value is used to determine the tax on conversion. Source: http://www.nysscpa.org/cpajournal/2007/507/essentials/p48.htm

33. Conversion Tax in Perspective • The tax on conversion is not an extra tax that you must pay to get the benefits of a Roth IRA. • Instead it is the payment of tax on the pre-tax growth that has already accrued in the IRA.

34. Traditional IRA vs. Roth IRA–Income Assumptions Traditional IRA contains only deductible contributions. Roth IRA distributions taken after five-year holding period. Growth

35. Traditional IRA vs. Roth IRA Social Security TaxationAssumptions: Married and filing jointly with $22,000 Social Security Benefit. $20,000 of additional taxable income. Traditional IRA contains only deductible contributions. Roth IRA distributions taken after five-year holding period.

36. Traditional IRA vs. Roth IRA Heirs – Lump Sum Distribution

37. Traditional IRA vs. Roth IRA Heirs – Stretching DistributionsAssumptions: Heir inherits $500,000, at age 50 and lives to age 84, with an assumed growth rate of 7.2% while taking out IRS required distributions, total beneficiary distributions equal $2.04 million.

38. Traditional IRA vs. Roth IRA

39. Roth IRA – FAQs Tax rates in the future are unpredictable. How can I know if converting will benefit me? Just as you use diversification to deal with the uncertainty of your investments, it can be a good idea to have at least some money in Roth IRAs to diversify your exposure to income taxes.

40. Roth IRA – FAQs What if the value of my IRA significantly increases or decreases when I convert? If the value goes up, the tax on conversion would have been calculated on a lower value. This is just one of the advantages of converting! If the value goes down, you can “recharacterize” the Roth IRA back to a Traditional IRA. This must be done by the due date, including extensions, for filing your income tax return.

41. Roth IRA – FAQs Does Congress have the ability to remove tax advantages of the Roth IRA in the future? Tax rules can be changed by Congress at any time. However, “…outright reneging on the promise of tax-free Roth withdrawals seems unlikely, at least without some transition or grandfathering the rules. What’s more likely is that Congress will simply raise income tax rates, putting the burden on wage earners and retirees pulling money from regular IRAs and 401(k)s.” -Source: Money Magazine “Retire Without Taxes” October 2008

42. Roth IRA – FAQs Is converting in 2010 right for you? Contact your financial professional for more information on the Roth IRA.