Should I Convert to a Roth IRA? How Should I Pay the Taxes?

John Smith and Mary Smith Presented by: Mr. John Q. Smith, Jr., CLU For Evaluation Purposes Only 10735 David Taylor Drive Suite 350 Charlotte, North Carolina 28262 Email: support@planlab.us

Important Notes
These pages depict certain wealth preservation strategies concerning possible methods for taking distributions from your qualified retirement plan. For purposes of this analysis, several of your qualified retirement plans may be aggregated and shown as one single plan. This report provides only broad, general guidelines, which may be helpful in shaping your thinking about and discussing your wealth preservation needs with your professional advisors. This report provides estimates based on our general understanding of current tax laws. Each scenario shown illustrates your current situation or an alternative strategy and its possible effects on the financial situation you provided. Inclusion of one or more of these strategies does not constitute a recommendation of that strategy over any other strategy. Calculations contained in this analysis are estimates only based on the information you provided, such as the value of your assets today, and the rate at which the assets appreciate. The actual values, rates of growth, and tax rates may be significantly different from those illustrated. These assumptions are only a “best guess.” No guarantee can be made regarding values, as all rates are the hypothetical rates you provided. These computations are not a guarantee of future performance of any asset, including insurance or other financial products. No legal or accounting advice is being rendered either by this report or through any other oral or written communications. Nothing contained in this report is intended to be used on any tax form or to support any tax deduction. Unless indicated, the tax aspect of the federal Generation-Skipping Transfer Tax (GSTT) is not reflected. The GSTT is similar to an additional level of estate tax on certain transfers to grandchildren, or individuals two or more generations removed from the transferor. State laws vary regarding the distribution of property, and individual circumstances are unique and subject to change. You should discuss all strategies, transfers, and assumptions with your legal and tax advisors. To implement a strategy, it may be necessary to restructure the ownership of property, or change designated beneficiaries before specific will or trust provisions, prepared by the client’s counsel, become effective. The transfer of a life insurance policy may not result in its removal from the estate of the prior owner for three years. Strategies may be proposed to support the purchase of various products such as insurance and other financial products. When this occurs, additional information about the specific product (including a prospectus, if required, or an insurer provided policy illustration) will be provided for your review. IMPORTANT: The projections or other information generated by this investment analysis tool (Qualified Plan Distribution Analysis) regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results and are not guarantees of future results. IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the IRS, this notice is to inform you that any U. S. federal tax advice contained in this presentation is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this presentation.

This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU For Evaluation Purposes Only Version 2.0.0 c. 6.1.0.0 September 25, 2009 2 of 13

Retirement Savings Options
IRA vs. Roth vs. Taxable Accounts
Pay Taxes Now or Later?
The deciding factor between choosing an IRA or Roth IRA is whether you prefer paying taxes on your contributions (Roth IRA) or on your distributions (Traditional IRA). So when will your taxes be higher – during your working years or during retirement? When comparing, be sure to consider your income level during each phase (both income and withdrawals from assets), in addition to potential legislative changes.

IRA vs. Roth IRA - Values at Retirement
Taxes Higher Now Traditional IRA is Better Taxes Stay Same Options are Equal Taxes Higher in Retirement Roth IRA is Better

The Flexibility of the Roth IRA
A major advantage of the Roth IRA is the flexibility of distributions before and during retirement:
Traditional IRA Roth IRA Traditional IRA Roth IRA Traditional IRA Roth IRA

• Early Distributions (pre-59½) — Traditional IRAs Traditional IRA may charge a 10% penalty, with some exceptions while there is no penalty on withdrawals of contributions from a Roth IRA • Required Distributions (after 70½) — Traditional IRAs require minimum distributions each year, while a Roth IRA has no required distributions for the Roth IRA owner

Roth IRA

Income Taxes

The Case Against "Taxable Accounts" (Savings Accounts)
Contributions to taxable accounts are made after-tax (just like a Roth IRA), but unlike a Roth IRA, interest and dividends generated are taxable each year, and capital gains taxes are due when liquidating an investment held for more than a year. This combination of taxes can significantly reduce your ability to accumulate retirement funds over the long-term, and may affect or limit your investment options and the frequency of changes to your investments over the long-term. The upside is that there are no penalties or restrictions on withdrawals from taxable accounts before retirement, making them perfect for short-term savings.

$600,000 $500,000 $400,000 $300,000 $200,000 $100,000 $0

$611,729

$361,711

These graphs compare account balances after 30 years of $5,000 annual contributions (after tax) growing at 8%. All growth in the taxable account is taxed each year at 35% while the Roth IRA grows tax free.

Use taxable accounts for short-term savings. Use IRAs and Roth IRAs for long-term retirement funding.

Taxable

Roth IRA

This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU For Evaluation Purposes Only

September 25, 2009 3 of 13

Comparing IRA with Roth IRA Conversion
Should I Convert to a Roth IRA? How Should I Pay the Taxes?
Initial Value of IRA: $500,000 Convert in 2010 to Roth IRA A Traditional IRA may be converted to a Roth IRA, but income taxes must be paid on the moneys transferred to the Roth IRA. In exchange distributions from the Roth IRA may be made, although not required, as tax-free income.

Traditional IRA
No Conversion Taxes
$4,800,000 4,000,000 3,200,000 2,400,000 1,600,000 800,000 0 65 70 75 80 85 90 95 65

Roth IRA
Using Other Assets for Taxes1

Roth IRA
Using IRA for Taxes1

70

75

80

85

90

95

65

70

75

80

85

90

95

Age

Age

Age

Traditional IRA

Other Assets

Roth IRA

Age 60 61 65 75 85

IRA2 509,806 540,395 682,236 970,463 1,015,361

Other Assets 302,774 311,252 347,604 621,432 1,260,955

Total 812,581 851,647 1,029,840 1,591,896 2,276,316

Roth IRA 509,806 540,395 682,236 1,221,781 2,188,023

Other Assets 302,774 311,252 184,091 242,641 319,812

Total 812,581 851,647 866,327 1,464,422 2,507,836

Roth IRA 509,806 378,276 477,565 855,247 1,531,616

Other Assets 302,774 422,594 357,608 471,345 621,255

Total 812,581 800,870 835,174 1,326,591 2,152,871

Total Funds at Age 952 $3,055,684

Total Funds at Age 95 $4,339,944

Total Funds at Age 95 $3,561,735

1

Income tax rates are assumed to be 30% that changes to 30.00% starting when John is age 65. Example assumes the net distributions after taxes are deposited into the Other Assets. IRA balance would be subject to income taxation upon distribution or at death. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU September 25, 2009 For Evaluation Purposes Only 4 of 13
2

Lifetime Values—Traditional IRA
Keeping Traditional IRA
Initial Value of IRA: $500,000
Spouse Age Age Life Exp.1 Earnings &2 Contributions Actual Distri- 3 butions Traditional IRA Values Tax Rate Income Reinvested Taxes4 Distri- 5 Paid butions Total of All Other6 Assets Less Tax4 Liability Net All Other7 Assets Qualified & All Other Assets

Year

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033

60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84

59 60 61 62 63 64 65 66 67 68 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 27.4 26.5 25.6 24.7 23.8 22.9 22.0 21.2 20.3 19.5 18.7 17.9 17.1 16.3 15.5

9,806 30,588 32,424 34,369 36,431 38,617 40,934 43,390 45,994 48,753 51,678 52,893 54,071 55,203 56,280 57,292 58,228 59,075 59,833 60,475 61,002 61,400 61,654 61,748 61,665

0 0 0 0 0 0 0 0 0 0 31,435 33,266 35,202 37,249 39,412 41,697 44,112 46,442 49,124 51,688 54,369 57,170 60,092 63,137 66,306

509,806 540,395 572,818 607,188 643,619 682,236 723,170 766,560 812,554 861,307 881,551 901,178 920,046 938,000 954,869 970,463 984,579 997,212 1,007,921 1,016,708 1,023,341 1,027,571 1,029,134 1,027,745 1,023,103

30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30%

0 0 0 0 0 0 0 0 0 0 0 9,430 9,980 10,561 11,175 11,824 12,509 13,234 13,933 14,737 15,506 16,311 17,151 18,028 18,941

0 0 0 0 0 0 0 0 0 0 31,435 23,836 25,222 26,688 28,237 29,874 31,603 33,209 35,191 36,951 38,863 40,859 42,941 45,109 47,365

302,774 311,252 319,967 328,926 338,136 347,604 357,337 367,342 377,628 388,201 430,506 466,154 504,172 544,707 587,909 633,941 682,974 734,967 790,379 849,083 911,323 977,281 1,047,146 1,121,113 1,199,384

0 0 0 0 0 0 0 0 0 0 9,430 9,980 10,561 11,175 11,824 12,509 13,234 13,933 14,737 15,506 16,311 17,151 18,028 18,941 19,892

302,774 311,252 319,967 328,926 338,136 347,604 357,337 367,342 377,628 388,201 421,075 456,174 493,612 533,532 576,086 621,432 669,740 721,034 775,642 833,577 895,012 960,130 1,029,119 1,102,172 1,179,492

812,581 851,647 892,785 936,114 981,755 1,029,840 1,080,507 1,133,902 1,190,182 1,249,509 1,302,626 1,357,352 1,413,658 1,471,533 1,530,954 1,591,896 1,654,319 1,718,245 1,783,563 1,850,284 1,918,353 1,987,701 2,058,252 2,129,917 2,202,595

1 2

Life expectancy is based on the Uniform Lifetime Table. See the Assumptions page for additional information. Assumes qualified plan earns 6.00% interest. Also includes Employer Contributions and Salary Reductions, if any. 3 Actual Distribution is the greater of the pretax distribution required to generate the Desired Distributions (see Assumptions page) or Required Minimum Distribution. 4 Taxes and any applicable penalties are paid at the start of the calendar year following the tax liability. 5 Actual Distributions less Taxes and Penalties. 6 All Other Assets and Cumulative Reinvested Distributions are assumed to earn 4.00% interest and are taxed at a 30.00% income tax rate that changes to 30.00% starting when John is age 65. 7 Net of liability for income taxes and any penalties. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU September 25, 2009 For Evaluation Purposes Only 5 of 13

Lifetime Values—Traditional IRA
Keeping Traditional IRA
Spouse Age Age Life Exp.1 Earnings &2 Contributions Actual Distri- 3 butions Traditional IRA Values Tax Rate Income Reinvested Taxes4 Distri- 5 Paid butions Total of All Other6 Assets Less Tax4 Liability Net All Other7 Assets Qualified & All Other Assets Year

2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044

85 86 87 88 89 90 91 92 93 94 95

84 85 86 87 88 89 90 91 92 93 94

14.8 14.1 13.4 12.7 12.0 11.4 10.8 10.2 9.6 9.1 8.6

61,386 60,922 60,256 59,375 58,262 56,903 55,325 53,522 51,486 49,212 46,757

69,129 72,011 74,946 77,920 80,920 83,191 85,379 87,455 89,386 90,132 90,615

1,015,361 1,004,271 989,582 971,037 948,379 922,091 892,038 858,105 820,205 779,285 735,428

30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30%

19,892 20,739 21,603 22,484 23,376 24,276 24,957 25,614 26,236 26,816 27,040

49,237 51,273 53,342 55,436 57,544 58,915 60,421 61,841 63,150 63,317 63,575

1,281,694 1,368,322 1,459,424 1,555,147 1,655,636 1,760,286 1,869,356 1,982,882 2,100,880 2,222,334 2,347,441

20,739 21,603 22,484 23,376 24,276 24,957 25,614 26,236 26,816 27,040 27,184

1,260,955 1,346,719 1,436,940 1,531,771 1,631,360 1,735,329 1,843,742 1,956,646 2,074,064 2,195,294 2,320,256

2,276,316 2,350,990 2,426,522 2,502,808 2,579,739 2,657,420 2,735,780 2,814,751 2,894,270 2,974,579 3,055,684

1 2

Life expectancy is based on the Uniform Lifetime Table. See the Assumptions page for additional information. Assumes qualified plan earns 6.00% interest. Also includes Employer Contributions and Salary Reductions, if any. 3 Actual Distribution is the greater of the pretax distribution required to generate the Desired Distributions (see Assumptions page) or Required Minimum Distribution. 4 Taxes and any applicable penalties are paid at the start of the calendar year following the tax liability. 5 Actual Distributions less Taxes and Penalties. 6 All Other Assets and Cumulative Reinvested Distributions are assumed to earn 4.00% interest and are taxed at a 30.00% income tax rate that changes to 30.00% starting when John is age 65. 7 Net of liability for income taxes and any penalties. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU September 25, 2009 For Evaluation Purposes Only 6 of 13

Lifetime Values—Converting Traditional IRA to Roth IRA
Converting Traditional IRA to Roth IRA Using Other Assets for Taxes
Initial Value of IRA: $500,000
Spouse Age Age Life Exp.1 Earnings &2 Contributions Actual Distri- 3 butions Traditional IRA Values Tax Rate Income Reinvested Taxes4 Distri- 5 Paid butions Total of All Other6 Assets Less Tax4 Liability Net All Other7 Assets Qualified & All Other Assets

Year

2009

60

59

9,806

0

509,806

30%

0

0

302,774

0

302,774

812,581

Convert $509,806 to a Roth IRA in January 2010.
Actual Distri- 3 butions Roth IRA Values Income Reinvested Taxes4 Distri- 5 Paid butions Total of All Other6 Assets Less Tax4 Liability Net All Other7 Assets Qualified & All Other Assets

Year

Spouse Age Age

Life Exp.1

Earnings &2 Contributions

Tax Rate

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
1 2

61 62 63 64 65 66 67 68 69 70 71 72 73 74 75

60 61 62 63 64 65 66 67 68 69 70 71 72 73 74

540,395 32,424 34,369 36,431 38,617 40,934 43,390 45,994 48,753 51,678 54,779 58,066 61,550 65,243 69,157

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

540,395 572,818 607,188 643,619 682,236 723,170 766,560 812,554 861,307 912,986 967,765 1,025,831 1,087,381 1,152,623 1,221,781

30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30%

0 0 76,471 76,471 0 0 0 0 0 0 0 0 0 0 0

0 0 -76,471 -76,471 0 0 0 0 0 0 0 0 0 0 0

311,252 319,967 250,495 179,077 184,091 189,246 194,545 199,992 205,592 211,348 217,266 223,349 229,603 236,032 242,641

0 76,471 76,471 0 0 0 0 0 0 0 0 0 0 0 0

311,252 243,496 174,024 179,077 184,091 189,246 194,545 199,992 205,592 211,348 217,266 223,349 229,603 236,032 242,641

851,647 816,315 781,211 822,696 866,327 912,416 961,105 1,012,546 1,066,899 1,124,334 1,185,031 1,249,180 1,316,984 1,388,655 1,464,422

Life expectancy is based on the Uniform Lifetime Table. See the Assumptions page for additional information. Assumes qualified plan/Roth IRA earns 6.00% interest. Also includes Employer Contributions and Salary Reductions, if any. After Roth Conversion, also includes amount converted to Roth IRA. 3 Actual Distribution is the greater of the pretax distribution required to generate the Desired Distributions (see Assumptions page) or Required Minimum Distribution. After Roth Conversion, Other Assets are used to the extent possible to pay income taxes on Traditional IRA amounts converted to Roth IRA. 4 Taxes and any applicable penalties are paid at the start of the calendar year following the tax liability. After Roth Conversion, includes the estimated income taxes on the Traditional IRA amount converted to Roth IRA. Conversions in year 2010 only will be reported as taxable income equally in 2011 and 2012; therefore, income taxes due are paid equally in 2012 and 2013. 5 Actual Distributions less Taxes and Penalties. After Roth Conversion, Other Assets are used to the extent possible to pay the income taxes on Traditional IRA amounts converted to Roth IRA. 6 All Other Assets and Cumulative Reinvested Distributions are assumed to earn 4.00% interest and are taxed at a 30.00% income tax rate that changes to 30.00% starting when John is age 65. 7 Net of liability for income taxes and any penalties. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU September 25, 2009 For Evaluation Purposes Only 7 of 13

Lifetime Values—Converting Traditional IRA to Roth IRA
Converting Traditional IRA to Roth IRA Using Other Assets for Taxes
Spouse Age Age Life Exp.1 Earnings &2 Contributions Actual Distri- 3 butions Roth IRA Values Tax Rate Income Reinvested Taxes4 Distri- 5 Paid butions Total of All Other6 Assets Less Tax4 Liability Net All Other7 Assets Qualified & All Other Assets Year

2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044

76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95

75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94

73,307 77,705 82,368 87,310 92,548 98,101 103,987 110,226 116,840 123,850 131,281 139,158 147,508 156,358 165,740 175,684 186,225 197,399 209,243 221,797

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

1,295,088 1,372,793 1,455,160 1,542,470 1,635,018 1,733,119 1,837,106 1,947,333 2,064,173 2,188,023 2,319,305 2,458,463 2,605,971 2,762,329 2,928,069 3,103,753 3,289,978 3,487,377 3,696,619 3,918,416

30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30%

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

249,435 256,419 263,599 270,980 278,567 286,367 294,385 302,628 311,102 319,812 328,767 337,973 347,436 357,164 367,165 377,445 388,014 398,878 410,047 421,528

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

249,435 256,419 263,599 270,980 278,567 286,367 294,385 302,628 311,102 319,812 328,767 337,973 347,436 357,164 367,165 377,445 388,014 398,878 410,047 421,528

1,544,522 1,629,212 1,718,759 1,813,450 1,913,585 2,019,486 2,131,492 2,249,961 2,375,274 2,507,836 2,648,072 2,796,435 2,953,406 3,119,493 3,295,233 3,481,198 3,677,992 3,886,255 4,106,666 4,339,944

1 2

Life expectancy is based on the Uniform Lifetime Table. See the Assumptions page for additional information. Assumes qualified plan/Roth IRA earns 6.00% interest. Also includes Employer Contributions and Salary Reductions, if any. After Roth Conversion, also includes amount converted to Roth IRA. 3 Actual Distribution is the greater of the pretax distribution required to generate the Desired Distributions (see Assumptions page) or Required Minimum Distribution. After Roth Conversion, Other Assets are used to the extent possible to pay income taxes on Traditional IRA amounts converted to Roth IRA. 4 Taxes and any applicable penalties are paid at the start of the calendar year following the tax liability. After Roth Conversion, includes the estimated income taxes on the Traditional IRA amount converted to Roth IRA. Conversions in year 2010 only will be reported as taxable income equally in 2011 and 2012; therefore, income taxes due are paid equally in 2012 and 2013. 5 Actual Distributions less Taxes and Penalties. After Roth Conversion, Other Assets are used to the extent possible to pay the income taxes on Traditional IRA amounts converted to Roth IRA. 6 All Other Assets and Cumulative Reinvested Distributions are assumed to earn 4.00% interest and are taxed at a 30.00% income tax rate that changes to 30.00% starting when John is age 65. 7 Net of liability for income taxes and any penalties. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU September 25, 2009 For Evaluation Purposes Only 8 of 13

Lifetime Values—Converting Traditional IRA to Roth IRA
Converting Traditional IRA to Roth IRA Using IRA for Taxes
Initial Value of IRA: $500,000
Spouse Age Age Life Exp.1 Earnings &2 Contributions Actual Distri- 3 butions Traditional IRA Values Tax Rate Income Reinvested Taxes4 Distri- 5 Paid butions Total of All Other6 Assets Less Tax4 Liability Net All Other7 Assets Qualified & All Other Assets

Year

2009

60

59

9,806

0

509,806

30%

0

0

302,774

0

302,774

812,581

Convert $356,864 to a Roth IRA in January 2010.
Actual Distri- 3 butions Roth IRA Values Income Reinvested Taxes4 Distri- 5 Paid butions Total of All Other6 Assets Less Tax4 Liability Net All Other7 Assets Qualified & All Other Assets

Year

Spouse Age Age

Life Exp.1

Earnings &2 Contributions

Tax Rate

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024

61 62 63 64 65 66 67 68 69 70 71 72 73 74 75

60 61 62 63 64 65 66 67 68 69 70 71 72 73 74

378,276 22,697 24,058 25,502 27,032 28,654 30,373 32,196 34,127 36,175 38,345 40,646 43,085 45,670 48,410

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

378,276 400,973 425,031 450,533 477,565 506,219 536,592 568,788 602,915 639,090 677,435 718,081 761,166 806,836 855,247

30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30%

0 45,883 53,530 53,530 0 0 0 0 0 0 0 0 0 0 0

152,942 -45,883 -53,530 -53,530 0 0 0 0 0 0 0 0 0 0 0

468,476 434,535 391,800 347,868 357,608 367,621 377,915 388,496 399,374 410,557 422,052 433,870 446,018 458,507 471,345

45,883 53,530 53,530 0 0 0 0 0 0 0 0 0 0 0 0

422,594 381,005 338,270 347,868 357,608 367,621 377,915 388,496 399,374 410,557 422,052 433,870 446,018 458,507 471,345

800,870 781,978 763,301 798,401 835,174 873,840 914,507 957,284 1,002,289 1,049,647 1,099,488 1,151,951 1,207,185 1,265,343 1,326,591

1 2

Life expectancy is based on the Uniform Lifetime Table. See the Assumptions page for additional information. Assumes qualified plan/Roth IRA earns 6.00% interest. Also includes Employer Contributions and Salary Reductions, if any. After Roth Conversion, also includes amount converted to Roth IRA. 3 Actual Distribution is the greater of the pretax distribution required to generate the Desired Distributions (see Assumptions page) or Required Minimum Distribution. After Roth Conversion also includes the estimated income taxes due on the amount of the Traditional IRA converted to Roth IRA. 4 Taxes and any applicable penalties are paid at the start of the calendar year following the tax liability. After Roth Conversion, includes the estimated income taxes on the Traditional IRA amount converted to Roth IRA. Conversions in year 2010 only will be reported as taxable income equally in 2011 and 2012; therefore, income taxes due are paid equally in 2012 and 2013. 5 Actual Distributions less Taxes and Penalties. After Roth Conversion, includes the estimated income taxes due on the amount of the Traditional IRA converted to Roth IRA. 6 All Other Assets and Cumulative Reinvested Distributions are assumed to earn 4.00% interest and are taxed at a 30.00% income tax rate that changes to 30.00% starting when John is age 65. 7 Net of liability for income taxes and any penalties. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU September 25, 2009 For Evaluation Purposes Only 9 of 13

Lifetime Values—Converting Traditional IRA to Roth IRA
Converting Traditional IRA to Roth IRA Using IRA for Taxes
Spouse Age Age Life Exp.1 Earnings &2 Contributions Actual Distri- 3 butions Roth IRA Values Tax Rate Income Reinvested Taxes4 Distri- 5 Paid butions Total of All Other6 Assets Less Tax4 Liability Net All Other7 Assets Qualified & All Other Assets Year

2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035 2036 2037 2038 2039 2040 2041 2042 2043 2044

76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95

75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94

51,315 54,394 57,657 61,117 64,784 68,671 72,791 77,158 81,788 86,695 91,897 97,411 103,255 109,451 116,018 122,979 130,358 138,179 146,470 155,258

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

906,561 960,955 1,018,612 1,079,729 1,144,513 1,213,184 1,285,975 1,363,133 1,444,921 1,531,616 1,623,513 1,720,924 1,824,179 1,933,630 2,049,648 2,172,627 2,302,985 2,441,164 2,587,633 2,742,891

30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30% 30%

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

484,543 498,110 512,057 526,394 541,133 556,285 571,861 587,873 604,334 621,255 638,650 656,532 674,915 693,813 713,240 733,210 753,740 774,845 796,541 818,844

0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0

484,543 498,110 512,057 526,394 541,133 556,285 571,861 587,873 604,334 621,255 638,650 656,532 674,915 693,813 713,240 733,210 753,740 774,845 796,541 818,844

1,391,104 1,459,065 1,530,669 1,606,123 1,685,646 1,769,469 1,857,836 1,951,006 2,049,255 2,152,871 2,262,163 2,377,456 2,499,095 2,627,443 2,762,888 2,905,837 3,056,725 3,216,009 3,384,174 3,561,735

1 2

Life expectancy is based on the Uniform Lifetime Table. See the Assumptions page for additional information. Assumes qualified plan/Roth IRA earns 6.00% interest. Also includes Employer Contributions and Salary Reductions, if any. After Roth Conversion, also includes amount converted to Roth IRA. 3 Actual Distribution is the greater of the pretax distribution required to generate the Desired Distributions (see Assumptions page) or Required Minimum Distribution. After Roth Conversion also includes the estimated income taxes due on the amount of the Traditional IRA converted to Roth IRA. 4 Taxes and any applicable penalties are paid at the start of the calendar year following the tax liability. After Roth Conversion, includes the estimated income taxes on the Traditional IRA amount converted to Roth IRA. Conversions in year 2010 only will be reported as taxable income equally in 2011 and 2012; therefore, income taxes due are paid equally in 2012 and 2013. 5 Actual Distributions less Taxes and Penalties. After Roth Conversion, includes the estimated income taxes due on the amount of the Traditional IRA converted to Roth IRA. 6 All Other Assets and Cumulative Reinvested Distributions are assumed to earn 4.00% interest and are taxed at a 30.00% income tax rate that changes to 30.00% starting when John is age 65. 7 Net of liability for income taxes and any penalties. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU September 25, 2009 For Evaluation Purposes Only 10 of 13

Understanding IRAs, Roth IRAs, Conversions
Key Concepts & Rules
Traditional IRAs
• Contributions are limited to $5,000 for 2009 ($6,000 if 50 or over) and are generally tax deductible. • If you are covered by a retirement plan at work and your modified adjusted gross income (MAGI) is $89,000 - $109,000 in 2009 (married, filing jointly), deductibility phases out and is eliminated thereafter. If your spouse is covered by a retirement plan at work, but you are not, the phase out is $166,000 - $176,000 for married, filing joint. (The phase out is $55,000 - $65,000 for single taxpayers.) • Funds grow tax-deferred, but are taxed as ordinary income upon distribution. • Minimum distributions are required annually beginning on the Required Beginning Date (RBD1), which is based on your age 70½. • Distributions taken prior to age 59½ are subject to a 10% early distribution penalty tax, with certain exceptions. • Distributions after your death (or your spouse's death) are taxed as ordinary income to the beneficiary as distributions are received. • At your death (or your spouse's death), the entire account value is includible in the gross estate for federal estate tax purposes, and may be subject to estate taxes.

Roth IRAs
• Contributions are limited to $5,000 for 2009 ($6,000 if 50 or over) and are NOT income tax deductible. • Ability to contribute is phased out if you earn $166,000-$176,000 for married, filing jointly in 2009, and eliminated thereafter. The phase out is $105,000 - $120,000 for single taxpayers. • Funds grow tax deferred and are generally not taxable upon withdrawal. • No minimum distributions are required from Roth IRAs, during your (or your spouse's) lifetime. • Withdrawals of contributions to Roth IRAs, prior to age 59½, are not subject to the 10% early withdrawal penalty tax. Withdrawals of earnings within 5 years of establishing a Roth IRA are taxed as ordinary income. Earnings taken prior to age 59½ are taxed as ordinary income, and may be subject to a 10% early withdrawal penalty tax, with certain exceptions. • Distributions after your death are received by the beneficiary income-tax free if the Roth IRA has been established for at least 5 years. • At your death (or your spouse's death), the entire account value is includible in the gross estate for federal estate tax purposes, and may be subject to estate taxes.

Conversions (from a Traditional IRA to a Roth IRA)
• A Conversion is a taxable event. The entire (or partial) amount of the Traditional IRA (less any non-deductible contributions) is taxable as ordinary income upon conversion (or distribution). The conversion amount may move you into a higher marginal income tax bracket. Due to a special provision in the tax law, for amounts converted in 2010, half the conversion can be reported as taxable income in 2011 and the other half is reported in 2012. • Prior to 2010, if your MAGI exceeds $100,000, you are not eligible to convert a Traditional IRA to a Roth IRA. After 2009, the income limit is eliminated. • If you pay the taxes out of the Traditional IRA, it will reduce the benefits of the conversion to a Roth IRA, and if you are under age 59½, the amount used to pay income taxes will be subject to the 10% early distribution penalty tax. • Withdrawals of converted amounts within 5 years of each separate conversion to Roth IRAs may be subject to a 10% early distribution penalty tax and withdrawals of earnings may be subject to a 10% early distribution penalty tax and/or taxed as ordinary income. • Distributions from a Traditional IRA must be deposited into a Roth IRA within 60 days (not applicable for trustee-to-trustee transfers). • You do not have to convert your entire Traditional IRA. A partial conversion is allowed, but you must follow the same rules as any other distribution regarding nondeductible contributions.
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The RBD is no later than April 1st following age 70½ for traditional IRAs, SEPs, SIMPLEs. For qualified retirement plans, the later of April 1 of the year following the year in which the owner reaches age 70½ or retires, if less than a 5% owner. This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU September 25, 2009 For Evaluation Purposes Only 11 of 13

Assumptions
Details and Assumptions for Calculations
General Assumptions John's DOB: January 1, 1949 and Mary's DOB: May 11, 1950 Calculations assume that the value of All Other Assets (excluding life insurance) is equal to $300,000. These assets are assumed to earn 4.00% interest. Hypothetical rates of return illustrated are not associated with any particular investment product. Calculations assume an ordinary income tax rate of 30.00% that changes to 30.00% starting when John is age 65. Distribution of amounts equal to non-deductible contributions to your qualified plan are not taxable. These illustrations assume all distributions are taxable income. The Account Balance and Other Assets are grown pro-rata based on the date entered. Qualified Plan Assumptions Current qualified plan amount is $500,000, with a growth rate of 6.00%. Hypothetical rates of return illustrated are not associated with any particular investment product. There are no Required Minimum Distributions from Qualified Plans for 2009 only. Elections: Distributions are at least the Required Minimum Distribution using the Uniform Lifetime Table, if applicable. Conversion Occurs: Year 2010 Traditional IRA Contributions may be tax deductible and earnings are tax-deferred, but taxable when withdrawn. Required minimum distributions must begin by age 70½. Deductibility of contributions is based on modified adjusted gross income (MAGI) (for 2009, single $65,000 and married, filing jointly $109,000) and not being a participant in an employer sponsored retirement plan. Roth IRA Contributions are not tax deductible but earnings are tax-deferred and are generally not taxable upon withdrawal. Contributions are limited to $5,000 for 2009 ($6,000 if 50 or over). The ability to contribute is phased out if your MAGI is $166,000 - $176,000 for married, filing jointly in 2009, and eliminated thereafter. (The phase out is $105,000 - $120,000 for single taxpayers.) Withdrawals of contributions to Roth IRAs are not subject to income tax or the 10% early withdrawal penalty tax. Withdrawals of earnings within 5 years of establishing a Roth IRA are taxed as ordinary income. Earnings taken prior to age 59½ are taxed as ordinary income, and may be subject to a 10% early distribution penalty tax, with certain exceptions. There is no required minimum distributions at any age. Conversion of Traditional IRA to Roth IRA Prior to 2010, a Traditional IRA cannot be converted to a Roth IRA if MAGI exceeds $100,000. Amounts converted from the Traditional IRA are taxable in the year of the conversion. However, amounts converted to Roth IRA in 2010 only will be reported equally in 2011 and 2012; therefore, income taxes are paid equally in 2012 and 2013. Withdrawals of converted amounts within five years of each conversion to Roth IRA may be subject to the 10% early distribution penalty tax, and withdrawals of earnings may be subject to the 10% early distribution penalty tax and/or taxed as ordinary income.

This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU For Evaluation Purposes Only

September 25, 2009 12 of 13

Assumptions (Continued)
Details and Assumptions for Calculations
Tax Relief Act of 2001 Compliant This illustration shows the effect of this law on your estimated estate if you (and your spouse) die in the year shown. The Tax Relief Act of 2001 reduces the maximum rate and increases the applicable exclusion amount each year through 2009 with no estate tax in year 2010. A "sunset provision" voids the new law in 2011 and retroactively restores the law effective in 2001. Distribution Assumptions Early retirement distributions are not exempt from the IRC Section 72(t) penalty. Distributions from the Traditional IRA are taxable. For Traditional IRA/Qualified Plan, distribution calculations do not use a joint beneficiary. For Traditional/Qualified Plan, required minimum distributions are based on the Uniform Lifetime Table. Final Regulations Required Minimum Distributions are calculated based on the Uniform Lifetime Table. The Uniform Lifetime Table is permitted to be used for lifetime distributions for calendar years beginning on or after January 1, 2002 and must be used for lifetime distributions for calendar years beginning on or after January 1, 2003. If your beneficiary is your spouse (who is more than 10 years younger than you) distributions during your joint lives may be calculated using the Joint and Last Survivor Table. Compliance with Revenue Ruling 2002-62 Section 72(t) distributions are in compliance with the calculation methods stated in Revenue Ruling 2002-62. The following calculation methods may be illustrated under this ruling: 1) Extension of the existing Uniform Lifetime Table for use with the Life Expectancy Method. 2) Addition of annuity factor table for use with the Annuity Method. 3) Addition of interest rate (not more than 120% of the federal mid-term rate) for use with the Amortization and Annuity Methods.

This presentation is not a financial plan. Presented by: Mr. John Q. Smith, Jr., CLU For Evaluation Purposes Only

September 25, 2009 13 of 13

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