Qualified Plans Brochure by National Life Group

Qualified Solutions for Successful Business Owners

National Life Insurance Company速

30%

Securities offered solely by Equity Services, Inc., Member FINRA/SIPC, One National Life Drive, Montpelier, Vermont 05604, (800) 344-7437.

Equity Services, Inc. is a Broker/Dealer affiliate of National Life Insurance Company, Montpelier, Vermont.

63855 MK3168(1211) TC65507(1211)

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How can a Qualified Plan Benefit Your Business?

A Qualified Plan Provides Tax Savings For Your Business Today and Accumulates Assets for You for Tomorrow.

• A qualified plan can provide immediate tax deductions for your business • The contributions are not currently taxable as income • The contributions grow tax-deferred until withdrawn1 • Plan assets are generally protected from creditors • If there is a need for life insurance, including it in the plan provides you the opportunity to pay the life premiums on a pre-tax basis and receive a taxdeduction, freeing up personal dollars you would have otherwise spent outside the plan to purchase life insurance.

Why should I adopt a Qualified Plan?

Because you could save $425,000 in taxes!

Here’s how. If you were to adopt a qualified plan and contributed $50,000 each year, in a 34% tax bracket, that $50,000 is fully tax-deductible. That tax-deductible contribution will save you $17,000 in taxes each year.

Over 25 years, you would have deferred $425,000 in taxes.

Assuming a 7% total return compounded annually on the $49,000 contribution, your contributions would grow to $3,316,147 in 25 years. At withdrawal, taxes must be paid. Generally, the account value would be rolled to an IRA and you would be taxed as you took distributions from the IRA. But if you were to withdraw the entire account balance, even if you are in a 40% combined personal tax bracket, you will end up with a distribution of $2,368,633 after taxes.

1 Withdrawals made prior to age 59½ will be assessed a 10% Federal Tax Penalty, subject to certain exceptions.

The examples used in this brochure are purely hypothetical and for illustrative purposes only. The returns shown herein do not represent the actual results of any particular investment. The numbers assume yearly compounding. The returns above do not consider inflation or management expenses which will decrease your return. The illustrated results are not indicative of any particular situation and your results likely will differ from the results shown herein.

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Another Common Concern of a Business Owner is the Cost for Employees.

You may think that a qualified plan won’t work for you because you have to contribute for your employees as well. But, a qualified plan can actually save you money because the tax savings can be more than the contributions that need to be made for the employees.

Employees’ Share

Consider this sample company.

Age

Compensation

Owner A

61

$250,000

Owner B

48

$250,000

Employee A

34

$33,000

Employee B

28

$11,000

Total

$1,650

$50,000

$544,000

$50,000 Owners’ Share

The company makes a total plan contribution of $102,200, including $2,200 for the employees. The company saves $34,748 in taxes by making the taxdeductible contribution. The company’s $34,748 tax savings covers the cost for the employees plus contributes $32,548 to the owners’ savings for retirement. Without the qualified retirement plan the $34,748 would have been paid as taxes assuming the company would have otherwise retained the income.

You can help your employees save for retirement or pay taxes to the government.

Plan Sponsor’s Tax Rate

$550

34%

Employee 1

Owner 2

Employee 2

80% or more of the contributions are typically made for the benefit of the highly compensated employees.2 $50,000 $45,000

Plan Sponsors Total Plan Contribution

$102,200

Plan Sponsor’s Tax Savings

$34,748

Net After Tax Cost of Plan

$67,452

$35,000

Contribution for Key Employees

$100,000

$30,000

Excess Contribution For Owners

$32,548+

Not Having a Qualified Plan Can Cost More Than Having One.

Owner 1

$40,000

$16,660 $16,660

$4,851

$25,000

$49,000

$20,000 $15,000 $10,000

$32,340 $27,489

$5,000

2 Based on the experience of National Life Insurance Company.

This example is purely hypothetical and for illustrative purposes only. The example shown here does not represent the actual results of any particular $0 situation and your results likely will differ.

$50,000 Dividend

$50,000 Salary or Bonus

5 $50,0005 Qualified Plan Contributi

$50,000 $50,000

The Great Debate: Qualified Retirement Plan or Bonus; What Will Net You More?

When your business is profitable, you have three ways to move earnings from your business to your personal assets – as salary or bonus, as a corporate dividend, or to a tax-advantaged qualified plan.

Owners’ Share

If paid as a dividend, in a 34% tax bracket, the corporation will first pay $17,000 in corporate income taxes resulting in a dividend of $33,000. The individual will pay 15% in income taxes on the dividend, or $4,950, leaving them with only $28,050. If paid as a bonus, the $50,000 will net $32,340 after taxes.

But if the same $50,000 is contributed to a qualified plan, the corporation can deduct the contribution and the tax to the participant would be deferred until retirement.

Employee 1

Owner 2

Employee 2

$50,000 $45,000 $40,000

Contributing to a qualified retirement plan can yield considerably more.

Owner 1

$16,660 $16,660

$35,000 $30,000

$4,851

$25,000

$49,000

$20,000 $15,000 $10,000

$32,340 $27,489

$5,000 $0 $50,000 Dividend

$50,000 Salary or Bonus

Corporate Income Tax

$50,0005 Qualified Plan Contribution

Personal Income Tax

Available for Investment

6 Net Amount Benefit at Retirement

A Qualified Plan Enables You to Save More.

Available to Owner

Non-Qualified Dividend3

$28,050

Salary/Bonus

$33,000

$2,500,000

$2,000,000

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Qualified Plan

5

$1,500,000

$1,000,000 $500,000

Dividend $1,461,603

$50,000 Salary/Bonus $1,719,628

Qualified Plan $2,368,633

$0 Dividend

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Salary or Bonus

Qualified Plan

3 Assumes a combined individual income tax rate of 15% and a federal corporate rate of 34% 4 Assumes a combined individual income tax rate of 34% and a federal corporate rate of 34% 5 Qualified funds are subject to income taxation upon withdrawal. Withdrawals made prior to age 59½ will be assessed a 10% federal tax penalty, subject to certain exceptions.

This example is purely hypothetical and for illustrative purposes only. The example shown here does not represent the actual results of any particular situation and your results likely will differ.

$35,000 $30,000

$4,851

$25,000

$49,000

$20,000

The Power of Tax-Deferred Growth When $50,000 in earnings is contributed for a participant to a qualified plan each year, the full $50,000 grows tax-deferred. This tax-deferred growth is considerably greater than the growth of the $28,050 after-tax dividends or the $33,000 after-tax salary/bonus, which earn the same rate of return – 8% – but do not benefit from tax-deferral.

$15,000 $10,000

$32,340 $27,489

$5,000 $0 $50,000 Dividend

$50,000 Salary or Bonus

Corporate Income Tax

$50,0005 Qualified Plan Contribution

Personal Income Tax

Available for Investment

Benefit at Retirement6 $2,500,000

Even when you are in the same tax bracket at retirement, the qualified plan generates the largest retirement benefit.

At retirement, income taxes will need to be paid on the distribution from the qualified plan. But, the tax deductions and tax-deferred growth of the qualified plan provide the greatest retirement benefit – even after taxes are paid.

$2,000,000 $1,500,000 $1,000,000 $500,000

Dividend $1,461,603

Salary/Bonus $1,719,628

Qualified Plan $2,368,633

$0 Dividend

Salary or Bonus

Qualified Plan

A Qualified Plan is the Most Tax-Advantaged Way to Accumulate Assets.

Comparison of Net Death Benefit

6 This example assumes a 8% hypothetical return compounded annually and a 34% personal income tax each year for the dividend and salary/bonus scenarios. In 25 years the dividend would net $1,461,683 and the bonus would net $1,719,628. The qualified plan grows over that 25 year Plantax-deferred With Insurance period, with a 8% hypothetical return compounded annually accumulating $3,947,721. The after tax distribution would be$1,187,045 $2,368,633, assuming a lump sum distribution and a 40% personal income tax bracket.

This example is purely hypothetical and for illustrative purposes only. This example does not consider management expenses or taxes that would be paid on the hypothetical growth of the corporate dividend or bonus. The example shown here does not represent the actual results of any particular situation and your results likely will differ.

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How Much Will You Need for Retirement? $1,000,000? $2,000,000?

60%, 70%, 80% of current income?

s’ Share

$1,650

$550

Everyone’s needs are different.

Plan solutions are too.

Whether you start early or late, whether your budget is large or small, there is a qualified plan that is right $50,000 for you.

Maximum deductible contribution in 2010 for a 52 year old individual earning $245,0007

Owners’ Share

Smart Retirement Planning means having the plan that is right for you.

$300,000

Owner 1

Employee 1

$250,000

Owner 2

Employee 2

$258,284

$200,000 $140,600

$150,000

$100,000 $54,500

$16,660

60

$50,000

$14,000

51

$0 $49,000

SIMPLE

$32,340

Defined Defined Contribution Benefit

412(e)(3)

89

00 end

$50,000 Salary or Bonus

ome Tax

Personal Income Tax

Available for Investment

Benefit at Retirement6

Dividend 461,603

dend

$50,0005 Qualified Plan Contribution

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7 This example reflects the maximum deductible contribution in 2012 for a 52 year old individual earning $250,000. Maximum deferral in a SIMPLEIRA is $14,000 ($11,500 plus $2,500 catch-up amount). Maximum deferral in a 401(k) is $22,000 ($16,500 plus $5,500 catch-up amount). Maximum contribution to a Defined Contribution plan is $50,000. Defined Benefit formula 124.5%; NL Life Builder life insurance, form series 8310/8311/8310ID (0306)/8311ID(0306). Standard non-smoker, unisex rates, max 2/3 rule, issued by National Life Insurance Company, Montpelier, VT. 412(e)(3) benefit formula 128.37 %, NL Life Builder life insurance, form series 8311/8311ID(0306). Standard non-smoker, unisex rates, max 2/3rd, issued by National Qualified Plan Life Insurance Company, Montpelier, VT and a hypothetical flexible premium annuity with a 3% guarantee and 1.5% APR. $2,368,633 Salary/Bonus Products are not available in all states. $1,719,628 Guarantees are dependent upon the claims-paying ability of the issuing company.

This is not intended as a comprehensive guide to retirement plans and is purely for illustrative purposes. A full census is required to determine retirement plan suitability.

Salary or Bonus

Qualified Plan

Guarantee Your Benefits with Life Insurance8 You work hard building your business and financial security. Adopting a qualified plan should be an integral part of your financial plan. Adding life insurance in your plan can help free up money, because the premiums are paid using pre-tax dollars.9 Additionally, in the event of premature death, your beneficiary receives the death benefit of the life insurance in addition to the accumulated value in your retirement plan account.

Life insurance in your plan can help protect the goals and future you are working so hard to achieve.

How does having life insurance in your plan free up money for you? Let’s go back to our example of the 40 year old business owner who is in a 34% tax bracket. If he were to contribute $50,000 annually to his qualified plan, he could allocate almost half of that contribution, $24,451, to pay the life insurance premium on a whole life insurance policy. A premium of $24,451 would purchase a life insurance policy with a face amount of $1,816,901.10 If this person were to purchase the same amount of life insurance outside of the qualified plan, he would need to gross up his income to $37,047 to net the $24,451 after taxes. By paying the life insurance premium inside the qualified plan, he saves $12,596 and the premium is tax-deductible.

Here’s how it works: If our 40 year old business owner were to die prematurely at age 45, his $50,000 contribution to the qualified plan would have grown to $301,511, assuming a 8% interest rate. That is the value his beneficiary would receive. But what if he had purchased life insurance in the plan. Since $24,451 would have gone to pay the life insurance premium, that would have left $24,549 for the fund portion of the plan. At his death at age 45, the value in the fund, assuming a 8% interest rate, would be $187,899. But in addition, his beneficiary would receive the death benefit from the life insurance policy.

But the life insurance is not just for your beneficiary.

At retirement, you can retain the life insurance by removing it from the plan and owning it in your own name. Premiums may continue and would have to be paid on an after-tax basis. We offer many types of life insurance products that offer flexibility. So it may be possible to design the policy to be paid-up within a certain number of years, or to decrease the premium amount by decreasing the policy death benefit.

Buying life insurance inside your qualified plan is an affordable, tax-efficient way of fulfilling both your business and personal goals.

Planning for your retirement may also impact someone else in your life, such as a spouse or partner. Unfortunately unforeseen events can undo even the most carefully constructed plan. If you were to die prematurely, your beneficiary would receive the value in your qualified plan account. But if you had life insurance in the plan, your beneficiary would receive the account value and the death benefit from the life insurance policy. The life insurance would “self-complete” your retirement plan.

he hypothetical example shown above is for illustrative purposes. Pre-Ret: 5.5% Interest, 4% Salary Scale. Post-Ret: 6%. NL Life Builder form T series 8311(0306) standard non-smoker, unisex rates – 2/3 rule. Products issued by National Life Insurance Company, Montpelier, Vermont and not available in all states.

8 Guarantees are dependent upon the claims-paying ability of the issuing company.

9 The purchase of life insurance is subject to meeting qualification standards.

10 Assumes standard, non-smoker, unisex rates.

Benefit formula: 225% of compensation reduced for each year of accrual service less than 25 years. All insurance values shown are guaranteed.

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Innovation, Experience, Excellence In 1939 an innovative change was made to the Internal Revenue code allowing employers to tax deduct contributions they made to benefit their employees.

Since then, business owners have been benefiting from being able to help their employees prepare for a more secure financial future.

One of the first companies in the country to introduce this new tax advantage to its clients, and to the business community at large, was National Life Insurance Company (National Life).

We have the expertise, technology, and knowledge of the latest developments in the constantly evolving area of qualified plan regulations, to provide you with the best service possible.

We are ready to help you with: • Creative plan design tailored to your individual needs • Telephone consultation on cases • Taxation on benefits • Utilizing life insurance in a qualified plan • Taxation of life insurance benefits • Minimum distribution planning •S tretch IRA or smulti-generational planning

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Everyone’s Needs are Different.

There is a Qualified Plan That is Right for You. SIMPLE

401(k)

Defined Benefit

Profit Sharing

412(e)(3)

Cash Balance

Sole

Sole Proprietorships

Sole Proprietorships

Sole Proprietorships

Sole Proprietorships

Sole Proprietorships

Sole Proprietorships

Partnerships

Partnerships

Partnerships

Partnerships

Partnerships

Partnerships

Partnerships

Corporations

Corporations

Corporations

Corporations

Corporations

Corporations

Corporations

100 employees

Small

Any size

Any size

Small to medium sized

Small

Small to medium sized

Current tax

Current tax deductions and tax-deferred growth

Current tax deductions and tax-deferred growth

Current tax deductions and tax-deferred growth

Current tax deductions and tax-deferred growth

Current tax deductions and tax-deferred growth

Current tax deductions and tax-deferred growth

Yes, Pre-tax

No

Yes, Pre-tax and Roth

No

No

No

No

A simplified

An employer funded plan w/ contributions similar to profit sharing plans but with an emphasis on simplicity and low expense

A flexible and inexpensive employee retirement plan

Plan that allows the employer to make substantial flexible contributions and choose how they will be allocated among plan participants

Plan that allows the employer to make large contributions and define a benefit at retirement

A defined benefit plan with the largest possible deductions and guaranteed benefits11

A defined benefit plan that defines benefits using contribution and interest credits

100% immediate vesting, part time employees must be included

Owner’s deferrals may be limited

Individual allocation limited to $50,000

A high, required employer contribution

A high fixed employer contribution; no investment flexibility

A required employer contribution

Suitable For Proprietorships

Business Size or less

Tax Benefits deductions to Business and tax-deferred Owner growth Salary Deferrals for Employees

SEPs

Distinguishing tax-advantaged Advantages salary deferral

program that is inexpensive to administer

100% immediate

Disadvantages vesting, limited deferrals, required employer contribution

National Life has the expertise, technology, service and products to provide you with taxadvantaged qualified plans.

11 Guarantees are dependent upon the claims-paying ability of the issuing company.

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Benefit From Our Experience The resources of members of the National Life Group® are available through your National Life Insurance Company representative. We will strive to make sure that your plan matches your needs and seeks to maximize your qualified tax benefits. We can also look at the different ways to fund your retirement plan with the knowledge and experience we’ve gained from more than seventy years of professional service.

National Life Group® is a trade name of National Life Insurance Company, Montpelier, VT and its affiliates.

Centralized Mailing Address: One National Life Drive, Montpelier, VT 05604 | www.NationalLifeGroup.com