The Information Needed To Analyze the use of Pension Maximization

The Information Needed To Analyze the use of Pension Maximization

Understanding what information is needed to analyze the usefulness of pension maximization is a vital component to making better policy decisions. The types of information required are presented in the following checklist: Visit our Pension Maximization FAQs and learn what to analyze here. Learn more about Lifequotes policies. Reproduced with permission.  Copyright The National Underwriter Co. Division of ALM

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Key Things Planners Should Consider With a Pension Maximization Alternative

Key Things Planners Should Consider With a Pension Maximization Alternative

First, the spouse has rights to survivor benefits from the pension plan unless he or she expressly waives those rights in writing. The normal form of pension benefit for married couples is a J&S annuity with a survivor benefit ranging from 50 percent to 100 percent of the joint benefit. In addition, a spouse is entitled to a preretirement survivorship benefit if the plan participant should die before normal retirement age. This preretirement survivorship benefit…

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How to Determine if a Pension Maximization Strategy is Feasible

How to Determine if a Pension Maximization Strategy is Feasible

A pension maximization strategy is not for everyone. The pension maximization plan is clearly advantageous if the extra pension benefit payable under the SL annuity option (as compared with the joint benefit payable under the standard J&S annuity option) is large enough to pay the premiums for a sufficient amount of life insurance. But this is not always, or even usually, the case. This is especially true when you factor in the considerations discussed in…

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Tax Implications of Using Pension Maximization

Tax Implications of Using Pension Maximization

Survivor benefit distributions from a qualified plan and from a life insurance settlement option share some tax features, but differ in at least one important respect. In either case, income taxation on investment earnings is deferred until distributions are received. However, the distributions from a qualified plan will generally be subject to tax in their entirety, unless the participant acquired some nontaxable basis in the plan (for example, through nondeductible contributions, Table 2001 costs (formerly…

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The Requirements of Using Pension Maximization

The Requirements of Using Pension Maximization

The principal requirement involved in implementing a pension maximization strategy is compliance with the requirements of the Retirement Equity Act of 1984 (REA) for spousal benefits. The law mandates that a spouse’s interest in the participant’s qualified retirement benefits must be protected and specifies that certain benefits must be paid to the spouse if the participant predeceases the spouse either before or after retirement. If these mandated benefits are not those desired by the participant…

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Disadvantages of Using Pension Maximization

Disadvantages of Using Pension Maximization

The life insurance option has its costs and risks. By far the biggest risk with the pension maximization plan is that the life insurance premiums will not be paid and the insurance will not be in force if the insured plan participant dies first. Since there is no J&S benefit being paid due to the election to take the single life benefit instead, this potentially leaves the surviving spouse without sufficient income with which to…

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Advantages of Using Pension Maximization

Advantages of Using Pension Maximization

The principal advantage of a pension maximization strategy is planning flexibility as compared with the J&S annuity survivor benefit from a qualified plan. The insurance feature of the J&S annuity has several unattractive elements. First, with this type of insurance the plan participant will generally have to continue paying the monthly premium (receive the lower J&S benefit payments rather than the higher SL benefit) even if the spouse dies first and the survivorship insurance is…

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When To Use Pension Maximization

This article provides an overview of pension maximization and when it should be utilized. The understanding of these instances can help anyone make a better financial decision regarding their new, or existing, policies. When the participant and spouse wish or need to have more flexible survivor benefit options than those provided by a qualified plan’s joint and survivor option. When the participant’s spouse is in poor health. In this case a qualified plan’s joint and…

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Introduction to Pension Maximization

Introduction to Pension Maximization

A life insurance strategy called pension maximization or, sometimes pension enhancement may provide a more attractive overall benefits package for married couples than the normal Joint and Survivor (J&S) annuity option from a qualified plan. The concept is simple. Rather than electing to receive the normal (normal default) J&S annuity from a pension plan, the retiring participant, with the consent of his or her spouse, selects the higher benefit payable under the Single Life (SL)…

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