How the Source Tax Rules can Eliminate State

How the Source Tax Rules can Eliminate State Income Taxes on Retirement Plan Distributions

About Us EBS is a national executive benefits consulting firm which exclusively works with its clients to ensure the effectiveness and value of compensation and benefit programs for key employees and professionals. More information about the firm can be found at: www. executivebenefitsolutions. com. Typical plan designs include: • Deferred Compensation Plans • Phantom Stock Plans • Supplemental Executive Retirement Plans (SERPs) • Split Dollar Life Insurance Strategies • Not for Profit Retention Strategies 8 Principals Full Internal Administration 6 Offices 40% of Fortune 500 as Past Clients 4 U. S. Time Zones Proven Four Step Process 2

Don Curristan, Managing Director For the past twenty years, Don has served the benefit needs of client boards of directors and senior management in public, private and tax-exempt organizations. He focuses on the design, funding, implementation, and administration of select executive retirement, retention and performance- incentive plans to attract, retain and reward key talent. A featured speaker at professional associations, Don’s written work has appeared in the Credit Union Times, Western Independent Banker’s Magazine and the Foundation for Enterprise Development, “Ask the Expert” publication. He earned his BS in finance from Arizona State University, and the CLU and Ch. FC professional designations. Don resides in San Diego with Melissa, his wife, and two daughters. He’s a board trustee for the Social Advocates for Youth, a golfer, skier and believer in the timeless quote: Nothing in the world can take the place of persistence 3

The Source Tax Provision • In 1996, Congress determined that the “source tax provision” (4 USC section 114) prohibits states from imposing income tax on the retirement income of nonresidents, regardless of when the retirement income was earned, as long as the retirement income is paid after termination of employment…and the retirement income is paid over 10 or more years. • This provision applies to distributions from both qualified retirement plans and nonqualified retirement plans. • With payments structured this way, one only pays taxes in the state of residence when paid, not in the state where income was earned and deferred. • This is a tax benefit for those planning to move to a state to retire with lower income tax rates. • For example, if one works in CA (highest state income tax 13. 3%) and uses this provision when they retire to NV (zero state income tax): For every $1 M, that could be $133, 333 in tax savings. 4

The Source Tax Provision • Let’s review an example of working in CA and retiring in NV: o Executive - Joe Sample o Current State of Residence - California o Current Age – 50 o Current Salary - $400, 000 growing at 3% a year o Deferral Amount - $100, 000 a year for 12 years o At age 62 Joe retires and relocates to Nevada 5

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The Source Tax Provision • Now, let’s see how Joe Sample’s situation improves when he moves to a state with zero income tax and leverages the source tax provision • The positive impact to Joe Sample is a 29% or $323, 606 improvement in income. 7

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Comparison of Benefits With & Without Source Provision 10 Year A/T Income Total Income $1, 440, 013 Taxes $0 Total Income $1, 120, 407 29% Increase in Income Taxes $850 714 After-Tax Payment $1 788 214 After-Tax Payment $937 500 Without Source Tax Provision hubemployeebenefits. com Source Tax Provision Without Source Tax Provision 9

The EBS Team: Local and National Presence Don Curristan Managing Director 619. 318. 6620 (C) dcurristan@ebs-west. com 1902 Wright Place, Suite 200 Carlsbad, CA 92008 760. 788. 1321 phone www. executivebenefitsolutions. com Boston | Dallas | Milwaukee | Orange County | Philadelphia | Richmond | San Diego 10