Your decisions on Executive Benefits are a balancing act – qualified vs. nonqualified; deductible or taxable by the business now or later; deductible or taxable by the owner now or later, and business creditor exposure or not. This is an area of business where discrimination is allowed, where things do not have to be equal for all, and you may select those executives who will have better benefits than the rest of your workforce. Our advisors will walk you through various scenarios finding the right fit for you.
Here are a variety of ideas to consider:
Premiere Health Insurance Plan
For you and your family – ask for it to include “work related accidents” so you may confidently exclude yourself from your company’s workers compensation policy.
Deferred Compensation – Qualified (Tax Deductible)
Simply at the height of your income earning, why take it now at maximum tax rates? Why not put it into pensions, retirement plans and stock options that can be used later in life when your income has dropped? As long as you follow the IRS rulings, these plans allow you to invest for your retirement with no tax consequence for your deposits.
By providing a deferred compensation plan to key employees, it helps commit them to your business so that they do not go to your competitors for employment – commonly referred to as Golden Handcuffs.
While maintaining your existing 401(k) plan for employees, we develop a second plan just for the Key Employees including the owner that looks like a 401(k) plans retirement benefits.
Deferred Compensation Plan – Non-Qualified (Tax-Deferred)
Regular salary, bonuses or other types of compensation can be deferred until a further date such as a retirement date. If set up properly, the deferred income would be taxed only at the payout understood to be at a lower tax rate. This can be established for one person or a group of people.
Executive Bonus Arrangements
A life insurance policy for key employees that the employee owns personally. The business gains a tax deduction; the employee pays taxes on the premium as if it were part of their income.
Business Owner’s Bonus Plans
This is typically in the form of a life insurance plan purchased by after tax funds to provide both death benefit protection and cash value accumulation. This supplements the business owner’s retirement income. This plan includes tax free death benefits and tax deferred or tax free proceeds at retirement.
Post Retirement Medical Benefits Arrangement
A welfare benefit program may be designed to provide post-retirement medical reimbursements to the owner of the business and its employees.
Funded Whole Life Insurance
Term Life insurance costs less in premium, but the policy vanishes at the end of the term or your cancellation with no value left to you, the insurance company keeps all of the premium. A Whole Life policy costs more, but your premium is invested on your behalf in conservative instruments, and during the policy you are eligible to borrow against the policy, or if you cancel the policy you get some of your money back.
The decisions above need to include:
- Executives need for additional source of retirement income
- Your businesses need for a current tax deduction
- Supplemental Employee Retirement Plan
- Creditor exposure for the funding of some of these plan assets
- Executive Bonus Plan
- ERISA and Top-Hat limitations do not apply
- Simple plan administration
- Split Dollar Loan
- Endorsement Split Dollar Arrangements
- Do Executives want tax-free distribution at retirement?
- Desirability of income tax-free benefit
Note – the plans vary on the entity type: C-Corporation, S-Corporation, Partnership, LLC or Sole Proprietorship.
Consult the Chicago Insurance Agents at The David Agency today to learn how we can help develop personal insurance, business insurance and employee benefit plans that are right for you and your business.