Key Executive Plans

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If you employ seasoned professionals, you want them to reap the rewards of their efforts.  So when it comes to retirement planning, motivate them with a plan that demonstrates your genuine interest in their future.

You understand the challenges in accumulating the money needed to fund a comfortable retirement. You know that government legislation penalizes top earners by placing a ceiling on the amount of income that can be deferred annually into qualified plans. That means, even if you and your key employee both contribute the maximum amount into the company’s qualified plan, your employee still may not have enough funds to enjoy the retirement lifestyle they envision.

Help your top employees with a Key Executive Bonus Plan

In a Key Executive Bonus Plan, you purchase an Indexed Universal Life (IUL) insurance policy, to provide death benefit protection and to help accumulate funds for retirement. The arrangement can be funded through employer contributions (IRC § 162 bonuses), through after-tax contributions from the employee, or a combination of both. While premium payments must be treated as ordinary income, your employee can use the policy as a source of potential supplemental retirement income, as a source of survivorship benefits, or both. 

Advantages for the Executive

  • Additional contributions – The employee can contribute additional dollars to the arrangement. Supplemental Retirement Income(1) – Bonuses are used to purchase a life insurance policy which may help accumulate cash value.
  • Tax-Deferred Growth – No income tax is payable on any money accumulating inside the life insurance policy.
  • Tax-Free Income(1) – Provided the life insurance policy is not structured as a modified endowment contract (“MEC”), the employee will be able to attain tax-free income through a combination of policy withdrawals and loans.
  • Income Tax-Free Death Benefit(2) – The life insurance policy provides protection for the employee’s family in the event of death.
  • No IRS Distribution Requirements. Policy distributions can occur before age 59 1⁄2 without a premature distribution penalty from the IRS, and there are no required minimum distributions at age 70 1⁄2 or thereafter.

Advantages for the Employer

  • Current Tax Deduction on bonus payments (if reasonable compensation)
  • Selective Benefit
  • Simple Administration

Potential Disadvantages

  • Immediate Taxation to Executive on bonus payments
  • No Cost Recovery for Employer
  • No “Golden Handcuffs”

Help close the retirement gap with tax-deferred growth and tax-free income at retirement, while providing death benefit protection for your key employee’s family.

How a Key Executive Plan Works

    1. The company and the employee agree that personal life insurance protection and the related potential cash value accumulations are important components of the employee’s overall compensation package.
    2. The employee purchases an IUL policy insuring his or her life.
    3. The company makes the premium payments on this policy, which are taxed as additional compensation to the employee and create a current deduction for the employer. Optionally, the company may provide an additional cash bonus to the employee to cover the income tax associated with the premium payment.
    4. The policy cash values may be available to supplement the employee’s retirement income through withdrawals and loans. The policy death benefit generally will be paid income tax free to the employee’s beneficiaries.

We work with the most stable, highly rated companies in this industry.  Click here for a quote, or contact us to schedule an appointment or for more info.

 

1 A portion of the policy’s surrender value may be available as a source of supplemental retirement income through policy loans and withdrawals. Income tax free policy distributions may be achieved by policy loans or withdrawing to the cost basis (usually premiums paid). This assumes the policy qualifies as life insurance, is not a modified endowment contract and is not lapsed or surrendered with an outstanding loan. Policy loans and withdrawals may reduce or eliminate index credits, generate an income tax liability, reduce available surrender value and reduce the death benefit, or cause the policy to lapse. Policy loans may reduce or eliminate Index Credits, generate an income tax liability, reduce available Surrender Value and reduce the death benefit, or cause the policy to lapse. For policies with the Early Cash Value Rider, policy loans and withdrawals may limit the benefits of the rider. Additionally, loans may limit your ability to make Elections to the Indexed Strategy. If a Traditional loan results in amounts being deducted from a Block prior to its Block Maturity Date, no Elections from the Fixed Strategy to the Indexed Strategy will be processed in the 18 months following the loan. Select Loans have the risk that policy performance may be lower than projected if the amount credited to the account value in the Fixed Strategy and/or Indexed Strategy is less than the fixed 6% interest charged on the policy loan. 2 Death benefit proceeds from a life insurance policy are generally income tax-free, and if properly structured, may also be free from estate tax. 3 Select Loans have the risk that policy performance may be lower than projected if the amount credited to the account value in the Fixed Strategy and/or Indexed Strategy is less than the fixed 6% interest charged on the policy loan.

Not FDIC/NCUA Insured  Not A Deposit Of A Bank Not Bank Guaranteed May Lose Value Not Insured By Any Federal Government Agency