Fund a Section 162 Plan With This Kind of Policy

Fund a Section 162 Plan With This Kind of Policy

Any permanent or even term coverage can be used to fund a Section 162 Plan although almost always some form of permanent insurance is indicated to pay-up the policy by the time the insured reaches retirement age. Consider a policy on which cash dividends, the surrender of paid-up additional insurance, or there is sufficient cash value that the employee can withdraw or borrow that can be used offset the employee’s tax on the premiums paid…

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Section 162 Plan and Business Owners

Section 162 Plan and Business Owners

How does it worth with a section 162 plan and business owners? The use of an executive bonus arrangement with C corporation owners is entirely appropriate and can allow them to use business dollars to pay the premiums for personally-owned life insurance. However, the use of such arrangements with owners of pass-through entities may not be appropriate, except in situations where it is used to reallocate pass-through income to minority owners in assisting them to…

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What is a Double Bonus?

What is a Double Bonus?

A second bonus to pay the tax on the first payment is often called a double bonus. Some employers pay not only an amount sufficient to pay premiums but also the tax on the bonus. To compute the amount that the employer must pay the employee so that he or she will net an amount sufficient to pay both the premium and the tax on it, divide the premium by one minus the employee’s combined…

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Controlled Executive Bonus Arrangement

Controlled Executive Bonus Arrangement

A controlled executive bonus arrangement, also known as a restrictive or golden executive bonus arrangement, generally prohibits the insured employee from accessing the policy cash values without the consent of the employer. Thus, with a standard controlled executive bonus arrangement the employer has some very limited control over the policy, although it can’t recover its outlay in the event the insured employee terminates employment. This is generally accomplished by filing a restrictive endorsement with the…

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Tax Implications of Section 162 Plans

Tax Implications of Section 162 Plans

There are several tax implications to the Section 162 plan. Understanding these implications are important, as it will help the consumer make a wiser policy and financial decision. The tax implications of a Section 162 plan include the following: Payments made as a bonus to an employee, whether made directly by the employer to the insurer, or from the employer to the employee and then from the employee to the insurer, are currently deductible by…

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Section 162 Plan Requirements

Section 162 Plan Requirements

Assuming that the plan covers only one or two stockholders or top management executives, installation of Section 162 plan requirements is quite simple. There should be a corporate resolution by the company’s board of directors adopted in writing before the agreement with the employee is signed. The resolution should specify the corporate objectives to be met and the general terms of the Section 162 plan. A separate contract with the employee should state that the…

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Disadvantages of Section 162 Plans

Disadvantages of Section 162 Plans

There are several major problems, drawbacks, or disadvantages of Section 162 plans. Understanding the disadvantages are important, as it will help the consumer make a wiser policy and financial decision. These include: Once each premium is paid, the employer generally no longer has any control over either the employee or the policy through the plan. The employee can literally “take the money and run.” This can, however, be somewhat controlled using a “Controlled Executive Bonus…

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Advantages of a Section 162 Plan

Advantages of a Section 162 Plan

There are a number of advantages of a Section 162 Plan is a favored executive perquisite. Understanding the advantages are important, as it will help the consumer make a wiser policy and financial decision. These include: The plan provides valuable life insurance for key employees at little or no out-of-pocket cost. This results in less of an after-tax outlay for personal financial security. The corporation has a great deal of freedom with respect to: (a)…

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When to use Section 162 Plans

When to use Section 162 Plans

Often called an Executive Bonus plan, a Section 162 plan involves the purchase of a life insurance policy on the life of one or more employer-chosen employees. The employer pays premiums on the policy but charges the employee with a bonus in an amount equal to that payment. Here are the appropriate situations to use them in: Read our Introduction to Section 162 Plans here. View Lifequotes wide array of policies. Reproduced with permission.  Copyright…

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Section 162 Plan: An Introduction

Section 162 Plan: An Introduction

Often called an Executive Bonus plan, a Section 162 plan involves the purchase of a life insurance policy on the life of one or more employer-chosen employees. The employer pays premiums on the policy but charges the employee with a bonus in an amount equal to that payment. The employee (or the third party such as an irrevocable trust designated by the employee) purchases and owns the policy and names the beneficiary. The policy owner…

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