ola 1069 t 1008 planning solutions for small to midsized businesses
TRANSCRIPT
OLA 1069 T 1008
Planning Solutionsfor Small to Midsized Businesses
This material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. This material was written to support the promotion or marketing of the products, services, and/or concepts addressed in this material. Anyone to whom this material is promoted, marketed, or recommended should be urged to consult with and rely solely on their own independent advisors regarding their particular situation and the concepts presented here.
Executive Bonus Plan
Today’s competitive landscape makes it difficult to recruit and retain key executives
A comprehensive compensation package is crucial for both business owners and executives
Companies can provide growing cash values with company-paid life insurance
Plan is easy to administer and exempt from ERISA requirements
Retirement Planning Issues
Executives looking for another tax-deferred way to supplement retirement income
Supplemental retirement planning solutions help businesses attract and retain key employees
Allows executives to buy life insurance through taxable bonus provided by employer
Executive has unrestricted access to the policy cash value
Benefits of an Executive Bonus Plan
Owners of small to midsized businesses
Employers who want to recruit and retain key executives
Companies that may want to provide benefits exclusively to the owners
Companies that don’t offer qualified retirement plans
Companies that want to offer benefits in excess of those offered by their qualified retirement plans
Key executives
Who Benefits?
Employer issues a taxable bonus to the executive to purchase a life insurance policy
Executive purchases and owns a life insurance policy and names the beneficiaries
Here’s How It Works
Company can pay executive “double bonus” to cover estimated tax liability on both bonuses
Executive can purchase life insurance protection using equivalent of pre-tax dollars
Here’s How It Works with “Double Bonus”
Executive Bonus Plan in Action
* Loans, withdrawals, and performance will lower the policy value and net cash value and may lower the death benefit. If the policy is considered a Modified Endowment Contract (MEC), distributions are treated first as taxable distributions of earnings in the policy. Withdrawals, loans, and assignments are considered distributions. Taxable distributions from a MEC prior to age 591/2 may also be subject to a 10% federal income tax penalty.
Executive can access policy’s cash values at retirement or any other time to meet other financial goals*
If executive dies, designated beneficiaries receive death benefit
Accessing the Benefits
* Loans, withdrawals, and performance will lower the policy value and net cash value and may lower the death benefit. If the policy is considered a Modified Endowment Contract (MEC), distributions are treated first as taxable distributions of earnings in the policy. Withdrawals, loans, and assignments are considered distributions. Taxable distributions from a MEC prior to age 591/2 may also be subject to a 10% federal income tax penalty.
Helps distinguish company’s compensation package
Provides selected employees or owners with attractive pre- and post-retirement benefits
Generally receives income tax deduction for executive bonus payments
Offers benefit flexibility
Has minimal plan setup costs
Employer Benefits
Cash value accumulates tax-deferred
Death benefit protection for named beneficiaries
Additional source of income to meet financial goals*
Bonus allows purchase of valuable life insurance protection with equivalent of pre-tax dollars
Executive Benefits
* Loans, withdrawals, and performance will lower the policy value and net cash value and may lower the death benefit. If the policy is considered a Modified Endowment Contract (MEC), distributions are treated first as taxable distributions of earnings in the policy. Withdrawals, loans, and assignments are considered distributions. Taxable distributions from a MEC prior to age 591/2 may also be subject to a 10% federal income tax penalty.
Supplements Social Security and company pensions using life insurance
Provides an essential part of an executive compensation package
Benefits owners of small to midsized businesses, and companies that don’t offer qualified retirement plans
Benefits companies that want to offer benefits in excess of those offered by their qualified retirement plans
Summary
Enhances executive benefits and may help employers recruit and retain key associates
Offers death benefit protection of life insurance and tax-advantaged cash value
Summary (Cont.)
Transamerica Life Insurance Company, Transamerica Financial Life Insurance Company (collectively “Transamerica”), and their representatives do not give ERISA, tax, or legal advice. This material and the concepts presented here are provided for informational purposes only and should not be construed as ERISA, tax, or legal advice. Clients and other interested parties must be urged to consult with and rely solely upon their own independent advisors regarding their particular situation and the concepts presented here.
Discussions of the various planning strategies and issues are based on our understanding of the applicable federal income, gift, and estate tax laws in effect at the time of this presentation. However, tax laws are subject to interpretation and change, and there is no guarantee that the relevant tax authorities will accept Transamerica’s interpretations. Additionally, the information presented here does not take into consideration the general tax and ERISA provisions applicable to defined benefit retirement plans or the applicable state laws of clients and prospects.
Although care is taken in preparing this material and presenting it accurately, Transamerica disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it. This information is current as of October 2008.
OLA 1069 T 1008
Planning Solutionsfor Small to Midsized Businesses