When Does A Non-Qualified Benefit Plan Make Sense?

Both business owners and executives may be helped by non-qualified benefit plans. When considering which options make the most sense, the particular questions revolve around:

  • What the business manager wants to achieve from offering the plan
  • What the non-owner executive finds attractive an offering
  • What the structure of the organization is to assess whether or not there exist taxes advantages

The types of non-qualified plans that benefit business owners include:

  • Personal Retirement Program (Life Insurance in Retirement, Deferred Annuities or Non-Deductible IRAs)
  • Split Dollar Plan (To get death benefit protection wants or retirement accumulation)
  • Bonus Plan

The sorts of non-qualified plans that benefit non-owner operatives include:

  • Deferred Compensation or Paycheck Deferral Plan

From the Business Owner’s Perspective

Personal Retirement Plan

A Individual Retirement Plan can be considered designed for business owners whose business system limits its ability to achieve income tax leverage through the company. The right Retirement Plan is used traditionally for sole proprietors, private service corporations, and undergo companies like partnerships, S-Corporations and LLCs.? The main element question when designing a personal retirement plan for a business owner is “what is a good after-tax planning vehicle available?Half inch? This may be a LIRP (Life Insurance In Retirement life), a deferred annuity or simply a traditional non-deductible IRA or ROTH IRA.

Split Dollar Plan

When the corporate tax bracket with the business owner is significantly lower than in which you tax bracket, a Split Buck Plan may make sense.? If you are paying the life insurance premium on the lower corporate rate, as well as taxing the business owner with a small portion of the premium that is representative of the economic benefit of the insurance sum, tax leverage can be received. The split dollar system can offer the business owner the ability to provide for his or her liquidity necessities for estate planning needs, or to use the policy like a form of tax advantaged supplemental retirement income.

Bonus Plan

A Bonus Plan is useful to business owners who want to fund individual life insurance for either demise benefit protection or retirement plan accumulation needs.? A Postponed Annuity may also be used for accumulation needs.? A Bonus Plan is utilised when a business owner’s particular tax bracket is equal to or cheaper than the corporate rate.? This ordinarily happens in personal service businesses, high net profit corporations, or even where the business owner has a low tax bracket due to large write-offs such as charitable donations. By taking cash tax deduction in the higher corporate and business tax bracket, and taxing the master in his or her lower personal mount, tax leverage can be accumulated. Taking money out of the organization in the form of a bonus also removes possible double taxation sometime soon, which occurs when money is still left in the corporation.

From the Non-Owner Executive’ersus Perspective

A Deferred Compensation Plan can be used for non-owner vip’s. It can also be used for business owners exactly who happen to have a higher personal income tax bracket than the corporate bracket, so long as the business owner is not a greater part owner. Deferred Compensation just isn’t recommended for a majority owner if tax leverage can be gained. By leaving money in the lower company bracket, higher personal duty can be delayed until a later date such as retirement.

A Deferred Pay plan can be used with an owner of a good S-Corporation or Partnership who has a very tiny ownership percentage. However, considering the pass-through nature of S-Corporations and Partners, owners pay tax upon profits whether they leave these people in the company or take them out. Consequently, Deferred Compensation gives no tax leverage.