Executive bonus plan who is the owner?

11
Jedediah Williamson asked a question: Executive bonus plan who is the owner?
Asked By: Jedediah Williamson
Date created: Fri, Feb 26, 2021 11:58 PM
Date updated: Thu, Sep 29, 2022 2:06 PM

Content

Top best answers to the question «Executive bonus plan who is the owner»

  • Executive bonus plans are appealing to business’ who are looking for qualified plan alternatives. Moreover, because the employee/executive is the owner of the policy they get to choose the beneficiaries, or used the policy’s cash value as needed.

10 other answers

In its simplest form, an executive bonus plan is one in which an employer pays the premiums on a permanent life insurance policy owned by an employee.

Who is the owner in an executive bonus plan? The employee is the owner of the policy, and gets to determine the beneficiaries and manage the funds within the policy. The employer covers the cost of the policy by periodically giving the employee a bonus big enough to pay the policy premiums.

An executive bonus plan (Section 162) is a way for business owners or companies to provide additional supplemental benefits to key employees or executives of their choice. The benefits usually include life insurance policy death benefits as well as cash value accumulations that can be used as a retirement income supplement.

The rule concerning bonus taxability for the executive is simple. Whether the employer pays the life insurance premiums on a policy owned by the executive or pays the executive a cash bonus is immaterial. The amount of the bonus is includable in the executive's gross income as compensation for services. Growth on Contributions Tax-Deferred

The plan that could be attractive is known as a Section 162 Executive Bonus Plan which can be selectively provided to the business owner. The financial product that may provide the best accumulation vehicle for a supplementary retirement benefit is a specially designed life insurance product that takes advantage of the tax-favored benefits of life insurance found in the Internal Revenue Code (IRC).

Executive bonuses are earned income and can be used to increase plan benefits or to reduce allocations to non-HCEs. (2) Some corporations elect S status because they wish to avoid IRS's challenge of compensation as unreasonable. A bonus can be used to establish reasonableness of compensation.

Executive bonus plans are appealing to business’ who are looking for qualified plan alternatives. Moreover, because the employee/executive is the owner of the policy they get to choose the beneficiaries, or used the policy’s cash value as needed.

As the policy payor, the employer can make premium payments directly or through a salary bonus. The executive, then, is the owner and insured of a personally-owned permanent life insurance policy. Because these plans aren’t subject to ERISA guidelines, employers don’t need IRS approval.

In the Executive Bonus plan, who is the owner of the policy, and who pays the premium? ACompany is the owner, but the executive pays the premium. BBoard of directors is the owner, and the board of directors pays the premium. CCompany is the owner, and the company pays the premium. DExecutive is the owner, and the executive pays the premium.

Executive bonus plans are discriminatory, meaning that you can pick and choose who you want to be in the plan. The owner will typically purchase an indexed universal life insurance policy on the employee and pay the premium. The money to pay the premium is considered bonus income to the employee so the owner gets a tax deduction in the amount of the bonus. This will work for all forms of businesses, C-Corp, S-Corp, LLC, etc. Severl executive bonus plans use indexed universal life insurance.

Your Answer