SECTION 79 PLANS
Section 79 plans are fairly new in the retirement world. In simple terms it allows an employer to buy a fairly inexpensive group term insurance for their employess, while creating cash value for key employees or employer. The premium paid by the employer is tax deductible, and offers a supplemental retirement plan feature for owner and/or key employee.
Advantages:
A tax deductible plan favoring the owners or key employeeswith a ‘tax advantaged’ exit strategy.
Supplemental retirement income
100% tax deductible to sponsoring "C" corporation.
Participants choosing only term coverage , receive a non-taxable fringe benefit
Participants electing "permanent" coverage, claim ~60% of total corporate outlay as taxable personal (W-2) income
Employees may reduce coverage and/or "opt out" of the permanent coverage to reduce or avoid taxation.
Participants electing "permanent" coverage invest 100% of total corporate outlay into specially designed cash value products.
Cash value investment earnings are not currently taxable, which allows for significant tax-free accumulation potential.
Unlimited qualified plan contribution.
Enhanced asset protection
Tax-free death benefits
Disadvantages:
Employer incurs higher “cost” for additional protection, which results in additional taxable income to the employee.
If employer’s group-term life insurance plan favors only key employees, the entire cost of the insurance must be included in the key employee’s income.
Best Candidates for 729 Plans:
The owner or key employee of a company with fewer than five owners and 40 employees
Employers and employees of a C Corporation
Individuals interested in purchasing life insurance in a partially deductible manner for an estate plan.
Employers and employees of a LLC taxed as a C Corporation
Those wanting a plan without upper-end funding limits. There is no maximum dollar amount that can be deducted by the company for the purchase of life insurance plan for the key employee/owner.
Employers and employees who hold 2% or less of pass-through entities stock
Highlight:
Section 79 Plans are a great option for small business owners looking for supplemental retirement income and life insurance. Additionally, 79 Plans can be combined with other retirement plans.
To see if a section 79 plan is appropriate for you, please contact one of our insurance experts to review your current retirement plan.
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