How An Executive Bonus Plan Works.

How An Executive Bonus Plan Works.

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golden_handcuffsHere’s how an Executive Bonus Plan provides retirement income, death benefit protection, as well as additional living benefits, which could include a down payment to purchase your stock. Executive Bonus plan- part 1

Here’s how it works.

  • Employer offers an incentive bonus benefit to key employees and receives a current tax deduction.2
  • Employer submits the bonus contribution to a life insurance policy. 1
  • Key Employee owns the life insurance policy and benefits from the cash value and survivor benefits, but also pays income tax on any bonus contributions made to the plan.

What’s in it for the employer?

  • Increases moral
  • Receive tax deduction
  • Easy to communicate

Keep in mind this strategy does reduce company cash flow by the bonuses paid.

What’s in it for the employees?

  • Save more- More can be saved above the limits of a qualified plan such as a 401(k)
  • Receive multiple benefits- In addition to retirement income, it provides access to funds to address unexpected events, such as disability chronic illness, and other financial needs.
  • Enhance financial security- The employee’s family may receive tax-free benefits at the employee’s death.
  • Owns the policy- The key employee owns the life insurance policy1, but must stay with the organization to be eligible for the bonus.

Keep in mind an additional tax may be due if the employer’s bonus doesn’t cover all of the income tax. However, the tax on the bonus may be partially or fully offset with another employer bonus.

1- Additional financing options may be available.

2- Due to the flow-through tax treatment of some businesses, such as S corporations and limited liability corporations (LLCs), you may want to consider specific plans designed to benefit the owners of these entities.

Questions? Schedule a call. I’m all ears.

Source: Principal National Life Insurance Company.

The subject matter in this communication is provided with the understanding that Principal® is not
rendering legal, accounting, or tax advice. You should consult with appropriate counsel
or other advisors on all matters pertaining to legal, tax or accounting obligations and requirements.

Written by Jaimie Blackman

Jaimie Blackman

Jaimie Blackman has created Sound Financial Decisions ™ powered by MoneyCapsules®, to help guide business owners through the complexities of succession planning.

Jaimie writes “Smart Succession”, a monthly column in Music Inc., and also writes a bimonthly column for Canadian Music Trades magazine. He has spoken at NAMM U Idea Center, and at Yamah’s Succession Advantage.

As a financial literacy educator he has taught at New York University and has lectured at the 92nd Street Y, Marymount Manhattan College, and CUNY.

As President of BH Wealth Management, Jaimie also helps his clients implement investment and insurance solutions which are aligned to their personal values. Visit bhwealth.com to learn more.

To subscribe to Jaimie’s Succession Success: Insights for Music Retailers, visit moneycapsules.com.

The purpose of this post is to educate. Our content should not be construed as advice. If legal, tax or other advice is required by the readers, professional advice should be sought.

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