Executive Bonus Plans
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What it is:
An executive bonus plan is a non-qualified fringe benefit designed to reward key executives.
Benefits to the executive:
- A substantial death benefit at little or no cost to the executive
- Cash value accumulations are available for supplemental retirement income
- The executive can control and maintain the policy after termination of the plan, or ending of employment.
Benefits to the business:
- Simple and easy to implement and run; no IRS approval needed.
- The business can pick and choose who to benefit.
- Payments are tax deductible to the business, in most instances.
- The executive bonus plan can be changed or terminated at any time.
How to do it:
- The executive and business enter into an executive bonus plan agreement.
- The executive applies for life insurance, is the owner and names the beneficiary.
- The business pays all insurance premiums directly to the insurance company.
- The business deducts the premiums, and the executive declares them as earned income.
- Depending on the agreement, the business may also choose to bonus the tax cost to the executive, reducing the executives out of pocket cost still further.