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.