EXECUTIVE BONUS
An executive bonus plan (also referred to as an
executive retirement bonus plan or
executive retirement plan) permits a corporate employer to make
an agreement to provide
life insurance protection for selected employees. The employee
is the owner of the life
insurance policy on his or her life and designates the
beneficiary. The Employer pays the
premiums and these are tax-deductible as a business expense.
ADVANTAGES TO THE EMPLOYER
This plan will help recruit and retain key employees
with extra benefits that do
not require IRS approval. The employer is free to select which
employees may participate
in the plan.
ADVANTAGES TO THE EMPLOYEE
The employee owns the policy including the cash values,
which can be used for
retirement, education or other long-term financial needs. If
the employee leaves the firm,
the policy goes with him or her. At death, the insurance
company pays the death benefit
under the provisions of the policy to the employee's designated
beneficiary and these
proceeds are received free of income tax.
TAX ASPECTS
Premiums paid by the employer are tax-deductible as
compensation provided
reasonable under the particular facts and circumstances. The
payments are taxable income
to the employee. The build-up of cash values inside the policy
is free of current income
tax. The employee has access to cash values or loan values
pursuant to the terms of the
life policy. Death proceeds to a named beneficiary are received
free of income tax.
