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| Sorry in the delay getting back to you, been out of town on business for a couple days. There are several pros and cons that need to be evaluated before I could ultimately advise it’s likely in your best interest to enter into such an agreement. First and foremost, because you as an employee are deffering the taxation on the income to a future date, if tax rates rise above todays level, and your income is equal too, or higher during retirement as when you were employed drawing salary, you’d be better off not implementing the plan. Because it is a non qualified plan, it doesn’t fall under ERISA rules, which makes the plan much easier for key employees of the corp to participate. But it is still an IRS regulated plan that will require an adoption agreement of some type spelling out the terms and conditions. The Corp will not recieve a current tax deduction for its contributions to the plan, their deductions begin when the payouts to the key employee start. If you are both the corp and the employee, the pros and cons pretty much cancel each other out. You, as the employee, recieve immediate tax relief on the deferrals, but as the sole owner of the shares of the corp, the contributions into the plan are not currently tax deductible. There could be some exceptions whereby the plan could still be of benefit to you though, particularly if permanent life insurance is used as the funding vehicle. Namely in the event of your early demise, required future payments to your heirs would then become tax free income. Also, you could cover your long term care and potential disability through the chronic and critical care riders inside the policy. In summation, it would take a deep dive into your personal and business structure to make a final recommendation if implementing such a plan is suitable. Email is good if you wish to discuss further, as there is considerably more IRS contingencies that would need to be met, although, not insurmountable, cannot be overlooked either. | |
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Fa11 guidance on deffered comp question
