Section 162 Executive Bonus Plan

It is in reference to this code section that certain nonqualified plans known as executive bonus plans are sometimes referred to as section 162 plans.

Section 162 executive bonus plan. The employee or the employee s irrevocable life insurance trust ilit acquires and owns all rights in the policy. The employer takes out a life insurance policy on a key employee. The major difference between the preceding plans and a sec 162 plan is that in the case of the latter the company can take an immediate tax deduction for the benefit provided to the employee.

A 162 bonus plan is an arrangement where the employer effectively funds an employee s purchase of life insurance through the payment of bonuses to the employee or possibly through direct payment to the issuing carrier. How an executive bonus plan works an executive bonus plan is a way to attract retain and reward key employees using life insurance. In its simplest form an executive bonus plan is one in which an employer pays the premiums on a permanent life insurance policy owned by an employee.

A section 162 executive bonus plan is designed for employers to provide additional benefits to key employees on a selective basis. The benefits usually include life insurance policy death benefits as well as cash value accumulations that can be used as a retirement income supplement. Here s how it works.

These plans are used to motivate the higher level employees in the organization to keep them with the company. The employee acquires and owns all rights in the policy. A section 162 executive bonus plan allows a business to provide life and or disability income insurance to key executives using tax deductible dollars.

What is a section 162 executive bonus plan. This piece offers insight into section 162 executive bonus plan design considerations marketing opportunities benefits to the business and executive and more. One program worth looking at is an executive bonus plan sometimes called a section 162 plan.