Opportunities Business Owners Can Take Advantage of

Yes, it is possible for an employer to open a whole life policy on a new employee, overpay the contributions, and then borrow from the policy to pay the employee's salary. This is a common practice known as "Executive Bonus Arrangement" or "Section 162 Bonus Plan".

Here's how it works:

1. The employer purchases a whole life insurance policy on the employee, paying premiums in excess of the scheduled premium.

2. The excess premium payments create a cash value in the policy.

3. The employer then borrows from the policy's cash value to pay the employee's salary.

This arrangement provides tax benefits to both the employer and employee:

- Employer: Deducts premium payments as business expenses (Section 162).

- Employee: Receives tax-free death benefit and potentially tax-free withdrawals (if done correctly).

However, it's crucial to ensure compliance with tax laws and regulations, such as:

- IRS guidelines (Section 162, Section 264, and Notice 2007-34)

- ERISA (Employee Retirement Income Security Act) requirements

- Policy terms and conditions

Consult with a qualified tax professional, insurance expert, or attorney to ensure proper implementation and compliance.

Yes, it is possible for an employer to open a whole life policy on a new employee, overpay the contributions, and then borrow from the policy to pay the employee's salary. This is a common practice known as "Executive Bonus Arrangement" or "Section 162 Bonus Plan".

Here's how it works:

1. The employer purchases a whole life insurance policy on the employee, paying premiums in excess of the scheduled premium.

2. The excess premium payments create a cash value in the policy.

3. The employer then borrows from the policy's cash value to pay the employee's salary.

This arrangement provides tax benefits to both the employer and employee:

- Employer: Deducts premium payments as business expenses (Section 162).

- Employee: Receives tax-free death benefit and potentially tax-free withdrawals (if done correctly).

However, it's crucial to ensure compliance with tax laws and regulations, such as:

- IRS guidelines (Section 162, Section 264, and Notice 2007-34)

- ERISA (Employee Retirement Income Security Act) requirements

- Policy terms and conditions

Consult with a qualified tax professional, insurance expert, or attorney to ensure proper implementation and compliance.