Reward the Employees You Want With an Executive Bonus Plan
Under an executive bonus plan, an employer purchases and pays for a life insurance policy for a select group of employees. The employer pays for the policies via a pay raise to the employee(s) equal to the policy premium, and in some cases an additional bonus to cover the income tax on this additional pay. The employer is able to pick and choose specific employees to participate in the plan.
Employees have full rights to the policy and its cash value and can take tax-free income from the policy in the future. As a way to increase the plan's retaining power, a restrictive endorsement and vesting schedule may be added.
Employee owns the policy and has control over the cash value and naming of the beneficiary
Tax-free income is available from the policy via partial withdrawals and loans
Cash values and policy values accumulate tax-deferred
Employee chooses timing and amount of withdrawals
Tax due on the bonus can be covered by an additional bonus from the employer
Contribution limits are flexible
Rewards key employees in a discretionary manner
Easy to implement and maintain
Bonuses to employees are deductible, if reasonable
Employer is not obligated to make premium payments