Split Dollar

Your corporation or an employee buys life insurance on the employee’s life. The premiums, as well as any equity and death benefits are shared in an agreed upon fashion.

Advantages & Considerations

  • Cash value portion of all business-paid premiums may be a corporate asset.
  • Tax-free recovery of business share of total premiums if the employee dies.
  • Selected employees receive this extra benefit without need for government approval
  • Split dollar is taxed under loan or economic benefit regime rules generally depending on whether a collateral assignment or endorsement arrangement it utilized.
  • In case of death, employee’s designated beneficiary receives their portion of life insurance benefit income tax free.
  • All or part of the policy’s equity might be used later to provide an additional retirement income
  • IRC § 409A sets forth specific rules regarding deferred compensation arrangements including certain split dollar arrangements. It is important to confer with your independent tax and legal advisors to ensure applicable deferred compensation arrangements fully comply with 409A. Arrangements that are not in compliance are subject to significant income tax consequences, penalties and interest.
  • Insurance premiums are not deductible by the corporation

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