PDFs/Minnesota Life/Executive Bonus Key Employee
m A Securian Company
Executive Bonus (Section 162)
Reward key employees by funding life insurance
Because your business is your life
An Executive Bonus (Section 162) is a tax-deductible way for companies to provide supplemental benefits to key employees. It allows the company to be selective and reward top performers. You can use this nonqualified employee benefit arrangement to pay a compensation bonus to one or more key employees. The bonus is used to pay the premium on a life insurance policy insuring the key employee’s life.
How an Executive Bonus (Section 162) works
Commonly used life insurance products Eclipse Indexed Life Accumulator Variable Universal Life
• Company pays a bonus to the employee. • Employee pays income taxes on the bonus amount. • Company could choose to pay the income taxes for the employee.
• Employee takes out a personal life insurance policy and names a beneficiary. • Employee uses the bonus to pay the premium on the life insurance policy to Minnesota Life. • Employee may have living benefits distributed from the policy’s cash value on a tax-preferred basis. • Death benefits will go to the employee’s beneficiary.
Premiums Bonus
Company
Employee
Minnesota Life Living benefits and/or death proceeds
Taxes
IRS
This information should not be considered as specific tax/legal advice. You should consult your tax/legal advisor regarding your own specific tax/legal situation.
Understanding an Executive Bonus (Section 162)
Benefits
Company
Key employee
Simple • Easy to implement and administer. • IRS reporting is not required. • Arrangement may be terminated at any time. Cost effective • Bonus is deductible as a business expense. • Minimal cost to administer.
Life insurance protection • Choice of beneficiary, who is entitled to the death proceeds of the policy. • Affordable permanent insurance protection, the employee only pays the income taxes on the bonus. • Company may provide an additional bonus to pay the income taxes.
Selective • Company may choose to reward anyone. • IRS qualification is not required. • No participation or eligibility rules.
Supplemental retirement income • Policy’s cash value may be used to supplement retirement funds. • Diversifies planning options for the employee.
Flexible • No required plan provisions. • Can be customized for each employee. • Employer may discontinue the arrangement at any time.
Portability • If leaving the company, the employee may choose to continue paying premiums on the policy or exercise any rights under the policy provisions. Tax benefits • Tax-deferred growth of policy cash values. • Potential for tax-preferred retirement income through policy loans and withdrawals. • Income-tax free death benefits.
Considerations
• Company does not receive the policy’s death proceeds. • Company has little control over the policy.
• Must be in an acceptable underwriting risk; less healthy individuals can be at a disadvantage. • Death proceeds can be included in the estate without additional planning. • Certain limitations may apply to withdrawals. • Policy loans and withdrawals will reduce the death benefit and cash values – and may be taxable under certain circumstances. • The bonus is taxable income. • Depending on the actual policy experience, the employee may need to increase premium payments to keep the policy in force.
Your bottom line Minnesota Life’s products and services can help you ensure the ongoing success of your business. Your financial advisor can help you create competitive key employee benefits and prepare for issues that come with changes in ownership. For more information on an Executive Bonus (Section 162), talk to your financial advisor today. Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods. Variable life insurance products contain additional fees, such as management fees and fund expenses. The variable investment options are subject to market risk, including loss of principal. Policy holders could lose money in these products.
You should consider the investment objectives, risks, charges and expenses of a portfolio and the variable insurance product carefully before investing. The portfolio and variable insurance product prospectus contain this and other information. You may obtain a copy of the prospectus from your representative. Please read the prospectus carefully before investing.
m Minnesota Life Insurance Company A Securian Company www.minnesotalife.com Variable Products are distributed by Securian Financial Services, Inc. Member FINRA/SIPC. 400 Robert Street North, St. Paul, MN 55101-2098 • 1.800.820.4205 ©2009 Securian Financial Group, Inc. All rights reserved. 06-700
07-660
F71834-4 Rev 2-2010 DOFU 12-2009 A04571-1109
Executive Bonus (Section 162)
Reward key employees by funding life insurance
Because your business is your life
An Executive Bonus (Section 162) is a tax-deductible way for companies to provide supplemental benefits to key employees. It allows the company to be selective and reward top performers. You can use this nonqualified employee benefit arrangement to pay a compensation bonus to one or more key employees. The bonus is used to pay the premium on a life insurance policy insuring the key employee’s life.
How an Executive Bonus (Section 162) works
Commonly used life insurance products Eclipse Indexed Life Accumulator Variable Universal Life
• Company pays a bonus to the employee. • Employee pays income taxes on the bonus amount. • Company could choose to pay the income taxes for the employee.
• Employee takes out a personal life insurance policy and names a beneficiary. • Employee uses the bonus to pay the premium on the life insurance policy to Minnesota Life. • Employee may have living benefits distributed from the policy’s cash value on a tax-preferred basis. • Death benefits will go to the employee’s beneficiary.
Premiums Bonus
Company
Employee
Minnesota Life Living benefits and/or death proceeds
Taxes
IRS
This information should not be considered as specific tax/legal advice. You should consult your tax/legal advisor regarding your own specific tax/legal situation.
Understanding an Executive Bonus (Section 162)
Benefits
Company
Key employee
Simple • Easy to implement and administer. • IRS reporting is not required. • Arrangement may be terminated at any time. Cost effective • Bonus is deductible as a business expense. • Minimal cost to administer.
Life insurance protection • Choice of beneficiary, who is entitled to the death proceeds of the policy. • Affordable permanent insurance protection, the employee only pays the income taxes on the bonus. • Company may provide an additional bonus to pay the income taxes.
Selective • Company may choose to reward anyone. • IRS qualification is not required. • No participation or eligibility rules.
Supplemental retirement income • Policy’s cash value may be used to supplement retirement funds. • Diversifies planning options for the employee.
Flexible • No required plan provisions. • Can be customized for each employee. • Employer may discontinue the arrangement at any time.
Portability • If leaving the company, the employee may choose to continue paying premiums on the policy or exercise any rights under the policy provisions. Tax benefits • Tax-deferred growth of policy cash values. • Potential for tax-preferred retirement income through policy loans and withdrawals. • Income-tax free death benefits.
Considerations
• Company does not receive the policy’s death proceeds. • Company has little control over the policy.
• Must be in an acceptable underwriting risk; less healthy individuals can be at a disadvantage. • Death proceeds can be included in the estate without additional planning. • Certain limitations may apply to withdrawals. • Policy loans and withdrawals will reduce the death benefit and cash values – and may be taxable under certain circumstances. • The bonus is taxable income. • Depending on the actual policy experience, the employee may need to increase premium payments to keep the policy in force.
Your bottom line Minnesota Life’s products and services can help you ensure the ongoing success of your business. Your financial advisor can help you create competitive key employee benefits and prepare for issues that come with changes in ownership. For more information on an Executive Bonus (Section 162), talk to your financial advisor today. Life insurance products contain fees, such as mortality and expense charges, and may contain restrictions, such as surrender periods. Variable life insurance products contain additional fees, such as management fees and fund expenses. The variable investment options are subject to market risk, including loss of principal. Policy holders could lose money in these products.
You should consider the investment objectives, risks, charges and expenses of a portfolio and the variable insurance product carefully before investing. The portfolio and variable insurance product prospectus contain this and other information. You may obtain a copy of the prospectus from your representative. Please read the prospectus carefully before investing.
m Minnesota Life Insurance Company A Securian Company www.minnesotalife.com Variable Products are distributed by Securian Financial Services, Inc. Member FINRA/SIPC. 400 Robert Street North, St. Paul, MN 55101-2098 • 1.800.820.4205 ©2009 Securian Financial Group, Inc. All rights reserved. 06-700
07-660
F71834-4 Rev 2-2010 DOFU 12-2009 A04571-1109
