12 Feb / Retirement Plans
Many employers like the idea of retirement plans for employees. When business owners look for complex tax planning opportunities, depending on the size of the company and the goals of the owners, they will some time consider deferred compensation plans. These are considered nonqualified plans and are different from qualified plans. Qualified plans fall under the guidance of ERISA and encompass retirement plan options such as SEP, Profit Share Plans, and a 401(k). These type of plans are also considered to be defined contribution plans.
Most individual who file income tax returns are familiar with defined contribution plans although they may not know it. They are familiar because they participate in a 401(k) plan.
Deferred compensation payable from general corporate operating accounts that is available as claims to a corporations creditors are not included in income if they are deferred under a nonqualfied plan. These arrangements are irrevocable and the assets must be set aside from operating funds. These funds must only be used to fund deferred compensation. These type of arrangements are known as ‘rabbi’ trusts. ‘Rabbi’ trusts are considered not to be funded and so the compensation is eligible for deferral.
Tax advice contained in this communication, including attachments and enclosures, is not intended or written to be used, and may not be used for the purpose of (i) avoiding tax related penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any tax-related matters addressed herein.