Craig Lundquist, Kristin Becker and Richard Mathaus photo
Ideal Wealth Advisors logo

Craig Lundquist, MBA, ChFC®, CRPC®

Wealth Management Advisor

craig.lundquist@lpl.com

651-773-2757

 

Kristin Becker

Senior Administrative Assistant

kristin.becker@lpl.com

651-773-2821

 

Richard Mathaus, CLTC

Financial Consultant

richard.mathaus@lpl.com

651-773-2867

 

Ideal Wealth Advisors

Located at Ideal Credit Union

8499 Tamarack Road

Woodbury, MN 55125

May/June 2022

Executive Bonus: A Perk to Consider

Executive Bonus A Perk to Consider

Staffing issues. Stress. Burned-out managers. If the “Great Resignation” has prevented your business from attracting and retaining key employees, a Section 162 Executive Bonus Plan might be an incentive program worth considering.


With an executive bonus plan, your business provides a benefit—typically life or disability insurance—to key executives to motivate them to join or stay with the company. Premiums are either paid through cash bonuses or made directly to the insurance company and reported as income on the employee’s W-2. Under a cash bonus arrangement, the bonus received by the key employee is usually equal to the cost of the policy premiums and the associated taxes on the income. Thus, the employee incurs no out-of-pocket expense.


Benefits for You
You don’t have to offer the plan to all key employees. You can choose which key executives will receive the incentive. You also have the flexibility to offer plans with different terms and benefits for individual employees. The plan is easy to implement and administer and doesn’t require IRS approval. Your company can take a tax deduction for the bonus payments if they’re considered “reasonable compensation.”


Benefits for a Key Employee
An executive bonus plan provides life insurance coverage to the employee. Generally, the employee retains ownership of the policy, names the beneficiaries, and has access to the policy’s cash value. Beneficiaries will eventually receive the policy proceeds income-tax free.


Maintaining Control
Your company can ensure that a key employee remains with the company for a certain period by implementing a restricted executive bonus arrangement. This option allows the company to retain control over the policy’s cash value until the employee meets a goal that’s defined by the company. The goal might be the executive’s retirement or a specified number of years that he or she must remain with the company. The cash value becomes available to the employee after the goal is met.


Get It in Writing
Although a written plan isn’t required, it can help your company avoid problems, such as having its tax deduction disallowed by the IRS.

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