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David P. McCabe,
WMCP®, ChFC®, CLU®
Financial Planner
Nathaniel D. High, RICP®
Financial Planner
Nicholas J. Over, CFP®
Financial Planner
Sara E. Martin
Operations Manager
Jennifer A. McCabe
Client Service Specialist
jennifer.mccabe@prudential.com
Centuria Financial Group
2333 Baltimore Blvd Suite B
Finksburg, MD 21048
Phone: 443-952-7232
May/June 2022
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.1056758-00001-00
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David P. McCabe, Nathaniel D. High, and Nicholas J. Over are Financial Planners with, and offer securities and investment advisory service through LPL Enterprise (LPLE), a Registered Investment Advisor, Member FINRA/SIPC, and an affiliate of LPL Financial.
LPLE and LPL Financial are not affiliated with Centuria Financial Group.
This newsletter is general educational information provided by a Prudential Financial Professional and is not intended to market or sell any specific products and services, but rather provide general information about the subject matter covered only.
Centuria Financial Group and LTM Marketing Specialists LLC are unrelated companies. This publication was prepared for the publication’s provider by LTM Client Marketing, an unrelated third party. Articles are not written or produced by the named representative.
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