William Byrnes' Tax, Wealth, and Risk Intelligence

William Byrnes (Texas A&M) tax & compliance articles

Posts Tagged ‘Cash flow’

Drama Over the “Drawbacks” of Annuities

Posted by William Byrnes on July 27, 2011

A recent Businessweek article highlighting what it calls the “drawbacks” of annuities is the latest in a long line of articles panning the financial products. But do annuities—especially variable annuities—endure justified scrutiny, or are annuities just an easy target of the mainstream media? And, where annuities are the right choice for your clients, how can you counter the negative press to help them make the right investing decision? Read this complete analysis of the impact at AdvisorFX (sign up for a free trial subscription with full access to all of the planning libraries and client presentations if you are not already a subscriber).

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Life Insurance in Qualified Pension Plans

Posted by William Byrnes on November 17, 2010

Why is this Topic Important to Wealth Managers?  Presents the general treatment of life insurance purchased through qualified pension plans.  Discusses a common scenario where life insurance premiums may be deductible by an employer aw well as the consequential income tax effect on plan participants. 

Suppose your client is the sole shareholder and president of a closely held corporation.  The business generates significant positive income and cash-flow on a steady basis. Assume the client himself may have an insurance need without the funds personally to cover the obligation.    Assuming further the business has a qualified pension (defined contribution or defined benefit) plan, one consideration may be to purchase life insurance through the qualified pension plan. [1]  Assume this option, up to an insurable interest limit, was also offered to all employees participating in the qualified plan. 

Since employer contributions to qualified plans are sometimes deductible, amount used to purchase life insurance may be also, subject to the incidental limitation. [2]  First though, “[t]o qualify for deduction as a contribution to a qualified plan, the employer’s contribution must first qualify as an ordinary and necessary business expense within the limits of reasonable compensation.” [3] As a general rule, so long as the amount of the insurance is no more than 25% of the total cost of the plan the amount may be deducted as an incidental benefit to the plan. 

Read the entire blogticle at AdvisorFYI.

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