What is Split Dollar?

Generally, Split Dollar (SP) involves the allocation (split) of premiums on a cash rich, investment grade insurance policy between two parties -- a party with a need for coverage and supplemental retirement income and a party, (usually a corporation) with the desire to retain a key executive and be able to replace him/her in the event of premature death.

Comprehensive Planning

Split Dollar has long been a cornerstone of advanced benefit planning in the corporate environment because of its unique tax attributes. Moreover, because Split Dollar is flexible and adaptable to varying situations, it is particularly well suited to meet the varied needs of the business owner and employee.

The Four Leading Types

The four leading types of Split Dollar are collateral assignment, endorsement, split owner, and reverse split dollar. These plans are easy to establish and maintain and they do not require IRS approval.

These advantages include tax deductible contributions into the plan, tax-free growth for supplemental retirement purposes, tax-free income (through loans and withdrawals), complete portability and self-completion in the event of pre-mature death.

John Doe & ABC Corporation

Let's say John Doe has worked at ABC Corporation for 10 years. He is one of the key decision makers and clear-cut leaders of the firm. He's largely responsible for the firm's success and is one the more highly compensated executives.

John likes ABC and Senior Management understands his value to the overall operations. ABC would be hard-pressed to replace him. John contributes the maximum allowable to the company 401k plan, but would like to save more for retirement on a tax-advantaged basis. ABC would like to retain John indefinitely on a completely discriminatory basis.

ABC and John enter into a Split Dollar Agreement whereby an Insurance Policy is purchased on John's life for a premium of $10,000 annually. ABC company pays the lion's share of the premium and John pays the nominal PS58 (pure term costs).

The agreement calls for certain splits between the death benefit and cash value of the policy while John is actively employed by ABC Corp.

When John retires the agreement will terminate and the company will get back what it paid into the plan (or a certain percentage thereof). John receives the remaining value (growth on the contributions) which can be tapped 100% tax free through loans and withdrawals (under non mec rules) providing him with the supplemental, tax free retirement income stream he so desired.

Benefits to the Employer

• The employer's investment may be secured and returned when the employee dies, retires, or quits.
• The employer has complete discretion in selection of the participants.
• There are no maximum or minimum contribution requirements.
• The plan agreement does not require IRS approval.
• The plan design is completely flexible.
• The administrative expenses are nominal.
• Plan contributions and benefits may vary among participants.
• The plan may be terminated at anytime, pursuant to agreement.
• The concept assists in attracting and retaining key employees.

Benefits to the Employee

• Corporate dollars can be used to provide personal life insurance and potential supplemental retirement benefits.
• The life insurance can be maintained at minimal tax costs.
• The plan agreement can be custom designed to meet personal needs.
• Tax-free income benefits can be received through withdrawals & loans.
• Premium payments made by the corporation are currently taxable to the employee to the extent of the economic benefit.
• Death benefits can be excluded from the employee's estate.
• The death benefit is 100% income tax-free to heirs.

What We Provide

At Fielder Financial Management, Ltd. we provide four services in this area:

• Helping you evaluate the feasibility of such a strategy for your situation;

• Independent consultation regarding the proper funding tools for maximum effectiveness;

• Sample contracts for you, your firm and/or attorney; and

• Face to face representation with your employer on your behalf.

FOR FASTER, PERSONALIZED SERVICE CALL 1-800-480-7526

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Copyright © 1998 Fielder Financial Management, LTD.
All Rights Reserved.

Securities are offered through Girard Securities, Inc. member FINRA, SIPC.
Mark R. Fielder, Registered Principal. CA. Insurance Lic. # 0690576.