Like it's sister strategy the Split Dollar Plan, a Reverse Split Dollar plan can also  attract and help retain key personnel.

It provides special, discriminatory benefits suited to the needs of individual executives and the corporation...with a slightly different twist.

Introducing The Reverse Split Dollar

So far you learned that Executive Benefit Packages basically come in four basic packages, the 162 Executive Bonus, The Split Dollar and now we're introducing you to the third strategy Reverse Split Dollar.

The common denominator that all these strategies have is the purpose of providing extra benefits to key personnel who mean the most to the bottom line productivity of the company.

The Reverse Split Dollar Strategy is very much like the Split Dollar Plan, except under this arrangement, the employer owns all or part of the "at-risk" element of an insurance policy, with the employee owning the cash value. The "at-risk" element is the difference between the cash value of the policy and the total death benefit.

Like the previous strategies, there can be many variations of this type of plan. However, the bottom line objective is usually to provide a source of tax-free retirement benefits to the key person/owner/shareholder.

The Strategy

The company enters into an agreement with the key employee or employees. Each respective party collaterally assigns or endorses over a portion of the death benefit to the company (this will indemnify the company against the potential loss of its key personnel).

The corporation pays the premium - or a 'split' thereof - into a cash rich insurance policy covering the key executive. The corporation also pays premiums equal to the imputed economic benefit (PS58 costs), which is usually minimal at best. (Variable Life plans can be an effective contract to use under these circumstances. To learn more about Variable Life follow this link.). To offset this, the company typically pays a bonus to the key person in an amount equal to the employee's premium share.

In the event of the employee's premature death, his/her heirs and the corporation receive their designated share of the death benefit proceeds.

At retirement, the key person terminates the agreement with the corporation and begins receiving tax-free income from the policy via loans and withdrawals (IRC Section 7702).

Benefits to the Employer

  • The employer has complete discretion in selection of participants.
  • There are no maximum or minimum contribution requirements.
  • The plan agreement does not require IRS approval.
  • The plan design is completely flexible in order to meet individual needs.
  • The Administrative expenses are nominal.
  • Plan contributions and benefits may vary among participants.
  • The plan may be terminated at anytime, pursuant to agreement.
  • It assists in attracting and retaining key employees.

Benefits to the Employee

  • Corporate dollars can be used to provide supplemental retirement benefits.
  • The plan can be custom designed to meet personal needs.
  • The employee's income tax costs can be covered by a bonus from the employer.
  • Cash values accumulate in a tax deferred manner.
  • Tax-free income can be received via withdrawals & loans (IRC Section 7702).
  • Death benefits can be excluded from the employee's estate.
  • Death benefit proceeds are 100% tax-free.

What We Provide

At Fielder Financial Management, Ltd. we provide the following services:

  • 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

  • Representation with your employer on your behalf.

Action To Take

Click HERE to obtain Reverse Split Dollar information

For Faster Service Call 1-800-480-7526


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

Securities and investment advisory services offered through Girard Securities, Inc. member FINRA, SIPC.
Fielder Financial Management, Ltd. not affiliated with Girard Securities, Inc.  Mark Fielder, OSJ, Registered Principal. CA. Insurance Lic. # 0690576.

Disclosure:  For more complete information about variable life, including charges and expenses, obtain a prospectus by calling 1-800-480-7526. Read it carefully before you invest or send money. Investment return and principal value of an investment will fluctuate.  An investor's units, when redeemed, may be worth more or less than their original investment.  Consult your tax advisor.