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© Copyright 2014 Business Planning Group BusinessPlanningGroup.com Page 1 Section 79 Permanent Plan Implementing An IRS Compliant Section 79 Permanent Employee Benefit Program Add Prospect Logo Here November 12, 2014
© Copyright 2014 Business Planning Group BusinessPlanningGroup.com Page 2 What is Section 79? Many employers offer group term life insurance to their employees. The amount typically provided is $50,000 of “free” Group Term Life coverage to their employees. This is part of Section 79. Under IRS section 79 there are two other options that employers can offer to their employees. Employees have the option to elect a salary reduction for a portion of their payroll; similar to a 401(k) plan into the full group term or the permanent benefit option of Section 79. When the employee makes a contribution, a portion will be counted as income and be taxed currently with the remainder, growing on a tax deferred basis. The Section 79 Permanent plan option is traditionally used by highly compensated employees, because of the initial tax savings, future tax-free income and other benefits. 3 Options for Employees $50k employer paid group term life insurance Full employer paid group term life insurance Section 79 permanent insurance benefit, employee salary reduction Not taxable to employee for coverage Employee is taxed on benefit above $50k of coverage Employee reaps initial tax advantage on portion of contribution
© Copyright 2014 Business Planning Group BusinessPlanningGroup.com Page 3 A Plan Example $320k Gross Income $100k investment A Permanent Section 79 plan can be a powerful addition to an employee fringe benefit package. Here is an example of how the plan can work for a male, earning W-2 wages of $320,000, age 45 years old, non- smoker with preferred rating:
© Copyright 2014 Business Planning Group BusinessPlanningGroup.com Page 4 Plan Analysis Taxable equivalent required to generate $149,641 per year. Illustrated annual tax- free income @ age 65
© Copyright 2014 Business Planning Group BusinessPlanningGroup.com Page 5 When your company adopts a Section 79 Permanent plan, there are significant employer advantages: All contributions made to the plan (whether EE or ER paid) are paid by the company and are 100% deductible by the company in the year paid. Payroll taxes owed by the company are reduced by the reduction of participant(s) W-2 wages. There are also many employee advantages: If employee paid, the plan reduces the employee W-2 and associated Federal, State and payroll taxes. Plan uses pre-tax dollars with only a portion of plan contributions includible in the participant’s income. Plan assets accumulate on a tax-deferred basis. Plan includes accelerated benefit “living” riders. In the event of the participant’s death, a tax-free survivor benefit is provided. Retirement income will be received tax-free. Employer and Employee Advantages
© Copyright 2014 Business Planning Group BusinessPlanningGroup.com Page 6 Investment Options Employees strive to create adequate retirement funds and personal wealth. Only an IRS compliant Section 79 Permanent plan lets the employee invest an almost unlimited annual amount utilizing pre-tax funds. An investment feature Not an investment feature ABR benefits are “accelerated benefit rider” benefits. These are add-on coverage to certain Life Insurance Policies. HIPAA exempts from income tax, accelerated death benefits from life insurance contracts received on behalf of a chronically or terminally ill insured. A terminally ill person is one who has been certified by a physician as having a physical condition or illness that can reasonably be expected to result in death within two years. A chronically ill individual is one certified by a licensed health care practitioner as being unable to perform at least two activities of daily living.
© Copyright 2014 Business Planning Group BusinessPlanningGroup.com Page 7 Almost all of the investments that people make today use after-tax $. If you are in a top tax bracket, Federal income tax makes anything you buy with after-tax $ carry a 67% tax premium over the price of the investment. That means your $500K house really costs $835K in after-tax $ and your $50K car really costs $83.5K. Only an IRS Section 79 Permanent plan lets employees invest an almost unlimited annual amount utilizing pre-tax funds. Investing With Pre-tax $ 1.Assumes 40% Federal income tax-bracket. Does not consider payroll and Medicare taxes. 2.Section 79 plans typically charge back only @ ~ 60% of plan cost back to the client W-2 which will reduce W-2, in this case, $40k. Income tax on $60K = $24K. Income tax savings on $40k = $16K. 3.Wage reduction assumes you are still in the same tax-bracket. Depending on the investment size, this may reduce tax bracket which will affect all taxable wages. 4.Payroll tax savings estimated at an average of @ 4.0% on top earner.
© Copyright 2014 Business Planning Group BusinessPlanningGroup.com Page 8 Where Will Taxes Go Next? Source: Verisi Data Studio - http://www.verisi.com/resources/us-marginal-tax-rates.htm As our government struggles with deficits and spending levels, tax rates will no doubt be reevaluated and adjusted. Now at historically low levels, if tax rates go higher, the tax mitigation and tax-free distribution benefits of a Section 79 Permanent plan will make this product an even more important retirement investment strategy option. 2014 rate 39.6%
© Copyright 2014 Business Planning Group BusinessPlanningGroup.com Page 9 Business Planning Group assists organizations in understanding and implementing executive and employee benefit plans. Specializing in tax- advantaged Section 79 Plans, we also work with clients on Deferred Compensation Plans, Premium Financing Programs, Captive Insurance Programs, and Qualified Plans to help our clients build personal wealth while recruiting and retaining key employees. Contact Business Planning Group 1325 West South Jordan Parkway, Suite 101 South Jordan, UT 84095 (801) 446-2555 Office (888) 545-2205 Toll free BusinessPlanningGroup.com About Us
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