Split Dollar: For-Profit Companies 


With the new 21% Federal tax rate for corporations, Split Dollar is a very attractive benefit for both the corporation and the highly compensated. This is how it works: Employer loans premiums to an employee to buy a life insurance policy. The employee is the owner and the employer is the assignee. Loan interest accrues on the loan.  The executive either pays off the loan plus interest at retirement or the loan plus accrued interest is paid at death.

It may be possible to borrow a stream of tax-free payments to supplement the executives retirement income. Split dollar is a tax efficient benefit to attact and retain top talent.


Split Dollar: Tax Exempt Organizations


Split Dollar is a very attractive way to provide tax-free retirement income to highly compensated executives/professionals of Tax Exempt Organizations (there are several variations). The executive/professional can reduce his/her income via renegotiating their contract. The Tax Exempt Organization saves the 21% exceise tax (to the extent income over $1,000,000 is reduced) as well as payroll expenses which can average 5%. The Tax Exempt loans the compensation reduction plus 3:1 matching dollars to a trust for the benefit of the executive/professional and his/her beneficiaries. The trust buys a highly efficient life insurance policy on the life of the executive/professional who can receive tax free retirement income.  The loans plus accrued interest is repaid at death.

The Tax Exempt has turned an expense into an asset which grows at a competitive rate over time. The savings on excise tax and payroll expenses can be used to fund community outreach programs. This is a win/win for the Tax Exempt.