Retirement Plans: Taking Care of Your Own Financial Security

Non-qualified retirement plans may be a better retirement income solution for you. They enable you to direct retirement benefits exclusively to yourself, family members working in your business and/or certain key employees. They give you the freedom to direct dollars at your discretion with few limitations and minimal administration. There are four basic non-qualified retirement plan arrangements:

• Executive Bonus -- Simple to implement and easy to administer, executive bonus arrangements can provide you and your family with life insurance benefits, including tax-free retirement income and death benefits. You personally own the life insurance policy and name your own beneficiary; the business does not own any interest in the policy. Your business then pays the premiums, and the dollar amount for the premium is added to your taxable income.
• Split Dollar -- A split dollar arrangement is a way to use business dollars to pay part of the cost of a personally owned life insurance policy.

Executive bonus and split dollar arrangements both involve payment of additional income to you from your business. If you want to reduce your current income for tax reasons, a deferred compensation arrangement may be the solution.

• Deferred Compensation -- These arrangements simply allow you to defer some or all of your regular compensation to a later date. If properly structured, a deferred compensation arrangement allows you to avoid income taxation until the deferred amount is actually received. Ideally, you would be in a lower tax bracket when you receive this retirement income.
• Salary Continuation -- Salary continuation arrangements work the same way as deferred compensation except income is promised without the reduction of current compensation. Benefits to be paid to you are set out in a deferred compensation written agreement. Obviously, the continuation of your business through your retirement is crucial to the success of this arrangement. Life insurance may be used to informally fund the promised future benefits. In this case, the life insurance is owned by the business (which is also the beneficiary), so cash values are business assets, and death benefits are received by the business.