Split Dollar plan

A Split Dollar plan be a valuable strategy for balance sheet-sensitive business owners.

Considerations for the business

A Split Dollar plan may be an attractive solution for balance-sheet sensitive companies to help pass-through owners save for retirement.

  • In an endorsement split dollar arrangement, the business retains cash values on their books.
  • In a loan regime split dollar arrangement, the business retains interest in cash values and death benefits equal to their split dollar loan.

The life insurance can provide:

  • An income tax-free death benefit for the beneficiaries
  • Tax-deferred growth opportunities
  • A tax-efficient financial resource through income tax-free policy loans or withdrawals*

   

Businessman and construction worker looking at plans

*Income tax-free loans and withdrawals will reduce the policy’s cash value and death benefit. Distributions are taken through loans and withdrawals, which reduce a policy’s cash value and death benefit and may cause the policy to lapse. Loans are not considered income and are tax-free. Withdrawals and surrenders are tax-free up to your cost basis, provided your policy is not a modified endowment contract (MEC). A MEC policy is one in which the life insurance limits exceed certain high levels of premium or the cumulative premium payments exceed certain amounts specified under the Internal Revenue Code. For policies that are MECs, distributions during the life of the insured, including loans, are first treated as taxable to the extent of income in the contract, and an additional 10% federal income tax may apply for withdrawals made prior to age 59½.