Split Dollar plan
A Split Dollar plan may provide a cost-efficient way for tax exempt entities to offer selected employees valuable death benefit protection, supplemental retirement benefits, or both.
In simple terms, the business and its employee agree to share the benefits and costs of a life insurance policy. A split-dollar life insurance arrangement can be a powerful planning tool if a business wants to provide executive fringe benefits to their employees.
- The tax exempt entity enters into a written split-dollar agreement with each selected employee. The agreement specifies the rights and responsibilities of each party.
- The plan can be designed to leverage the amount of control you would like to have over the policy. Policy ownership and beneficiary arrangements will be determined by the selection of loan regime or endorsement/economic benefit regime split-dollar plan.
- Depending on the type of split-dollar arrangement, your employee may pay income tax on the economic benefit received or on the imputed interest income of the loan.
- The tax-exempt entity has discretion regarding which employees can participate.
- The plan is generally easy to implement and maintain.
- Cost recovery may be available.
- Depending on the type of split-dollar arrangement, tax-advantaged income may be available from the policy through withdrawals and loans.*
- The death benefit is income tax-free.
- A split-dollar plan can be a cost-effective way to obtain survivor benefits and be a possible source of supplemental retirement income.
See the case study: A cost-efficient way to reward and retain your key employees (PDF)