Unlock Your Business Potential: Exploring Non-Qualified Retirement Plans!

Posted on August 10, 2023

When it comes to retirement planning for small business owners there are a lot of options available which can be confusing. There is no one strategy that is perfect for everyone and when we look at the non-qualified options it is usually after we have already exhausted our qualified options or you have a specific scenario that makes it possible. 

We partner with Matt Ruttenberg and Life Inc Retirement Services so if you would like to get started on setting up a retirement plan you can visit their site here.

Before you dig into this Blog, I highly recommend you check out our overview of qualified options in this Blog and Podcast:

What Retirement Plan Options Are Available For My Business?

With that being said, lets dig into non-qualified options!

Deferred Compensation Plan

A Deferred Compensation Plan is also commonly know as Golden Handcuffs.

This non-qualified plan allows employers to incentivize targeted individuals with additional compensation without offering the benefit company wide.

  • Contribution Limits
    • Unlimited contributions due to the non-qualified tax status.
    • Tax deductible to the business.
    • Employee pays taxes as income on the agreed upon future date once funds are released.
  • Who Is This Plan For?
    • Employers looking for additional benefits to retain executives and other key employees.
    • Business owners who are looking to target only certain individuals.
    • Business Owners looking to set themselves apart as an employer.
    • Those looking for more flexibility and control of the benefit amount.
    • Employers wanting to add restrictions to a robust benefit for top-tier employees.

Section 162 Bonus Plan

The Section 162 Bonus Plan is also commonly know as an Executive Bonus Plan.

Using life insurance as the platform, this non-qualified plan gives you the ability to target only the employer, or certain individuals in the organization without offering a benefit company wide.

  • Contribution Limits
    • Unlimited contributions due to the non-qualified tax status.
    • Tax deductible to the business when offered as a bonus to the employee.
    • Employee pays taxes on contributions.
  • Who Is This Plan For?
    • Employers looking for additional contribution options in addition to other retirement plans. Employers who want to target certain individuals for additional benefits.
    • Business Owners who want the option to retire early.
    • Those looking to supplement retirement with tax-free income.
    • Investors looking for additional platforms similar to a Roth IRA or Roth 401k.

Life Insurance Retirement Plan (LIRP)

A Life Insurance Retirement Plan, or LIRP, is a nonqualified plan using a cash value life insurance policy to house the assets.

These specifically designed policies allow for tax-free withdrawals that mimic a Roth IRA or Roth 401(k) without age or income restrictions on your contributions and retirement income.

  • Contribution / Income Limits
    • Unlimited contribution limits due to the non-qualified tax status.
    • After-tax contributions.
    • Tax-free income in retirement when cash value remains below the Modified Endowment Contract (MEC) limits.
  • Who Is This Plan For?
    • Employers looking for additional contribution options in addition to other retirement plans.
    • Employers looking for a retirement option without the need to include employees.
    • Business Owners who want the option to retire early.
    • Those looking to supplement retirement with tax-free income.
    • Investors looking for additional platforms similar to a Roth IRA or Roth 401k.

As a reminder, we partner with Matt Ruttenberg and Life Inc Retirement Services so if you would like to get started on setting up a retirement plan (or just looking for a consultation) you can visit their site here.

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