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Welfare Benefit Plan as a Retirement Plan..?


Guest tgraham
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Guest tgraham

I hope someone can point me in the right direction. We received some correspondence that said we could make deductible deposits into a Welfare Benefit Plan, let the funds grow tax free and then pay no tax on the monies at retirement. Further, this plan would not require us to include other employees, does not penalize us if we need to withdraw the money before age 59 1/2 and provides an added pre-retirement death benefit.

What type of plan is this? I would like to research it, but need some direction on where to start.

Thank you.

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tgraham,

You asked "What type of plan is this?"

This should be in the literature that you have and you should be telling us to see what we have heard.

What is the name? Who provides it? What Code sections apply? etc?

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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Guest tgraham

GBurns and all,

You are correct. I should have told you more...

The literature did not call it anything other than a "Welfare Benefit Plan", but upon further review and inquiry it appears to be a 419 Plan.

The plan is set up to allow for the purchase of a variable life insurance product, by the owner of a corporation or LLC. The purchaser/owner is able to deduct 80% of the premiums paid. At retirement (or before), it appears that the seller of this plan then encourages the owner to take loans out on the policy to avoid a taxable event.

Have you heard of this? What are your thoughts?

Thank you.

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Guest b2kates

In general, if caught on IRS audit, it does not work. 419 has limitations onthe amount that can be contributed and deducted.

Also there are rules that would make the loans / distributions taxable.

Check to see if there is a creditable opinion letter from a tax lawyer.

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While there are 419 Plan designs that might pass scrutiny by the IRS, I have not seen one that I think would. But since I have not seen everything and my opinion is just my opinion, I suggest that you do some research yourself and you will see that there is even disagreement among the various promoters as to what works and whose design works. If they cannot come to a consensus, that should tell you volumes.

You might want to start here although it could do with some updating:

www.irs.gov/pub/irs-tege/eotopicj92.pdf

Also:

http://www.assetprotectiontheory.com/pensions.htm

George D. Burns

Cost Reduction Strategies

Burns and Associates, Inc

www.costreductionstrategies.com(under construction)

www.employeebenefitsstrategies.com(under construction)

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You need to hire tax counsel to review the plan and the limits for 419 plans under the IRC which prevent stuffing most of the benefits for the owners, e.g., providing term ins for the rank and file and variable life for the owners. An IRS determination letter or opinion letter from the promoter's attorney is worthless because they only review the form of the plan, not discrimination in operation or other abuses which can be audited by the IRS which will disallow the deduction for all open years. Under recent tax legislation an opinion letter will not protect the client from the imposition of tax penalites for substantial understatement of income which can be 75% or more of the tax due. Doing the research on your own is like operating on yourself- you dont know what you dont know.

mjb

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