Guest tm3333 Posted March 24, 2011 Share Posted March 24, 2011 Can a sole shareholder of an S-Corp set up a nonqualified deferred compensation plan for himself/herself? What alternatives are available? Link to comment Share on other sites More sharing options...
Guest scadv Posted April 28, 2011 Share Posted April 28, 2011 Can a sole shareholder of an S-Corp set up a nonqualified deferred compensation plan for himself/herself? What alternatives are available? Yes, it is possible for them to set up a NQDC plan for themselves. The alternatives would be some other type of salary deferral such as a 401K, profit sharing, utilizing safe harbor, 412i, etc. (depending on whats already in place and what the particular circumstances are) Link to comment Share on other sites More sharing options...
QDROphile Posted April 28, 2011 Share Posted April 28, 2011 Please describe the benefits of nonqualified deferred compensation to the sole shareholder of an S corporation. I fail to see how any income tax is deferred and that is the essential benefit. Link to comment Share on other sites More sharing options...
Guest PHLester Posted May 27, 2011 Share Posted May 27, 2011 Please describe the benefits of nonqualified deferred compensation to the sole shareholder of an S corporation. I fail to see how any income tax is deferred and that is the essential benefit. A NQ DCP for an S-Corp, LLC, LLP, Partnership is a tough thing for the owners to take on. I have one client that does this and the only reason he does so is: he owns the company, is not giving equity/ownership, promised to do so for a couple of key guys when he started the company..." if you come with me, I will give you every benefit you are leaving behind..." It is painful. Every dollar deferred by an employee passes through to the owner (he is taxed on it currently). So: Employee A defers 100K. The onwer does not get to deduct this compensation until it is paid - resulting in increasing his current net income... (he only has 65K... cause he does have to pay taxes on this money). For this reason, a NQ DCP works best for C-Corps, entities where income does NOT pass through to the owners. The benefits, if the owner chose to bite the bullet are: - competes with C-Corp Benefits (we do see this with S-Corps that compete for talent nationally) - can reduce the sting of not offering equity - can put "hooks" in certain employees/can build in retention features. However, the cost is tough for most to swallow. There are other alternatives. Link to comment Share on other sites More sharing options...
Mark Whitelaw Posted May 27, 2011 Share Posted May 27, 2011 Let me suggest you shift your perspective from pre-tax employment deferral to lifelong after-tax deferral. Let me explain today's economics and what we have created ... not meant as self-promotion. By 2002 the high-end institutional life insurance (ILI) contracts used to informally fund NQDC (COLI /BOLI) had evolved into a greater individual value than the NQDC plans they were informally funding ... more effective for the individual to personally own, fund and manage the ILI policy than risk their paycheck in a NQDC plan ... 409A simply exacerbated the NQDC problems. I create our ILI admin company and The STAR Plan in 2002 to facilitate individual access to ILI in a professionally managed program. By 2008 HCE's were living so long, reducing ILI costs so low, that when combined with the discounted fund fees of separata accounts vs mutual funds results in a lower total cost of investing than investing in comparable mutual fund alternatives in a Roth. The economic equivalent of warehouse shopping ... (A+B) < C. And remember, ILI cash surrender values start at 100% of contribution. The STAR Plan featuring ILI moves the access point / ILI aggregation point from an employer sponsor to directly from VVC ... the ILI adminstrator ... employer role is merely to validate the indivdual earns $50,000+ and performs a white-collar role in the workplace for ILI product and risk class access qualification ... similar to the individual's physician validates health. Not a life insurance program, death benefit it not the primary driver, but a individual cash and risk management program utilizing the ILI structure for those "expected" to live the longest ... addresses the planning question "what if I live?". And because this is an individual program, employer initiative, good will, tax structure, 409A, Top-hat, high tax rates and qualified plan caps are ... irrelevant. Today ... medical science is letting HCE's live so long that ILI has evolved into the more efficient financial "structure" to access leading funds ... the economics of today's HCE longevity. And as breakthroughs extend longevity, ILI costs will continue to reduce and the personal value increase. Today ... individual career achievement drives access to superior value ... not where you work. And "no" ... we do not permit or recommend the use of retail life insurance products for this type cash and risk management. So ... STAR does not compete with NQDC, but is a workplace facilitated after-tax tax-advantaged alternative for those that have made the career and life choices qualifying to access ILI ... makes the COLI / BOLI balance sheet enhancement available to those that made the ILI value possible. Feel free to contact me privately if you'd like to know more how we support professional advisors and qualified plan adminstrators across the U.S. Link to comment Share on other sites More sharing options...
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