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Tax Rules on Death Benefit w/i NQDC Plan

Guest STLGiant

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Guest STLGiant

NQDC "account" plan informally funded with life insurance and mutual funds through a rabbi trust. Death benefit includes a 4-year payout to named beneficiary equal to a declining percentage of then base pay, plus the then theoretical CV of insurance at executive's death, so long as the insurance DB does not exceed sum of aforementioned.

Query on taxation to beneficiary, as Medicare has been withheld annually by employer. What is taxable to the beneficiary as to the four annual death benefit payments? Ordinary income only or income reduced by both FICA and Medicare taxes?

How does taxation issue change if beneficiary is the participant's revocable (now irrevocable) trust?

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